UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1998
Commission File Number 1-5767
CIRCUIT CITY STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0493875
(State of Incorporation) (I.R.S. Employer
Identification No.)
9950 MAYLAND DRIVE, RICHMOND, VIRGINIA 23233
(Address of Principal Executive Offices and Zip Code)
(804) 527-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
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Class Outstanding at December 31,1998
Circuit City Stores, Inc. - Circuit City Group Common Stock, par value $0.50 100,460,351
Circuit City Stores, Inc. - CarMax Group Common Stock, par value $0.50 22,880,060
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An Index is included on Page 2 and a separate Index for Exhibits is included on
Page 34.
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
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INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets -
November 30, 1998 and February 28, 1998 4
Consolidated Statements of Earnings -
Three Months and Nine Months Ended November 30, 1998 and 1997 5
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Circuit City Group Financial Statements:
Circuit City Group Balance Sheets -
November 30, 1998 and February 28, 1998 15
Circuit City Group Statements of Earnings -
Three Months and Nine Months Ended November 30, 1998 and 1997 16
Circuit City Group Statements of Cash Flows -
Nine Months Ended November 30, 1998 and 1997 17
Notes to Circuit City Group Financial Statements 18
CarMax Group Financial Statements:
CarMax Group Balance Sheets -
November 30, 1998 and February 28, 1998 24
CarMax Group Statements of Operations -
Three Months and Nine Months Ended November 30, 1998 and 1997 25
CarMax Group Statements of Cash Flows -
Nine Months Ended November 30, 1998 and 1997 26
Notes to CarMax Group Financial Statements 27
Item 2. Management's Discussion and Analysis:
Circuit City Stores, Inc. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Circuit City Group Management's Discussion and Analysis
of Financial Condition and Results of Operations 20
CarMax Group Management's Discussion and Analysis
of Financial Condition and Results of Operations 30
Page 2 of 35
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 34
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Page 3 of 35
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share data)
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Nov. 30, 1998 Feb. 28, 1998
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 118,005 $ 116,612
Net accounts receivable 631,237 598,035
Inventory 2,204,933 1,410,545
Prepaid expenses and other current assets 59,972 21,157
-------------- -------------
Total current assets 3,014,147 2,146,349
Property and equipment, net 1,089,174 1,048,434
Other assets 39,148 36,918
-------------- -------------
TOTAL ASSETS $ 4,142,469 $ 3,231,701
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,706 $ 1,301
Accounts payable 1,144,356 765,391
Short-term debt 462,996 5,976
Accrued expenses and other current liabilities 118,801 132,802
Deferred income taxes 9,977 356
-------------- -------------
Total current liabilities 1,738,836 905,826
Long-term debt, excluding current installments 426,844 424,292
Deferred revenue and other liabilities 133,933 145,107
Deferred income taxes 30,802 26,437
-------------- -------------
TOTAL LIABILITIES 2,330,415 1,501,662
-------------- -------------
Stockholders' equity:
Circuit City Group common stock, $0.50 par value;
175,000,000 shares authorized; 100,428,000 shares
issued and outstanding as of November 30, 1998 50,214 49,641
CarMax Group common stock, $0.50 par value;
175,000,000 shares authorized; 22,840,000 shares
issued and outstanding as of November 30, 1998 11,420 11,102
Capital in excess of par value 564,115 530,763
Retained earnings 1,186,305 1,138,533
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,812,054 1,730,039
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,142,469 $ 3,231,701
============== =============
See accompanying notes to consolidated financial statements.
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Page 4 of 35
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
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Three Months Ended Nine Months Ended
November 30, November 30,
1998 1997 1998 1997
-------------- -------------- ------------- --------------
Net sales and operating revenues $ 2,612,896 $ 2,144,219 $ 7,401,140 $ 6,021,695
Cost of sales, buying and warehousing 2,020,791 1,662,466 5,732,849 4,649,235
-------------- -------------- ------------- --------------
Gross profit 592,105 481,753 1,668,291 1,372,460
-------------- -------------- ------------- --------------
Selling, general and administrative expenses 561,416 455,641 1,552,998 1,269,981
Interest expense 7,714 6,857 21,359 18,772
-------------- -------------- ------------- --------------
Total expenses 569,130 462,498 1,574,357 1,288,753
-------------- -------------- ------------- --------------
Earnings before income taxes 22,975 19,255 93,934 83,707
Provision for income taxes 8,731 7,318 35,695 31,810
-------------- -------------- ------------- --------------
Net earnings $ 14,244 $ 11,937 $ 58,239 $ 51,897
============== ============== ============= ==============
Net earnings (loss) attributable to:
Circuit City Group common stock $ 15,945 $ 14,012 $ 61,361 $ 54,640
CarMax Group common stock (1,701) (2,075) (3,122) (2,743)
-------------- -------------- ------------- --------------
$ 14,244 $ 11,937 $ 58,239 $ 51,897
============== ============== ============= ==============
Weighted average common shares:
Circuit City Group:
Basic 99,308 98,133 99,030 97,960
============== ============== ============= ==============
Diluted 100,361 99,340 100,243 99,143
============== ============== ============= ==============
CarMax Group 22,692 22,098 22,537 21,951
============== ============== ============= ==============
Net earnings (loss) per share:
Circuit City Group:
Basic $ 0.16 $ 0.14 $ 0.62 $ 0.56
============== ============== ============= ==============
Diluted $ 0.16 $ 0.14 $ 0.61 $ 0.55
============== ============== ============= ==============
CarMax Group $ (0.07) $ (0.09) $ (0.14) $ (0.12)
============== ============= ============= ==============
Dividends paid per common share:
Circuit City Group common stock $ 0.035 $ 0.035 $ 0.105 $ 0.105
============== ============== ============= ==============
CarMax Group common stock $ -- $ -- $ -- $ --
============== ============== ============= ==============
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See accompanying notes to consolidated financial statements.
Page 5 of 35
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
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Nine Months Ended
November 30,
1998 1997
------------- ------------
Operating Activities:
Net earnings $ 58,239 $ 51,897
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 100,022 92,947
Loss on sales of property and equipment 1,412 1,450
Provision for deferred income taxes 13,986 13,843
Changes in operating assets and liabilities, net
of effects from business acquisition:
Decrease in deferred revenue and other liabilities (11,174) (32,916)
Increase in net accounts receivable (33,202) (20,949)
Increase in inventory, prepaid expenses
and other current assets (831,550) (625,939)
Decrease (increase) in other assets 8,550 (7,455)
Increase in accounts payable, accrued expenses and
other current liabilities 365,482 262,209
------------- ------------
Net cash used in operating activities (328,235) (264,913)
------------- ------------
Investing Activities:
Cash used in business acquisition (7,557) --
Purchases of property and equipment (301,479) (438,080)
Proceeds from sales of property and equipment 159,429 202,080
------------- ------------
Net cash used in investing activities (149,607) (236,000)
------------- ------------
Financing Activities:
Proceeds from issuance of short-term debt, net 456,502 382,263
Principal payments on long-term debt (1,043) (5,999)
Issuances of Circuit City Group common stock, net 31,916 9,162
Issuances of CarMax Group common stock, net 2,327 74
Dividends paid on Circuit City Group common stock (10,467) (10,335)
------------- ------------
Net cash provided by financing activities 479,235 375,165
------------- ------------
Increase (decrease) in cash and cash equivalents 1,393 (125,748)
Cash and cash equivalents at beginning of year 116,612 202,643
------------- ------------
Cash and cash equivalents at end of period $ 118,005 $ 76,895
============= ============
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See accompanying notes to consolidated financial statements.
Page 6 of 35
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track separately the performance of the Circuit City store-related
operations, a retained interest in the CarMax Group, and all other
businesses in which the Company may be engaged (other than those comprising
the CarMax Group and including the Company's investment in Digital Video
Express, LP and related operations ("Divx")). The CarMax Group Common Stock
is intended to track separately the performance of the CarMax operations.
The Circuit City Group held a 76.8 percent interest in the CarMax Group at
November 30, 1998 and a 77.3 percent interest at February 28, 1998, and
November 30, 1997.
