SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CIRCUIT CITY STORES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Notice of Annual Meeting of Shareholders
June 18, 1996
TO THE HOLDERS OF CIRCUIT CITY STORES, INC. COMMON STOCK:
The annual meeting of shareholders of Circuit City Stores, Inc. (the
"Company") will be held at The Jefferson Hotel, Franklin and Adams Streets,
Richmond, Virginia, on Tuesday, June 18, 1996, at 10:00 a.m., Eastern Daylight
Time, for the following purposes:
1. To elect four directors to three-year terms and one director
to a one-year term;
2. To consider and vote upon a proposal to amend the Articles of
Incorporation to increase the authorized Common Stock from
150,000,000 shares to 250,000,000 shares;
3. To consider and vote upon a proposal to amend the 1994 Stock
Incentive Plan;
4. To consider and vote upon a proposal to amend the 1989
Non-Employee Directors Stock Option Plan; and
5. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only holders of record of shares of Common Stock at the close of
business on May 3, 1996, will be entitled to vote at the meeting and any
adjournments thereof.
Whether or not you plan to attend the meeting, please fill in, date,
sign and return the enclosed proxy promptly in the enclosed envelope.
You are cordially invited to attend the meeting.
By Order of the Board of Directors
MICHAEL T. CHALIFOUX, Secretary
May 10, 1996
<PAGE>
PROXY STATEMENT
This Proxy Statement, mailed to shareholders on or about May 10, 1996,
is furnished in connection with the solicitation by Circuit City Stores, Inc.
(the "Company") of proxies in the accompanying form for use at the annual
meeting of shareholders to be held on June 18, 1996, and at any adjournments
thereof. A copy of the annual report of the Company for the fiscal year ended
February 29, 1996, is being mailed to you with this Proxy Statement.
In addition to the solicitation of proxies by mail, the Company's
officers and regular employees, without compensation other than regular
compensation, may solicit proxies by telephone, telegraph, electronic means and
personal interview. The Company has also retained Morrow & Co., Inc. of New
York, New York, to assist in the solicitation of proxies of shareholders whose
shares are held in street name by brokers, banks and other institutions at an
approximate cost of $7,000 plus out-of-pocket expenses. The Company will bear
the cost of all solicitation.
Participants in the 1984 Circuit City Stores, Inc. Employee Stock
Purchase Plan (the "Stock Purchase Plan") will receive proxy soliciting material
for the shares held by First Union National Bank of North Carolina, the Stock
Purchase Plan Custodian, on each participant's behalf. That proxy should be
returned, properly executed, to the Custodian (not to the Company) in the
envelope provided. The Custodian will vote returned proxies in accordance with
the Stock Purchase Plan participants' instructions. If a Participant does not
vote his or her Stock Purchase Plan shares, the Custodian will vote such shares
in accordance with the recommendations of the Company's management.
On May 3, 1996, the date for determining shareholders entitled to vote
at the meeting, __________ shares of common stock of the Company ("Common
Stock") were outstanding and entitled to vote. Each such share of Common Stock
entitles the holder thereof to one vote.
Any shareholder giving a proxy may revoke it at any time before it is
voted by delivering another proxy or written notice of revocation to the
Company's Secretary. A proxy, if executed and not revoked, will be voted for the
election of the nominees for director named herein, for the proposal to amend
the Articles of Incorporation to increase the authorized Common Stock, for the
proposal to amend the 1994 Stock Incentive Plan and for the proposal to amend
the 1989 Non-Employee Directors Stock Option Plan, unless it contains specific
instructions to the contrary, in which event it will be voted in accordance with
such instructions.
A majority of the votes entitled to be cast on matters to be considered
at the meeting constitutes a quorum. If a share is represented for any purpose
at the meeting, it is deemed to be present for quorum purposes and for all other
matters as well. Abstentions and shares held of record by a broker or its
nominee ("Broker Shares") that are voted on any matter are included in
determining the number of votes present or represented at the meeting. Broker
Shares that are not voted on any matter at the meeting will not be included in
determining whether a quorum is present at such meeting.
The election of each nominee for director requires the affirmative vote
of the holders of a plurality of the shares of Common Stock cast in the election
of directors. Votes that are withheld and Broker Shares that are not voted in
the election of directors will not be included in determining the number of
votes cast and, therefore, will have no effect on the election of directors. The
affirmative vote of the holders of more than two-thirds of the outstanding
shares of Common Stock is required to amend the Articles of Incorporation. The
affirmative vote of the holders of a majority of the votes cast will be required
to act on all other matters to come before the Annual Meeting, including (i) the
approval of the amendment to the 1994 Stock Incentive Plan and (ii) the approval
of the amendment to the 1989 Non-Employee Directors Stock Option Plan.
1
ITEM ONE--ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of 10 directors,
who are divided into three classes with staggered terms. The terms of Theodore
D. Nierenberg, Hugh G. Robinson, Walter J. Salmon and Mikael Salovaara as
directors of the Company will expire at the time of the annual meeting of
shareholders. The Company recommends the reelection of Messrs. Robinson, Salmon
and Salovaara to three-year terms expiring at the time of the 1999 Annual
Meeting. The Company also recommends the reelection of Mr. Nierenberg to a
one-year term expiring at the time of the 1997 Annual Meeting. Mr. Nierenberg is
nominated for a one-year term to comply with the requirements of the Company's
Articles of Incorporation that the classes of directors be as nearly equal in
size as possible. The Company also recommends the election of John W. Snow to a
three-year term expiring at the time of the 1999 Annual Meeting.
Although all the nominees have indicated their willingness to serve if
elected, if at the time of the meeting any nominee is unable to or unwilling to
serve, shares represented by properly executed proxies will be voted at the
discretion of the persons named therein for such other person as the Board may
designate.
Information, including their business experience for the past five
years, about the nominees for election as directors and about other directors of
the Company whose terms of office do not expire this year appears below.
Nominees for Election to Three-Year Terms
HUGH G. ROBINSON, 63, Chairman and Chief Executive Officer, The Tetra Group, a
consulting firm that provides construction management and business development
services, since 1989. Mr. Robinson is a retired Major General from the United
States Army. He is a director of A.H. Belo Corporation, TU Electric, Columbus
Realty Trust, Guaranty Federal Savings Bank and Smith Environmental
Technologies. He has been a director of the Company since 1995.
WALTER J. SALMON, 65, Stanley Roth Senior Professor of Retailing, Harvard
Business School, since 1980. Mr. Salmon is a director of Hannaford Bros.
Company; Luby's Cafeterias, Inc.; The Neiman Marcus Group; Harrah's
Entertainment, Inc. and The Quaker Oats Company. He has been a director of the
Company since 1992.
MIKAEL SALOVAARA, 42, Limited Partner and Member of the Investment Committee,
The Blackstone Group L.P., since 1994; and Partner, Greycliff Partners, since
1991. The principal business of The Blackstone Group L.P. and Greycliff Partners
is merchant banking. Mr. Salovaara was a General Partner of Goldman, Sachs &
Co., an investment banking firm, where he was employed from 1980 to 1991. He is
a director of Granite Broadcasting Corporation and Hadco Corporation. He has
been a director of the Company since 1995.
JOHN W. SNOW, 56, Chairman, President and Chief Executive Officer, CSX
Corporation, a transportation company. Mr. Snow was elected President and Chief
Executive Officer in 1989 and added the title of Chairman in 1991. He is a
director of Bassett Furniture Industries Inc., NationsBank Corporation, Textron
Inc. and USX Corporation.
