PRELIMINARY
COPY SUBJECT TO COMPLETION
DATED
APRIL 28, 2008
WATTLES
CAPITAL MANAGEMENT, LLC
_______,
2008
Dear
Fellow Shareholders:
Wattles
Capital Management, LLC (“WCM”), and the other participants in this solicitation
(collectively, the “Wattles Group”) are the beneficial owners of an aggregate of
11,044,200 shares of common stock of Circuit City Stores, Inc. (“Circuit City”
or the “Company”), representing approximately 6.5% of the outstanding shares of
common stock of the Company. WCM does not believe that the current
Board of Directors of the Company is acting in your best
interests. Specifically, we believe that the Company’s operating
performance and stock performance have significantly deteriorated under the
existing Board and senior management team, in turn causing substantial erosion
of shareholder value. Additionally, we are deeply concerned by the
Board’s track record of rejecting what has appeared to be legitimate third-party
interest in acquiring the Company for a premium, including the recent offer of
Blockbuster Inc. to acquire the Company for between $6.00 and $8.00 per share in
cash. We are therefore seeking your support at the annual meeting of
shareholders (the “Annual Meeting”) scheduled to be held at ________ located at
___ _______, _______, ______ ______ on _____, 2008 at __:__ _.m., local time for
the following:
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1.
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To
elect four of WCM’s director nominees, James A. Marcum, Elliott Wahle, Don
R. Kornstein and Anthony Bergamo, to serve as directors of the Company for
a three-year term ending in 2011 and to elect WCM’s other director
nominee, Alexander M. Bond, to serve as a director of the Company for a
two-year term ending in 2010;
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2.
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If
a majority of WCM’s nominees are elected in Proposal 1, to remove, without
cause, each member of the Circuit City Board, including any director
(other than those elected by the Company’s shareholders at the Annual
Meeting) elected or appointed to the Circuit City Board by such directors
to fill any vacancy on the Circuit City Board or any newly-created
directorships at any time from February 28, 2008 until and including the
conclusion of the Annual Meeting;
and
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3.
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If
applicable, to (i) repeal any amendments adopted by the Circuit City
Board without shareholder approval to the Company’s Bylaws, as amended as
of August 21, 2007 (the “Bylaws”), between August 21, 2007 and up through
and including the Annual Meeting, (ii) repeal any new bylaws adopted
by the Circuit City Board between August 21, 2007 and up through and
including the Annual Meeting and (iii) provide that the Circuit City
Board may not reinstate or amend any amended bylaw or new bylaw that is
repealed by shareholders pursuant to this
proposal.
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WCM urges
you to consider carefully the information contained in the attached Proxy
Statement and then support its efforts by signing, dating and returning the
enclosed GOLD proxy card
today. The attached Proxy Statement and the enclosed GOLD proxy card are first
being furnished to the shareholders on or about _____, 2008.
If you
have already voted for the incumbent management slate using the GOLD proxy card,
you have every right to change your vote by signing, dating and returning a
later dated proxy.
If you
have any questions or require any assistance with your vote, please contact
MacKenzie Partners, Inc., which is assisting us, at their address and toll-free
numbers listed on the following page.
Thank you
for your support,
Mark J.
Wattles
Wattles
Capital Management, LLC
If
you have any questions, require assistance in voting your GOLD proxy card,
or
need additional copies of WCM’s proxy materials, please call
MacKenzie
Partners, Inc. at the phone numbers listed below.
105
Madison Avenue
New York,
New York 10016
(212)
929-5500 (Call Collect)
or
CALL
TOLL FREE (800) 322-2885
PRELIMINARY
COPY, DATED APRIL 28, 2008
2008
ANNUAL MEETING OF THE SHAREHOLDERS
OF
CIRCUIT
CITY STORES, INC.
_____________________
PROXY
STATEMENT
OF
WATTLES
CAPITAL MANAGEMENT, LLC
_____________________
PLEASE
SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD TODAY
Wattles
Capital Management, LLC, a Delaware limited liability company (“WCM”), is a
significant shareholder of Circuit City Stores, Inc. (“Circuit City” or the
“Company”). WCM does not believe that the current Circuit City Board
of Directors (the “Board”) is acting in the best interests of its
shareholders. We are therefore seeking your support at the annual
meeting of shareholders scheduled to be held at __________________, __________,
_________ ________, on _______________ __, 2008, at __:__ _.m. (local time),
including any adjournments or postponements thereof and any meeting which may be
called in lieu thereof (the “Annual Meeting”), for the following:
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1.
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To
elect four of WCM’s director nominees, James A. Marcum, Elliott Wahle, Don
R. Kornstein and Anthony Bergamo, to serve as directors of the Company for
a three-year term ending in 2011 and to elect WCM’s other director
nominee, Alexander M. Bond, to serve as a director of the Company for a
two-year term ending in 2010 (collectively, the
“Nominees”);
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2.
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If
a majority of the Nominees are elected in Proposal 1, to remove, without
cause, each member of the Board, including any person (other than those
elected by the Company’s shareholders at the Annual Meeting) elected or
appointed to the Board by such directors to fill any vacancy on the Board
or any newly-created directorships at any time from February 28, 2008
until and including the conclusion of the Annual Meeting;
and
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3.
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If
applicable, to (i) repeal any amendments adopted by the Board without
shareholder approval to the Company’s Bylaws, as amended as of August 21,
2007 (the “Bylaws”), between August 21, 2007 and up through and including
the Annual Meeting, (ii) repeal any new bylaws adopted by the Board
between August 21, 2007 and up through and including the Annual Meeting
and (iii) provide that the Board may not reinstate or amend any
amended bylaw or new bylaw that is repealed by shareholders pursuant to
this proposal.
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According
to the Company’s Proxy Statement, two other proposals will be presented at the
Annual Meeting for consideration by shareholders. The Company is
seeking shareholder support (i) to approve the Company’s 2008 Annual
Performance-Based Incentive Plan and (ii) to ratify the appointment of KPMG LLP
as the Company’s independent registered public accounting firm for the 2009
fiscal year. We do not object to either of these
proposals.
WCM, HKW
Trust, a trust organized under the laws of Nevada (the “Trust”), Mark J. Wattles
(“Mr. Wattles”) and the Nominees are members of a group formed in connection
with this proxy solicitation and are deemed participants in this proxy
solicitation (collectively, the “Wattles Group”).
As of
________ __, 2008, the approximate date on which this Proxy Statement is being
mailed to shareholders, the members of the Wattles Group were collectively the
beneficial owners of an aggregate of 11,044,200 shares of common stock of the
Company, $0.50 par value per share (the “Shares”), which currently represent
approximately 6.5% of the issued and outstanding Shares. The attached
Proxy Statement and the enclosed GOLD proxy card are first
being furnished to the shareholders on or about _____, 2008.
Circuit
City has set the record date for determining shareholders entitled to notice of
and to vote at the Annual Meeting as April 17, 2008 (the “Record
Date”). Shareholders of record at the close of business on the Record
Date will be entitled to vote at the Annual Meeting. According to the
Company, as of the Record Date, there were 168,806,491 Shares outstanding and
entitled to vote at the Annual Meeting. The participants in this
solicitation intend to vote all of their Shares entitled to be voted FOR the election of the
Nominees to the Circuit City Board, FOR the removal of all existing directors
(other than those elected at the Annual Meeting), FOR the repeal of any
amendments to the Bylaws or any newly created Bylaws by the Board, FOR the Company’s proposal to
approve the Company’s 2008 Annual Performance-based Incentive Plan and FOR the Company’s proposal to
ratify the appointment of KPMG LLP as the Company’s independent auditors to
serve for the 2009 fiscal year.
WCM’S
NOMINEES ARE COMMITTED TO ACTING IN THE BEST INTEREST OF THE COMPANY’S
SHAREHOLDERS. WE BELIEVE THAT YOUR VOICE IN THE FUTURE OF CIRCUIT
CITY CAN BEST BE EXPRESSED THROUGH THE ELECTION OF THE NOMINEES AND THE REMOVAL
OF EACH OF THE EXISTING MEMBERS OF THE BOARD (OTHER THAN THOSE ELECTED AT THE
ANNUAL MEETING). ACCORDINGLY, WE URGE YOU TO VOTE YOUR GOLD PROXY CARD FOR JAMES A.
MARCUM, ELLIOTT WAHLE, DON R. KORNSTEIN, ANTHONY BERGAMO AND ALEXANDER M. BOND
AND
FOR THE
REMOVAL OF ALL EXISTING DIRECTORS (OTHER THAN THOSE ELECTED AT THE
ANNUAL MEETING).
THIS
SOLICITATION IS BEING MADE BY WCM AND NOT ON BEHALF OF THE BOARD OF DIRECTORS OR
MANAGEMENT OF CIRCUIT CITY. WCM IS NOT AWARE OF ANY OTHER MATTERS TO
BE BROUGHT BEFORE THE ANNUAL MEETING. SHOULD OTHER MATTERS, OF WHICH
WCM IS NOT AWARE A REASONABLE TIME BEFORE THIS SOLICITATION, BE BROUGHT BEFORE
THE ANNUAL MEETING, THE PERSONS NAMED AS PROXIES IN THE ENCLOSED GOLD PROXY CARD WILL VOTE ON
SUCH MATTERS IN THEIR DISCRETION.
IF YOU
HAVE ALREADY SENT A WHITE PROXY CARD FURNISHED BY CIRCUIT CITY’S MANAGEMENT TO
CIRCUIT CITY, YOU MAY REVOKE THAT PROXY AND VOTE FOR THE ELECTION OF WCM’S
NOMINEES AND THE PROPOSALS DESCRIBED HEREIN BY SIGNING, DATING AND RETURNING THE
ENCLOSED GOLD PROXY
CARD. THE LATEST DATED PROXY IS THE ONLY ONE THAT
COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE ANNUAL
MEETING BY DELIVERING A WRITTEN
NOTICE OF
REVOCATION OR A LATER DATED PROXY FOR THE ANNUAL MEETING TO WCM, C/O MACKENZIE
PARTNERS, INC., WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE SECRETARY OF
CIRCUIT CITY, OR BY VOTING IN PERSON AT THE ANNUAL MEETING. SEE
“RECORD DATE AND VOTING” ON PAGE ____.