Notwithstanding the attribution of the Company's assets and liabilities
(including contingent liabilities) and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
respective financial statements, holders of Circuit City Group Stock and
holders of CarMax Group Stock are shareholders of the Company and subject
to all of the risks associated with an investment in the Company and all of
its businesses, assets and liabilities. Such attribution does not affect
title to the assets or responsibility for the liabilities of the Company or
any of its subsidiaries. The results of operations or financial condition
of one Group could affect the results of operations or financial condition
of the other Group. Accordingly, the consolidated financial statements
included herein should be read in conjunction with the financial statements
of each Group and with the notes to the consolidated and Group financial
statements included in the Company's 1998 annual report to shareholders.
2. Accounting Policies
The consolidated financial statements of the Company conform to generally
accepted accounting principles. The interim period financial statements are
unaudited; however, in the opinion of management, all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of the interim consolidated financial statements have been
included. The fiscal year-end balance sheet data was derived from audited
financial statements.
3. Accounting for Costs of Computer Software
Effective March 1, 1998, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires certain software development costs to be
capitalized. Generally, once the capitalization criteria of the SOP have
been met, external direct costs of materials and services used in the
development of internal-use software and payroll and payroll-related costs
for employees directly involved in the development of internal-use software
are to be capitalized. The adoption of this SOP did not have a material
effect on the Company's consolidated financial position, results of
operations or cash flows.
Page 7 of 35
4. Net Earnings (Loss) per Share
Reconciliations of the numerator and denominator of basic and diluted net
earnings (loss) per share are presented below:
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Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
Circuit City Group:
Weighted average common shares.............. 99,308 98,133 99,030 97,960
Dilutive potential common shares:
Options.................................. 497 927 816 882
Restricted stock......................... 556 280 397 301
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares......... 100,361 99,340 100,243 99,143
=========================== ===========================
Income available to common shareholders..... $ 15,945 $ 14,012 $ 61,361 $ 54,640
Basic net earnings per share................ $ 0.16 $ 0.14 $ 0.62 $ 0.56
Diluted net earnings per share.............. $ 0.16 $ 0.14 $ 0.61 $ 0.55
CarMax Group:
Weighted average common shares.............. 22,692 22,098 22,537 21,951
=========================== ===========================
Loss available to common shareholders....... $ 1,701 $ 2,075 $ 3,122 $ 2,743
Net loss per share.......................... $ 0.07 $ 0.09 $ 0.14 $ 0.12
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Certain options were not included in the computation of diluted net
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. For the three-month and
nine-month periods ended November 30, 1998, options to purchase 2,007,000
shares of Circuit City Group Stock ranging from $34.50 to $59.00 per share
were outstanding and not included in the calculation. For the three-month
and the nine-month periods ended November 30, 1997, options to purchase
1,000,000 shares of Circuit City Group Stock at $59.00 per share were
outstanding and not included in the calculation.
The CarMax Group had no diluted net loss per share because the Group had
net losses for the periods presented.
5. Gain on Securitizations
For transfers of receivables that qualify as sales, the Company recognizes
gains or losses as a component of the Company's finance operations. The net
gain on sales of receivables for the Circuit City Group's finance operation
was $1.2 million for the third quarter of this fiscal year compared with a
net gain of $7.0 million for the same period last fiscal year. For the
nine-month period ended November 30, 1998, the net gain on the sale of
receivables for the Circuit City Group's finance operation was $700,000
compared with a net gain of $16.1 million for the same period last year.
The net gain on sales of receivables for the CarMax Group's finance
operation was $2.7 million for the third quarter of this fiscal year
compared with a net gain of $1.1 million for the same period last fiscal
year. The net gain on sales of receivables for the CarMax Group's finance
operation totaled $7.5 million for the nine-month period ended November 30,
1998, compared with a net gain of $3.0 million for the nine-month period
ended November 30, 1997.
6. Interest Rate Swaps
On behalf of the Circuit City Group, the Company entered into five-year
interest rate swaps in October 1994, with notional amounts totaling $300
million related to its finance operation. These swaps were entered into as
part of the sales of receivables and are, therefore, included in the gain
or loss on sales of receivables.
Page 8 of 35
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $3.4 million at November 30, 1998, compared with a loss of $1.9
million at February 28, 1998.
On behalf of the CarMax Group, the Company entered into 40-month amortizing
swaps related to the auto loan receivable securitization. The total
notional amount of the CarMax swaps was $311 million at November 30, 1998,
and $224 million at February 28, 1998. These swaps were entered into as
part of the sales of receivables and are, therefore, included in the gain
or loss on sales of receivables.
7. Business Acquisition
On November 20, 1998, the CarMax Group completed the acquisition of the
Toyota franchise rights and the related assets of Laurel Automotive Group,
Inc. for $12.6 million, which was financed through available cash resources
and the issuance of a $5 million promissory note to the seller. This
acquisition has been accounted for under the purchase method and the
results of the operations of the acquired franchise have been included in
the consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair value of the net tangible assets
acquired was allocated to goodwill, which is being amortized on a
straight-line basis over 15 years, and to a covenant not to compete, which
is being amortized on a straight-line basis over five years. Both goodwill
and the covenant not to compete are included in other assets on the balance
sheet. Unaudited pro forma information related to this acquisition is not
included as the impact of this acquisition is not deemed to be material.
8. Subsequent Event
On December 8, 1998, the CarMax Group completed the acquisition of the
franchise rights and the related assets of Mauro Auto Mall, Inc. for $28.1
million, which was financed through available cash resources and the
issuance of a $5 million promissory note to the seller. The Mauro Auto
Mall, Inc. is a Kenosha, Wis.-based multi-showroom new-car auto mall. This
acquisition has been accounted for under the purchase method. The excess of
the purchase price over the fair value of the net tangible assets acquired
was allocated to goodwill, which is being amortized on a straight-line
basis over 15 years, and to a covenant not to compete, which is being
amortized on a straight-line basis over five years.
Page 9 of 35
<PAGE>
ITEM 2.
CIRCUIT CITY STORES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the third quarter of fiscal 1999 were $2.61 billion, an increase of 22
percent from $2.14 billion for the same period last year. For the nine months
ended November 30, 1998, total sales were $7.40 billion, a 23 percent increase
from $6.02 billion for the same period last year. For the Circuit City Group,
the total and comparable store sales increases have been led by personal
computers, but also include strong sales in areas such as DirecTV, wireless
communications, digital camcorders, audio and VCRs. The continued geographic
growth of Circuit City Superstores also contributed to the total sales increase.
For the CarMax Group, used-car sales remain sluggish reflecting the high
incentives being offered on new cars and the challenge of building consumer
awareness in a number of newer, multi-store markets. New-car sales at CarMax's
Chrysler franchise locations strengthened as the quarter progressed, reflecting
a stronger inventory position by mid-quarter and new incentives during the last
week of November. The CarMax Group total sales increase is attributable to the
addition of 12 store locations since the third quarter of last fiscal year.
Comparable store sales changes for the third quarter and first nine months of
fiscal years 1999 and 1998 were as follows:
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----------------------------------------- --------------------------- ---------------------------
FY 99 3rd Quarter Nine Months
----------------------------------------- --------------------------- ---------------------------
SEP OCT NOV FY99 FY 98 FY 99 FY 98
- -------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Circuit City Group 11% 7% 8% 9% (2%) 6% (2%)
- -------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
CarMax Group (3%) (2%) (7%) (4%) 4% (2%) 9%
- -------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
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During the quarter, the Circuit City Group opened a total of 19 stores. The
Group added five stores in the New York City metropolitan market, including its
first store in Manhattan; opened two stores in Indianapolis, Ind.; and opened
one store in each of the following markets: Anniston, Ala.; Lake Charles, La.;
Atlanta, Ga.; Brunswick, Ga.; Charlotte, N.C.; Paducah, Ky.; Philadelphia,
Penn.; Harrisburg, Penn.; Pittsburgh, Penn.; Utica, N.Y.; Traverse City, Mich.;
and Phoenix, Ariz. During the remainder of the fiscal year, the Circuit City
Group plans to open four additional Superstore locations.
During the quarter, the CarMax Group added stores in Dulles, Va., and White
Marsh, Md. These stores give CarMax three used-car superstore locations in the
Washington, D.C./Baltimore, Md., market. In early November, the Company
announced that Mitsubishi Motor Sales of America, Inc. had granted CarMax two
new-car franchise points to be operated from the Dulles, Va., and Laurel, Md.,
superstores. Late in the quarter, CarMax also completed the previously announced
agreement to acquire the Toyota franchise rights and the related assets of
Laurel Automotive Group, Inc. Early in the fourth quarter, CarMax completed
another previously announced acquisition of the franchise rights and the related
assets of Mauro Auto Mall, Inc., a Kenosha, Wis.-based multi-showroom auto mall.