2
Nominee for Election to a One-Year Term
THEODORE D. NIERENBERG, 73, retired. Mr. Nierenberg founded and until 1984
served as the President of Dansk International Designs, Ltd., a designer,
importer, wholesaler and retailer of fine tableware and giftware with
headquarters in Mount Kisco, New York. He is a director of the Growth Fund of
America, the Income Fund of America and the Balanced Fund of America. He has
been a director of the Company since 1981.
Directors Whose Terms Do Not Expire This Year
MICHAEL T. CHALIFOUX, 49, Senior Vice President, Chief Financial Officer and
Secretary of the Company. Mr. Chalifoux joined the Company in 1983 as Corporate
Controller and was elected Vice President and Chief Financial Officer in 1988.
He became Senior Vice President and Chief Financial Officer in 1990 and became
Secretary in 1993. He has been a director of the Company since 1991. His present
term will expire in 1997.
RICHARD N. COOPER, 61, Chairman, National Intelligence Council, U.S. Government,
since 1995. Mr. Cooper has been a Professor of Economics at Harvard University
since 1981; however, he is on leave from this position during 1996. He is a
director of the Phoenix Home Mutual Life Insurance Co., the Warburg-Pincus
Counsellors family of mutual funds and the Center for Naval Analysis. He has
been a director of the Company since 1983. His present term will expire in 1998.
BARBARA S. FEIGIN, 58, Executive Vice President and Director of Strategic
Services of Grey Advertising, Inc., the principal business of which is
advertising and marketing communications. Ms. Feigin has held her current
position for the past 12 years. She is a director of VF Corporation. She has
been a director of the Company since 1994. Her present term will expire in 1997.
RICHARD L. SHARP, 49, Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. Sharp joined the Company as an Executive Vice
President in 1982. He became President of the Company in 1984, Chief Executive
Officer in 1986 and Chairman of the Board in 1994. He is a director of S&K
Famous Brands, Inc. and Flextronics International, Ltd. He has been a director
of the Company since 1983. His present term will expire in 1998.
EDWARD VILLANUEVA, 61, financial consultant since 1987. In addition, Mr.
Villanueva served as acting President and Chief Financial Officer of Richfood
Holdings, Inc. from January 1990 to May 1990 and August 1990, respectively. He
is a director of Richfood Holdings, Inc. Mr. Villanueva was employed by the
Company from 1967 to 1987. He has been a director of the Company since 1978. His
present term will expire in 1997.
ALAN L. WURTZEL, 62, Vice-Chairman of the Board of the Company. Mr. Wurtzel
joined the Company in 1966, was elected President in 1970 and served as Chief
Executive Officer from 1972 to 1986. He also served as Chairman of the Board
from 1984 until 1994, when he became Vice-Chairman. He is a director of Office
Depot, Inc. and Dollar Tree Stores, Inc. He has been a director of the Company
since 1966. His present term will expire in 1998.
3
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information about the equity securities
of the Company beneficially owned as of February 29, 1996, by (i) each executive
officer named in the tables appearing in the Summary Compensation Table; (ii)
each director or nominee for director of the Company; (iii) directors and
executive officers as a group; and (iv) each person who is known by the Company
to own beneficially more than 5 percent of the outstanding shares of Common
Stock. Unless otherwise noted, each individual has sole voting power and sole
investment power with respect to securities beneficially owned.
<TABLE>
<CAPTION>
Option Shares Which
May Be Acquired Number of Shares Percent
Within 60 Days After Beneficially Owned as of of
Name February 29, 1996 February 29, 1996 (1) Class
---- ----------------- --------------------- -----
<S> <C> <C> <C>
Named Executive Officers
Richard L. Sharp** 666,659 1,583,965 __%
Richard S. Birnbaum 112,534 183,086 *
John A. Fitzsimmons 23,625 60,676 *
Michael T. Chalifoux** 128,230 193,738 *
W. Alan McCollough 80,391 94,401 *
Directors/Director Nominees
Richard N. Cooper 16,604 40,424 (2) *
Barbara S. Feigin 0 500 *
Theodore D. Nierenberg 16,604 78,604 (3) *
Hugh G. Robinson 0 0 *
Walter J. Salmon 2,648 11,248 *
Mikael Salovaara 0 2,000 (4) *
John W. Snow 0 0 (5) *
Edward Villanueva 6,854 281,267 (6) *
Alan L. Wurtzel 16,604 534,584 (7) *
All directors, director nominees and executive
officers as a group (17 persons) 1,203,652 3,278,998 ___%
Beneficial Owners of More than 5%
FMR Corp. N/A 11,744,776 (8) ____%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
* Less than 1 percent of Class, based on the number of shares of Common Stock
outstanding on May 3, 1996.
** Messrs. Sharp and Chalifoux are also directors of the Company.
4
(1) Includes the shares of Common Stock that could be acquired through
exercise of stock options within 60 days after February 29, 1996.
For beneficial owners of more than 5 percent, the number of
beneficially owned shares is as of December 31, 1995.
(2) Includes 400 shares owned by Mr. Cooper's adult children. Mr.
Cooper disclaims beneficial ownership of such 400 shares.
(3) Includes 31,000 shares owned by Mr. Nierenberg's wife. Mr.
Nierenberg disclaims beneficial ownership of such 31,000 shares.
(4) Includes 1,000 shares held by Mikael Salovaara and B.A.S.
Salovaara Foundation Trust. Mr. Salovaara disclaims beneficial
ownership of such 1,000 shares.
(5) Mr. Snow was not a director at February 29, 1996. He is a nominee
for the Board in June 1996.
(6) Includes 16,600 shares held by Mr. Villanueva as trustee of trusts
for the benefit of his children. Mr. Villanueva disclaims
beneficial ownership of such 16,600 shares.
(7) Includes 160,600 shares held by Mr. Wurtzel as trustee of trusts
for the benefit of his children, 257,380 shares held by Alan
Wurtzel Revocable Trust and 100,000 shares held by Alan Wurtzel
Charitable Remainder Unitrust. Mr. Wurtzel disclaims beneficial
ownership of all the aforementioned shares.
(8) Information concerning the shares owned by FMR Corp. as of
December 31, 1995, was obtained from a Schedule 13G dated February
14, 1996. The filing indicates that of the 11,744,776 shares
beneficially owned, FMR Corp. has sole voting power of 287,576
shares, shared voting power of 4,000 shares, sole dispositive
power of 11,740,776 shares and shared dispositive power of 4,000
shares.
5
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held six meetings during the fiscal year ended
February 29, 1996. No director attended less than 75 percent of the aggregate
number of meetings of the Board and of the committees on which he or she served.
The Audit Committee is composed of Edward Villanueva, Chairman,
Richard N. Cooper, Barbara S. Feigin and Hugh G. Robinson. Four meetings were
held during the fiscal year ended February 29, 1996. The functions of this
Committee include making recommendations to the Board regarding the selection of
independent auditors, conferring with the independent auditors and reviewing the
scope and results of their work as well as the fees therefor, reviewing the
Company's internal audit procedures and approving the nature and scope of
non-audit services performed by the Company's independent auditors as well as
the fees therefor.
The Compensation and Personnel Committee is composed of Theodore D.
Nierenberg, Chairman, Walter J. Salmon and Mikael Salovaara. Five meetings were
held during the fiscal year ended February 29, 1996. The functions of this
Committee include reviewing and recommending compensation programs for officers
and key personnel, making awards under and administering the Company's stock
incentive programs, reviewing and making recommendations with respect to senior
management organization and reviewing the Company's programs for attracting and
compensating management personnel at lower and middle levels.