IMPORTANT
Your
vote is important, no matter how many or few Shares you own. WCM
urges you to sign, date, and return the enclosed GOLD proxy card today to vote
FOR the election of WCM’s Nominees and the Proposals.
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·
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If
your Shares are registered in your own name, please sign and date the
enclosed GOLD
proxy card and return it to WCM, c/o MacKenzie Partners, Inc., in the
enclosed envelope today.
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·
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If
your Shares are held in a brokerage account or bank, you are considered
the beneficial owner of the Shares, and these proxy materials, together
with a GOLD voting
form, are being forwarded to you by your broker or bank. As a
beneficial owner, you must instruct your broker, trustee or other
representative how to vote. Your broker cannot vote your Shares
on your behalf without your
instructions.
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·
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Depending
upon your broker or custodian, you may be able to vote either by toll-free
telephone or by the Internet. Please refer to the enclosed
voting form for instructions on how to vote electronically. You
may also vote by signing, dating and returning the enclosed voting
form.
|
Since
only your latest dated proxy card will count, we urge you not to return any
proxy card you receive from the Company. Even if you return the
management proxy card marked “withhold” as a protest against the incumbent
directors, it will revoke any proxy card you may have previously sent to
WCM. Remember, you can vote for our five independent nominees only on
our GOLD proxy
card. So please make certain that the latest dated proxy card you
return is the GOLD proxy
card.
If
you have any questions, require assistance in voting your GOLD proxy card,
or
need additional copies of WCM’s proxy materials, please call
MacKenzie
Partners, Inc. at the phone numbers listed below.
105
Madison Avenue
New York,
New York 10016
(212)
929-5500 (Call Collect)
or
CALL
TOLL FREE (800) 322-2885
REASONS
FOR OUR SOLICITATION
We are
significant shareholders of the Company. As significant shareholders
of Circuit City, we have one simple goal – to maximize the value of the Shares
for all shareholders.
We do not
believe that the existing Board has served the best interests of the Company’s
shareholders. We question the willingness of the existing Board to hold senior
management accountable for the Company’s poor operating performance and the
adverse impact it has had on shareholder value. Without change to the
existing Board, we fear that the Company’s intrinsic value will continue to
erode further.
Specifically,
our concerns include the following:
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·
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Circuit
City’s stock performance has significantly deteriorated under senior
management and the Board;
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·
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Circuit
City’s operational performance has significantly deteriorated under senior
management and the Board;
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·
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Circuit
City’s ill-advised and
poorly executed turnaround strategy has eroded shareholder value;
and
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·
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Circuit
City’s track record of rejecting third-party interest in acquiring the
Company and refusing to negotiate potential transactions that could
maximize shareholder value;
|
We
Are Concerned with the Company’s Poor Stock Performance
Circuit
City’s stock performance has declined precipitously over the past 16
months. In fact, the Company’s current stock price is down
approximately 84% compared to where the stock price was on March 1, 2006 when
Phillip Schoonover, the Company’s current Chairman, President and CEO, became
CEO. On March 1, 2006, the day Mr. Schoonover became CEO, the
Company’s stock price closed at $23.13. The Company’s stock price
closed at $3.72 on January 18, 2008, the business day before WCM filed its
initial Schedule 13D. On April 25, 2007, the Company’s share price
closed at $17.81. A year later, on April 25, 2008, the Company’s
share price closed at $4.69, which takes into account a recent increase from a
low of $3.66 per share on March 14, 2008 in light of the offer by Blockbuster
Inc. to acquire the Company for between $6.00 and $8.00 per share in
cash.
We
Are Concerned with the Company’s Poor Operational Performance
We are
deeply concerned with the Company’s deteriorating operating performance,
particularly over the past fiscal year. On the fiscal 2008 fourth
quarter conference call, Mr. Schoonover, himself, admitted, “Financially, fiscal
year 2008 was a very disappointing year.”
Circuit
City’s net income was approximately $140 million in fiscal 2006, declining to a
loss of more than $8 million in fiscal 2007, and then ballooning to a loss of
$320 million in fiscal 2008. By contrast, Circuit City’s primary
competitor, Best Buy Co., Inc. (“Best Buy”) had net income of $1.1 billion in
fiscal 2006, increasing to $1.3 billion in fiscal 2007, and then increasing to
$1.4 billion for fiscal 2008.
Circuit
City’s revenue decreased 5.5 percent from $12.4 billion in fiscal 2007 to $11.7
billion in fiscal 2008, with a decrease in domestic segment comparable store
sales of 8.1 percent. By contrast, Best Buy, who operates in the same
industry and macro-environment, increased revenue 11.4% from $35.9 billion in
fiscal 2007 to $40.0 billion in fiscal 2008, with an increase in domestic
segment comparable store sales of 4.1%.
Circuit
City’s consolidated gross profit margin was 20.7 percent in fiscal 2008, a
decrease of 291 basis points from 23.6 percent in fiscal 2007. By
contrast, Best Buy’s consolidated gross profit margin was 23.9% in fiscal 2008,
a decrease of only 50 basis points from 24.4% in fiscal 2007.
We
believe the existing Board has failed to hold senior management accountable and
to adequately address the Company’s severe operating performance
issues. We question how the Company’s operational performance could
decline so precipitously given the relatively strong performance of its most
direct industry competitor and despite the Company’s significant competitive
advantages, including:
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Its
powerful brand with a long history and enormous reach across a
wide range of demographic
groups;
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National
advertising capabilities;
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A
store base that has been and still has the ability to be
very productive; and
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Its
strong cash position, minimal debt and access to a
newly-expanded line of credit.
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We
Are Concerned with the Company’s Poorly Executed Turnaround
Strategy
The
Company’s turnaround efforts led by Mr. Schoonover and his senior management
team have resulted in a substantial decline in the Company’s operating
performance and significant loss of shareholder value. Approximately
two years ago, after what turned out to be a temporary industry-wide oversupply
of flat-panel TVs, Circuit City’s senior management initiated a “turnaround” to
address what it perceived as a permanent reset to a lower level of gross margins
in the industry. Since then, the competition’s gross margins have essentially
recovered, but Circuit City’s have further deteriorated, resulting in a
“turnaround” that has unfortunately gone in the wrong direction.
Circuit
City has focused on cost-cutting measures with what appears to be very little,
if any, consideration for their negative impact on revenue and gross profit.
Circuit City’s senior management has repeatedly touted the fact that they have
cut $200 million of annualized selling, general and administrative expenses
while ignoring the fact that approximately $500 million of gross profit has been
wiped-out.
We
believe the failure of the “turnaround” to date has also been due, in part, to
senior management searching for a “silver bullet” rather than focusing on basic
retail execution, such as having the right products for sale, priced
strategically, displayed well, and sold by the right people. As a result,
Circuit City’s performance is now significantly worse than when the turnaround
first began. Through a combination of poor decision-making and poor execution,
Circuit City’s so-called “turnaround” has adversely impacted the Company's
operating performance.
While
market conditions and outside factors such as increased competition from mass
merchants may have contributed, in part, to the Company’s poor performance, we
believe this Board and senior management team is primarily responsible for the
Company’s deteriorating performance. It should be noted that several
other electronics specialty retailers affected by those same outside factors
have increased their revenue and earnings over the same period during which
Circuit City’s revenue and earnings have declined.
Circuit
City’s senior management even admits that the Company is to blame for its poor
performance. Consider the following statements by the Company’s
Chairman, President & CEO, CFO and SVP, Merchandising on the fiscal
2008 fourth quarter conference call:
Bruce
Besanko (CFO):
“So the
short answer is, I think, much or all of that gross margin can come back. We've
experienced a decline in gross margin this year in the second quarter, the third
quarter and now the fourth quarter of 300 or more basis points. As Phil had
indicated, the basis of this erosion really began at the end of fiscal '07 with
the rapid commoditization of flat-panel TVs. Unfortunately, we
aggravated the situation with the transformation work in the stores this past
year, by inducing too much change too quickly. The consequence
of that activity was a depressed margin that we saw, again in the second, third
and now in the fourth quarter. The good news is
that it is all self-induced and it is all within our control to
fix.” (emphasis
added)
John
Kelley (SVP, Merchandising):
“And I
will reiterate what Bruce says. I would say that
it's all self-induced by Circuit City and we have a plan to recover
this.” (emphasis added)
Philip
Schoonover (Chairman, President & CEO):
“….we
know in the marketplace that there are retailers that perform at higher margins
and have not seen the precipitous deterioration that we
experienced.”
To us, these statements speak for
themselves and demonstrate that the Company’s turnaround plan has been
disastrous for the Company’s shareholders.
We
Are Concerned with the Company’s History of Rejecting What Appears to be
Legitimate Third Party Interest in Acquiring the Company for a
Premium
On three
separate occasions in the last five years, the existing Board has rejected what
appeared to be legitimate interest in acquiring the Company. In June 2003, the
Board rejected an offer of $8 per Share. Then in February 2005, the Board
rejected an offer of $17 per Share. Circuit City recently closed at $4.69 per
Share, and we believe this share price would even be lower if not for the recent
offer of Blockbuster Inc. to acquire the Company for between $6.00 and $8.00 per
share in cash.
In WCM’s
April 2, 2008 letter to the Board, we cautioned the Company “not to summarily
dismiss any legitimate, third party interest in acquiring or merging with the
Company.” Subsequently, on April 14, 2008, Blockbuster Inc.