The CarMax Group anticipates opening two additional used-car locations during
the remainder of the fiscal year.
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.4 percent of sales in the third quarter of both fiscal years.
Third-party warranty revenue rose to 4.2 percent of sales in this year's third
quarter from 3.5 percent in the same period last year. The increase reflects the
conversion of stores in 10 additional states to third-party warranty sales in
June 1998. The total extended warranty revenue that is reported in total sales
was 4.7 percent of sales in this year's third quarter versus 4.5 percent in the
third quarter of last fiscal year.
For the CarMax Group, gross dollar sales from all extended warranty programs
were 4.5 percent of sales in the third quarter of fiscal 1999 compared with 3.8
percent in the same period last year. The increase in the third quarter is
attributable to pricing adjustments and a higher penetration rate achieved by
extending warranty coverage to more vehicles. Third-party warranty revenue
increased to 2.0 percent of sales in this
Page 10 of 35
year's third quarter from 1.4 percent in the same period last year. The total
extended warranty revenue that is reported in total sales was 2.1 percent of
sales in this year's third quarter versus 1.5 percent in last year's third
quarter.
The Company's operations, in common with other retailers in general, are subject
to seasonal influences. Historically, the Circuit City Group has realized more
of its net sales and net earnings in the final fiscal quarter, which includes
the Christmas season, than in any other fiscal quarter. CarMax stores, however,
have experienced more of their net sales in the first two quarters of the fiscal
year. The net earnings of any interim quarter are seasonally disproportionate to
net sales since administrative and certain operating expenses remain relatively
constant during the year. Therefore, interim results should not be relied upon
as necessarily indicative of results for the entire fiscal year.
Cost of Sales, Buying and Warehousing
The gross profit margin was 22.7 percent of sales in the third quarter of fiscal
1999 compared with 22.5 percent of sales in the same period last year. For the
nine months ended November 30, 1998, the gross profit margin was 22.5 percent
compared with 22.8 percent for the same period last year.
For the Circuit City Group, the gross profit margin increased to 24.4 percent of
sales in the third quarter from 24.3 percent in the same period last year. The
gross profit margin was 24.4 percent of sales for the first nine months of both
fiscal years. The increase in the third quarter gross profit margin reflects a
more profitable sales mix within the product categories and a continuous
improvement process applied to inventory management, partially offset by the
strength of the personal computer business and the lower gross margins produced
by that business.
For the CarMax Group, the gross profit margin increased to 11.5 percent of sales
in the third quarter of fiscal 1999 from 6.8 percent for the same period last
year. For the nine months ended November 30, 1998, the gross profit margin was
11.5 percent compared with 8.3 percent for the same period last year. The
increase in the gross profit margin reflects the impact of the profit
improvement plan that was initiated at the end of last fiscal year and better
inventory management compared with last year. Last year's especially low gross
margins reflected the inventory mark downs caused by the under performance of
new stores and low introductory prices on new-model year vehicles.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expense ratio was 21.5 percent
in the third quarter of fiscal 1999 compared with 21.2 percent for the same
period last year. For the nine-month period ended November 30, 1998, the
Company's selling, general and administrative expense ratio was 21.0 percent
compared with 21.1 percent for the same period last year.
For the Circuit City Group, the selling, general and administrative expense
ratio increased to 22.6 percent of sales in the third quarter of fiscal 1999
from 22.2 percent of sales for the same period last year. For the first nine
months of fiscal 1999 the selling, general and administrative expense ratio
increased to 22.3 percent of sales from 22.2 percent for the same period last
year.
The increase in the Circuit City Group's expense ratio reflects the impact of
the Company's investment in Digital Video Express, LP, partially offset by the
expense leverage created by the sales increase and by an increased contribution
from the Group's finance operation. The investment in Divx added 120 basis
points to the expense ratio during the third quarter of fiscal 1999 compared
with 43 basis points for the same period last year. For the nine months ended
November 30, 1998, the Company's investment in Divx added 91 basis points to the
expense ratio compared with 32 basis points for the same period last year.
The CarMax Group's selling, general and administrative expense ratio was 14.5
percent of sales in the third quarter of fiscal 1999 compared with 13.2 percent
of sales for the same period last year. For the nine-month period ended November
30, 1998, the expense ratio was 13.2 percent of sales compared with 11.4 percent
in the same period last year. The third quarter and nine-month increases reflect
the below-plan sales.
Page 11 of 35
Liquidity and Capital Resources
At November 30, 1998, total assets were $4.14 billion. Inventory increased
$794.4 million to support new store openings for both the Circuit City Group and
the CarMax Group and to support the Christmas shopping season for the Circuit
City Group. To support new store expansion and the purchase of inventory,
accounts payable increased $379.0 million from the end of fiscal 1998.
The Company's finance operation, included in the Circuit City Group, has a
master trust securitization facility for its private-label card that allows the
transfer of receivables through private placement and the public market. The
master trust vehicle permits further expansion of the securitization program to
meet future needs. As of November 30, 1998, the master trust program had a total
program capacity of $1.4 billion. The Company's finance operation also has a
master trust securitization facility related to its bankcard program. This
master trust vehicle permits further expansion of the securitization program in
both the public and private markets. As of November 30, 1998, the bankcard
master trust program had a total program capacity of $1.8 billion. As of
November 30, 1998, the Company also had an asset securitization program,
operated through a special purpose subsidiary on behalf of the CarMax Group,
that allowed the transfer of up to $475 million in auto loan receivables. The
program capacity was increased to $575 million following the end of the third
quarter. The Company anticipates that it will be able to expand its
securitization programs to meet future needs.
The Company generally expects to continue its existing long-term capitalization
strategy for the balance of the current fiscal year. Management anticipates that
capital expenditures will be funded through a combination of internally
generated funds, sale-leaseback transactions, operating leases, proceeds of
equity offerings and other equity issuances. Securitization transactions will be
used to finance growth in credit card and auto loan receivables. Management also
believes that it can implement a financing program for CarMax inventory.
Early in the quarter, the national roll out of DVD players equipped with the
Divx feature began with the introduction of the RCA brand player. In late
November and early December, ProScan and Panasonic players became available.
More than 250 titles are available through 62 retailers with a total of
approximately 800 stores. Management continues to explore various financing
options for Divx with a focus on those that would limit dilution of returns for
Circuit City stockholders and reduce future losses attributable to Circuit City.
The Company remains in discussions with a number of entities, but has not
obtained any acceptable commitments to date.
On November 20, 1998, the CarMax Group completed the acquisition of the Toyota
franchise rights and the related assets of Laurel Automotive Group, Inc. for
$12.6 million, which was financed through available cash resources and the
issuance of a $5 million promissory note to the seller. In addition, on December
8, 1998, the CarMax Group acquired the franchise rights and the related assets
of Mauro Auto Mall, Inc. for $28.1 million, which was financed through available
cash resources and a $5 million promissory note to the seller.
At November 30, 1998, the Company maintained $370 million in seasonal lines that
are renewed annually with various banks, as well as a $150 million revolving
credit facility.
Market Risk
The Company manages the private-label and bankcard revolving loan portfolios of
First North American National Bank and the installment loan portfolio of First
North American Credit Corporation ("FNACC"). Portions of these portfolios are
securitized and, therefore, are not presented on the Company's balance sheet.
Interest rate exposure relating to these receivables represents a market risk
exposure that the Company has managed with matched funding and interest rate
swaps.
As of November 30, 1998, the private-label and bankcard portfolios managed by
the Circuit City Group had not changed significantly since February 28, 1998.
However, as part of CarMax's growth, the auto installment loan portfolio has
increased.
Page 12 of 35
Many of the automobiles that CarMax sells are financed through FNACC. All
receivables represent fixed-rate installment loans with a principal weighted
average life of approximately 20 months. Total principal outstanding at November
30 and February 28, 1998, was as follows:
(Amounts in millions) November 30 February 28
- ---------------------------------------------------------------------------
Fixed APR........................... $ 516 $ 297
Financing for these receivables is achieved through bank conduit securitizations
which, in turn, issue floating-rate securities. Interest rate exposure is hedged
through the use of interest rate swaps matched to projected payoffs. Receivables
held by the Company for investment or sale are financed with working capital.
