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:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) 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) No fee required
( ) 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 17, 1997
TO THE HOLDERS OF CIRCUIT CITY STORES, INC. -- CIRCUIT CITY GROUP COMMON STOCK
OR CIRCUIT CITY STORES, INC. -- CARMAX GROUP 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 17, 1997, at 10:00 a.m., Eastern Daylight
Time, for the following purposes:
1. To elect three directors to three-year terms;
2. To consider and vote upon a proposal to amend and restate the 1989
Non-Employee Directors Stock Option Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of shares of Circuit City Group Common Stock or
CarMax Group Common Stock at the close of business on May 2, 1997, 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 return envelope provided.
You are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ MICHAEL T. CHALIFOUX
-------------------------------
MICHAEL T. CHALIFOUX, SECRETARY
May 9, 1997
<PAGE>
PROXY STATEMENT
This Proxy Statement, mailed to holders of Circuit City Group Common Stock
or CarMax Group Common Stock on or about May 9, 1997, 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 17, 1997, and at any adjournments thereof. A copy of the annual report
of the Company for the fiscal year ended February 28, 1997, is being mailed 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 also has 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 $6,000 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 "Circuit City Stock Purchase Plan") will receive proxy soliciting
material for the shares of Circuit City Group Common Stock held on each
participant's behalf by First Union National Bank of North Carolina, as
Custodian. Those proxies 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 participants' instructions. If a participant does
not vote his or her Circuit City Stock Purchase Plan shares, the Custodian will
vote such shares in accordance with the recommendations of the Company's
management.
On May 2, 1997, the date for determining shareholders entitled to vote at
the meeting, 98,230,743 shares of Circuit City Group Common Stock and 21,860,000
shares of CarMax Group Common Stock were outstanding and entitled to vote.
References to "Common Stock" in this Proxy Statement refer to the Circuit City
Group Common Stock and the CarMax Group Common Stock, collectively. The holders
of both series of Common Stock will vote together as a single group at the
meeting. Each outstanding share of Circuit City Group Common Stock entitles the
holder thereof to one vote; each outstanding share of CarMax Group Common Stock
entitles the holder thereof to 0.406 votes. The voting rights of the CarMax
Group Common Stock have been determined from the recent market values of each
series of Common Stock in accordance with the formula set forth in the Company's
Articles of Incorporation.
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 and for the proposal to amend and
restate 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 total 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 the shares representing a plurality of the votes 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. Action on all other matters to come before the meeting, including the
approval of the amendment and restatement of the 1989 Non-Employee Directors
Stock Option Plan, requires that the votes cast in favor of the action exceed
the votes cast against it. Abstentions and Broker Shares that are not voted are
not considered cast either for or against a matter and, therefore, will have no
effect on the outcome.
1
<PAGE>
ITEM ONE -- ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of 11 directors, who
are divided into three classes with staggered terms. The terms of Michael T.
Chalifoux, Barbara S. Feigin, Theodore D. Nierenberg and Edward Villanueva as
directors of the Company will expire at the time of the annual meeting of
shareholders. Mr. Nierenberg has declined to stand for reelection due to his
retirement. The Company recommends the reelection of Ms. Feigin and Messrs.
Chalifoux and Villanueva. The size of the Board will be reduced to 10 members at
the time of the 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
<TABLE>
<S> <C>
[PICTURE] MICHAEL T. CHALIFOUX, 50, 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.
[PICTURE] BARBARA S. FEIGIN, 59, Executive Vice President and Worldwide 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 13 years.
She is a director of VF Corporation. She has been a director of the Company since 1994.
[PICTURE] EDWARD VILLANUEVA, 62, 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.
</TABLE>
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
<TABLE>
<S> <C>
[PICTURE] RICHARD N. COOPER, 62, Professor of Economics at Harvard University since 1981. He is a
director of the Phoenix Home Mutual Life Insurance Co. and the Warburg-Pincus Funds. He
has been a director of the Company since 1983. His present term will expire in 1998.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
[PICTURE] HUGH G. ROBINSON, 64, 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.
His present term will expire in 1999.
[PICTURE] WALTER J. SALMON, 66, 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. His present term will expire in 1999.
[PICTURE] MIKAEL SALOVAARA, 43, Partner, Greycliff Partners, since 1991. Mr. Salovaara was a Limited
Partner of The Blackstone Group L.P. from 1994 to 1996. The principal business of
Greycliff Partners and The Blackstone Group L.P. is merchant banking. He 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. He has been a director
of the Company since 1995. His present term will expire in 1999.
[PICTURE] RICHARD L. SHARP, 50, Chairman of the Board and Chief Executive Officer of the Company.
Mr. Sharp joined the Company as an Executive Vice President in 1982. He was President of
the Company from June 1984 to March 1997 and became Chief Executive Officer in 1986 and
Chairman of the Board in 1994. He is a director of James River Corporation and Flextronics
International, Ltd. He has been a director of the Company since 1983. His present term
will expire in 1998.
[PICTURE] JOHN W. SNOW, 57, 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. He has been a director of
the Company since 1996. His present term will expire in 1999.
[PICTURE] ALAN L. WURTZEL, 63, 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 Dollar Tree Stores, Inc. He has been a director of the
Company since 1966. His present term will expire in 1998.