(“Blockbuster”) announced that it has offered to acquire Circuit City for
between $6.00 and $8.00 per share in cash, subject to due diligence. The offer
was made in a letter sent to Philip Schoonover on February 17th
on behalf of the Blockbuster Board of Directors, which stated that it fully
supports the offer.
Unfortunately,
to date, the existing Board has failed to provide due diligence necessary to
allow Blockbuster to make a definitive proposal. We believe Circuit City shareholders
deserve to have the opportunity at the present time to decide whether they want
to receive a fair price for the Company now, before shareholder value is even
further eroded. We also believe that Circuit City shareholders
should have the ability to determine whether it is in their best interests for
the Company to be sold to a potential acquiror. We question whether
the existing members of the Board are fulfilling their fiduciary duties to act
in the best interests of shareholders when they continue to refuse to negotiate
potential transactions with bona fide third party bidders that could maximize
shareholder value.
We
believe that an acquisition for between $6 and $8 per share is in the best
interest of Circuit City shareholders. There are several reasons why
this offer should be taken seriously and why Circuit City should immediately
provide access to due diligence information and commence good-faith
negotiations:
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Blockbuster
is not a competitor of Circuit City so providing such information poses no
competitive threat;
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Blockbuster’s
Board fully supports the offer;
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Carl
Icahn, or an affiliate, appears willing to and capable of helping to
finance the offer;
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Cooperating
with Blockbuster’s request to perform “a very short due diligence process
immediately” is necessary to answer the very transaction financing
questions the Company has cited in its effort to thwart
Blockbuster;
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Blockbuster
could raise a significant portion of the financing from Circuit City’s own
balance sheet, including, but not limited to, excess cash on hand, a
multi-million dollar tax refund due to the Company this summer and
proceeds from a potential sale of the Company’s international InterTAN
subsidiary;
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James
Keyes, Blockbuster’s Chairman and CEO, stated in a letter to Phil
Schoonover that the Blockbuster offer is “conditioned upon timely
commencement of the due diligence process,” and has subsequently indicated
to the media that Blockbuster is unlikely to pursue a hostile bid for
Circuit City; and
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If
Blockbuster withdraws its offer because of a lack of cooperation by the
Board, we believe Circuit City shareholders will be immediately and
substantially damaged.
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We
believe that due diligence should be permitted. During the due
diligence process, the ability of Blockbuster to finance the transaction and the
ultimate structure of the financing can be fully fleshed out by all
parties. In the meantime, the Board should not take any actions aimed
at further rebuffing Blockbuster, imposing roadblocks to the consummation of a
transaction, or adopting any plans that make a change of control more
costly.
WE
BELIEVE THE ELECTION OF THE NOMINEES REPRESENTS THE BEST OPPORTUNITY FOR
STOCKHOLDERS TO MAXIMIZE THE VALUE OF THEIR SHARES
If
elected, our Nominees will explore all strategic alternatives to maximize
shareholder value, including seeking to put in place a world class Chief
Executive Officer and a senior management team committed to successfully
implementing the right plan to turnaround the Company and unlock shareholder
value. Our Nominees will also, if elected, fully consider and
negotiate any and all legitimate offers to acquire or merge with the Company,
and will allow shareholders the opportunity to decide for themselves whether or
not any third party proposal or offer at a reasonable premium to the current
stock price is the best way to maximize shareholder value. Our plans
for change at Circuit City include:
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Replace
the current Chairman, President and CEO with a seasoned executive capable
of restoring credibility with employees, vendors and
shareholders;
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Focus
on the “customer experience” and strategies for making the current stores
more productive;
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Begin
addressing the actual issues facing the Company with an emphasis on
driving store traffic and increasing
revenue;
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Focus
on the most immediate and least capital-intensive opportunities to improve
the health of the business; and
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Develop
and articulate a deliverable promise for the new “The City” brand that
works within the realities of the current store
footprints.
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We
believe that our Nominees can successfully guide a turnaround at Circuit
City. WCM previously led a successful turnaround of Ultimate
Electronics, Inc. (“Ultimate Electronics”), a 32-store chain of consumer
electronics stores, after its bankruptcy in 2005. The success of the
Ultimate Electronics turnaround is relevant to what the Nominees can do for
Circuit City. Similar to Ultimate Electronics, the Circuit City
stores are approximately 33,000 square feet and compete head-to head with Best
Buy Co., Inc. Additionally, many of the same operational issues
currently plaguing Circuit City were also adversely affecting Ultimate
Electronics when WCM first became involved, including poor assortment planning
and in-store merchandising, suboptimal and inconsistent pricing, ineffective
promotional strategies, and high store-level employee turnover coupled with low
morale.
To
improve Ultimate Electronics, WCM assembled a new management team and worked
with them to formulate and implement a company-wide plan to build sales while
increasing gross margin, and in the process restore the health of the
business. This was accomplished by focusing on increasing revenue
through solid retail execution, including improving the product assortment and
in-store merchandising, rationalizing and integrating pricing with the
promotional strategy, and rebuilding the stores’ sales culture and employee
morale. As a result, Ultimate Electronics stores today have positive
same store sales, increasing gross margins and increasing EBITDA. We
believe that our Nominees can help accomplish the same turnaround success with
Circuit City.
Unless
the Proposal to remove all existing members of the Board (other than those
elected at the Annual Meeting) is approved at the Annual Meeting, our Nominees
will, if elected, constitute a minority of the Board, at least until the next
Annual Meeting or some other change in composition of the
Board. Accordingly, the Nominees will not be able to adopt any
measures, including the replacement of Philip Schoonover as President and CEO,
without the support of at least some members of the current Board. The Nominees
therefore should be expected to articulate and raise their concerns about
Circuit City’s business activities and strategy to maximize shareholder value
with the rest of the Board members.
If a
majority of the Nominees are elected and the Proposal to remove all existing
members of the Board (other than those elected at the Annual Meeting) is
approved at the Annual Meeting, the Nominees will comprise a majority of the
entire Board, at least until the resulting vacancies are filled by either the
Board or shareholders. In such case, the Nominees will pursue the
appropriate courses of action for the Company that they believe are in the best
interests of the shareholders and which they believe will maximize shareholder
value, including seeking the replacement of Philip Schoonover as President and
CEO. Under Mr. Schoonover’s employment agreement, a ‘change in
control’ occurs if a majority of the incumbent members of the Board is
replaced. According to the Company’s Proxy Statement, if Mr.
Schoonover is terminated following such a change in control, he will be due
approximately $7.1 million in cash severance and other benefits. This
pales in comparison to the Company’s loss of shareholder value since he took
office.
BACKGROUND
TO OUR SOLICITATION
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We
made our first investment in Shares of Circuit City in May
2006.
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On
February 25, 2008, WCM delivered a letter to the Corporate Secretary of
Circuit City (the “Nomination Letter”) nominating the Nominees for
election to the Board at the Annual
Meeting.
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On
February 25, 2008, the Company issued a press release confirming receipt
of the Nomination Letter.
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On
February 28, 2008, Circuit City delivered a letter notifying us that there
would be four directors up for election at the Annual Meeting, not five as
we had originally anticipated.
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On
February 28, 2008, WCM delivered a letter to the Corporate Secretary of
Circuit City (the “Proposal Letter”) submitting two business proposals for
consideration at the 2008 Annual
Meeting.
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On
February 28, 2008, Circuit City issued a press release confirming receipt
of the Proposal Letter and stating that the Board intended to review the
Proposals and the qualifications of the Nominees in accordance with its
fiduciary duties.
|
|
·
|
On
April 2, 2008, WCM sent a public letter to the Board on behalf of the
Group expressing the Group’s significant concerns with Circuit City's
current business strategy and requesting certain immediate actions be
taken by the Board, including replacing Philip Schoonover as the Company’s
Chairman and CEO and changing the Company’s focus to immediate and
minimally capital-intensive opportunities available to the Company for
improving the health of the Company’s business. The letter
expressed our belief that there is potential to unlock significant value
in Circuit City in the near and long term but that the Company’s
“turnaround” efforts have been disastrous. The letter outlined
the qualifications and experience of the Group, including WCM’s successful
turnaround of a 32-store chain of consumer electronics stores that were
acquired as a result of the bankruptcy of Ultimate Electronics, Inc. in
2005. The letter further explained that we were declining
Circuit City’s request that the Nominees meet with the Board’s Nominating
& Governance Committee to discuss the Nominees’ qualifications, based
on our belief that the Nominees’ qualifications should have been apparent
to the Company from information provided in the Nomination
Letter. Additionally, we demanded that the Board engage a
nationally recognized investment bank to evaluate any indications of
interest from a potential acquirer or merger partner and requested a
meeting with the Board as soon as possible in order to discuss our
concerns.
|
|
·
|
On
April 4, 2008, the lead director of the Board, Mikael Salovaara, delivered
a letter to WCM in response to our April 2 letter stating Mr. Salovaara
would contact us in due course.
|
|
·
|
On
April 11, 2008, Mark Wattles and Alexander Bond of WCM met with lead
independent director Mikael Salovaara and Timothy Ingrassia of Goldman,
Sachs & Co. (“Goldman”), Circuit City’s financial advisor, to discuss
issues in connection with the Annual
Meeting.
|
|
·
|
WCM
has had subsequent discussions with Goldman regarding a possible agreement
in connection with the Annual Meeting between WCM and the
Company.
|
|
·
|
On
April 14, 2008, Blockbuster issued a press release announcing that it had
offered to acquire Circuit City for at least $6.00 per share in cash,
subject to due diligence.
|
|
·
|
On
April 14, 2008, Circuit City issued a press release confirming receipt of
the Blockbuster’ offer and stating that the Board would continue to
carefully consider and evaluate the Blockbuster Offer. Circuit
City did not convey any plans it had to allow Blockbuster to conduct the
diligence necessary for the Blockbuster
Offer.