Financings at November 30 and February 28, 1998, were as follows:
(Amounts in millions) November 30 February 28
- ----------------------------------------------------------------------------
Floating-rate securitizations
synthetically altered to fixed.... $ 311 $ 224
Floating-rate securitizations........ 150 44
Held by the Company:
For investment.................... 34 23
For sale.......................... 21 6
-------------------------------
Total .............................. $ 516 $ 297
===============================
Because of the programs in place to manage interest rate exposure relating to
its consumer loan portfolios, the Company expects to experience relatively
little impact as interest rates fluctuate in the future.
Year 2000
The Year 2000 issue arises because many computer programs use two digits rather
than four to define the applicable year. Using two digits to define dates after
January 1, 2000, could result in a system failure or miscalculations that cause
disruption of operations including, among other things, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities. In addition to computer systems, any equipment with embedded systems
that involve date sensitive functions are at risk if two digits have been used
rather than four. Embedded systems are specialized microchips used to control,
monitor or assist the operation of electrical equipment.
In fiscal 1997, the Company began a Year 2000 date conversion project to address
necessary code changes, testing and implementation for its systems. This project
includes internally developed information technology systems, purchased and
leased software and hardware, embedded systems, and electronic data interchange
transaction processing. The Company has employed both internal and external
resources to reprogram or replace and test the software for Year 2000
modifications. The Company has completed approximately 87 percent of its
remediation, forward-date testing, and production implementation efforts of its
internally developed and externally purchased systems. The Company expects that
the remaining renovation, including system testing and production implementation
will be essentially completed by March 1999. Replacement work and
enterprise-level testing is scheduled to be completed by approximately July
1999.
With regard to embedded systems, the Company has identified approximately 200
distinct makes and models used for environmental controls, fire detection and
monitoring, burglar detection and monitoring, elevators, office equipment and
uninterruptable power supplies. As of December 1998, approximately 95 percent of
these embedded systems are believed to be Year 2000 compliant. The remaining
five percent are expected to be compliant by the end of the first quarter of
fiscal year 2000, except for some low impact embedded systems that will be left
untested because the cost of compliance testing is believed to far exceed the
risk/cost of an outage.
The Company has also identified its key third-party business partners and is
coordinating with them to address potential Year 2000 issues. Year 2000
questionnaires were sent to these entities to monitor their progress and to
minimize any adverse consequences that might result if an entity is not Year
2000 compliant. Responses have been received from approximately 80 percent of
these partners with no major potential
Page 13 of 35
problems identified. Risks and business impacts have been assigned to all vendor
products and services. Current action statements and contingency plans have been
developed by the business areas for products and services believed to be at high
or medium risk of non-compliance.
Since the project began, the Company has expensed $11.3 million, including $8.0
million in the current fiscal year. The remaining cost of the Year 2000 project
is estimated at $5.3 million. These costs are in addition to the normal budget
for information systems and are being funded through operating cash flows.
Because CarMax's computer systems were developed in recent years, the Company
does not expect the CarMax Group to incur any material costs related to the Year
2000 issue.
With respect to Year 2000 risks, the Company believes it has identified all
critical areas and is in the process of developing contingency plans and
conducting end-to-end testing for those critical areas identified. Critical is
defined as any business process or application whose failure would result in a
material financial, legal or operational impact. If the Company's remediation
efforts and the remediation efforts of third-parties failed (which the Company
believes is the most reasonably likely worst case scenario), the Company's
contingency plans include performing certain processes manually while working to
assess and correct any errors in the current systems; and possibly changing
suppliers. These plans are intended to enable the Company to continue to operate
even if a degree of business interruption occurs at year 2000. However, the
Company believes that due to the widespread nature of potential Year 2000
issues, the contingency planning process is an ongoing one that will require
further modifications as the Company obtains additional information.
The costs of the project and the dates on which the Company plans to complete
its Year 2000 modifications are based on management's estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third-party modification plans and other
factors. However, Year 2000 issues present a number of risks that are beyond the
Company's reasonable control, such as the failure of utility companies to
deliver electricity, the failure of telecommunications companies to provide
voice and data services, the failure of financial institutions to process
transactions and transfer funds, and the collateral effects on the Company of
the effects of Year 2000 issues on the economy in general or on the Company's
business partners and customers. Although the Company believes that its Year
2000 compliance program is designed to appropriately identify and address those
Year 2000 issues that are subject to the Company's reasonable control, the
Company can make no assurance that its efforts will be fully effective or that
the Year 2000 issues will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and requires that an entity recognize those items as either
assets or liabilities and measure them at fair value. The Company has not
determined the impact of SFAS No. 133 on its financial position, results of
operations or cash flows.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-Up
Activities." SOP 98-5 is effective for fiscal years beginning after December 15,
1998. It requires costs of start-up activities, including organization and
pre-opening costs to be expensed as incurred. The Company does not expect SOP
98-5 to have a material impact on its financial position, annual results of
operations or cash flows.
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new businesses and risks associated with Year 2000 issues.
Additional discussion of factors that could cause actual results to differ
materially from management's projections, forecasts, estimates and expectations
is contained in the Company's 1998 SEC filings, including the Company's report
on Form 10-K for the year ended February 28, 1998.
Page 14 of 35
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Balance Sheets
(Amounts in thousands)
<TABLE>
<S> <C>
Nov. 30, 1998 Feb. 28, 1998
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 112,378 $ 90,200
Net accounts receivable 532,195 537,169
Merchandise inventory 2,030,623 1,266,575
Prepaid expenses and other current assets 56,615 19,798
-------------- -------------
Total current assets 2,731,811 1,913,742
Property and equipment, net 835,677 834,347
Inter-Group Interest in the CarMax Group 267,850 278,239
Other assets 24,451 35,290
-------------- -------------
TOTAL ASSETS $ 3,859,789 $ 3,061,618
============== =============
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long-term debt $ 1,456 $ 1,301
Accounts payable 1,092,180 714,171
Short-term debt 397,396 5,591
Accrued expenses and other current liabilities 109,161 129,198
Deferred income taxes 6,304 --
-------------- -------------
Total current liabilities 1,606,497 850,261
Long-term debt, excluding current installments 365,711 396,906
Deferred revenue and other liabilities 127,466 139,841
Deferred income taxes 28,973 26,278
-------------- -------------
TOTAL LIABILITIES 2,128,647 1,413,286
GROUP EQUITY 1,731,142 1,648,332
-------------- -------------
TOTAL LIABILITIES AND GROUP EQUITY $ 3,859,789 $ 3,061,618
============== =============
</TABLE>
See accompanying notes to group financial statements.
Page 15 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
November 30, November 30,
1998 1997 1998 1997
-------------- -------------- ------------- --------------
Net sales and operating revenues $ 2,266,956 $ 1,917,133 $ 6,308,806 $ 5,410,622
Cost of sales, buying and warehousing 1,714,611 1,450,737 4,766,373 4,089,018
-------------- -------------- ------------- --------------
Gross profit 552,345 466,396 1,542,433 1,321,604
-------------- -------------- ------------- --------------
Selling, general and administrative expenses 511,427 425,631 1,408,345 1,200,380
Interest expense 5,925 6,525 18,005 17,675
-------------- -------------- ------------- --------------
Total expenses 517,352 432,156 1,426,350 1,218,055
-------------- -------------- ------------- --------------
Earnings before income taxes and
Inter-Group Interest in the CarMax Group 34,993 34,240 116,083 103,549
Provision for income taxes 13,418 13,162 44,333 39,548
-------------- -------------- ------------- --------------
Earnings before Inter-Group Interest
in the CarMax Group 21,575 21,078 71,750 64,001
Net loss related to Inter-Group
Interest in the CarMax Group 5,630 7,066 10,389 9,361
-------------- -------------- ------------- --------------
Net earnings $ 15,945 $ 14,012 $ 61,361 $ 54,640
============== ============== ============= ==============
Weighted average common shares:
Basic 99,308 98,133 99,030 97,960
============== ============== ============= ==============
Diluted 100,361 99,340 100,243 99,143
============== ============== ============= ==============
Net earnings per share:
Basic $ 0.16 $ 0.14 $ 0.62 $ 0.56
============== ============== ============= ==============
Diluted $ 0.16 $ 0.14 $ 0.61 $ 0.55
============== ============== ============= ==============
Dividends paid per common share $ 0.035 $ 0.035 $ 0.105 $ 0.105
============== ============== ============= ==============
</TABLE>
See accompanying notes to group financial statements.