</TABLE>
3
<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information about the equity securities of
the Company beneficially owned as of February 28, 1997, by (i) each executive
officer named in the Summary Compensation Table; (ii) each director of the
Company; (iii) all 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 Circuit City Group Common Stock or CarMax Group Common
Stock. Unless otherwise noted, each individual has sole voting power and sole
investment power with respect to securities beneficially owned.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CIRCUIT CITY GROUP CIRCUIT CITY GROUP CARMAX GROUP
OPTION SHARES WHICH COMMON STOCK COMMON STOCK
MAY BE ACQUIRED BENEFICIALLY OWNED PERCENT BENEFICIALLY OWNED PERCENT
WITHIN 60 DAYS AFTER AS OF OF AS OF OF
NAME FEBRUARY 28, 1997 FEBRUARY 28, 1997 (1) SERIES FEBRUARY 28, 1997 (2) SERIES
- --------------------------------------------------------- --------------------- ------- --------------------- -------
<S> <C>
NAMED EXECUTIVE OFFICERS
Richard L. Sharp** 482,110 1,459,705 1.5% 0
Richard S. Birnbaum 105,456 183,217 * 0
John A. Fitzsimmons 56,250 93,301 * 0
Michael T. Chalifoux** 113,408 194,231 * 0
W. Alan McCollough 105,728 145,852 * 0
DIRECTORS
Richard N. Cooper 9,983 39,053 * 0
Barbara S. Feigin 0 500 * 0
Theodore D. Nierenberg 13,773 80,119 (3) * 0
Hugh G. Robinson 0 0 * 0
Walter J. Salmon 4,163 12,763 * 0
Mikael Salovaara 0 2,000 (4) * 0
John W. Snow 0 0 * 0
Edward Villanueva 4,579 250,109 (5) * 0
Alan L. Wurtzel 9,983 494,301 (6) * 0
All directors and executive officers
as a group (17 persons) 1,033,257 3,150,173 (7) 3.2% 0
BENEFICIAL OWNERS OF MORE THAN 5%
FMR Corp. N/A 14,236,208 (8) 14.5% N/A
82 Devonshire Street
Boston, MA 02109
The Capital Group Companies, Inc. N/A 8,886,290 (9) 9.1% 3,394,300 (10) 15.5%
333 South Hope Street
Los Angeles, CA 90071
The Equitable Companies Incorporated N/A N/A 6,459,310 (11) 29.6%
787 Seventh Avenue
New York, NY 10019
</TABLE>
- ---------------
* Less than 1 percent of the Series, based on the number of shares of Circuit
City Group Common Stock or CarMax Group Common Stock outstanding on May 2,
1997.
** Messrs. Sharp and Chalifoux are also directors of the Company.
(1) Includes the shares of Circuit City Group Common Stock that could be
acquired through exercise of stock options within 60 days after February 28,
1997.
4
<PAGE>
(2) No shares of CarMax Group Common Stock could be acquired through exercise
of stock options within 60 days after February 28, 1997.
(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) 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.
(6) Includes 153,200 shares held by Mr. Wurtzel as trustee of trusts for the
benefit of his children, 251,118 shares held by Alan Wurtzel Revocable
Trust and 80,000 shares held by Alan Wurtzel Charitable Remainder Unitrust.
Mr. Wurtzel disclaims beneficial ownership of all the aforementioned
shares.
(7) Beneficial ownership is disclaimed for a total of 565,657 shares.
(8) Information concerning the Circuit City Group Common Stock beneficially
owned by FMR Corp. as of December 31, 1996, was obtained from a Schedule
13G dated February 14, 1997. According to this filing, the interest of one
entity, Fidelity Advisor Growth Opportunities Portfolio, an investment
company registered under the Investment Company Act of 1940, amounted to
4,901,700 shares or 5.0 percent of the outstanding shares of Circuit City
Group Common Stock. The filing indicates that of the 14,236,208 shares
beneficially owned, FMR Corp. has sole voting power for 546,168 shares,
shared voting power for 4,000 shares, sole dispositive power for 14,232,208
shares and shared dispositive power for 4,000 shares.
(9) Information concerning the Circuit City Group Common Stock beneficially
owned by The Capital Group Companies, Inc. as of December 31, 1996, was
obtained from a Schedule 13G dated February 12, 1997. According to this
filing, the interest of one entity, Capital Research and Management
Company, an investment adviser registered under the Investment Advisers Act
of 1940, amounted to 6,949,300 shares or 7.1 percent of the outstanding
shares of Circuit City Group Common Stock. The Company is informed that no
account managed by The Capital Group Companies, Inc. or its affiliates owns
5 percent or more of Circuit City Group Common Stock. The filing indicates
that of the 8,886,290 shares beneficially owned, The Capital Group
Companies, Inc. has sole voting power for 1,249,890 shares and sole
dispositive power for 8,886,290.
(10) Information concerning the CarMax Group Common Stock beneficially owned by
The Capital Group Companies, Inc. as of April 14, 1997, was obtained from a
Schedule 13G dated April 15, 1997. According to this filing, the interest
of one entity, Capital Research and Management Company, an investment
adviser registered under the Investment Advisers Act of 1940, amounted to
2,200,000 shares or 10.1 percent of the outstanding shares of CarMax Group
Common Stock. American Variable Insurance Series-Growth-Income Fund, an
investment company registered under the Investment Company Act of 1940,
which is advised by Capital Research and Management Company, had an
interest in 1,300,000 of the 2,200,000 shares or 6.0 percent of the
outstanding shares of CarMax Group Common Stock. The interest of another
entity, Capital Guardian Trust Company, a wholly owned subsidiary of The
Capital Group Companies, Inc., amounted to 1,194,300 shares or 5.5 percent
of the outstanding shares of CarMax Group Common Stock. The filing
indicates that of the 3,394,300 shares beneficially owned, The Capital
Group Companies, Inc. has sole voting power for 1,085,700 shares and sole
dispositive power for 3,394,300.