|
|
·
|
On
April 23, 2008, we delivered a letter to the Board urging Circuit City to
permit Blockbuster to conduct proper due diligence relating to the
Blockbuster’s offer. In the letter we explained why we believed
the Board should provide immediate access to due diligence information and
commence good-faith negotiations with Blockbuster, including the fact that
Blockbuster is not a competitor of Circuit City, Blockbuster’s Board of
Directors fully supports the Blockbuster Offer, Carl Icahn or an affiliate
would be willing to finance the deal, Blockbuster could raise a
significant portion of the financing from the Company’s balance sheet, the
Blockbuster Offer would be supported by a majority of the Company’s
shareholders and the Blockbuster Offer is conditioned on a timely
commencement of the due diligence process. The letter also
expressed our belief that an acquisition for between $6 and $8 per share
is in the best interest of Circuit City
shareholders.
|
|
·
|
On April 23, 2008, Circuit City
issued a statement in response to our letter merely stating that the
Company’s financial adviser believes that Blockbuster’s offer could not be
consummated in light of the “difficult current financing
environment.”
|
PROPOSAL NO. 1
ELECTION
OF DIRECTORS
The
Circuit City Board is currently composed of twelve directors divided into three
classes serving staggered three-year terms. One class of directors is
elected by the shareholders annually. According to the Company’s
proxy materials, five directors will be elected at the Annual Meeting; four
directors who will serve for a three-year term ending in 2011 and one director
who will be elected for a two-year term ending in 2010. WCM is
seeking your support at the Annual Meeting to elect the Nominees in opposition
to Circuit City’s director nominees.
THE
NOMINEES
WCM has
nominated five highly qualified nominees who we believe possess the expertise
necessary to work to restore investor faith and enhance shareholder
value. The Nominees are independent of the Company in accordance with
Securities and Exchange Commission and New York Stock Exchange Regulations on
board independence and are committed to exploring all alternatives to increase
shareholder value. If elected, the Nominees are committed to acting
in the best interest of Circuit City shareholders and will pursue their efforts
diligently and promptly.
Set forth
below are the name, age (as of __________, 2008), business address, present
principal occupation, employment history and directorships of publicly-held
companies of each of the Nominees for at least the past five
years. This information has been furnished to WCM by the respective
Nominees. Each of the Nominees has consented to serve as a director
of the Company and be named in this Proxy Statement as a
nominee. Each of the Nominees is at least 18 years of
age. None of the entities referenced below is a parent or subsidiary
of the Company.
Name
and Business Address
|
|
Present
Principal Occupation and
Five
Year Employment History
|
|
|
|
James
A. Marcum
c/o
Tri-Artisan Capital Partners 110 East 59th
Street, 37th
Floor
New
York, New York 10022
|
48
|
Mr.
Marcum is an Operating Partner and has served as an Operating Executive of
Tri-Artisan Capital Partners, LLC, a merchant banking firm, since January
2004. In addition, since April 2007, Mr. Marcum has been a
principal shareholder and has served as the Chairman and Chief Strategic
Officer of Enabl-u Technologies Corp., an early stage interactive training
and data management solutions provider. From January 2005 to
January 2006, he served in various capacities, including Chief Executive
Officer and as a director, of Ultimate Electronics, Inc., a consumer
electronics retailer specializing in home and car
entertainment. From May 2001 to July 2003, he served in various
capacities, including as Executive Vice President and Chief Financial
Officer and Executive Vice President of Operations, of Hollywood
Entertainment Corporation, a video home entertainment specialty
retailer. Prior to Hollywood Entertainment Corporation, Mr.
Marcum was recruited by private equity investors to serve in such roles as
Executive Vice President and Chief Operating Officer of Lids, Inc., a
specialty retailer of hats, and Vice Chairman and Chief Financial Officer
of Stage Stores, Inc., a specialty retailer bringing branded apparel to
small town America. Mr. Marcum has also served in senior
executive capacities at Melville Corporation, a conglomerate of specialty
retail chains in the apparel, footwear, drug, health and beauty aids and
furniture and accessories sectors. Mr. Marcum currently serves
as a director of Iconix Brand Group,
Inc.
|
Elliott
Wahle
c/o
Rustique Home Furnishings
114
Railside Road
Toronto,
Ontario M3A 1A3
|
56
|
Mr.
Wahle serves as Chairman and Chief Executive Officer of Rustique Home
Furnishings, a Toronto based importer and distributor of quality wood
furnishing products. He is Chairman and cofounder of Generation
Capital Inc. and President of Rycom Enterprises, a private investment
company. Mr. Wahle also serves as an Operating Director of
Tri-Artisan Capital Partners, a New York based Merchant Banking
company. Mr. Wahle has over thirty years of business leadership
experience in both domestic and multinational corporations that span the
Entertainment, Consumer Products and Retail industries. His
early career covered a period of ten years with the New York Yankees and
the Toronto Blue Jays where he oversaw the development of the Player
Personnel organizations. He spent twelve years as the founding
President of Toys “R” Canada followed by a five year stint as C.E.O. of
Dylex Limited. Mr. Wahle returned to Toys “R” US to oversee the
development of its International Flagship Store in Times Square New York
and then ran the Babies “R” Us organization until the company initiated a
sale to Private Equity interests. Mr. Wahle has a B.S. in
Commerce from Rider University in Lawrenceville, New Jersey. He
currently serves on the Board of Skyservice Airlines as well as several
not for profit organizations.
|
|
|
|
Don
R. Kornstein
c/o
Alpine Advisors LLC
825
Lakeshore Blvd.
Incline
Village, Nevada 89451
|
56
|
Mr.
Kornstein serves as the Managing Member of Alpine Advisors LLC, a
strategic, management and financial consulting firm. Mr.
Kornstein previously served as interim Chairman and Chief Restructuring
Officer of Bally Total Fitness, Inc. (“Bally”) prior to and at the time of
its pre-packaged bankruptcy filing and through completion of the
consensual restructuring process. The events relating to
Bally’s bankruptcy filing and restructuring process are not material to an
evaluation of the ability or integrity of Mr. Kornstein to serve as a
director of the Company. Mr. Kornstein was appointed Chairman
and Chief Restructuring Officer for his broad leadership skills and
expertise to assist Bally in navigating through its operational and
financial restructuring. From 1994 through 2000, Mr. Kornstein
was the President and Chief Executive Officer of Jackpot Enterprises Inc.,
an NYSE-listed company engaged in the gaming industry through the
operation of over 5,000 gaming devices in a variety of retail
establishments and casinos. From 1977 through 1994, Mr.
Kornstein was an investment banker at Bear, Stearns & Co. Inc., where
he most recently served as a Senior Managing Director and head of the
firm’s gaming industry
practice.
|
Anthony
Bergamo
c/o
MB Real Estate
335
Madison Avenue, 14th
Floor
New
York, New York 10017
|
60
|
Mr.
Bergamo has been a Director of SP Acquisition Holdings, Inc., since July
2007, where he serves on the Governance and Nominating Committee and as
Audit Chairman. Mr. Bergamo has served as the Chief Executive
Officer of Niagara Falls Redevelopment, Ltd., a real estate development
company, since August 1998. He has held various positions with
MB Real Estate, a property management company based in New York City and
Chicago, since April 1996, including the position of Vice Chairman since
May 2003. From April 1996 until July 2007, Mr. Bergamo served
as Managing Director with Milstein Hotel Group, a hotel
operator. Mr. Bergamo served as a director from 2002 to 2006
for of Lone Star Steakhouse & Saloon, Inc., an owner and operator of
restaurants, where he served as the Chair of the Audit
Committee. He has also been a director since 1995, a Trustee
since 1986 and currently is Chairman of the Audit Committee, and a member
of the Executive and Nominating Committees of Dime Community
Bancorp. Mr. Bergamo is also the Founder and Chairman of the
Federal Law Enforcement Foundation, a foundation that provides economic
assistance to both federal and local law enforcement officers suffering
from serious illness and to communities recovering from natural disasters,
and has served as its Chairman since 1988. Mr. Bergamo received
a B.S. in history from Temple University and a J.D. from New York Law
School.
|
|
|
|
Alexander
M. Bond
c/o
Wattles Capital Management
7945
W. Sahara Ave.
Las
Vegas, Nevada 89117
|
38
|
Mr.
Bond is a director and executive officer of Wattles Acquisition Corp., a
special purpose acquisition corporation which currently has a registration
statement on file with the Securities and Exchange
Commission. Since January 1, 2008, he has been a managing
director of WCM. From October 2005 until January 2008, Mr. Bond
was a consultant to WCM and certain of its portfolio
companies. From March 2003 until July 2005, Mr. Bond was Senior
Vice President of Finance and Business Development for Hollywood
Entertainment Corporation, where his primary responsibility was overseeing
the sale of the company, which occurred in April 2005. From
September 2000 until October 2002, Mr. Bond was a Principal at the
investment banking firm of Thomas Weisel Partners, where he was head of
the semiconductor and semiconductor capital equipment investment banking
group. Prior to September 2000, Mr. Bond held investment
banking positions at Montgomery Securities (now Banc of America
Securities) and senior executive positions in the retail industry,
including with Hollywood Entertainment Corporation. Mr. Bond
does not have and has never had an operating role in Ultimate Acquisition
Partners, LLP, an affiliate of WCM and competitor of the Company, which
operates consumer electronics
stores.
|
The
Nominees understand that, if elected as directors of Circuit City, each of them
will have an obligation under Virginia law to discharge his duties as a director
in good faith, consistent with his fiduciary duties to Circuit City and its
shareholders.