Page 16 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Statements of Cash Flows (Unaudited)
(Amounts in thousands)
<TABLE>
<S> <C>
Nine Months Ended
November 30,
1998 1997
------------- ------------
Operating Activities:
Net earnings $ 61,361 $ 54,640
Adjustments to reconcile net earnings to net cash
used in operating activities:
Net loss related to Inter-Group Interest in the CarMax Group 10,389 9,361
Depreciation and amortization 93,348 89,577
Loss on sales of property and equipment 1,412 1,450
Provision for deferred income taxes 8,999 12,247
Decrease in deferred revenue and other liabilities (12,375) (33,547)
Decrease in net accounts receivable 4,974 2,763
Increase in merchandise inventory, prepaid expenses
and other current assets (800,865) (576,834)
Decrease (increase) in other assets 10,839 (7,535)
Increase in accounts payable, accrued expenses and
other current liabilities 358,490 252,387
------------- ------------
Net cash used in operating activities (263,428) (195,491)
------------- ------------
Investing Activities:
Purchases of property and equipment (177,048) (272,402)
Proceeds from sales of property and equipment 80,958 160,978
Issuance of inter-group note receivable, net -- (123,697)
------------- ------------
Net cash used in investing activities (96,090) (235,121)
------------- ------------
Financing Activities:
Increase in inter-group payable, net -- 88,934
Increase in allocated short-term debt, net 391,287 382,263
Decrease in allocated long-term debt, net (31,040) (5,999)
Equity issuances, net 31,916 9,162
Dividends paid (10,467) (10,335)
------------- ------------
Net cash provided by financing activities 381,696 464,025
------------- ------------
Increase in cash and cash equivalents 22,178 33,413
Cash and cash equivalents at beginning of year 90,200 32,222
------------- ------------
Cash and cash equivalents at end of period $ 112,378 $ 65,635
============= ============
</TABLE>
See accompanying notes to group financial statements.
Page 17 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Notes to Group Financial Statements
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track separately the performance of the Circuit City store-related
operations, a retained interest in the CarMax Group, and all other
businesses in which the Company may be engaged (other than those comprising
the CarMax Group and including the Company's investment in Digital Video
Express, LP and related operations). The CarMax Group Common Stock is
intended to track separately the performance of the CarMax operations. The
Circuit City Group held a 76.8 percent interest in the CarMax Group at
November 30, 1998 and a 77.3 percent interest at February 28, 1998, and
November 30, 1997.
Notwithstanding the attribution of the Company's assets and liabilities
(including contingent liabilities) and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
respective financial statements, holders of Circuit City Group Stock and
holders of CarMax Group Stock are shareholders of the Company and subject
to all of the risks associated with an investment in the Company and all of
its businesses, assets and liabilities. Such attribution does not affect
title to the assets or responsibility for the liabilities of the Company or
any of its subsidiaries. The results of operations or financial condition
of one Group could affect the results of operations or financial condition
of the other Group. Accordingly, the Circuit City Group financial
statements included herein should be read in conjunction with the
consolidated and CarMax Group financial statements and with the notes to
the consolidated and Group financial statements included in the Company's
1998 annual report to shareholders.
2. Accounting Policies
The Circuit City Group has accounted for its interest in the CarMax Group
in a manner similar to the equity method of accounting. Generally accepted
accounting principles require that the CarMax Group be consolidated with
the Circuit City Group. Except for the effects of not consolidating the
Circuit City Group and the CarMax Group, the financial statements of the
Circuit City Group conform to generally accepted accounting principles. The
interim period financial statements are unaudited; however, in the opinion
of management, all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of the interim group
financial statements have been included. The fiscal year-end balance sheet
data was derived from audited financial statements.
3. Accounting for Costs of Computer Software
Effective March 1, 1998, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires certain software development costs to be
capitalized. Generally, once the capitalization criteria of the SOP have
been met, external direct costs of materials and services used in the
development of internal-use software and payroll and payroll-related costs
for employees directly involved in the development of internal-use software
are to be capitalized. The adoption of this SOP did not have a material
effect on the Circuit City Group's financial position, results of
operations or cash flows.
Page 18 of 35
<PAGE>
4. Net Earnings per Share
Reconciliations of the numerator and denominator of basic and diluted net
earnings per share are presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------
Weighted average common shares.................. 99,308 98,133 99,030 97,960
Dilutive potential common shares:
Options...................................... 497 927 816 882
Restricted stock............................. 556 280 397 301
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares............. 100,361 99,340 100,243 99,143
=========================== ===========================
Income available to common shareholders......... $ 15,945 $ 14,012 $ 61,361 $ 54,640
Basic net earnings per share.................... $ 0.16 $ 0.14 $ 0.62 $ 0.56
Diluted net earnings per share.................. $ 0.16 $ 0.14 $ 0.61 $ 0.55
</TABLE>
Certain options were not included in the computation of diluted net
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. For the three-month and
nine-month periods ended November 30, 1998, options to purchase 2,007,000
shares of Circuit City Group Stock ranging from $34.50 to $59.00 per share
were outstanding and not included in the calculation. For the three-month
and nine-month periods ended November 30, 1997, options to purchase
1,000,000 shares of Circuit City Group Stock at $59.00 per share were
outstanding and not included in the calculation.
5. Gain on Securitizations
For transfers of receivables that qualify as sales, the Company recognizes
gains or losses as a component of the Company's finance operations. The net
gain on sales of receivables for the Circuit City Group's finance operation
was $1.2 million for the third quarter of this fiscal year compared with a
net gain of $7.0 million for the same period last fiscal year. For the
nine-month period ended November 30, 1998, the net gain on the sale of
receivables for the Circuit City Group's finance operation was $700,000
compared with a net gain of $16.1 million for the same period last year.
6. Interest Rate Swaps
On behalf of the Circuit City Group, the Company entered into five-year
interest rate swaps in October 1994, with notional amounts totaling $300
million related to its finance operation. These swaps were entered into as
part of the sales of receivables and are, therefore, included in the gain
or loss on sales of receivables.
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $3.4 million at November 30, 1998, compared with a loss of $1.9
million at February 28, 1998.
Page 19 of 35
<PAGE>
ITEM 2.
CIRCUIT CITY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the third quarter of fiscal 1999 were $2.27 billion, an increase of 18
percent from $1.92 billion in the same period last year. For the nine months
ended November 30, 1998, total sales were $6.31 billion, an increase of 17
percent from $5.41 billion in the same period last year. For the Circuit City
Group, the total and comparable store sales increases have been led by personal
computers, but also include strong sales in areas such as DirecTV, wireless
communications, digital camcorders, audio and VCRs. The continued geographic
growth of Circuit City Superstores also contributed to the total sales increase.
The percentage changes in Circuit City comparable store sales for the third
quarter and first nine months of fiscal years 1999 and 1998 were as follows:
<TABLE>
<S> <C>
- --------------------------------------- ------------------------- -------------------------
FY 99 3rd Quarter Nine Months
- --------------------------------------- ------------------------- -------------------------
SEP OCT NOV FY 99 FY 98 FY 99 FY 98
- --------------------------------------- ------------------------- -------------------------
11% 7% 8% 9% (2%) 6% (2%)
- --------------------------------------- ------------------------- -------------------------
</TABLE>
During the quarter, the Circuit City Group opened a total of 19 stores. The
Group added five stores in the New York City metropolitan market, including its
first store in Manhattan; opened two stores in Indianapolis, Ind.; and opened
one store in each of the following markets: Anniston, Ala.; Lake Charles, La.;
Atlanta, Ga.; Brunswick, Ga.; Charlotte, N.C.; Paducah, Ky.; Philadelphia,
Penn.; Harrisburg, Penn.; Pittsburgh, Penn.; Utica, N.Y.; Traverse City, Mich.;
and Phoenix, Ariz. During the remainder of the fiscal year, the Circuit City
Group plans to open four additional Superstore locations.