The Pension Investment Committee is composed of Mikael Salovaara,
Chairman, Richard N. Cooper, Hugh G. Robinson, Edward Villanueva and Alan C.
Wurtzel. One meeting was held during the fiscal year ended February 29, 1996.
The functions of this Committee include establishing the funding policy of the
Employees' Retirement Plan of Circuit City Stores, Inc. (the "Pension Plan"),
appointing Pension Plan investment managers and allocating Pension Plan assets
among managers for investment, employing accountants and actuaries for the
Pension Plan, making recommendations to the Board concerning the appointment or
removal of the Trustee for the Pension Plan, establishing investment objectives
to be followed by the Trustee and investment managers and monitoring the
performance of the Trustee and Pension Plan investment managers. This Committee
also may make recommendations concerning investments to the Trustee and the
investment managers.
The Nominating and Structure Committee is composed of Alan L. Wurtzel,
Chairman, Barbara S. Feigin, Theodore D. Nierenberg and Walter J. Salmon. Two
meetings were held during the fiscal year ended February 29, 1996. The functions
of this Committee include recommending candidates for election as directors and
reviewing and recommending policies with regard to the size and composition of
the Board. The Committee considers nominees for the Board recommended by the
Company's shareholders.
In accordance with the Company's Bylaws, a shareholder who is
interested in nominating a person to the Board should submit to the Secretary of
the Company written notice of his or her intent to make such nomination. Such
notice must be given either by personal delivery or by United States mail,
postage prepaid, not later than 120 days in advance of the annual meeting, or
with respect to a special meeting of shareholders for the election of directors,
the close of business on the seventh day following the date on which notice of
such meeting is first given to shareholders. The contents of such notice must be
as specified in the Company's Bylaws, a copy of which may be obtained by any
shareholder who directs a written request for the same to the Secretary of the
Company.
6
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
Summary Compensation Table. The table below sets forth for the years
ended February 29, 1996, February 28, 1995, and February 28, 1994, the annual
and long-term compensation for services in all capacities to the Company and its
subsidiaries of those persons who at February 29, 1996, were the Company's Chief
Executive Officer ("CEO") and the other four most highly compensated executive
officers of the Company other than the CEO. The only stock appreciation rights
("SARs") granted were Change of Control SARs (described on page 13), which were
granted in connection with each of the options. No free-standing SARs have been
granted.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Underlying
Name and Fiscal Salary Bonus Options/SARs
Principal Position Year $ $ (#)
------------------ ---- ------- ------- --------
<S> <C> <C> <C> <C>
Richard L. Sharp 1996 685,509 376,750 127,000
Chairman of the Board, 1995 651,747 975,000 125,000
President and 1994 618,286 549,575 97,500
Chief Executive Officer
Richard S. Birnbaum 1996 503,355 137,500 45,000
Executive Vice President 1995 482,322 356,250 50,000
Operations 1994 330,105 101,238 20,000
John A. Fitzsimmons 1996 468,356 89,513 30,000
Senior Vice President 1995 441,045 231,000 30,000
Administration 1994 407,863 126,157 22,500
Michael T. Chalifoux 1996 413,355 78,925 30,000
Senior Vice President, 1995 386,045 202,125 27,500
Chief Financial Officer 1994 350,094 109,025 22,500
and Secretary
W. Alan McCollough 1996 383,494 73,150 40,000
Senior Vice President 1995 278,549 134,750 16,500
Merchandising 1994 250,304 66,750 12,000
</TABLE>
7
Options/SAR Grants in Last Fiscal Year. The table below sets forth for
the fiscal year ended February 29, 1996, the grants of stock options and SARs to
the executive officers named in the Summary Compensation Table. The only SARs
granted were Change of Control SARs (described on page 13), which were granted
in connection with each of the options. No free-standing SARs have been granted.
<TABLE>
<CAPTION>
Potential Realization Value
Number of at Assumed Annual Rates of
Securities % of Total Stock Price Appreciation
Underlying Options/SARs for Option Term (1)
Options/SARs Granted to Exercise Expiration ----------------------
Granted Employees Price (2) Date 5% 10%
------- --------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Richard L. Sharp 127,000 15.05% $22.50 3/9/02 $1,219,134 $2,788,299
Richard S. Birnbaum 45,000 5.33 22.50 3/9/02 431,977 987,980
John A. Fitzsimmons 30,000 3.55 22.50 3/9/02 287,984 658,653
Michael T. Chalifoux 30,000 3.55 22.50 3/9/02 287,984 658,653
W. Alan McCollough 40,000 4.74 22.50 3/9/02 383,979 878,204
</TABLE>
- --------------------
(1) Any such appreciation will inure to the benefit of all shareholders. The
value of the Company's outstanding Common Stock would increase by
approximately $886,700,439 and $2,066,353,983, based on assumed stock
price appreciation rates of 5 percent and 10 percent, respectively, from
the grant date of the options expiring in 2002 until the end of such
options' term.
(2) The exercise price for all of the options is the fair market value of the
Common Stock on the date of grant.
Aggregated Options/SAR Exercises and Fiscal Year-End Option/SAR Value
Table. The table below sets forth information concerning option exercises and
fiscal year-end option/SAR values as of February 29, 1996, for the executive
officers named in the Summary Compensation Table. The only SARs outstanding were
Change of Control SARs (described on page 13).
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARS at Options/SARS at
Number of February 29, 1996 February 29, 1996
Shares Acquired Value --------------------------- ----------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Sharp 0 $ 0 569,284 310,750 $6,233,675 $2,790,859
Richard S. Birnbaum 0 0 100,934 99,100 1,261,609 892,713
John A. Fitzsimmons 144,198 2,239,494 0 74,250 0 672,703
Michael T. Chalifoux 0 0 107,305 69,675 1,341,725 613,341
W. Alan McCollough 0 0 62,391 63,375 915,930 527,188
</TABLE>
8
Pension Plan Table. The following table illustrates estimated annual
retirement benefits payable under the Company's defined benefit pension plan
(the "Pension Plan") to persons in specified compensation and years of service
classifications.
<TABLE>
<CAPTION>
Highest
Consecutive Estimated* Annual Pension for Representative Years
Five-Year of Credited Service
Average ---------------------------------------------------------------------------------------------
Compensation 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 400,000.......... 87,368 116,490 145,613 174,735 203,858
$ 600,000.......... 132,368 176,490 220,613 264,735 308,858
$ 800,000.......... 177,368 236,490 295,613 354,735 413,858
$1,000,000.......... 222,368 296,490 370,613 444,735 518,858
$1,200,000.......... 267,368 356,490 445,613 534,735 623,858
$1,400,000.......... 312,368 416,490 520,613 624,735 728,858
$1,600,000........ 357,368 476,490 595,613 714,735 833,858
$1,800,000........ 402,368 536,490 670,613 804,735 938,858
$2,000,000........ 447,368 596,490 745,613 894,735 1,043,858
</TABLE>
- ---------------------
* Notwithstanding the estimates set forth in the table, the annual pension
payable from the Pension Plan is limited to $120,000, effective January
1, 1996, for a participant who retires at age 65. This limit, which is
subject to annual cost of living adjustments, is imposed on
tax-qualified defined benefit plans under the Internal Revenue Code and
also may vary in individual cases if retirement occurs early or late.
Additionally, the maximum amount of annual compensation that may be
taken into account with respect to a participant is limited under the
Internal Revenue Code. The compensation limit effective in 1996 is
$150,000. The benefits shown above do not reflect these limits.