Unless
the Proposal to remove all existing members of the Board (other than those
elected at the Annual Meeting) is approved at the Annual Meeting, our Nominees
will, if elected, constitute a minority of the Board, at least until the next
Annual Meeting or some other change in composition of the
Board. Accordingly, the Nominees will not be able to adopt any
measures without the support of at least some members of the current Board. The
Nominees therefore should be expected to articulate and raise their concerns
about Circuit City’s business activities and strategy to maximize shareholder
value with the rest of the Board members. If the Proposal to remove
all existing members of the Board (other than those elected at the Annual
Meeting) is approved at the Annual Meeting, the Nominees will comprise the
entire Board, at least until the resulting vacancies are filled by either the
Board or shareholders. In such case, the Nominees will pursue the
appropriate courses of action for the Company that they believe are in the best
interests of the shareholders and which they believe will maximize shareholder
value.
There can
be no assurance that the actions the Nominees intend to take as described above
will be implemented if they are elected or that the election of the Nominees
will improve the Company’s business or otherwise enhance shareholder
value. Your vote to elect
the Nominees does not constitute a vote in favor of WCM’s value-enhancing plans
for Circuit City. Your vote to elect the Nominees also does
not constitute a vote in favor of any acquisition proposal, including
Blockbuster’s offer. If any acquisition proposal, including
Blockbuster’s offer, is submitted for a vote of the shareholders, shareholders
will be provided with a separate proxy statement and proxy card at such
time. Your vote to elect the Nominees will have the legal effect of
replacing five incumbent directors of the Circuit City Board with the
Nominees. There can be no assurance that shareholder value will be
maximized as a result of this solicitation or the election of the
Nominees.
WCM and
four of the Nominees, Messrs. Marcum, Wahle, Kornstein and Bergamo intend to
enter into or have entered into compensation letter agreements (the
“Compensation Agreements”) regarding compensation to be paid by WCM to such
Nominees for their agreement to be named as and serve as a
Nominee. Pursuant to the terms of the Compensation Agreements,
(i) WCM agreed to pay such Nominees $50,000 each in cash upon the
submission of the nomination letter by WCM to the Company, and (ii) such
Nominees each agreed to use the compensation (net of any estimated tax payments)
to acquire securities of Circuit City.
WCM and
four of the Nominees, Messrs. Marcum, Wahle, Kornstein and Bergamo intend to
enter into or have entered into indemnification letter agreements (the
“Indemnification Agreements”). Pursuant to the Indemnification
Agreements WCM agreed to indemnify each of such Nominees against claims arising
from the solicitation of proxies from Circuit City’s shareholders in connection
with the Annual Meeting. Other than as stated herein, there are no
arrangements or understandings between members of the Wattles Group and any of
the Nominees or any other person or persons pursuant to which the nomination of
the Nominees described herein is to be made, other than the consent by each of
the Nominees to be named in this Proxy Statement and to serve as a director of
Circuit City if elected as such at the Annual Meeting. None of the
Nominees is a party adverse to Circuit City or any of its subsidiaries or has a
material interest adverse to Circuit City or any of its subsidiaries in any
material pending legal proceedings.
WCM does
not expect that the Nominees will be unable to stand for election, but, in the
event that such persons are unable to serve or for good cause will not serve,
the Shares represented by the enclosed GOLD proxy card will be voted
for substitute nominees. In addition, WCM reserves the right to
nominate substitute persons if Circuit City makes or announces any changes to
the Bylaws or its Amended and Restated Articles of Incorporation or takes or
announces any other action that has, or if consummated would have, the effect of
disqualifying the Nominees. In any such case, Shares represented by
the enclosed GOLD proxy
card will be voted for such substitute nominees. WCM reserves the
right to nominate additional persons if Circuit City increases the size of the
Board above its existing size or increases the number of directors whose terms
expire at the Annual Meeting. Additional nominations made pursuant to
the preceding sentence are without prejudice to the position of WCM that any
attempt to increase the size of the current Circuit City Board or to
reconstitute or reconfigure the classes on which the current directors serve
constitutes an unlawful manipulation of Circuit City’s corporate
machinery.
WE
STRONGLY RECOMMEND THAT YOU VOTE
“FOR”
THE ELECTION OF OUR FIVE NOMINEES.
PROPOSAL
NO. 2
REMOVAL
OF EXISTING DIRECTORS SERVING ON THE CIRCUIT CITY BOARD (OTHER THAN THOSE
ELECTED AT THE ANNUAL MEETING)
WCM has presented this Proposal No.
2, which is only effective to the extent that a majority of its Nominees are
elected at the Annual Meeting in connection with Proposal No.
1. According to the Bylaws, any director may be removed from office,
with or without cause, if the number of votes cast to remove the director
constitutes a majority of the votes entitled to be cast at an election of
directors of the voting group or voting groups by which such director was
elected. We are seeking to remove without cause each member of the Board and any
person (other than those elected by shareholders at the Annual Meeting) elected
or appointed to the Board by such directors to fill any vacancy on the Board or
any newly-created directorships.
The Board
is currently composed of twelve directors as set forth below. Seven directors
not up for election at the Annual Meeting will be removed if Proposal No. 2 is
approved:
|
|
Philip
J. Schoonover
|
Chairman
of the Board, President and Chief Executive Officer
|
Barbara
S. Feigin
|
Director
|
Allen
B. King
|
Director
|
Carolyn
Y. Woo
|
Director
|
James
F. Hardymon
|
Director
|
Ronald
M. Brill
|
Director
|
Carolyn
H. Byrd
|
Director
|
Ursula O.
Fairbairn1
|
Director
|
Alan
Kane
|
Director
|
Mikael
Salovaara
|
Director
|
J.
Patrick Spainhour
|
Director
|
Ronald
L. Turner
|
Director
|
REASONS
FOR REMOVING EXISTING DIRECTORS OTHER THAN THOSE ELECTED AT THE ANNUAL
MEETING
WCM
recommends that you vote for the removal of all the directors serving on the
Board other than those elected by the Company’s shareholders at the Annual
Meeting. We do not believe the current directors serving on the Board
are acting in the best interests of shareholders for several
reasons. First, under the current Board the Company’s operating
performance has significantly deteriorated. Second, the Board has
failed to hold Chairman, President and CEO Philip Schoonover accountable for his
unsuccessful “turnaround” efforts, which have led to significant erosion of
shareholder value. Finally, the current members of the Board have
refused to consider in good faith three bona fide offers to acquire or merge
with the Company, including Blockbuster’s recent offer. The most
important reason for your vote to remove all of the directors is to allow the
Circuit City shareholders to decide for
1 Ms.
Fairbairn has notified the Board that she intends to resign her position as a
member of the Board as of the Annual Meeting.
themselves
whether to accept Blockbuster’ offer, or any other third-party acquisition
proposal presented. If our Nominees are elected, and Proposal
No. 2 is approved, the Nominees, and the directors they appoint, if any, to
fill the resulting Board vacancies, will, subject to their fiduciary duties,
engage in open, good-faith discussions in connection with Blockbuster’s offer
and any other third-party acquisition proposal that is presented.
By voting
in favor of the removal of the existing directors (other than those elected at
the Annual Meeting) without cause you can demonstrate your dissatisfaction with
the performance of the Board.
If this
proposal to remove all directors of the Board without cause (other than those
elected at the Annual Meeting) is approved at the Annual Meeting and the
Nominees are elected in connection with Proposal No. 1, then the Nominees will
constitute the entire Board. The Nominees will determine, in
accordance with the Bylaws, whether to fill the resulting vacancies, to allow
shareholders to fill the resulting vacancies or to fix the Board size, in
accordance with the Bylaws, at five members.
If this
proposal to remove all directors of the Board without cause (other than those
elected at the Annual Meeting) is approved and the Nominees are elected, they
will seek to replace Philip Schoonover as the Company’s President and CEO and
potentially other members of senior management. The termination of
any employee could trigger certain change of control obligations. See “Change of
Control Provisions.”
The GOLD proxy card delivered with
this Proxy Statement provides each shareholder with the opportunity to adopt
Proposal No. 2 in part by designating the names of any member of the
Circuit City Board whom such shareholder does not want removed from the Circuit
City Board.
Change Of
Control Provisions:
According
to the Company’s Proxy Statement, in the event that WCM’s proposal to remove all
of the existing directors of the Board is approved by shareholders and the
Nominees are elected or shareholders fill such vacancies on the Board, the
following change of control obligations will be triggered:
The
Company has employment agreements with each of the named executive officers. The
employment agreements provide that a change in control occurs if (i) an
individual, entity or group acquires more than 35% of our common stock,
(ii) a majority of the incumbent members of our board of directors is
replaced, or (iii) there is a merger, consolidation or sale of
substantially all of our assets. If a change in control occurs and an executive
officer’s employment is terminated within a specified time period following the
change in control, then the executive officer would be due certain benefits upon
termination. Benefits would also be due if the executive officer voluntarily
terminates for any reason in the 13th month following a change in
control.
The
following is reprinted from the Company’s Proxy Statement filed with the
Securities and Exchange Commission on April 24, 2008.
Termination
without Cause following a Change in Control / Termination by Executive for Good
Reason Following a Change in Control
Upon
termination by us without cause following a change in control or termination by
the executive officer for good reason following a change in control, the named
executive officers are eligible for the following payments and benefits as of
February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Severance
($)
(1)
|
|
Pro
Rata
Bonus
for
Termination
Year
($)
|
|
Acceleration
of Long-term
Incentives
($)
(2)
|
|
Present Value
of
Retirement
Benefits
($)
|
|
Benefit
Continuation
($)
(3)
|
|
280G
Excise
Tax
Gross-ups
($)
(4)
|
|
Total
($)
|
Schoonover
|
|
3,600,000
|
|
|
—
|
|
1,654,800
|
|
|
—
|
|
202,360
|
|
|
1,638,561
|
|
|
7,095,721
|
|
Besanko
|
|
1,800,000
|
|
|
—
|
|
1,662,760
|
|
|
—
|
|
84,860
|
|
|
1,420,114
|
|
|
4,967,734
|
|
Hedgebeth
|
|
696,000
|
|
|
—
|
|
1,019,160
|
|
|
—
|
|
140,878
|
|
|
959,599
|
|
|
3,511,637
|
|
Jonas
|
|
627,040
|
|
|
—
|
|
1,019,160
|
|
|
—
|
|
136,490
|
|
|
870,846
|
|
|
3,280,576
|
|
Weedfald
|
|
571,200
|
|
|
—
|
|
884,088
|
|
|
—
|
|
116,294
|
|
|
867,960
|
|
|
3,010,742
|
|
(1)
|
Cash
severance payable in a lump sum equal to the sum of current base salary
and target annual bonus multiplied by
two.
|
(2)
|
Immediate
vesting of all outstanding stock awards, assuming the
Compensation & Personnel Committee exercises its authority to
accelerate vesting of all outstanding awards upon a change in control.