The table below details Circuit City retail units:
<TABLE>
<S> <C>
Stores Open At End of Quarter Estimate
---------------------------------------------
Nov. 30, 1998 Nov. 30, 1997 Feb. 28, 1999 Feb. 28, 1998
- -------------------------------------------------------------------------------------------------------------
Superstore
"D" Superstore 118 110 118 114
-------------- --------------- ------------- --------------
"C" Superstore 294 292 294 289
-------------- --------------- ------------- --------------
"B" Superstore 78 69 82 72
-------------- --------------- ------------- --------------
"A" Superstore 43 22 43 25
-------------- --------------- ------------- --------------
Electronics-Only 4 4 3 4
-------------- --------------- ------------- --------------
Circuit City Express 50 52 48 52
- -------------------------------------------------------------------------------------------------------------
TOTAL 587 549 588 556
=============================================================================================================
</TABLE>
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.4 percent of sales in the third quarter of both fiscal years.
Third-party warranty revenue rose to 4.2 percent of sales in this year's third
quarter from 3.5 percent in the same period last year. The increase reflects the
conversion of stores in 10 additional states to third-party warranty sales in
June 1998. The total extended warranty revenue that is reported in total sales
was 4.7 percent of sales in this year's third quarter versus 4.5 percent in the
third quarter of last fiscal year.
Page 20 of 35
<PAGE>
The percentage of merchandise sales represented by each category is listed
below:
<TABLE>
<S> <C>
3rd Quarter Nine Months
Fiscal 1999 Fiscal 1998 Fiscal 1999 Fiscal 1998
---------------------------------- ----------------------------------
TV 19% 20% 17% 18%
- -----------------------------------------------------------------------------------------------
VCR/Camcorders 12 12 13 13
- -----------------------------------------------------------------------------------------------
Audio 15 16 15 16
- -----------------------------------------------------------------------------------------------
Home Office 28 24 27 24
- -----------------------------------------------------------------------------------------------
Appliances 15 17 17 18
- -----------------------------------------------------------------------------------------------
Other 11 11 11 11
===============================================================================================
TOTAL 100% 100% 100% 100%
===============================================================================================
</TABLE>
Circuit City's operations, in common with other retailers in general, are
subject to seasonal influences. Historically, the Group has realized more of its
net sales and net earnings in the final fiscal quarter, which includes the
Christmas season, than in any other fiscal quarter. The net earnings of any
interim quarter are seasonally disproportionate to net sales since
administrative and certain operating expenses remain relatively constant during
the year. Therefore, interim results should not be relied upon as necessarily
indicative of results for the entire fiscal year.
Cost of Sales, Buying and Warehousing
For the quarter ended November 30, 1998, the gross profit margin increased to
24.4 percent of sales from 24.3 percent in the same period last year. The gross
profit margin was 24.4 percent of sales for the first nine months of both fiscal
years. The increase in the third quarter gross profit margin reflects a more
profitable sales mix within the product categories and a continuous improvement
process applied to inventory management, partially offset by the strength of the
personal computer business and the lower gross margins produced by that
business.
Selling, General and Administrative Expenses
The Group's selling, general and administrative expense ratio increased to 22.6
percent of sales in the third quarter of fiscal 1999 from 22.2 percent of sales
for the same period last year. For the first nine months of fiscal 1999 the
selling, general and administrative expense ratio increased to 22.3 percent of
sales from 22.2 percent for the same period last year.
The increase in the Circuit City Group's expense ratio reflects the impact of
the Company's investment in Digital Video Express, LP, partially offset by the
expense leverage created by the sales increase and by an increased contribution
from the Group's finance operation. The investment in Divx added 120 basis
points to the expense ratio during the third quarter of fiscal 1999 compared
with 43 basis points for the same period last year. For the nine months ended
November 30, 1998, the Company's investment in Divx added 91 basis points to the
expense ratio compared with 32 basis points for the same period last year.
Earnings Before the Inter-Group Interest in the CarMax Group
For the third quarter, earnings before the Inter-Group Interest in the CarMax
Group increased to $21.6 million in fiscal 1999 compared with $21.1 million in
fiscal 1998. For the nine-month period, earnings before the Inter-Group Interest
in the CarMax Group were $71.8 million compared with $64.0 million for the same
period last year. The results for both years include the Company's investment in
Divx.
Page 21 of 35
Excluding the Company's investment in Divx and the Group's retained interest in
the CarMax Group, earnings for the Circuit City consumer electronics business
for the third quarter increased 46 percent to $38.3 million from $26.2 million
for the same period last year. The consumer electronics business produced
earnings per share of 38 cents in the third quarter this year compared with 26
cents for the same period last year. Excluding the Company's investment in Divx
and the Group's retained interest in the CarMax Group, earnings for the Circuit
City consumer electronics business for the nine months ended November 30, 1998,
increased 44 percent to $108.2 million from $74.9 million in same period last
year. For the nine-month period ended November 30, 1998, the consumer
electronics business produced earnings per share of $1.08 compared with 75 cents
for the same period last year.
Net Loss Related to the Inter-Group Interest in the CarMax Group
During the third quarter, the net loss attributable to the Circuit City Group's
Inter-Group Interest in the CarMax Group was $5.6 million compared with a net
loss of $7.1 million for the same period last year.
For the nine-month period ending November 30, 1998, the net loss attributable to
the Circuit City Group's Inter-Group Interest in the CarMax Group was $10.4
million compared with $9.4 million for the same period last year.
Net Earnings
Net earnings for the quarter ended November 30, 1998, increased 14 percent to
$15.9 million from $14.0 million in the same period last year. Net earnings per
share increased 14 percent to 16 cents from 14 cents for the same period last
year.
For the nine months ended November 30, 1998, net earnings increased 12 percent
to $61.4 million from $54.6 million in the same period last year. Net earnings
per share increased 11 percent to 61 cents from 55 cents for the same period
last year.
Liquidity and Capital Resources
Total assets at November 30, 1998, were $3.86 billion. Merchandise inventory
increased $764.0 million to support new store openings and the Christmas
shopping season. To support new store expansion and the purchase of inventory,
accounts payable increased $378.0 million from the end of fiscal 1998.
The Company's finance operation, included in the Circuit City Group, has a
master trust securitization facility for its private-label card that allows the
transfer of receivables through private placement and the public market. The
master trust vehicle permits further expansion of the securitization program to
meet future needs. As of November 30, 1998, the master trust program had a total
program capacity of $1.4 billion. The Company's finance operation also has a
master trust securitization facility related to its bankcard program. This
master trust vehicle permits further expansion of the securitization program in
both the public and private markets. As of November 30, 1998, the bankcard
master trust program had a total program capacity of $1.8 billion. The Company
anticipates that it will be able to expand its securitization programs to meet
future needs.
The Group relies on the Company's external debt allocated to the Circuit City
Group to provide working capital needed to fund net assets not otherwise
financed through sale-leasebacks or receivable securitizations. All significant
financial activities of the Group are managed on a centralized basis and are
dependent on the financial condition of the Company as a whole. Such financial
activities include the investment of surplus cash, issuance and repayment of
debt, securitization of receivables and sale-leasebacks of real estate. At
November 30, 1998, the Company also maintained $370 million in seasonal lines
that are renewed annually with various banks, as well as a $150 million
revolving credit facility.
Management believes that proceeds from sales of property and equipment and
receivables, future increases in the Company's debt allocated to the Circuit
City Group, proceeds of equity offerings, other equity issuances and cash
generated by operations will be sufficient to fund the Circuit City Group's
capital expenditures and operations.
Page 22 of 35
Early in the quarter, the national roll out of DVD players equipped with the
Divx feature began with the introduction of the RCA brand player. In late
November and early December, ProScan and Panasonic players became available.
More than 250 titles are available through 62 retailers with a total of
approximately 800 stores. Management continues to explore various financing
options for Divx with a focus on those that would limit dilution of returns for
Circuit City stockholders and reduce future losses attributable to Circuit City.
The Company remains in discussions with a number of entities, but has not
obtained any acceptable commitments to date.
Year 2000
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the Year 2000
issue and its impact on the Group's financial statements.
Recent Accounting Pronouncements
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of Recent
Accounting Pronouncements and their impact on the Group's financial statements.
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new concepts and risks associated with Year 2000 issues.