(11) Information concerning the CarMax Group Common Stock beneficially owned by
The Equitable Companies Incorporated as of March 31, 1997, was obtained
from a Schedule 13G dated April 10, 1997, filed by Equitable Companies;
AXA-UAP, which beneficially owns a majority interest in Equitable
Companies; and the Mutuelles AXA, as a group which beneficially owns a
majority interest in AXA-UAP. According to this filing, the interest of one
entity, Alliance Capital Management L. P., an investment adviser registered
under the Investment Advisers Act of 1940, amounted to 5,780,110 shares or
26.4 percent of the outstanding shares of CarMax Group Common Stock. The
filing indicates that of the 6,459,310 shares beneficially owned, The
Equitable Companies Incorporated has sole voting power for 6,440,060
shares, sole dispositive power for 6,455,810 shares and shared dispositive
power for 3,500 shares.
5
<PAGE>
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held nine meetings during the fiscal year ended
February 28, 1997. 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
except John W. Snow who attended 73 percent.
The Audit Committee is composed of Edward Villanueva, Chairman, Richard N.
Cooper, Barbara S. Feigin and Hugh G. Robinson. Three meetings were held during
the fiscal year ended February 28, 1997. 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, Mikael Salovaara and John W. Snow. Seven
meetings were held during the fiscal year ended February 28, 1997. 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 L. Wurtzel. One
meeting was held during the fiscal year ended February 28, 1997. 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, Walter J. Salmon and John
W. Snow. Two meetings were held during the fiscal year ended February 28, 1997.
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
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The table below sets forth for the years ended
February 28, 1997, February 29, 1996, and February 28, 1995, the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries of those persons who at February 28, 1997, 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. All of the following long-term compensation awards are Circuit City
Group Common Stock awards. No CarMax Group Common Stock awards were granted to
the Company's CEO and other four most highly compensated executive officers
through fiscal year 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING
NAME AND FISCAL SALARY BONUS AWARD OPTIONS/SARS
PRINCIPAL POSITION YEAR $ $ $ (#)
- ------------------------------- ------- -------- ------- ---------- ------------
<S> <C>
Richard L. Sharp 1997 712,988 177,500 0 1,100,000
Chairman of the Board and 1996 685,509 376,750 0 127,000
Chief Executive Officer 1995 651,747 975,000 0 125,000
Richard S. Birnbaum 1997 524,450 65,000 0 160,000
Executive Vice President 1996 503,355 137,500 0 45,000
Operations 1995 482,322 356,250 0 50,000
John A. Fitzsimmons 1997 489,450 42,438 0 120,000
Senior Vice President 1996 468,356 89,513 0 30,000
Administration 1995 441,045 231,000 0 30,000
Michael T. Chalifoux 1997 437,130 38,063 0 120,000
Senior Vice President, 1996 413,355 78,925 0 30,000
Chief Financial Officer 1995 386,045 202,125 0 27,500
and Secretary
W. Alan McCollough 1997 428,967 37,188 796,875(1) 170,000
President and 1996 383,494 73,150 0 40,000
Chief Operating Officer 1995 278,549 134,750 0 16,500
</TABLE>
- ---------------
(1) Mr. McCollough was awarded 25,000 shares of restricted stock on February 20,
1997, in connection with his promotion to President and Chief Operating
Officer. The amount in the above table is based on the closing price for
Circuit City Group Common Stock on the date of the award which was $31.875.
The stock will vest in even increments on April 20, 2000; April 20, 2001;
and April 20, 2002. Dividends are paid on restricted stock during the
restricted period.
7
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR. The table below sets forth for the
fiscal year ended February 28, 1997, the grants of Circuit City Group Common
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 RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS/SARS FOR OPTION TERM
OPTIONS/SARS GRANTED TO EXERCISE EXPIRATION -------------------------
GRANTED EMPLOYEES PRICE (1) DATE 5% 10%
------------ ------------ --------- ----------- ---------- ----------
<S> <C>
Richard L. Sharp 1,000,000 29.90% $ 59.00 4/04/02 $ 0 $ 0
100,000 2.99 29.50 4/15/03 1,462,466 3,169,473
Richard S. Birnbaum 160,000 4.78 29.50 4/04/06 3,440,762 8,274,650
John A. Fitzsimmons 120,000 3.59 29.50 4/04/06 2,580,572 6,205,987
Michael T.
Chalifoux 120,000 3.59 29.50 4/04/06 2,580,572 6,205,987
W. Alan McCollough 120,000 3.59 29.50 4/04/06 2,580,572 6,205,987
50,000 1.50 31.75 4/20/04 664,260 1,554,939
</TABLE>
- ---------------
(1) The exercise price for all of the options is the fair market value of the
Circuit City Group Common Stock on the date of grant except for the
1,000,000 share grant to Mr. Sharp.