Amount also includes payment of an accelerated portion of the cash
retention award as follows: Mr. Schoonover, $0; Mr. Besanko,
$1,000,000; Mr. Hedgebeth, $600,000; Mr. Jonas, $600,000; and
Mr. Weedfald, $600,000.
|
(3)
|
Includes
the value of continued participation in all health and welfare benefit
plans for two years following termination, a lump sum payment equal to two
times the cost of perquisites currently provided to each executive officer
and outplacement fees not to exceed
$50,000.
|
(4)
|
Includes
reimbursement for the excise tax imposed by Section 4999 of the
Internal Revenue Code, plus all taxes imposed on the reimbursement
payment. However, in the case of each of Messrs. Besanko, Hedgebeth and
Weedfald, the value of change in control severance benefits is capped at
2.99x base salary and most recent bonus paid (or if no bonus has been
paid, his target annual bonus). This limit applies to the cash severance
payments, outplacement fees, health and welfare benefits continuation and
payments based on the cost of perquisites. The value of accelerated stock
options and restricted shares is not subject to this limit. Excise tax
reimbursements will continue to apply and may cause total benefits to
exceed the 2.99 limit.
|
WE
STRONGLY RECOMMEND THAT YOU VOTE
“FOR”
THE PROPOSAL TO REMOVE THE EXISTING DIRECTORS SERVING ON THE BOARD (OTHER THAN
THOSE ELECTED AT THE ANNUAL MEETING) WITHOUT CAUSE.
PROPOSAL
NO. 3
PROPOSAL
TO (i) REPEAL ANY AMENDMENTS ADOPTED BY THE CIRCUIT CITY BOARD WITHOUT
SHAREHOLDER APPROVAL TO THE BYLAWS BETWEEN AUGUST 21, 2007 AND UP THROUGH AND
INCLUDING THE ANNUAL MEETING, (ii) REPEAL ANY NEW BYLAWS ADOPTED BY THE
CIRCUIT CITY BOARD BETWEEN AUGUST 21, 2007 AND UP THROUGH AND INCLUDING THE
ANNUAL MEETING AND (iii) PROVIDE THAT THE CIRCUIT CITY BOARD MAY NOT
REINSTATE OR AMEND ANY AMENDED BYLAW OR NEW BYLAW THAT IS REPEALED BY
SHAREHOLDERS PURSUANT TO THIS PROPOSAL
WCM has
presented this Proposal No. 3 for consideration at the Annual Meeting, which is
only effective to the extent that the Board adopts any amendments to the Bylaws
or adopts any new Bylaws between the date hereof and up through and including
the Annual Meeting. The Bylaws permit the Circuit City Board to amend
the current Bylaws, or enact new Bylaws, without shareholder
approval. We are concerned that the Circuit City Board may use this
power to enact restrictive Bylaws to hinder the implementation of change in the
Company’s Board composition and business strategy and/or create obstacles to an
agreement pursuant to the Blockbuster Offer or any other third-party acquisition
proposal.
Shareholders
have the authority to repeal any Bylaws adopted by the Circuit City
Board. Should the Circuit City Board implement restrictive Bylaws we
urge you to repeal such Bylaws, making it possible to effect change at Circuit
City in the best interest of all shareholders, not just management.
The
Company has not made any amendments to the Bylaws or adopted any new Bylaws
since August 21, 2007.
WCM does not intend to present this
proposal for a vote of the shareholders at the Annual Meeting if the Company has
not adopted any amendments to the Bylaws or adopted any new Bylaws between the
date hereof and the time during the Annual Meeting at which this proposal would
otherwise be voted upon.
IF
THIS PROPOSAL IS VOTED UPON AT THE ANNUAL MEETING, WE STRONGLY RECOMMEND THAT
YOU VOTE
“FOR”
THE PROPOSAL.
PROPOSAL
NO. 4
COMPANY PROPOSAL TO
APPROVE THE COMPANY’S 2008 ANNUAL PERFORMANCE-BASED INCENTIVE
PLAN
As
discussed in further detail in the Company’s proxy statement, the Company is
asking shareholders to approve the Company’s 2008 Annual Performance-Based
Incentive Plan. In the Company’s proxy statement, the Company states that it is
required to seek shareholder approval in order to preserve the Company’s federal
income tax deduction under Section 162(m) of the Internal Revenue Code of
1986, as amended, for performance awards made under the Incentive Plan.
Section 162(m) generally does not allow a public company to obtain tax
deductions related to compensation greater than $1 million paid in any year to
any of its four most highly paid executive officers.
WE
DO NOT OBJECT TO THE COMPANY’S PROPOSAL TO APPROVE THE COMPANY’S 2008 ANNUAL
PERFORMANCE-BASED INCENTIVE PLAN.
PROPOSAL
NO. 5
COMPANY
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
As
discussed in further detail in the Company’s proxy statement, the Company’s
audit committee engaged KPMG LLP as the Company’s independent auditors for the
fiscal year 2009. The Company is asking shareholders to ratify the
appointment of KPMG LLP as independent auditors for the Company’s fiscal year
2009.
WE
DO NOT OBJECT TO THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE
COMPANY’S INDEPENDENT AUDITORS TO SERVE FOR THE 2009 FISCAL
YEAR.
Record
Date and Voting
According
to the Company’s proxy statement, as of April 17, 2008, the Company had
outstanding 168,806,491 Shares entitled to be voted at the Annual
Meeting. Each share is entitled to one vote on each matter submitted
to a vote of shareholders. Only shareholders of record at the close
of business on April 17, 2008 will be entitled to vote at the Annual
Meeting. If your shares are registered directly in your name with the
Company’s transfer agent, you are considered with respect to those shares the
shareholder of record, and these proxy materials are being sent directly to
you. As the shareholder of record, you have the right to submit your
voting proxy directly to the Company using the enclosed proxy card or to vote in
person at the Annual Meeting.
If your
shares are held in a stock brokerage account or by a bank or other nominee, you
are considered the beneficial owner of shares held in “street
name.” These proxy materials are being forwarded to you by your
broker who is considered, with respect to those shares, the shareholder of
record. As the beneficial owner, you have the right to direct your
broker to vote your shares, and your broker or nominee has enclosed a voting
instruction card for you to use. If your shares are held by a broker
or nominee, please return your voting card as early as possible to ensure that
your shares will be voted in accordance with your instructions. You
are also invited to attend the Annual Meeting; however, since you are not the
shareholder of record, you may not vote these shares in person at the
meeting.
Under
Virginia law and the Bylaws, the presence of a quorum is required to transact
business at the Annual Meeting. For each of Proposals 1, 2, 3, 4 and
5 to be considered at the Annual Meeting, the presence, in person or by proxy,
of a majority of the votes that shareholders are entitled to cast on the
proposal is necessary to constitute a quorum for action on that
matter. Abstentions, votes withheld from any nominee and broker
non-votes (which occur when shares held by brokers or nominees for beneficial
owners are voted on some matters but not on others) will be counted as present
for purposes of determining the presence or absence of a quorum with regard to
any proposal at the annual meeting. The shareholders present at a
duly organized meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Vote Required for Proposal
1. The Bylaws provide for a “plurality” vote standard for
director elections that are contested. With a “plurality” vote standard, the
nominees at the Annual Meeting receiving the greatest number of “for” votes that
are cast for the number of director positions available will be elected. Each
director must be elected by a plurality of the votes cast at the Annual Meeting
by the holders of shares entitled to vote. Shareholders may vote
“for” all of the director nominees, “withhold” authority to vote for all of the
nominees or “withhold” authority to vote for any individual nominee but vote for
all other nominees. Shares that are withheld from voting as to any
nominee and broker non-votes will be counted for purposes of determining the
votes present, but will have no other effect on the outcome of the vote on the
election of directors.
Vote Required for Proposal 2, 3, 4
and 5. The affirmative vote of a majority of the votes
entitled to be cast on the matter is required for the approval of the proposal
to remove the existing directors serving on the Board (other than those elected
at the Annual Meeting) without cause. If presented, the proposal to
repeal any amendments to the Bylaws, or new
Bylaws,
enacted without shareholder approval between August 21, 2007 and up through and
including the Annual Meeting will be approved if the votes cast in favor of the
action exceed the votes cast against it. The Company’s 2008 Annual
Performance-Based Incentive Plan will be approved if the votes cast in favor of
the action exceed the votes cast against it. Shares that are withheld
and broker non-votes will not be taken into account and will have no effect on
the outcome.
Any other
shareholder proposals will be approved if the votes cast in favor of the
proposal exceed the votes cast against the proposal.
Abstentions
and broker non-votes will not be considered cast either for or against a matter.
A broker non-vote occurs when a broker or other nominee who holds shares for
another does not vote on a particular item because the nominee does not have
discretionary voting authority for that item and has not received instructions
from the owner of the shares.