The Pension Plan covers employees who satisfy certain age and service
requirements. Benefits are based on a designated percentage of the average of
compensation for the five highest of the last 10 consecutive years of
employment, weighted according to years of credited service, and integrated with
Social Security covered compensation. For Pension Plan purposes, compensation of
participants includes base pay, bonuses, overtime and commissions and excludes
amounts realized under any employee stock purchase plan or stock incentive plan.
For Pension Plan purposes, compensation for those individuals listed in the
Summary Compensation Table is substantially the same as the amounts listed under
the Salary and Bonus headings.
For purposes of the Pension Plan, credited years of past and future
service for Messrs. Sharp, Birnbaum, Fitzsimmons, Chalifoux and McCollough will
be 29, 45, 21, 29 and 27 years, respectively, at age 65.
9
Report of Compensation and Personnel Committee
Compensation Philosophy
The Compensation and Personnel Committee (the "Committee") believes that
corporate performance and, in turn, shareholder value will be best enhanced by a
compensation system which supports and reinforces the Company's key operating
and strategic goals while aligning the financial interests of the Company's
executive officers with those of the shareholders. The Company utilizes both
short-term and long-term incentive compensation programs to achieve these
objectives. Executive officer incentive compensation programs are tied to
Company-wide achievement of annual financial goals and the market value of the
Company's stock. The Committee believes that the use of Company-wide performance
in setting goals promotes a unified vision for senior management and creates
common motivation among the executives. For other salaried employees, the
incentive compensation program is also tied to divisional, departmental or store
business goals and, in some cases, individual performance.
For the Company's 1996 fiscal year, the Committee made its compensation
decisions based on a review of the Company's 1995 fiscal year performance and on
the Company's budget and other projections for the 1996 fiscal year. The
Committee is composed solely of independent directors.
The Company is subject to Internal Revenue Code provisions that may
limit the income tax deductibility of certain forms of compensation paid to the
executive officers named in the Summary Compensation Table which precedes this
report. These provisions allow full deductibility of certain types of
performance-based compensation. The Company's compensation practices, to the
extent practicable, provide the maximum deductibility for compensation payments.
Payments under the Annual Performance-Based Bonus Plan ("Bonus Plan") and awards
under the Stock Incentive Plan qualify for deductibility under these provisions
of the Internal Revenue Code.
Components of the Executive Compensation Program
The Company's compensation program for executive officers consists
generally of three components: base salary, an annual performance-based cash
bonus and stock incentives, principally in the form of stock options. In making
compensation decisions for the 1996 fiscal year, the Committee compared the
compensation of the Company's executive officers with compensation of officers
at certain other retail companies and utilized a nationally known compensation
consultant. The companies in the compensation peer group are among the companies
included in the Retail Stores - Composite and the S&P 500 indexes used for the
Performance Graph that follows this report. The compensation peer group consists
of the same companies that were used for comparison in prior years.
The Committee generally compares the Company and the compensation peer
group based on various one-year and five-year performance measures, including
return on average shareholders' equity, sales growth, net income growth and
earnings per share growth. Although the Committee has not established any
particular level at which the Company's compensation will be set in respect to
the compensation peer group, the Committee believes that the total compensation
of the named executive officers is supported by the Company's competitive
comparisons on the short and long-term performance factors and is appropriate
given the Company's overall performance. The individual elements of the
executive compensation program are addressed below.
Annual Salary
Each year the Committee establishes salaries for executive officers.
Such salaries are based on proposals submitted by the Company's Chief Executive
Officer ("CEO") for annual salary for the executive officers other than himself.
The Committee believes that the annual salaries for executive officers should be
set so that a large percentage of total cash compensation is at risk under the
incentive programs.
10
In evaluating the CEO's proposals, the Committee considers, among other
factors, (1) a qualitative evaluation of the individual executive officer's
performance provided by the CEO, (2) the Company's performance in relation to
its target financial goals for the prior fiscal year, and (3) a comparison with
salaries for comparable positions paid by companies in the compensation peer
group.
Annual Performance-Based Bonus
All salaried employees, except the Company's executive officers, are
eligible to receive cash bonuses under an annual performance-based incentive
program ("Incentive Program") established each year by the Committee and
approved by the Board of Directors. The Incentive Program is designed to
motivate the Company's employees to achieve the Company's annual operating and
financial goals. The executive officers participate in the Bonus Plan. The Bonus
Plan allows the Committee to establish performance goals based on pre-tax
earnings ("PTE"), earnings per share ("EPS") or both.
For the 1996 fiscal year, the bonus awards under the Bonus Plan and the
Incentive Program were based upon the Company's achievement of its target
financial goals for EPS and PTE. The target EPS and PTE goals were established
early in the fiscal year as part of the Company's budgeting process and were
subject to approval and modification by the Committee. Consistent with the
Committee's compensation philosophy of tying a large percentage of total
compensation to performance, the potential maximum bonus of each executive
officer was a significant percentage of that individual's salary for the year.
For the 1996 fiscal year, the target bonus amounts ranged from 35 percent of
base salary, in the case of less senior executive officers, to 100 percent of
base salary, in the case of the CEO. The target bonus percentages were the same
as for the 1995 fiscal year for all levels of executive officers.
The amount of bonus payments depends upon the extent to which the
Company achieves its target financial goals for the year. For the 1996 fiscal
year, if the Company did not achieve 85 percent of the goal, no bonuses would be
paid. For performance above the target, an additional bonus would be paid with a
maximum bonus of 150 percent of the target bonus.
In establishing the annual salary and bonuses for named executive
officers for the 1996 fiscal year, the Committee compared the projected amounts
payable with the compensation paid by the compensation peer group. The Committee
believes that this compensation for the named executive officers is reasonable
in light of the Company's overall performance for both one-year and five-year
periods.
Long-Term Incentive Compensation
Long-term incentive compensation is provided by grants under the
Company's Stock Incentive Plan, which are offered broadly to salaried employees.
For executive officers, grants under the Stock Incentive Plan are made
principally in the form of non-qualified stock options. Restricted stock awards
were made primarily to salaried employees below the level of vice president
during the 1996 fiscal year, except in the case of hiring grants.
The Committee considers stock options to be an important means of
ensuring that executive officers have a continuing incentive to increase the
long-term profitability of the Company and the value of the Company's stock.
Such options generally vest and become exercisable ratably over a period of four
years from the date of grant. The number of options to be granted to a
particular executive officer is determined by the Committee. The Committee
primarily uses a formula based on an individual's target bonus for the fiscal
year and the market price of the Company's stock. Compared to the compensation
peer group, the compensation of executive officers of the Company has been more
heavily weighted toward long-term incentives in the form of stock options.
Because the value of stock options is entirely a function of increases in the
value of the Company's stock, the Committee believes that this component of the
Company's compensation arrangement closely aligns the interests of the executive
officers with those of the Company's shareholders.
11
As explained further under Item Three, Proposal to Amend the 1994 Stock
Incentive Plan, the Committee has approved a program of long-term stock option
grants for the named executive officers other than the CEO that is related to
the long-term grant to the CEO.
Other Matters
To maintain compensation competitiveness and to create a retirement
program that restores benefits for the Company's more senior executives who are
affected by Internal Revenue Code limits on benefits provided under the
Company's Pension Plan, the Committee evaluated and recommended adoption of a
retirement benefit restoration plan. Subject to an annual limit, the benefit
restoration plan and the Pension Plan together provide benefits to all employees
affected by the Internal Revenue Code limits at approximately the same
percentage of compensation as for other employees. The Board has approved the
benefit restoration plan, which is expected to be implemented in the 1997 fiscal
year. The named executive officers will participate in this plan.