AGGREGATED OPTIONS/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
TABLE. The table below sets forth information concerning Circuit City Group
Common Stock option exercises and fiscal year-end option/SAR values as of
February 28, 1997, 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 28, 1997 FEBRUARY 28, 1997
SHARES ACQUIRED VALUE ----------------------------- -----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ---------- ----------- ------------- ----------- -------------
<S> <C>
Richard L. Sharp 296,924 $3,918,498 400,985 1,282,125 $ 5,296,803 $ 1,868,344
Richard S. Birnbaum 40,578 561,031 84,456 235,000 1,149,529 942,813
John A. Fitzsimmons 0 0 31,125 163,125 349,781 576,094
Michael T. Chalifoux 46,822 683,269 88,283 161,875 1,170,541 560,234
W. Alan McCollough 3,788 66,825 80,728 211,250 1,163,832 538,172
</TABLE>
8
<PAGE>
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>
ESTIMATED* ANNUAL PENSION FOR REPRESENTATIVE YEARS
HIGHEST CONSECUTIVE OF CREDITED SERVICE
FIVE-YEAR AVERAGE ---------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------ ------- ------- ------- ------- ---------
<S> <C>
$ 400,000............. 87,075 116,100 145,125 174,150 203,175
$ 600,000............. 132,075 176,100 220,125 264,150 308,175
$ 800,000............. 177,075 236,100 295,125 354,150 413,175
$1,000,000............. 222,075 296,100 370,125 444,150 518,175
$1,200,000............. 267,075 356,100 445,125 534,150 623,175
$1,400,000............. 312,075 416,100 520,125 624,150 728,175
$1,600,000............. 357,075 476,100 595,125 714,150 833,175
$1,800,000............. 402,075 536,100 670,125 804,150 938,175
$2,000,000............. 447,075 596,100 745,125 894,150 1,043,175
</TABLE>
- ---------------
* The Internal Revenue Code limits the annual retirement benefits that may be
paid from, and the amount of compensation that may be recognized by, the
Pension Plan. For 1997, these limits are $125,000 and $160,000, respectively.
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 28 years, respectively, at age 65.
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 1997 fiscal year, the Committee made its compensation
decisions based on a review of the Company's 1996 fiscal year performance and on
the Company's budget and other projections for the 1997 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
9
<PAGE>
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 1997 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 in 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 renumeration for executive officers
should be set so that a large percentage of total cash compensation is at risk
under the incentive programs.
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 1997 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 1997 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 1996 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 1997 fiscal year, if
the Company did not achieve 85 percent of the goal, no bonuses would be earned.
For performance above the target, an additional bonus would be paid with a
maximum bonus of 150 percent of the target bonus.
10
<PAGE>
In establishing the annual salary and potential bonuses for named executive
officers for the 1997 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.
The Company's performance for the 1997 fiscal year was below the minimum
goals for payment of bonuses that had been set under the Bonus Plan and the
Incentive Program at the beginning of the year, so that no bonuses were earned
under those plans. In evaluating bonuses for the 1997 fiscal year, the Committee
reviewed the Company's performance in comparison with the performance of several
significant retail competitors. The Committee determined that the Company's
relative performance for the 1997 fiscal year was substantially better than
these competitors. In light of the Company's achievements in a period of
difficult industry conditions, the Committee determined that a special bonus
should be paid that was 25% of the bonuses targeted under the Bonus Plan and the
Incentive Program. The Committee believes that the payment of this bonus is
consistent with the philosophy of rewarding above-average performance by the
Company in comparison to its peers.
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
1997 fiscal year, except in the case of hiring grants and significant
promotions.
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.
During the 1997 fiscal year, the Committee implemented a program of special
stock option grants for the named executive officers other than the CEO. This
program is intended to encourage a five-year employment commitment from these
senior executives. The Committee believes that this commitment will support the
goal of increasing shareholder value by helping to preserve the successful
management team. The aggregate grant for the other named executive officers was
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 Stock Incentive Plan. The grant was 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 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.
These grants were described to shareholders in connection with amendments to the
Stock Incentive Plan that were approved by shareholders at the Company's 1996
Annual Meeting. The option grants originally related to the Company's Common
Stock which has now been redesignated as Circuit City Group Common Stock.
During the 1997 fiscal year, the Company obtained shareholder approval for
the issuance of grants under the Stock Incentive Plan for the Company's new
series of Common Stock, the CarMax Group Common Stock, that reflects the
performance of the Company's CarMax business. The Committee's current intention
is to issue grants for the CarMax Group Common Stock to those employees who are
employed in or provide significant services to the CarMax business.
11
<PAGE>
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 the 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 1998 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 and CEO, for the 1997 fiscal year in a manner consistent with
the guidelines and policies described above. The Committee approved an increase
in Mr. Sharp's salary of approximately 4 percent and kept his performance bonus
target at 100 percent of salary. Mr. Sharp participated in the special bonus
grant described above at the minimum level that had been targeted under the
Bonus Plan. The Committee believes that Mr. Sharp's leadership was instrumental
in the Company's outperforming its peers and that he should participate in the
bonus in the same manner as the other named officers.
Mr. Sharp received an annual stock option grant for the 1997 fiscal year
under the same grant practices as were used for the 1996 fiscal year. The
Committee also made a special long-term stock option grant to Mr. Sharp under
the Stock Incentive Plan. This option is designed to promote and reward only
extraordinary long-term performance by the Company which the Committee believes
will be 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 $59
which was 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 Circuit
City Group Common Stock more than doubles in price within six years. This grant
and amendments to the Stock Incentive Plan to enable the grant to be made were
described in connection with amendments to the Stock Incentive Plan that were
approved by shareholders at the Company's 1996 Annual Meeting.