Shareholders
of record may appoint proxies to vote their shares by signing, dating and
mailing the GOLD proxy
card in the envelope provided. Shares represented by properly
executed, but unmarked, GOLD proxy cards will be voted
at the Annual Meeting FOR the election of the
Nominees to the Circuit City Board, FOR removal of all existing
directors (other than those elected at the Annual Meeting), FOR the repeal of any
amendments to the Bylaws or any newly created Bylaws by the Board, FOR the Company’s proposal to
approve the Company’s 2008 Annual Performance-based Incentive Plan, FOR the ratification of the
appointment of KPMG LLP as the Company’s independent auditors to serve for the
2009 fiscal year, and in the discretion of the persons named as proxies on all
other matters as may properly come before the Annual Meeting.
Rule 452
of the New York Stock Exchange permits a broker member to vote on certain
routine, uncontested matters without specific instructions from the beneficial
owners so long as the broker has transmitted proxy material to the beneficial
owner at least 15 days prior to the annual meeting of
shareholders. It is our view to the extent that we distribute
material to the brokers for forwarding on to beneficial owners, the election of
directors becomes a contested item and therefore the brokers will not issue a
“routine” vote on behalf of the beneficial owners that have not instructed the
brokers as to how they wish to vote on the election of directors. If
a beneficial owner wishes to vote, they must provide the broker with specific
instruction to vote.
You are
being asked to elect the Nominees. The enclosed GOLD proxy card may only be
voted for the Nominees and does not confer voting power with respect to the
Company’s nominees. Accordingly, you will not have the opportunity to
vote for any of Circuit City’s nominees. You can only vote for
Circuit City’s nominees by signing and returning a proxy card provided by
Circuit City. Shareholders should refer to the Company’s proxy
statement for the names, backgrounds, qualifications and other information
concerning the Company’s nominees. The participants in this
solicitation intend to vote all of their Shares FOR the election of the
Nominees to the Circuit City Board, FOR removal of all existing
directors (other than those elected at the Annual Meeting), FOR the repeal of any
amendments to the Bylaws or any newly created Bylaws by the Board, FOR the Company’s proposal to
approve the Company’s 2008 Annual Performance-based Incentive Plan and FOR the ratification of the
appointment of KPMG LLP as the Company’s independent auditors to serve for the
2009 fiscal year.
REVOCATION
OF PROXIES
Shareholders
of Circuit City may revoke their proxies at any time prior to exercise by
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute revocation of a proxy) or by
delivering a written notice of revocation. The delivery of a
subsequently dated proxy which is properly completed will constitute a
revocation of any earlier proxy. The revocation may be delivered to
WCM, c/o MacKenzie Partners, Inc. at the address set forth on the back cover of
this Proxy Statement. Although a revocation is effective if delivered
to Circuit City, WCM requests that either the original or photostatic copies of
all revocations be mailed to WCM, c/o MacKenzie Partners, Inc. at the address
set forth on the back cover of this Proxy Statement so that WCM will be aware of
all revocations and can more accurately determine if and when proxies have been
received from the holders of record on the Record Date of a majority of the
outstanding Shares. Additionally, MacKenzie Partners, Inc. may use
this information to contact shareholders who have revoked their proxies in order
to solicit later dated proxies for the election of the Nominees and approval of
the Proposals described herein.
IF YOU
WISH TO VOTE FOR THE ELECTION OF WCM’S NOMINEES TO THE CIRCUIT CITY BOARD AND
FOR WCM’S OTHER PROPOSALS DESCRIBED HEREIN, INCLUDING THE REMOVAL OF THE
EXISTING DIRECTORS SERVING ON THE BOARD (OTHER THAN THOSE ELECTED AT THE ANNUAL
MEETING), PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GOLD PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
ADDITIONAL
INFORMATION
The
principal executive offices of Circuit City are located at 9950 Mayland Drive,
Richmond, Virginia 23233. Except as otherwise noted herein, the
information concerning Circuit City has been taken from or is based upon
documents and records on file with the Securities and Exchange Commission and
other publicly available information.
PROXY
SOLICITATION; EXPENSES
Executed
proxies may be solicited in person, by mail, advertisement, telephone,
telecopier, telegraph or email. Solicitation may be made by the
Wattles Group, including the Nominees, employees of WCM and its affiliates, none
of whom will receive additional compensation for such
solicitation. Proxies will be solicited from individuals, brokers,
banks, bank nominees and other institutional holders. We have
requested banks, brokerage houses and other custodians, nominees and fiduciaries
to forward all solicitation materials to the beneficial owners of the Shares
they hold of record. We will reimburse these record holders for their
reasonable out-of-pocket expenses.
In
addition, WCM has retained MacKenzie Partners, Inc. to solicit proxies on its
behalf in connection with the Annual Meeting. MacKenzie Partners,
Inc. will employ approximately [__] people in its efforts. We have
agreed to reimburse MacKenzie Partners, Inc. for its reasonable expenses and to
pay to MacKenzie Partners, Inc. a fee of up to $[____].
The
entire expense of our proxy solicitation is being borne by WCM. In
the event that our Nominees are elected to the Board, we will seek reimbursement
of such expenses from Circuit City and will not submit such reimbursement to a
vote of shareholders. In addition to the engagement of MacKenzie
Partners, Inc., described above, costs related to the solicitation of proxies
include expenditures for printing, postage, legal and related expenses are
expected to be approximately $[____], of which no amounts have been paid to
date.
CERTAIN
INFORMATION CONCERNING THE PARTICIPANTS
The
participants in the proxy solicitation are WCM, the Trust and Messrs. Wattles,
Marcum, Wahle, Kornstein, Bergamo and Bond. The principal business of
WCM is investing in public and private companies in the consumer products and
retail sectors. WCM indirectly owns a majority interest in Ultimate
Acquisition Partners, LP, a Delaware limited partnership, which owns 32 consumer
electronics retail stores under the name Ultimate Electronics. The
principal business of the Trust is acquiring, holding, managing and disposing of
assets for the benefit of a member of Mr. Wattles’ family and The Wattles Family
Foundation. The principal occupation of Mr. Wattles is serving as
President of WCM. The principal business of Mr. Marcum is serving as
an Operating Partner of Tri-Artisan Capital Partners, LLC. The principal
occupation of Mr. Wahle is serving as Chairman and Chief Executive Officer of
Rustique Home Furnishings. The principal occupation of Mr. Kornstein
is serving as the Managing Member of Alpine Advisors LLC. The
principal occupation of Mr. Bergamo is serving as Vice Chairman of MB Real
Estate. The principal occupation of Mr. Bond is serving as a managing
director of WCM.
The
principal business address of WCM and the Trust is 7945 W. Sahara Ave., Suite
205, Las Vegas, NV 89117. The principal business address of Mr.
Wattles is 321 W. 84th Avenue, Suite A, Thornton, CO 80260. The
principal business address of Mr. Marcum is c/o Tri-Artisan Capital Partners,
110 East 59th Street, 37th Floor, New York, New York 10022. The
principal business address of Mr. Wahle is c/o Rustique Home Furnishings, 114
Railside Road, Toronto, Ontario M3A 1A3. The principal business
address of Mr. Kornstein is c/o Alpine Advisors LLC, 825 Lakeshore Blvd.,
Incline Village, Nevada 89451. The principal business address of Mr.
Bergamo is c/o MB Real Estate, 335 Madison Avenue, 14th Floor, New York, New
York 10017. The principal business address of Mr. Bond is c/o Wattles
Capital Management, LLC, 7945 W. Sahara Ave., Las Vegas, NV 89117.
WCM
beneficially owns 11,000,000 Shares of the Company, consisting of 1,000,000
Shares owned by the Trust. The 11,000,000 Shares beneficially owned
by WCM constitutes approximately 6.5% of the Shares
outstanding. Because Mr. Wattles owns all of the membership interests
of WCM and serves as sole trustee of the Trust, he may be deemed to beneficially
own the 11,000,000 Shares beneficially owned by WCM and the
Trust. Mr. Bond directly owns 10,000 Shares. Mr. Bergamo
directly owns 15,000 Shares. Mr. Kornstein directly owns 5,500
Shares. Mr. Marcum directly owns [6,200] Shares. Mr. Wahle
directly owns 7,500 Shares. As members of a “group” for the purposes
of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), each of Messrs. Marcum, Wahle, Kornstein, Bergamo and Bond is
deemed to beneficially own the 11,000,000 Shares owned by WCM, constituting
approximately 6.5% of the Shares outstanding. Each of Messrs. Marcum,
Wahle, Kornstein, Bergamo and Bond disclaims beneficial ownership of the Shares
owned by WCM and the Trust.
For
information regarding purchases and sales of securities of Circuit City during
the past two years by the members of the Wattles Group, see Schedule
I.
On
February 27, 2008, the members of the Wattles Group entered into a Joint Filing
and Solicitation Agreement in which each member of the Wattles Group agreed to
the joint filing on behalf of each of them of Statements on Schedule 13D and
agreed to form a group for the purpose of soliciting proxies or written consents
for the election of the Nominees to the Circuit City Board at the Annual Meeting
and for the purpose of taking all other actions incidental to the
foregoing. The Wattles Group intends to seek reimbursement from
Circuit City of all expenses it incurs in connection with this
solicitation. The Wattles Group does not intend to submit the
question of such reimbursement to a vote of security holders of the
Company.
No
Nominee is involved in any material pending legal proceedings with respect to
the Company. Except for what is set forth above, there is no other
arrangement or understanding between any Nominee and any other person pursuant
to which he was or is to be selected as a Nominee or director. None
of the Nominees currently holds any position or office with the Company or has
ever served previously as a director of the Company.
The
Wattles Group reserves the right to retain one or more financial advisors and
proxy solicitors, who may be considered participants in a solicitation under
Regulation 14A of the Exchange Act.