Additional discussion of factors that could cause actual results to differ
materially from management's projections, forecasts, estimates and expectations
is contained in the Company's 1998 SEC filings, including the Company's report
on Form 10-K for the year ended February 28, 1998.
Page 23 of 35
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Balance Sheets
(Amounts in thousands)
<TABLE>
<S> <C>
Nov. 30, 1998 Feb. 28, 1998
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,627 $ 26,412
Net accounts receivable 99,042 60,866
Inventory 174,310 143,970
Prepaid expenses and other current assets 3,357 1,359
------------ -----------
Total current assets 282,336 232,607
Property and equipment, net 253,497 214,087
Other assets 14,697 1,628
------------ -----------
TOTAL ASSETS $ 550,530 $ 448,322
============ ===========
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long term debt $ 1,250 $ --
Accounts payable 52,176 51,220
Short-term debt 65,600 385
Accrued expenses and other current liabilities 9,640 3,604
Deferred income taxes 3,673 370
------------ -----------
Total current liabilities 132,339 55,579
Long-term debt, excluding current installments 61,133 27,386
Deferred revenue and other liabilities 6,467 5,266
Deferred income taxes 1,829 145
------------ -----------
TOTAL LIABILITIES 201,768 88,376
GROUP EQUITY 348,762 359,946
------------ -----------
TOTAL LIABILITIES AND GROUP EQUITY $ 550,530 $ 448,322
============ ===========
</TABLE>
See accompanying notes to group financial statements.
Page 24 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
November 30, November 30,
1998 1997 1998 1997
------------ ----------- -------------- ------------
Net sales and operating revenues $ 345,940 $ 227,086 $ 1,092,334 $ 611,073
Cost of sales 306,180 211,729 966,476 560,217
------------ ----------- -------------- ------------
Gross profit 39,760 15,357 125,858 50,856
------------ ----------- -------------- ------------
Selling, general and administrative expenses 49,989 30,010 144,653 69,601
Interest expense 1,789 332 3,354 1,097
------------ ----------- -------------- ------------
Total expenses 51,778 30,342 148,007 70,698
------------ ----------- -------------- ------------
Loss before income tax benefit 12,018 14,985 22,149 19,842
Income tax benefit 4,687 5,844 8,638 7,738
------------ ----------- -------------- ------------
Net loss $ 7,331 $ 9,141 $ 13,511 $ 12,104
============ =========== ============== ============
Net loss attributable to:
Circuit City Group common stock $ 5,630 $ 7,066 $ 10,389 $ 9,361
CarMax Group common stock 1,701 2,075 3,122 2,743
------------ ----------- -------------- ------------
$ 7,331 $ 9,141 $ 13,511 $ 12,104
============ =========== ============== ============
Weighted average common shares 22,692 22,098 22,537 21,951
============ =========== ============== ============
Net loss per share $ 0.07 $ 0.09 $ 0.14 $ 0.12
============ =========== ============== ============
Dividends paid per common share $ -- $ -- $ -- $ --
============ =========== ============== ============
</TABLE>
See accompanying notes to group financial statements.
Page 25 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Statements of Cash Flows (Unaudited)
(Amounts in thousands)
<TABLE>
<S> <C>
Nine Months Ended
November 30,
1998 1997
------------- ------------
Operating Activities:
Net loss $ (13,511) $ (12,104)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,674 3,370
Provision for deferred income taxes 4,987 1,596
Changes in operating assets and liabilities, net
of effects from business acquisition:
Increase in deferred revenue and other liabilities 1,201 631
Increase in net accounts receivable (38,176) (23,712)
Increase in inventory, prepaid expenses
and other current assets (30,685) (49,105)
(Increase) decrease in other assets (2,289) 80
Increase in accounts payable, accrued expenses
and other current liabilities 6,992 9,822
------------- ------------
Net cash used in operating activities (64,807) (69,422)
------------- ------------
Investing Activities:
Cash used in business acquisition (7,557) --
Purchases of property and equipment (124,431) (165,678)
Proceeds from sales of property and equipment 78,471 41,102
Increase in inter-group receivable, net -- (88,934)
------------- ------------
Net cash used in investing activities (53,517) (213,510)
------------- ------------
Financing Activities:
Increase in allocated short-term debt, net 65,215 --
Increase in allocated long-term debt, net 29,997 --
Issuance of inter-group note payable, net -- 123,697
Equity issuances, net 2,327 74
------------- ------------
Net cash provided by financing activities 97,539 123,771
------------- ------------
Decrease in cash and cash equivalents (20,785) (159,161)
Cash and cash equivalents at beginning of year 26,412 170,421
------------- ------------
Cash and cash equivalents at end of period $ 5,627 $ 11,260
============= ============
</TABLE>
See accompanying notes to group financial statements.
Page 26 of 35
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Notes to Group Financial Statements
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track separately the performance of the Circuit City store-related
operations, a retained interest in the CarMax Group, and all other
businesses in which the Company may be engaged (other than those comprising
the CarMax Group and including the Company's investment in Digital Video
Express, LP and related operations). The CarMax Group Common Stock is
intended to track separately the performance of the CarMax operations. The
Circuit City Group held a 76.8 percent interest in the CarMax Group at
November 30, 1998 and a 77.3 percent interest at February 28, 1998, and
November 30, 1997.
Notwithstanding the attribution of the Company's assets and liabilities
(including contingent liabilities) and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
respective financial statements, holders of Circuit City Group Stock and
holders of CarMax Group Stock are shareholders of the Company and subject
to all of the risks associated with an investment in the Company and all of
its businesses, assets and liabilities. Such attribution does not affect
title to the assets or responsibility for the liabilities of the Company or
any of its subsidiaries. The results of operations or financial condition
of one Group could affect the results of operations or financial condition
of the other Group. Accordingly, the CarMax Group financial statements
included herein should be read in conjunction with the consolidated and
Circuit City Group financial statements and with the notes to the
consolidated and Group financial statements included in the Company's 1998
annual report to shareholders.
2. Accounting Policies
The financial statements of the CarMax Group conform to generally accepted
accounting principles. The interim period financial statements are
unaudited; however, in the opinion of management, all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of the interim group financial statements have been included.
The fiscal year-end balance sheet data was derived from audited financial
statements.
3. Accounting for Costs of Computer Software
Effective March 1, 1998, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires certain software development costs to be
capitalized. Generally, once the capitalization criteria of the SOP have
been met, external direct costs of materials and services used in the
development of internal-use software and payroll and payroll-related costs
for employees directly involved in the development of internal-use software
are to be capitalized. The adoption of this SOP did not have a material
effect on the CarMax Group's financial position, results of operations or
cash flows.
Page 27 of 35
4. Net Loss per Share
The calculation of net loss per share is presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------
Weighted average common shares.................. 22,692 22,098 22,537 21,951
=========================== ===========================
Loss available to common shareholders........... $ 1,701 $ 2,075 $ 3,122 $ 2,743
Net loss per share.............................. $ 0.07 $ 0.09 $ 0.14 $ 0.12
</TABLE>
The CarMax Group had no diluted net loss per share because the Group had
net losses for the periods presented.
5. Gain on Securitizations
For transfers of receivables that qualify as sales, the Group recognizes
gains or losses as a component of the Group's finance operations. The net
gain on sales of receivables for the CarMax Group's finance operation was
$2.7 million for the third quarter of this fiscal year compared with a net
gain of $1.1 million for the same period last fiscal year. The net gain on
sales of receivables for the CarMax Group's finance operation totaled $7.5
million for the nine-month period ended November 30, 1998, compared with a
net gain of $3.0 million for the nine-month period ended November 30, 1997.
6. Interest Rate Swaps
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $3.4 million at November 30, 1998, compared with a loss of $1.9
million at February 28, 1998.
On behalf of the CarMax Group, the Company entered into 40-month amortizing
swaps related to the auto loan receivable securitization. The total
notional amount of the CarMax swaps was $311 million at November 30, 1998,
and $224 million at February 28, 1998. These swaps were entered into as
part of the sales of receivables and are, therefore, included in the gain
or loss on sales of receivables.