COMPENSATION AND PERSONNEL COMMITTEE
Theodore D. Nierenberg, Chairman
Walter J. Salmon
Mikael Salovaara
John W. Snow
12
<PAGE>
PERFORMANCE GRAPH
TOTAL RETURN TO SHAREHOLDERS
Fiscal Year 1992 1993 1994 1995 1996 1997
Circuit City Group Common Stock 100.00 152.49 122.36 139.87 192.36 203.75
S&P 500 Index 100.00 110.65 119.88 128.70 173.36 218.72
S&P Retail Stores Composite 100.00 114.76 115.01 105.32 116.25 143.06
The Company's CarMax Group Common Stock began trading on February 4, 1997. The
cumulative total return at February 28, 1997, for the CarMax Group Common Stock
was 94.71 as compared with 100.20 for the S&P 500 Index and 107.21 for the S&P
Retail Stores Composite for the same period.
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 $710,000, $520,000, $485,000, $435,000 and
$550,000, 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
SARs are Change of Control SARs that may only be exercised in the event of a
change of control. The options also provide for accelerated vesting in the event
of a change of
13
<PAGE>
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
difference 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. As of February 28,
1997, all outstanding Common Stock options and SARs relate to Circuit City Group
Common Stock.
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. Mr. Wurtzel and employees who are also directors
do not receive directors' fees.
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 and under the 1989
Plan, as currently in effect, relate only to Circuit City Group Common Stock.
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 also may 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 Circuit City Group 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 Circuit City Group
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. See
"Item Two -- Proposal to Amend and Restate the 1989 Non-Employee Directors Stock
Option Plan" for information concerning certain proposed amendments to the 1989
Plan.
On June 18, 1996, nine non full-time employee members of the Board of
Directors were each granted 2,033 Circuit City Group Common Stock options under
the 1989 Plan at an option price of $36.875 per share.
Mr. Wurtzel, who formerly was employed by the Company as Chief Executive
Officer, has an agreement with the Company relating to the cessation of his
employment by the Company. Under the 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 also receives 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 certain employee benefits
which they were 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 non-compete and confidentiality agreement that will be effective
during the term of the agreement.
SECTION 16(A) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 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.
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 1997.
14
<PAGE>
ITEM TWO -- PROPOSAL TO AMEND AND RESTATE 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 and various
amendments to the plan (the plan, as amended to date, is referred to in this
discussion as 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. The basic operation of the 1989 Plan is described
under "Compensation of Directors."
In 1997, the Board of Directors approved, subject to shareholder approval,
certain amendments to the 1989 Plan and the restatement of the 1989 Plan, as
amended. The amendments are summarized below. The summary is qualified by
reference to the complete text of the proposed amended and restated 1989 Plan,
which is set forth in Exhibit A. In general, the purpose of the amendments is to
cause a portion of the directors' 1997 and future annual grants under the 1989
Plan to be in the form of options to purchase Circuit City Group Common Stock
and a portion of such grants to be options to purchase CarMax Group Common
Stock.
AMENDMENTS
The 1989 Plan amendments proposed for shareholder approval are as follows:
(1) The Common Stock reserve for the 1989 Plan is expanded to include
50,000 shares of CarMax Group Common Stock. There are presently approximately
50,000 shares of Circuit City Group Common Stock available for grant under the
1989 Plan.
(2) The annual grant to non-employee directors will continue to be options
(and related change of control SARs) with an aggregrate exercise price of
$75,000. However, instead of being entirely in Circuit City Group Common Stock
options, the grant will be divided between Circuit City Group Common Stock
options and CarMax Group Common Stock options based on the Market Capitalization
(as defined below) of each series of Common Stock. The number of shares of each
series of Common Stock subject to the options shall be determined by dividing
(i) the product of the Applicable Series Percentage (as defined below) and
$75,000 by (ii) the Share Value Price (as defined below) of the relevant series
of Common Stock. The "Applicable Series Percentage" shall be determined by
dividing the Market Capitalization of the relevant series of Common Stock as of
the grant date by the aggregate Market Capitalization of all outstanding series
of Common Stock on such date. The "Market Capitalization" of a series of Common
Stock as of any date shall mean the product of (i) the Share Value Price of the
series on such date and (ii) the number of Shares of the series outstanding on
such date. The "Share Value Price" means the last reported sale price per share
for the series on the New York Stock Exchange (or the exchange on which such
shares are then traded) on the date of grant, or, if the shares did not trade on
the date of grant, on the last day before the date of grant on which such shares
traded. An example of the application of the new formula is shown below under
"Effect of Amendments on Directors."
(3) Various housekeeping amendments are included to take into account the
fact that the options granted under the 1989 Plan will involve both Circuit City
Group Common Stock and CarMax Group Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
A director generally will not incur federal income tax when he or she is
granted a stock option or an SAR under the 1989 Plan. Upon exercise of a stock
option or SAR, the director generally will recognize ordinary income equal to
the difference between the fair market value of the relevant series of 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.
15
<PAGE>
The Company usually will be entitled to a business expense deduction at the
time of and in the amount that the recipient of a grant under the 1989 Plan
recognizes ordinary income in connection therewith. As stated above, this occurs
upon the exercise of stock options or SARs.
This summary of federal income tax consequences of stock options and SARs
granted under the 1989 Plan does not purport to be complete. State, local and
foreign income taxes also may be applicable to the transactions described above.
EFFECT OF AMENDMENTS ON DIRECTORS
On the date of the 1997 annual meeting, assuming the nominees named in this
proxy statement are elected, the following directors will receive option grants
under the 1989 Plan: Mr. Cooper, Ms. Feigin and Messrs. Robinson, Salmon,
Salovaara, Snow, Villanueva and Wurtzel. The number of shares of Circuit City
Group Common Stock and CarMax Group Common Stock subject to these options will
be determined as set forth under "Amendments" above. A like number of change of
control SARs will be automatically granted in connection with each stock option
grant.