Chief Executive Officer's Compensation
The Committee determined the compensation of Richard L. Sharp, the
Company's Chairman, President and CEO, for the 1996 fiscal year in a manner
consistent with the guidelines and policies described above. The Committee
approved a 5 percent increase in Mr. Sharp's salary and kept his performance
bonus target at 100 percent of salary. Mr. Sharp's performance bonus target
percentage has been the same since the 1993 fiscal year.
Stock option grants to Mr. Sharp for the 1996 fiscal year were made
under the same formula as for the 1995 fiscal year. As explained further under
Item Three, Proposal to Amend the 1994 Stock Incentive Plan, since the end of
the 1996 fiscal year, the Committee has also made a special long-term stock
option grant to Mr. Sharp that is contingent on shareholder approval of the
amendments to the 1994 Stock Incentive Plan. This option is designed to promote
and reward only extraordinary long-term performance by the Company which the
Committee believes is substantially dependent upon Mr. Sharp's leadership. Mr.
Sharp must stay with the Company for at least five years to obtain the benefit
of the option, which will expire after six years. The exercise price for the
option is twice the recent trading price range of the Company's stock when the
option was granted. Therefore, the option will only have value if the Company's
stock more than doubles in price within six years.
In establishing Mr. Sharp's 1996 fiscal year compensation, the Committee
compared his 1995 fiscal year compensation with the compensation of the CEOs of
the compensation peer group in relation to the relative performance of the
Company with respect to the compensation peer group. The Committee also
considered the Company's performance during the 1995 fiscal year.
The Committee also evaluated Mr. Sharp's important additional
contributions to the continued growth of the Company through the creation and
implementation of business growth strategies. In addition, the Committee
compared Mr. Sharp's recent annual compensation changes with the Company's
performance. The Committee believes that Mr. Sharp's actual compensation for the
1996 fiscal year was appropriate in light of all of the above factors.
COMPENSATION AND PERSONNEL COMMITTEE
Theodore D. Nierenberg, Chairman
Walter J. Salmon
Mikael Salovaara
12
Performance Graph
TOTAL RETURN TO SHAREHOLDERS
[GRAPH]
<TABLE>
<CAPTION>
FISCAL YEAR 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
CIRCUIT CITY STORES, INC. 100.00 201.02 306.53 245.97 281.16 386.69
S&P 500 INDEX 100.00 115.99 128.34 139.04 149.28 201.08
S&P RETAIL STORES COMPOSITE 100.00 134.78 154.68 155.02 141.95 156.68
</TABLE>
Employment Agreements and Change-in-Control Arrangements
The Company has employment agreements with each of the executive
officers named in the Summary Compensation Table. Generally, these agreements
provide for annual salary review and participation in the Company's bonus, stock
incentive and other employee benefit programs. They also provide for
continuation of base salary for specified periods following termination by the
Company without cause (two years in the case of Mr. Sharp, one year for the
other named executive officers). In such circumstances, the agreements also
generally provide that the employee will be paid any bonus to which he would
otherwise be entitled for that year, such bonus to be prorated if termination
occurs in the first six months of the year. The salary continuation generally
extends for another year if the termination without cause follows a change of
control. The Company's salary continuation obligation will decrease by up to 50
percent if the individual secures alternative employment; however, no decrease
will occur if the termination is related to a change of control. In addition, if
the employee voluntarily terminates the employment relationship within one year
following a change of control, the employee will be entitled to continuation of
base salary for a specified period of time (two years in the case of Mr. Sharp,
one year for the other named executive officers) and potential payment of a
bonus as indicated above. Each agreement contains provisions confirming the
employee's obligation to maintain the confidentiality of proprietary information
and not to compete with the Company for a specified period of time after the
termination of his employment. The agreement with Mr. Birnbaum became effective
in 1983. The agreement with Mr. Fitzsimmons became effective in 1988. The
agreements with Messrs. Sharp and Chalifoux became effective in 1986 and 1989,
respectively. The agreement with Mr. McCollough became effective in 1995. The
current base salaries of Messrs. Sharp, Birnbaum, Fitzsimmons, Chalifoux and
McCollough under their employment agreements are $685,000, $500,000, $465,000,
$410,000 and $380,000, respectively.
The named executive officers have been granted SARs in connection with
the stock options granted to them under the Company's stock incentive plans. The
options also provide for accelerated vesting in the event of a change of
control. The SARs are Change of Control SARs that may only be exercised in the
event of a change of control. Upon exercise of the SAR and the surrender of the
related option, the holder is entitled to receive cash from the Company in the
amount of the spread between the option exercise price and the market value of
the Common Stock at the time of exercise, which value is determined by a formula
designed to take into account the effect of the change of control.
13
COMPENSATION OF DIRECTORS
Directors who are not employees receive annual compensation of $22,000,
plus $1,000 for attendance at each Board meeting and $500 for attendance at each
committee meeting. Directors who serve as committee chairmen receive additional
annual compensation of $2,000. Employees who are also directors do not receive
directors' fees, nor does Mr. Wurtzel.
Directors who are not full-time employees of the Company also receive
awards under the 1989 Non- Employee Directors Stock Option Plan (the "1989
Plan"). Stock option grants under the 1989 Plan are automatic. Every year on the
date of the annual meeting of the Company's shareholders, stock options are
automatically granted to each eligible director. If elected on a date other than
the annual meeting date, a director may also be entitled to a grant at that time
depending on the amount of time between the election and the next annual
meeting. The options generally become exercisable three years after the date of
the grant. The 1989 Plan currently provides that the number of shares of Common
Stock subject to the options will be such that the exercise price of the options
multiplied by such number of shares is as near as possible to, but does not
exceed, $75,000. The exercise price of options granted under the 1989 Plan is
the fair market value of the Common Stock on the date of the option grant. A
like number of Change of Control SARs are automatically granted in connection
with each stock option grant.
On June 13, 1995, seven non full-time employee members of the Board of
Directors were each granted 2,469 stock options under the 1989 Plan at an option
price of $30.375 per share.
During the fiscal year ended February 29, 1996, the Company had an
employment agreement with Mr. Wurtzel, Vice-Chairman of the Board of Directors,
under which Mr. Wurtzel received a salary and certain benefits for services as a
part-time employee of the Company. The agreement was to be effective through
1998 when Mr. Wurtzel will reach age 65. Mr. Wurtzel's base salary under the
agreement was $90,000 with annual increases of $5,000. The value of perquisites
provided to Mr. Wurtzel under the agreement during the fiscal year was $65,895.
The agreement included non-compete and confidentiality provisions similar to
those in the named executive officers' agreements.
In January 1996, Mr. Wurtzel and the Company agreed to replace the
agreement described above with a new agreement under which Mr. Wurtzel ceased to
be employed by the Company and to participate in various Company benefit plans
for employees. Under the new agreement, the Company agreed to pay Mr. Wurtzel
the lump sum of $56,565 plus $11,275 in monthly installments from February 1996
to September 1998. He will also receive annual perquisites valued at
approximately $65,000. The installment payments will be adjusted to reflect
changes over the term of the agreement in the value of the benefits which they
are designed to replace. If Mr. Wurtzel dies while the agreement is still in
effect, his beneficiary will continue to receive half the remaining payments
that would have been made to him under the agreement. Mr. Wurtzel also executed
a new non-compete and confidentiality agreement that will be effective during
the term of the contract.
SECTION 16(a) COMPLIANCE
Section 16a of the Securities Exchange Act requires the Company's
officers, directors and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than 10 percent
shareholders are required by regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file.