Except as
set forth in this Proxy Statement (including the Schedules hereto),
(i) during the past 10 years, no participant in this solicitation has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors); (ii) no participant in this solicitation directly or
indirectly beneficially owns any securities of Circuit City; (iii) no
participant in this solicitation owns any securities of Circuit City which are
owned of record but not beneficially; (iv) no participant in this
solicitation has purchased or sold any securities of Circuit City during the
past two years; (v) no part of the purchase price or market value of the
securities of Circuit City owned by any participant in this solicitation is
represented by funds borrowed or otherwise obtained for the purpose of acquiring
or holding such securities; (vi) no participant in this solicitation is, or
within the past year was, a party to any contract, arrangements or
understandings with any person with respect to any securities of Circuit City,
including, but not limited to, joint ventures, loan or option arrangements, puts
or calls, guarantees against loss or guarantees of profit, division of losses or
profits, or the giving or withholding of proxies; (vii) no associate of any
participant in this solicitation owns beneficially, directly or indirectly, any
securities of Circuit City; (viii) no participant in this solicitation owns
beneficially, directly or indirectly, any securities of any parent or subsidiary
of Circuit City; (ix) no participant in this solicitation or any of his/its
associates was a party to any transaction, or series of similar transactions,
since the beginning of Circuit City’s last fiscal year, or is a party to any
currently proposed transaction, or series of similar transactions, to which
Circuit City or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $120,000; (x) no participant in this solicitation
or any of his/its associates has any arrangement or understanding with any
person with respect to any future employment by Circuit City or its affiliates,
or with respect to any future transactions to which Circuit City or any of its
affiliates will or may be a party; and (xi) no person, including the
participants in this solicitation, who is a party to an arrangement or
understanding pursuant to which the Nominees are proposed to be elected has a
substantial interest, direct or indirect, by security holdings or otherwise in
any matter to be acted on at the Annual Meeting.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The
following table is reprinted from Circuit City’s proxy statement filed with
the
Securities
and Exchange Commission on [________ __], 2008
The
Wattles Group has omitted from this Proxy Statement certain disclosure required
by applicable law that is already included in the Company’s proxy
statement. This disclosure includes, among other things, biographical
information on Circuit City's directors and executive officers, information
concerning executive compensation, an analysis of cumulative total returns on an
investment in Shares during the past five years, information on dissenters’
rights of appraisal and procedures for submitting proposals for inclusion in the
Company’s proxy statement at the next annual meeting. Shareholders
should refer to the Company’s proxy statement in order to review this
disclosure.
WE
URGE YOU TO SIGN, DATE AND RETURN THE [GOLD] PROXY CARD IN FAVOR OF THE ELECTION
OF OUR NOMINEES AND THE OTHER PROPOSALS DESCRIBED IN THIS PROXY
STATEMENT.
Dated: [_________],
2008
Sincerely,
Wattles
Capital Management, LLC
SCHEDULE
I
EXHIBIT
A
TRANSACTIONS
IN SECURITIES OF CIRCUIT CITY STORES, INC.
DURING
THE PAST TWO YEARS
Wattles
Capital Management, LLC
|
|
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
Don
R. Kornstein
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
|
Quantity
Purchased/(Sold)
|
|
|
IMPORTANT
Tell
Circuit City what you think! Your vote is important. No
matter how many Shares you own, please give WCM your proxy FOR the election of WCM’s
Nominees and the Proposals described in this Proxy Statement, including the
removal of all existing directors (other than those elected at the Annual
Meeting) without cause, by taking three steps:
|
·
|
SIGNING
the enclosed GOLD
proxy card,
|
|
·
|
DATING
the enclosed GOLD
proxy card, and
|
|
·
|
MAILING
the enclosed GOLD
proxy card TODAY in the envelope provided (no postage is required if
mailed in the United States).
|
If any of
your Shares are held in the name of a brokerage firm, bank, bank nominee or
other institution, only it can vote such Shares and only upon receipt of your
specific instructions. Depending upon your broker or custodian, you
may be able to vote either by toll-free telephone or by the
Internet. Please refer to the enclosed voting form for instructions
on how to vote electronically. You may also vote by signing, dating
and returning the enclosed GOLD voting form.
If you
have any questions or require any additional information concerning this Proxy
Statement, please contact MacKenzie Partners, Inc. at the address set forth
below.
105
Madison Avenue
New York,
New York 10016
(212)
929-5500 (Call Collect)
or
CALL
TOLL FREE (800) 322-2885
PRELIMINARY
COPY SUBJECT TO COMPLETION
DATED
APRIL 28, 2008
GOLD
PROXY
CIRCUIT
CITY STORES, INC.
2008
ANNUAL MEETING OF SHAREHOLDERS
THIS
PROXY IS SOLICITED ON BEHALF OF WATTLES CAPITAL MANAGEMENT, LLC
THE
BOARD OF DIRECTORS OF CIRCUIT CITY STORES, INC.
IS
NOT SOLICITING THIS PROXY
P R O X Y
The
undersigned appoints Mark J. Wattles and Alexander M. Bond, and each of them,
attorneys and agents with full power of substitution to vote all shares of
common stock of Circuit City Stores, Inc. (“Circuit City” or the “Company”)
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company scheduled to be held at
__________________, __________, _________ ________, on _______________ __, 2008,
at __:__ _.m. (local time), and including at any adjournments or postponements
thereof and at any meeting called in lieu thereof (the “Annual
Meeting”).
The
solicitation is being made on behalf of Wattles Capital Management, LLC, HKW
Trust, Mark J. Wattles, James A. Marcum, Elliott Wahle, Don R. Kornstein,
Anthony Bergamo and Alexander M. Bond.
The
undersigned hereby revokes any other proxy or proxies heretofore given to vote
or act with respect to the shares of common stock of the Company held by the
undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. If properly executed, this Proxy will be voted as
directed on the reverse and in the discretion of the herein named attorneys and
proxies or their substitutes with respect to any other matters as may properly
come before the Annual Meeting that are unknown to WCM a reasonable time before
this solicitation.
IF
NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSAL ON THE REVERSE, THIS
PROXY WILL BE VOTED “FOR” ELECTION OF THE NOMINEES IN PROPOSAL 1 AND “FOR”
PROPOSALS 2, 3, 4 & 5.
This
Proxy will be valid until the sooner of one year from the date indicated on the
reverse side and the completion of the Annual Meeting.
IMPORTANT: PLEASE
SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
[X] Please mark vote as in this
example
WATTLES
CAPITAL MANAGEMENT STRONGLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE NOMINEES
IN PROPOSAL NO. 1 AND “FOR” PROPOSALS 2, 3, 4 & 5.
Proposal
1 – Proposal to Elect James A. Marcum, Elliott Wahle, Don R. Kornstein and
Anthony Bergamo as directors of the Company for a three-year term that
expires at the 2011 annual meeting of the Company’s shareholders and Alexander
M. Bond for a two-year term that expires at the 2010 annual meeting of the
Company’s shareholders .
|
FOR
ALL NOMINEES
|
WITHHOLD
AUTHORITY TO VOTE FOR ALL NOMINEES
|
FOR
ALL EXCEPT NOMINEE(S) WRITTEN BELOW
|
Nominees: James
A. Marcum
Elliott
Wahle
Don
R. Kornstein
Anthony
Bergamo
Alexander
M. Bond
|
[ ]
|
[ ]
|
________________
|
Proposal
2 – Proposal to remove, without cause, each member of Circuit City’s Board of
Directors (“the Circuit City Board”), and any person (other than those elected
by the Company’s shareholders at the Annual Meeting) elected or appointed to the
Circuit City Board by such directors to fill any vacancy on the Circuit City
Board or any newly-created directorships at any time from February 28, 2008
until and including the conclusion of the Annual Meeting.
|
[
|
]
FOR
|
[
|
]
AGAINST
|
[
|
]
ABSTAIN
|
INSTRUCTION:
TO VOTE FOR, AGAINST OR ABSTAIN FROM THE REMOVAL OF ALL THE PERSONS NAMED IN
PROPOSAL NO. 2, CHECK THE APPROPRIATE BOX ABOVE. IF YOU WISH TO VOTE
FOR THE REMOVAL OF CERTAIN OF THE PERSONS NAMED IN PROPOSAL NO. 2, BUT NOT ALL
OF THEM, CHECK THE “FOR” BOX ABOVE AND WRITE THE NAME OF EACH SUCH PERSON YOU
DO NOT WISH
REMOVED IN THE SPACE PROVIDED BELOW.
PROPOSAL
NO. 2 IS CONDITIONED UPON A MAJORITY OF WCM’S NOMINEES BEING ELECTED AT THE
ANNUAL MEETING.
Proposal
3 - Proposal to (i) repeal any amendments adopted by the Circuit City Board
without shareholder approval to the Circuit City Stores, Inc. Bylaws, as amended
as of August 21, 2007 (the “Bylaws”), between August 21, 2007 and up through and
including the Annual Meeting, (ii) repeal any new bylaws adopted by the
Circuit City Board between August 21, 2007 and up through and including the
Annual Meeting and (iii) provide that the Circuit City Board may not
reinstate or amend any amended bylaw or new bylaw that is repealed by
shareholders pursuant to this proposal.
|
[
|
]
FOR
|
[
|
]
AGAINST
|
[
|
]
ABSTAIN
|
Proposal
4 - Proposal to approve the Company’s 2008 Annual Performance-Based Incentive
Plan.
|
[
|
]
FOR
|
[
|
]
AGAINST
|
[
|
]
ABSTAIN
|
Proposal
5 - Proposal to ratify the appointment of KPMG LLP as the Company’s independent
auditors to serve for the 2009 fiscal year.
|
[
|
]
FOR
|
[
|
]
AGAINST
|
[
|
]
ABSTAIN
|
Dated: ______________________________
____________________________________
(Signature)
____________________________________
(Signature,
if held jointly)
____________________________________
(Title)
WHEN
SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY IN WHICH
SIGNING. PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS
PROXY.