Based on the closing prices of the Circuit City Group Common Stock and the
CarMax Group Common Stock on the New York Stock Exchange on May 2, 1997, and the
number of shares of each series outstanding on such date and assuming identical
conditions were to prevail on the date of the 1997 annual meeting, each eligible
director would receive 1,779 Circuit City Group Common Stock options at an
exercise price of $38.875 per share and 396 CarMax Group Common Stock options at
an exercise price of $14.75 per share.
VOTE REQUIRED
The amendment and restatement 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 AND
RESTATEMENT OF THE 1989 PLAN IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND,
ACCORDINGLY, RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT AND RESTATEMENT.
16
<PAGE>
RELATIONSHIP WITH INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP served during the Company's fiscal year ended
February 28, 1997, 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.
PROPOSALS BY SHAREHOLDERS FOR PRESENTATION
AT THE 1998 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 1998 annual meeting of shareholders must be received by the
Company no later than January 9, 1998.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED FEBRUARY 28, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
MAY BE OBTAINED BY ANY SHAREHOLDER AFTER MAY 31, 1997, 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
/s/ MICHAEL T. CHALIFOUX
-------------------------------
Michael T. Chalifoux, SECRETARY
May 9, 1997
17
<PAGE>
EXHIBIT A
CIRCUIT CITY STORES, INC.
AMENDED AND RESTATED
1989 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(AS PROPOSED TO BE AMENDED)
1. PURPOSE. The purpose of this Non-Employee Directors Stock Option Plan
(the "Plan") of Circuit City Stores, Inc. (the "Company") is to encourage
ownership in the Company's common stock, par value $.50 per share (the "Common
Stock"), including both the Circuit City Stores, Inc. -- Circuit City Group
Common Stock (the "Circuit City Group Stock") and the Circuit City Stores, Inc.
- -- CarMax Group Common Stock (the "CarMax Group Stock"), by non-employee members
of the Board of Directors (the "Board") of the Company, in order to promote
long-term shareholder value and to provide non-employee members of the Board
with an incentive to continue as directors of the Company. The Plan conforms to
the provisions of Securities and Exchange Commission Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934 (the "1934 Act"), as presently in
effect.
2. ADMINISTRATION. The Plan shall be administered by the Board. Grants of
stock options ("Options") and stock appreciation rights ("SARs") under the Plan
shall be automatic as described in Sections 7 and 8, respectively. However, the
Board shall have all powers vested in it by the terms of the Plan, including,
without limitation, the authority (within the limitations described herein) to
prescribe the form of the agreement embodying awards of Options and SARs under
the Plan, to construe the Plan, to determine all questions arising under the
Plan, and to adopt and amend rules and regulations for the administration of the
Plan as it may deem desirable. Any decision of the Board in the administration
of the Plan, as described herein, shall be final and conclusive. The Board may
act only by a majority of its members in office, except that members thereof may
authorize any one or more of their number or any officer of the Company to
execute and deliver documents on behalf of the Board. No member of the Board
shall be liable for anything done or omitted to be done by him or any other
member of the Board in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.
3. PARTICIPATION IN THE PLAN. Each director of the Company who is not a
full-time employee of the Company or any parent or subsidiary corporation shall
be eligible to participate in the Plan.
The terms "parent corporation" and "subsidiary corporation," as used in
this Plan, shall have the meanings given them in Sections 424(e) and (f) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
4. STOCK SUBJECT TO THE PLAN. The Company has reserved an aggregate of
250,000 shares of Circuit City Group Common Stock and 50,000 shares of CarMax
Group Common Stock (collectively, the "Shares") for issuance pursuant to the
exercise of Options granted under the Plan. The aggregate number of shares of
each series of Common Stock reserved is subject to future adjustments as
hereinafter provided in Section 13. The aggregate number of Shares of each
series of Common Stock reserved shall be reduced by the issuance of Shares of
such series upon the exercise of Options but shall not be reduced if Options,
for any reason, expire or terminate unexercised.
5. NON-STATUTORY STOCK OPTIONS. All Options granted under the Plan shall be
non-statutory in nature and shall not be entitled to special tax treatment under
Section 422 of the Internal Revenue Code.
6. OPTION EXERCISE PRICE. The exercise price of an Option shall be the fair
market value of the Shares of the series of Common Stock subject to such Option
on the date the Option is granted, which shall be the last reported sale price
per share of such Shares (the "Share Value Price") on the New York Stock
Exchange (or the exchange on which such Shares are then traded) on the date of
grant, or, if the Shares did not trade on the date of grant, on the last day
before the date of grant on which such Shares traded.