14
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Form 5 for specified fiscal years, the Company
believes that all its officers, directors and greater than 10 percent beneficial
owners complied with all filing requirements applicable to them with respect to
transactions during fiscal 1996, except that one report of a gift to his wife
was filed late by W. Austin Ligon, Senior Vice President Automotive.
ITEM TWO -- AMENDMENT TO THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board has unanimously approved, and recommends to the shareholders
that they adopt, an amendment to Article III(A) of the Company's Articles of
Incorporation that would increase the authorized Common Stock from 150,000,000
shares to 250,000,000 shares.
Of the 150,000,000 currently authorized shares of Common Stock, as of
February 29, 1996, 97,380,372 shares were outstanding and 5,772,319 shares were
reserved for issuance under the Company's stock incentive and employee stock
purchase plans. A balance of 46,847,309 authorized but unissued shares of Common
Stock remained available and unreserved for future use. If Item Three is
approved, 3,000,000 of these shares will be reserved for issuance under the 1994
Stock Incentive Plan. The additional shares of Common Stock for which
authorization is sought would be a part of the existing class of Common Stock
and, if and when issued, would have the same rights and privileges as the shares
of Common Stock presently outstanding. No holder of Common Stock has any
preemptive rights to acquire additional shares of the Common Stock.
Purpose and Effect of Amendment
The Board believes that an increase in the number of shares of
authorized Common Stock as contemplated by Item Two would benefit the Company
and its shareholders by giving the Company needed flexibility in its corporate
planning and in responding to developments in the Company's business, including
possible financing and acquisition transactions, stock splits or dividends and
other general corporate purposes. While the currently authorized shares are
sufficient to provide for the Company's present needs, having such authorized
shares available for issuance would give the Company greater flexibility to
respond to future developments and allow Common Stock to be issued without the
expense and delay of a special shareholders' meeting.
Unless otherwise required by applicable law or regulation, the
additional shares of Common Stock will be issuable without further authorization
by vote or consent of the shareholders and on such terms and for such
consideration as may be determined by the Board. However, the New York Stock
Exchange, on which the Common Stock is listed, currently requires shareholder
approval as a prerequisite to listing shares in several instances, including
acquisition transactions, where the present or potential issuance of shares
could result in an increase of 20 percent or more in the number of shares of
Common Stock outstanding.
The Board could use the additional shares of Common Stock to discourage
an attempt to change control of the Company. However, the Board has no present
intention of issuing any shares of Common Stock for such purposes and Item Two
is not being recommended in response to any specific effort of which the Company
is aware to obtain control of the Company.
Vote Required
Adoption of Item Two requires the affirmative vote of the holders of
more than two-thirds of the outstanding shares of Common Stock.
THE BOARD BELIEVES THAT ADOPTION OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY TO
250,000,000 SHARES IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND, ACCORDINGLY,
RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT.
15
ITEM THREE -- PROPOSAL TO AMEND THE 1994 STOCK INCENTIVE PLAN
Introduction
In 1996, the Board of Directors of the Company approved, subject to
shareholder approval, amendments to the Company's 1994 Stock Incentive Plan (the
"Plan"). The amendments are summarized below.
Amendments To The Plan
The amendments to the Plan increase the number of shares of Common Stock
reserved for issuance thereunder from 2,500,000 shares to 5,500,000 shares,
increase the annual per participant limit from 1,000,000 shares to 1,500,000
shares, and allow the grant of transferable options under certain circumstances.
Reasons For Amendments
The principal reason for the amendments relating to the number of shares
issuable under the Plan and the annual per participant limit is to permit a
special long-term stock option grant to Richard L. Sharp, the Company's
Chairman, President and Chief Executive Officer. The option grant was made on
April 9, 1996, contingent upon shareholder approval of the amendments to the
Plan.
The terms of the special long-term option for Mr. Sharp are designed to
promote and reward only extraordinary long-term performance by the Company. The
Compensation and Personnel Committee (the "Committee") of the Board of Directors
believes that such extraordinary long-term performance is substantially
dependent upon Mr. Sharp's continuing leadership. The option is for 1,000,000
shares of Common Stock and is subject to substantial restrictions and
significant performance requirements. These restrictions and requirements affect
the exercise price, term, and vesting period of the option.
The exercise price for the option is $59.00 which was twice the recent
trading price range of the Company's Common Stock when the option was granted.
This exercise price ensures that the option will provide a benefit only if a
substantial increase in shareholder value occurs during the time that the option
is outstanding.
The option also has a limited term so that a benefit is not created
merely by normal projected stock price increases over a period of time. The
option will expire on the sixth anniversary of grant and can only be exercised
during the two-year period ending on the sixth anniversary. Common Stock
acquired by an exercise before the fifth anniversary of grant would be subject
to forfeiture if the option does not vest through continued service by Mr.
Sharp as described below.
The option is intended to provide an inducement for Mr. Sharp to remain
employed with the Company for a substantial period. The option will vest if Mr.
Sharp remains employed for five years. In limited circumstances (including death
or disability), the option will vest at a rate of 20 percent per year. In
addition, the options have been granted with the change of control provisions
customarily included in the Company's options for senior executives, including
change of control provisions (described on page 13).
A related program of special stock option grants has been approved for
the named executive officers other than Mr. Sharp. These grants are to encourage
a five-year employment commitment from these senior executives. This commitment
will support the goal of increasing shareholder value that is the basis for the
stock option grant to Mr. Sharp.
16
The aggregate grant for the other named executive officers is
approximately five times the annual grant that would have been made for the 1997
fiscal year for the four officers under the Committee's customary grant
practices under the Plan. The grant is in lieu of the regular grants for the
1997 fiscal year and at least a portion of the grants for the next four years
for these officers. The options will vest over eight years (with vesting
weighted to the later years) and have a 10-year term. These options otherwise
contain provisions found in the Company's customary annual grants including the
change of control provisions (described on page 13).
The grant to Mr. Sharp is contingent upon shareholder approval of the
amendment to increase the number of shares issuable under the Plan. This
amendment will allow this special grant as well as the normal operation of the
Plan for at least two years. This will enable the continuation of the Company's
policy of offering options broadly to salaried employees, thereby stimulating
the efforts of these employees and strengthening their desire to remain with the
Company. In addition, because Mr. Sharp also has received an option grant under
the Plan for the 1997 fiscal year consistent with the Committee's customary
grant practices, the annual per participant limit must be increased to allow the
special option grant.
The final amendment provides that all options under the Plan could be
made transferable by optionees if such transferability is permissible under Rule
16b-3 promulgated by the Securities and Exchange Commission (the "SEC") and if
so authorized by the Committee. Rule 16b-3 provides an exemption from the
operation of the "short-swing profit" recovery provisions of Section 16(b) of
the Exchange Act of 1934, as amended, with respect to the acquisition and
exercise of stock options, transactions relating to stock appreciation rights,
and certain other transactions. Currently, Rule 16b-3 requires that options be
nontransferable, other than by will or by laws of descent and distribution, in
order for the Plan to be in compliance with such rule. However, an amendment to
Rule 16b-3 has been proposed by the SEC that would remove the restriction on
transferability. Under the existing Rule 16b-3, the SEC has also permitted the
grant of options that are transferable, subject to certain limitations, to the
optionee's immediate family members, trusts for the benefit of such family
members and partnerships whose only partners are such family members. However,
the grant of such options is not exempt from the "short-swing profit" recovery
provisions.
Adoption of the proposed amendment to the Plan would give the Committee
authority to grant options and stock appreciation rights under the Plan that are
transferable to the extent currently permitted under Rule 16b-3 or the broader
extent permitted if and when an amendment to Rule 16b-3 is adopted by the SEC.