7. TERMS, CONDITIONS AND FORM OF STOCK OPTIONS. Each Option shall be
evidenced by a written agreement in such form as the Board shall from time to
time approve, which agreement shall comply with and be subject to the following
terms and conditions:
A-1
<PAGE>
(a) On the date of each annual meeting of shareholders, commencing with the
annual meeting of shareholders to be held in 1997, each director of the Company
who is continuing to serve as a director or who has been elected to serve as a
director for the next following year shall automatically be granted Options to
purchase a number of Shares of each series of Common Stock that is outstanding
on such date computed as follows: The number of shares of any series of Common
Stock subject to such Options shall be determined by dividing (i) the product of
the Applicable Series Percentage (as defined below) and $75,000 by (ii) the
Share Value Price of such series of Common Stock. The "Applicable Series
Percentage" shall be determined by dividing the Market Capitalization (as
defined below) of the relevant series of Common Stock as of such date by the
aggregate Market Capitalization of all outstanding series of Common Stock on
such date. The "Market Capitalization" of a series of Common Stock as of such
date shall mean the product of (i) the Share Value Price of such series of
Common Stock on such date and (ii) the number of Shares of such series of Common
Stock outstanding on such date. In addition, each director who is elected or
appointed to serve at a date other than the date of the Company's annual meeting
of shareholders, and whose date of election or appointment occurs more than six
months before the next regularly scheduled shareholders' meeting shall
automatically be granted Options to purchase a number of Shares of each series
of the Common Stock that is outstanding on such date computed as set forth above
on the date of his election or appointment. The number of Shares subject to each
Option computed as set forth above shall be rounded up or down to a whole number
such that the aggregate exercise price of all Options granted to a director on a
particular date is as near as possible to, but does not exceed, $75,000.
(b) An Option shall not be transferable by the optionee otherwise than by
will, or by the laws of descent and distribution, and shall be exercised during
the lifetime of the optionee only by the optionee or by his guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during his lifetime, whether by
operation of law otherwise, or be made subject to execution, attachment or
similar process.
(c) No Option may be exercised:
(i) before the Plan is approved by the shareholders of the Company;
(ii) in the case of all Options outstanding on or granted after
February 10, 1995, until the business day immediately preceding the day of
the third annual meeting after the date the Option is granted unless the
Option is granted other than on an annual meeting date in which case the
Option may not be exercised until the business day immediately preceding
the day of the third annual meeting after the Company's last annual meeting
of shareholders occurring before the date the Option was granted; provided,
however, that if (A) an optionee ceases to be a director (x) after he has
completed six years of service with the Company as a director or (y) on
account of his death (whether or not he has completed six years of
service), the optionee may exercise any or all of his outstanding Options
at any time (subject to the limitations of subsections (i), (iii) and (v)
of this Section) or (B) a Change in Control (defined in Section 8(j))
occurs, the optionee may exercise any or all of his outstanding Options at
any time (subject to the limitations of subsections (i), (iii) and (v) of
this Section);
(iii) after the expiration of seven (7) years from the date the Option
is granted; provided, however, that each Option shall be subject to
termination before its date of expiration as hereinafter provided;
(iv) except by written notice to the Company at its principal office,
stating the number of shares the optionee has elected to purchase,
accompanied by payment in cash, by delivery to the Company of Shares of the
same series of Common Stock as the Shares to which the Option relates
(valued at fair market value on the date of exercise) in the amount of the
full Option exercise price for the Shares being acquired thereunder or in
any combination thereof; and
(v) except at such time as an optionee is a director of the Company;
provided, however, that once an Option has become exercisable, if the
optionee later ceases to be a director of the Company, the Option may be
exercised after the date the optionee ceased to be a director at any time
that is within a period equal to the number of years of the director's
service on the Board divided by five (5) (rounded down to the next full
integer) plus one (1) year, provided that the Option must be exercised
before its date of expiration pursuant to (iii) above.
A-2
<PAGE>
(d) The Company shall not be required to issue or deliver any Shares of its
Common Stock purchased upon the exercise of any part of an Option before (i) the
admission of such Shares to listing on the New York Stock Exchange; (ii)
completion of any registration or other qualification of such Shares under any
state or federal law or regulation that the Company's counsel shall determine is
necessary or advisable, and (iii) compliance by the Company with such other
legal requirements as the Company's counsel shall advise is necessary or
advisable.
(e) Notwithstanding anything herein to the contrary, Options shall always
be granted and exercised in such a manner as to conform to the provisions of
Rule 16b-3, or any replacement rule adopted pursuant to the provisions of the
1934 Act, as the same now exists or may, from time to time, be amended.
8. CHANGE OF CONTROL STOCK APPRECIATION RIGHTS. Each director of the
Company who is granted an Option under Section 7 shall automatically be granted
SARs in connection with the grant of such Option. SARs shall be evidenced by a
written agreement in such form as the Board shall from time to time approve,
which shall comply with and be subject to the following terms and conditions:
(a) SARs shall entitle the optionee, upon exercise of all or any part of
the SARs, to surrender to the Company unexercised that portion of the underlying
Option relating to the same number of Shares covered by the SARs (or the portion
of the SARs so exercised) and to receive in exchange from the Company an amount
equal to the excess of (x) the fair market value on the date of exercise of the
Shares covered by the surrendered portion of the underlying Option over (y) the
exercise price of the Shares covered by the surrendered portion of the
underlying Option.
(b) Upon the exercise of an SAR and surrender of the related portion of the
underlying Option, the Option, to the extent surrendered, shall not thereafter
be exercisable.
(c) SARs by their terms shall become fully and immediately exercisable only
following a Change of Control (defined in subsection (j) below). The terms of
the underlying Option shall provide that the fair market value of the Shares on
the date of exercise shall be the greater of (x) or (y) below:
(x) the closing price of the Shares on the New York Stock Exchange (or
the exchange on which the shares are then traded) on the business day
immediately preceding the day of exercise;
(y) the highest closing price of the Shares on the New York Stock
Exchange (or the exchange on which the shares are then traded) during the
90 days immediately preceding the Change of Control.