There can be no assurance that the proposed amendment to Rule 16b-3 will be
adopted in the form proposed.
Principal Features of the Plan
The principal features of the Plan are summarized below. The summary is
qualified by reference to the actual provisions of the Plan, a copy of which is
available to any shareholder or incentive award recipient upon written request
to the Company.
The Plan authorizes incentive awards in the form of stock options, stock
appreciation rights or restricted stock. All present and future employees of the
Company are eligible to receive incentive awards under the Plan.
The Committee administers the Plan and has the complete discretion to
determine when to grant incentive awards, which eligible employees will receive
incentive awards, whether the award will be an option, stock appreciation right
or restricted stock, whether stock appreciation rights will be attached to
options, and the number of shares to be allocated to each incentive award. The
Committee may impose conditions on the exercise of options and stock
appreciation rights and upon the transfer of restricted stock received under the
Plan and may impose such other restrictions and requirements as it may deem
appropriate.
17
Options to purchase shares of Common Stock granted under the Plan may be
"incentive stock options" or nonstatutory stock options. The option price of
Common Stock may not be less than 100 percent (or, in the case of an incentive
stock option granted to a 10 percent shareholder, 110 percent) of the fair
market value of the Common Stock on the date of the option grant. The value of
incentive stock options, based on the exercise price, that can be exercisable
for the first time in any calendar year is limited to $100,000.
Options may only be exercised at such times as specified by the
Committee, provided, however, that incentive stock options may be exercised only
within the periods permitted by the Internal Revenue Code. No option may be
exercised within the first six months from the date it is granted (except in the
case of an optionee who becomes disabled or dies or in the case of an option
that becomes exercisable as a result of a change of control).
If the option so provides, an optionee exercising an option may pay the
purchase price in cash; by delivering or causing to be withheld from the option
shares, shares of Common Stock; by delivering a promissory note; or by
delivering an exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds from the
option shares to pay the exercise price. The Plan authorizes the Committee to
include a "reload" feature in options granted under the Plan.
The Committee may award stock appreciation rights under the Plan either
with or without related options. When the stock appreciation right is
exercisable, the holder may surrender to the Company all or a portion of the
unexercised stock appreciation right and receive in exchange an amount equal to
the difference between (i) the fair market value on the date of exercise of the
Common Stock covered by the surrendered portion of the stock appreciation right
and (ii) the exercise price of the Common Stock under the related option or, if
not related to an option, the fair market value of Common Stock on the date the
stock appreciation right was awarded. The Company's obligation arising upon
exercise of a stock appreciation right may be paid in Common Stock or in cash,
or in any combination of the two, as the Committee may determine.
Restricted stock issued pursuant to the Plan is subject to the following
general restrictions: (i) no shares may be sold, transferred, pledged, or
otherwise encumbered or disposed of until the restrictions have lapsed or been
removed under the provisions of the Plan, and (ii) if a holder of restricted
stock ceases to be employed by the Company, any shares of restricted stock on
which the restrictions have not lapsed or been otherwise removed will be
forfeited. The Committee may impose further restrictions on restricted stock
awards, including additional events of forfeiture.
No options or stock appreciation rights and no shares of restricted
stock (during the applicable period of restriction) may be sold, transferred,
pledged, or otherwise disposed of, other than by will or by the laws of descent
and distribution. All rights granted to a participant under the Plan shall be
exercisable during his or her lifetime only by such participant, or his or her
guardians or legal representatives. Upon the death of a participant, his or her
personal representative or beneficiary may exercise the rights under the Plan.
The provision limiting transferability of incentive awards would be affected by
one of the proposed amendments to the Plan.
The Board of Directors may amend the Plan in such respects as it deems
advisable provided that the shareholders of the Company must approve any
amendment that would (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of shares of
Common Stock that may be issued under the Plan or (iii) materially modify the
requirements of eligibility for participation in the Plan.
18
Federal Income Tax Consequences
An employee does not incur federal income tax when granted a
nonstatutory stock option, an incentive stock option, a stock appreciation right
or restricted stock.
Upon exercise of a nonstatutory option or a stock appreciation right, an
employee generally will recognize ordinary compensation income, which is subject
to income tax withholding by the Company, equal to the difference between the
fair market value of the Common Stock on the date of the exercise and the option
price. When an employee exercises an incentive stock option, the employee
generally will not recognize income, unless the employee is subject to the
alternative minimum tax.
An employee may deliver shares of Common Stock instead of cash to
acquire shares under an incentive stock option or nonstatutory stock option
without having to recognize taxable gain (except in some cases with respect to
"statutory option stock") on any appreciation in value of the shares delivered.
"Statutory option stock" is stock acquired upon the exercise of incentive stock
options.
In general, an employee who has received shares of restricted stock will
include in gross income as compensation income an amount equal to the fair
market value of the shares of restricted stock at the time the restrictions
lapse or are removed. Such amount will be included in income in the tax year in
which such event occurs.
The Committee has authority under the Plan to adopt procedures to give a
participant the right to deliver already owned Common Stock or to have a portion
of the shares that would otherwise be acquired under an incentive award withheld
to cover tax liabilities.
The Company usually will be entitled to a business expense deduction at
the time and in the amount that the recipient of an incentive award recognizes
ordinary compensation income in connection therewith. No deduction is allowed in
connection with an incentive stock option, unless the employee disposes of
Common Stock received upon exercise in violation of the holding period
requirements. Moreover, there can be circumstances when the Company may not be
entitled to a deduction for certain transfers of Common Stock or payments to an
employee upon the exercise of an incentive award that has been accelerated as a
result of a change of control. This summary of federal income tax consequences
of incentive awards granted under the Plan does not purport to be complete.
State, local and foreign income taxes may also be applicable to the transactions
described above.
Vote Required
The amendments to the Plan will be approved if the votes cast in favor
of approval of the amendments at the annual meeting exceed the votes cast
against approval.
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE AMENDMENTS TO THE 1994
STOCK INCENTIVE PLAN IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND,
ACCORDINGLY, RECOMMENDS A VOTE "FOR" THE AMENDMENTS TO THE 1994 STOCK INCENTIVE
PLAN.
19
ITEM FOUR -- PROPOSAL TO AMEND THE
1989 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Introduction
The Board of Directors and shareholders of the Company have previously
approved the 1989 Non-Employee Directors Stock Option Plan as amended and
restated (the "1989 Plan"). The 1989 Plan is intended to encourage ownership in
the Company by members of the Board of Directors who are not full-time employees
of the Company, in order to give them an identity of interests with shareholders
of the Company and to provide them with an incentive to continue as directors of
the Company.
Amendment to the Plan
In April 1996, the Board of Directors of the Company approved, subject
to shareholder approval, an amendment to the 1989 Plan. The purpose of the
amendment is to extend the period of time during which options granted to a
director under the 1989 Plan may be exercised following the director's
retirement from the Board. The amendment also affects all options outstanding
under the 1989 Plan as of the date of the 1996 Annual Meeting of shareholders of
the Company. Under the current provisions of the 1989 Plan and the options
granted under the 1989 Plan, once an option becomes exercisable, if the option
holder ceases to be a director of the Company, the option may be exercised at
any time within one year thereafter, so long as it is exercised before its
expiration date. Under the amendment, the period of time for exercise following
the date the option holder ceases to be a director would be extended for one
year for each five years of service by the option holder as a director of the
Company; provided, however, that the option exercise period would not extend
beyond the expiration date of the option. The purpose of the amendment is to
revise the 1989 Plan consistent with more recently adopted similar plans of
other companies. The amendment will provide longer-service directors greater
flexibility with respect to their option exercises and facilitate tax planning
by these individuals.