(d) An SAR shall be exercisable only to the extent that the related Option
is exercisable.
(e) An SAR may only be exercised at a time when the fair market value of
the Shares covered by the SAR exceeds the exercise price of the Shares covered
by the underlying Option.
(f) The Company's obligation arising upon the exercise of an SAR shall be
paid in cash.
(g) SARs by their terms may be exercised only within the 90-day period
immediately following the Change of Control; provided, however, that SARs may
not be exercised before the Plan is approved by the shareholders of the Company,
before six months elapse from the date they are awarded or after the date on
which the Options to which they relate expire.
(h) SARs by their terms shall not be transferable by the optionee otherwise
than by will, or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the optionee only by the optionee or by his
guardian or legal representative.
(i) SARs may be exercised by giving written notice to the Company at its
principal office, stating the numbers of SARs the optionee has elected to
exercise.
(j) For purposes of this Plan, the term "Change of Control" means the
occurrence of either of the following events: (i) a third person, including a
"group" as defined in Section 13(d)(3) of the 1934 Act, becomes, or obtains the
right to become, the beneficial owner of Company securities having 20 percent or
more of the combined voting power of the then outstanding securities of the
Company that may be cast for the election of directors of the Company (other
than as a result of an issuance of securities initiated by the Company in the
ordinary course of business); or (ii) as the result of, or in connection with,
any cash tender or exchange offer, merger or other
A-3
<PAGE>
business combination, sale of assets or contested election, or any combination
of the foregoing transactions, the persons who were directors of the Company
before such transactions shall cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company.
9. DEATH OF OPTIONEE. In the event of the death of an optionee at a time
when Options granted to such optionee hereunder are outstanding and exercisable,
the personal representative of the estate of the optionee may exercise such
Options in the same manner as could the optionee before death; provided,
however, that no such Option may be exercised after the earlier of (i) the first
anniversary of the optionee's death and (ii) the expiration date of the Option
under Section 7(c)(iii).
10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Board shall have
the power to modify, extend or renew any outstanding Option, provided that any
such action may not have the effect of changing the Option exercise price or the
number of Shares subject to the Option or altering or impairing any rights or
obligations of any person under any Option previously granted without the
consent of the optionee.
11. TERMINATION. The plan shall terminate upon the earlier of:
(a) the adoption of a resolution of the Board terminating the Plan; or
(b) December 31, 2001.
No termination of the Plan shall without the optionee's consent materially
and adversely affect any of the rights or obligations of any optionee under any
Option previously granted under the Plan.
12. LIMITATIONS OF RIGHTS.
(a) Neither the Plan nor the granting of an Option nor any other action
taken pursuant to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain any person as a
director for any period of time.
(b) An optionee shall have no rights as a shareholder with respect to
Shares covered by his Options until the date of exercise of the Option, and,
except as provided in Section 13, no adjustment will be made for dividends or
other rights for which the record date is before the date of such exercise.
13. CHANGES IN CAPITAL STRUCTURE. Appropriate adjustments shall be made to
the price of the Shares and the number (and, if necessary, the series) of Shares
subject to outstanding Options and the number of Shares of each series of Common
Stock issuable under the Plan if there are any changes in the Company's Common
Stock by reason of stock dividends, stock splits, reverse stock splits,
recapitalization, mergers, or consolidations.
14. EFFECTIVE DATE OF THE PLAN. Subject to the approval of the shareholders
of the Company, the Plan shall be effective on the date the Plan is adopted by
the Board.
15. AMENDMENT TO THE PLAN. The Board may suspend or discontinue the Plan or
revise or amend the Plan in any respect; provided that, if and to the extent
required by Rule 16b-3, no revision or amendment to Section 7(a) of this Plan
shall be made less than six months after the last such revision or amendment,
and no revision or amendment shall be made that increases the total number of
Shares reserved for issuance pursuant to Options under the Plan subject to the
Plan (except as provided in Section 13), expands the class of persons eligible
to receive Options, or materially increases the benefits accruing to optionees
under the Plan, unless such change is authorized by shareholders.
16. NOTICE. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Secretary of the Company and
delivered personally or mailed first class, postage prepaid to the Company at
its principal business address.
17. MISCELLANEOUS. By accepting any Option or other benefit under the Plan,
each optionee and each person claiming under or through such person shall be
conclusively deemed to have given his acceptance and ratification of, and
consent to, any action taken with respect thereto by the Company or the Board.
A-4
<PAGE>
CIRCUIT CITY STORES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
JUNE 17, 1997
The undersigned, having received the Annual Report to the Shareholders and
the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement
dated May 9, 1997, 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 Circuit City Group Common
Stock and/or CarMax Group 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 17, 1997, at 10:00 a.m., Eastern Daylight Time, and any
adjournment thereof, and especially to vote as set forth below.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed for the terms [ ] WITHHOLD AUTHORITY to vote
set forth in the Proxy Statement for all nominees listed
Nominees: Michael T. Chalifoux, Barbara S. Feigin, Edward Villanueva
To withhold authority to vote for any individual nominee, write that
nominee's name on the space provided below.
-------------------------------------------------------------------------
2. Approval of the amendment and restatement of the 1989 Non-Employee
Directors Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued on reverse)
<PAGE>
3. 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 item 2.
Any proxy or proxies previously given for the meeting are revoked.
Dated:___________________________, 1997
---------------------------------
(Signature)
---------------------------------
(Signature if held jointly)
Please sign exactly as the name
appears hereon.
[ ] I plan to attend the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