Principal Features of the Plan
The basic operation of the 1989 Plan is described under "Compensation of
Directors." Options granted under the 1989 Plan become exercisable on the
business day before the annual meeting three years after the annual meeting at
which the options are granted. Options also become exercisable immediately (a)
upon retirement after six years of service, (b) upon a change of control or (c)
upon termination of service as a director because of death. Options granted
under the 1989 Plan expire seven years after the date of the option grant. An
optionee exercising an option granted under the 1989 Plan may pay the purchase
price in cash, in shares of Common Stock or in any combination thereof.
Each director of the Company who is granted an option under the 1989
Plan is automatically granted a like number of limited stock appreciation rights
in connection with the grant of such option. These limited stock appreciation
rights will become exercisable only upon the occurrence of a change of control.
When the stock appreciation right is exercisable, the holder may surrender to
the Company all or a portion of the holder's unexercised stock option and
receive in exchange an amount equal to the excess of (i) the fair market value
on the date of exercise of the Common Stock covered by the surrendered portion
of the underlying option over (ii) the exercise price of the Common Stock
covered by the surrendered portion of the underlying option. When a stock
appreciation right is exercised, the underlying option, to the extent
surrendered, will no longer be exercisable. Similarly, when an option is
exercised, any stock appreciation rights granted under the 1989 Plan may only be
exercised within the 90-day period immediately following a change of control. In
addition, such stock appreciation rights may only be exercised when the
underlying option is exercisable, and they may not be exercised within the first
six months after they are granted.
20
This summary of the principal features of the 1989 Plan is qualified by
reference to the actual provisions of the 1989 Plan, a copy of which is
available to any shareholder or director upon written request to the Company.
Federal Income Tax Consequences
A director generally will not incur federal income tax when he or she is
granted a stock option or a stock appreciation right under the 1989 Plan. Upon
exercise of a stock option or stock appreciation right, a director generally
will recognize ordinary income equal to the difference between the fair market
value of the Common Stock on the date of the exercise and the exercise price. A
director delivering shares of Common Stock instead of cash to pay the exercise
price under an option will not have to recognize a taxable gain on any
appreciation in value of the shares delivered.
The Company usually will be entitled to a business expense deduction at
the time of a grant and in the amount that the recipient of a grant under the
1989 Plan recognizes ordinary income in connection therewith. As stated above,
the Company's right to the deduction occurs upon the exercise of nonstatutory
stock options and stock appreciation rights.
This summary of federal income tax consequences of stock options and
stock appreciation rights granted under the 1989 Plan does not purport to be
complete. State, local and foreign income taxes may also be applicable to the
transactions described above.
Effect of Amendments on Directors
The amendments will affect the exercise periods of outstanding options
held by the following directors and covering the stated numbers of shares: Mr.
Cooper: 23,103 shares; Mr. Nierenberg: 23,103 shares; Mr. Villanueva: 13,353
shares; and Mr. Wurtzel: 23,103 shares. The amendment may also increase benefits
under the 1989 Plan for other directors who serve more than five years by the
time they cease to be directors.
Vote Required
The amendment of the 1989 Plan will be approved if the votes cast in
favor of approval at the annual meeting exceed the votes cast against approval.
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE AMENDMENT OF THE
1989 PLAN IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND, ACCORDINGLY,
RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT.
RELATIONSHIP WITH INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP served during the Company's fiscal year ended
February 29, 1996, as the Company's independent certified public accountants and
has been selected as the Company's independent certified public accountants for
the current fiscal year. Representatives of KPMG Peat Marwick LLP will be
present at the meeting of the Company's shareholders. Such representatives will
have the opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
OTHER BUSINESS
If any other business properly comes before the meeting, your proxy may
be voted by the persons named in it in such manner as they deem proper.
At this time the Company does not know of any other business that will
be presented to the meeting.
21
PROPOSALS BY SHAREHOLDERS FOR PRESENTATION
AT THE 1997 ANNUAL MEETING
Section 1.3 of the Company's Bylaws provides that, in addition to other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must give timely written notice to the
Secretary or an Assistant Secretary at the principal office of the Company. Any
such notice must be received (i) on or after March 1st and before April 1st of
the year in which the meeting will be held, if clause (ii) is not applicable, or
(ii) not less than 60 days before the date of the meeting if the date for such
meeting prescribed in the Bylaws has been changed by more than 30 days. The
shareholder's notice shall set forth (i) the name and address, as they appear on
the Company's stock transfer books, of the shareholder, (ii) the class and
number of shares of stock of the Company beneficially owned by the shareholder,
(iii) a representation that the shareholder is a shareholder of record at the
time of the giving of the notice and intends to appear in person or by proxy at
the meeting to present the business specified in the notice, (iv) a brief
description of the business desired to be brought before the meeting, including
the complete text of any resolutions to be presented and the reasons for wanting
to conduct such business and (v) any interest which the shareholder may have in
such business.
Proposals that any shareholder desires to have included in the proxy
statement for the 1997 annual meeting of shareholders must be received by the
Company no later than January 10, 1997.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 1996, as filed with the Securities and Exchange Commission
may be obtained by any shareholder after May 31, 1996, free of charge, upon
written request to Office of the Corporate Secretary, Circuit City Stores, Inc.,
9950 Mayland Drive, Richmond, Virginia 23233, or by calling (804) 527-4022.
By Order of the Board of Directors
Michael T. Chalifoux, Secretary
May 10, 1996
22
<PAGE>
CIRCUIT CITY STORES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
JUNE 18, 1996
The undersigned, having received the Annual Report to the Shareholders
and the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement dated May 10, 1996, hereby appoints Richard L. Sharp and Robert L.
Burrus, Jr., and each of them, proxies, with full power of substitution, and
hereby authorizes them to represent and vote the shares of Common Stock of
Circuit City Stores, Inc. (the "Company"), which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders of
the Company to be held on Tuesday, June 18, 1996, at 10:00 a.m., Eastern
Daylight Time, and any adjournment thereof, and especially to vote as set forth
on the reverse hereof.
_
|_| I plan to attend the meeting.
<TABLE>
1. ELECTION OF DIRECTORS
<S> <C>
_
|_| FOR all nominees listed for the |_| WITHHOLD AUTHORITY
terms set forth in the Proxy Statement to vote for all nominees listed
</TABLE>
NOMINEES: Theodore D. Nierenberg, Hugh G. Robinson, Walter J. Salmon,
Mikael Salovaara, John W. Snow
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.
------------------------------------------------------------------------
2. Approval of the amendment to the Articles of Incorporation to increase
the authorized Common Stock from 150,000,000 shares to 250,000,000
shares.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of the amendment of the 1994 Stock Incentive Plan.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
4. Approval of the amendment of the 1989 Non-Employee Directors Stock
Option Plan.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
5. IN THEIR DISCRETION the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournments
thereof.
IF YOU SPECIFY A CHOICE AS TO THE ACTION TO BE TAKEN ON AN ITEM, THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH SUCH CHOICE. IF YOU DO NOT SPECIFY A CHOICE, IT WILL
BE VOTED FOR THE NAMED NOMINEES IN THE PROXY STATEMENT AND FOR ITEMS 2, 3 AND 4.
Any proxy or proxies previously given for the meeting are revoked.
Please sign exactly as the name appears hereon.
Dated:___________________________________, 1996
- -----------------------------------------------
(Signature)
- -----------------------------------------------
(Signature if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