7. Business Acquisition
On November 20, 1998, the CarMax Group completed the acquisition of the
Toyota franchise rights and the related assets of Laurel Automotive Group,
Inc. for $12.6 million, which was financed through available cash resources
and the issuance of a $5 million promissory note to the seller. This
acquisition has been accounted for under the purchase method and the
results of the operations of the acquired franchise have been included in
the CarMax Group financial statements since the date of acquisition. The
excess of the purchase price over the fair value of the net tangible assets
acquired was allocated to goodwill, which is being amortized on a
straight-line basis over 15 years, and to a covenant not to compete, which
is being amortized on a straight-line basis over five years. Both goodwill
and the covenant not to compete are included in other assets on the balance
sheet. Unaudited pro forma information related to this acquisition is not
included as the impact of this acquisition is not deemed to be material.
Page 28 of 35
8. Subsequent Event
On December 8, 1998, the CarMax Group completed the acquisition of the
franchise rights and the related assets of Mauro Auto Mall, Inc. for $28.1
million, which was financed through available cash resources and the
issuance of a $5 million promissory note to the seller. The Mauro Auto
Mall, Inc. is a Kenosha, Wis.-based multi-showroom new-car auto mall. This
acquisition has been accounted for under the purchase method. The excess of
the purchase price over the fair value of the net tangible assets acquired
was allocated to goodwill, which is being amortized on a straight-line
basis over 15 years, and to a covenant not to compete, which is being
amortized on a straight-line basis over five years.
Page 29 of 35
<PAGE>
ITEM 2.
CARMAX GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the third quarter of fiscal 1998 were $345.9 million, an increase of
52 percent from $227.1 million in the same period last year. For the nine months
ended November 30, 1998, total sales were $1.09 billion, an increase of 79
percent from $611.1 million in the same period last year. CarMax's used-car
sales remain sluggish, reflecting the high incentives being offered on new cars
and the challenge of building consumer awareness in a number of newer,
multi-store markets. New-car sales at CarMax's Chrysler franchise locations
strengthened as the quarter progressed, reflecting a stronger inventory position
by mid-quarter and new incentives during the last week of November. The CarMax
Group total sales increase is attributable to the addition of 12 store locations
since the third quarter of last fiscal year.
CarMax comparable store sales changes for the third quarter and first nine
months of fiscal years 1999 and 1998 were as follows:
<TABLE>
<S> <C>
- ---------------------------------------- -------------------------- --------------------------
FY 99 3rd Quarter Nine Months
- ---------------------------------------- -------------------------- --------------------------
SEP OCT NOV FY 99 FY 98 FY 99 FY 98
- ---------------------------------------- -------------------------- --------------------------
(3%) (2%) (7%) (4%) 4% (2%) 9%
- ---------------------------------------- -------------------------- --------------------------
</TABLE>
During the quarter, the CarMax Group added stores in Dulles, Va., and White
Marsh, Md. These stores give CarMax three used-car superstore locations in the
Washington, D.C./Baltimore, Md., market. In early November, the Company
announced that Mitsubishi Motor Sales of America, Inc. had granted CarMax two
new-car franchise points to be operated from the Dulles, Va., and Laurel, Md.,
superstores. Late in the quarter, CarMax also completed the previously announced
agreement to acquire the Toyota franchise rights and the related assets of
Laurel Automotive Group, Inc. Early in the fourth quarter, CarMax completed
another previously announced acquisition of the franchise rights and the related
assets of Mauro Auto Mall, Inc., a Kenosha, Wis.-based multi-showroom auto mall.
The CarMax Group anticipates opening two additional used-car locations during
the remainder of the fiscal year.
The table below details CarMax retail units:
<TABLE>
<S> <C>
Stores Open At End of Quarter Estimate
Nov. 30, 1998 Nov. 30, 1997 Feb. 28, 1999 Feb. 28, 1998
- ---------------------------------------------------------------------------------------------------------
"C" Superstore 8 4 8 5
------------ ----------- ------------ ------------
"B" Superstore 6 3 6 5
------------ ----------- ------------ ------------
"A" Superstore 11 7 13 8
------------ ----------- ------------ ------------
Other 1 -- 2 --
=========================================================================================================
TOTAL 26 14 29 18
=========================================================================================================
</TABLE>
For the CarMax Group, gross dollar sales from all extended warranty programs
were 4.5 percent of sales in the third quarter of fiscal 1999 compared with 3.8
percent in the same period last year. The increase in the third quarter is
attributable to pricing adjustments and a higher penetration rate achieved by
extending warranty coverage to more vehicles. Third-party warranty revenue
increased to 2.0 percent of sales in this year's third quarter from 1.4 percent
in the same period last year. The total extended warranty revenue that is
reported in total sales was 2.1 percent of sales in this year's third quarter
versus 1.5 percent in last year's third quarter.
CarMax's operations, in common with other retailers in general, are subject to
seasonal influences. Historically, CarMax stores have experienced more of their
net sales in the first two quarters of the fiscal year.
Page 30 of 35
The net earnings of any interim quarter are seasonally disproportionate to net
sales since administrative and certain operating expenses remain relatively
constant during the year. Therefore, interim results should not be relied upon
as necessarily indicative of results for the entire fiscal year.
Cost of Sales
The CarMax Group's gross profit margin increased to 11.5 percent of sales in the
third quarter of fiscal 1999 from 6.8 percent for the same period last year. For
the nine months ended November 30, 1998, the gross profit margin was 11.5
percent compared with 8.3 percent for the same period last year. The increase in
the gross profit margin reflects the impact of the profit improvement plan that
was initiated at the end of last fiscal year and better inventory management
compared with last year. Last year's especially low gross margins reflected the
inventory mark downs caused by the under performance of new stores and low
introductory prices on new-model year vehicles.
Selling, General and Administrative Expenses
The CarMax Group's selling, general and administrative expense ratio was 14.5
percent of sales in the third quarter of fiscal 1999 compared with 13.2 percent
of sales for the same period last year. For the nine-month period ended November
30, 1998, the expense ratio was 13.2 percent of sales compared with 11.4 percent
in the same period last year. The third quarter and nine-month increases reflect
the below-plan sales.
Interest Expense
Interest expense increased to 0.5 percent of sales in the third quarter of
fiscal 1999 compared with 0.2 percent of sales for the same period last year.
For the nine-month period ended November 30, 1998, interest expense was 0.3
percent of sales compared with 0.2 percent for the same period last year. In
fiscal 1999, interest expense primarily was incurred on allocated debt used to
fund store expansion and working capital. In fiscal 1998, interest expense
primarily was incurred on an inter-group note used to finance inventory.
Net Loss
During the third quarter, the CarMax Group incurred a net loss of $7.3 million
versus a net loss of $9.1 million for the same period last year. The net loss
attributable to the CarMax Group Common Stock was 7 cents per share for the
third quarter of fiscal 1999 compared with a net loss of 9 cents per share for
the same period last year.
The net loss for the nine-month period ended November 30, 1998, was $13.5
million compared with $12.1 million for the same period last year. The net loss
attributable to the CarMax Group Common Stock was 14 cents per share this year
compared with 12 cents per share last year.
Liquidity and Capital Resources
Total assets at November 30, 1998, were $550.5 million, an increase of $102.2
million, or 23 percent, from $448.3 million at February 28, 1998. Inventory
increased $30.3 million to support new stores opened. Net accounts receivable
increased by $38.2 million, reflecting an increase in auto loans.
As of November 30, 1998, the Company had an asset securitization program,
operated through a special purpose subsidiary on behalf of the CarMax Group,
that allowed the transfer of up to $475 million in auto loan receivables. The
program capacity was increased to $575 million following the end of the third
quarter. The Company anticipates that it will be able to expand its
securitization programs to meet future needs.
On November 20, 1998, the CarMax Group completed the acquisition of the Toyota
franchise rights and the related assets of Laurel Automotive Group, Inc. for
$12.6 million, which was financed through available cash resources and the
issuance of a $5 million promissory note to the seller. In addition, on December
8, 1998, the CarMax Group acquired the franchise rights and the related assets
of Mauro Auto Mall, Inc. for $28.1 million, which was financed through available
cash resources and a $5 million promissory note to the seller.
Page 31 of 35
The Group relies on the Company's external debt allocated to the CarMax Group to
fund operating deficits and to provide working capital needed to fund net assets
not otherwise financed through sale-leasebacks or receivable securitizations.
All significant financial activities of the Group are managed on a centralized
basis and are dependent on the financial condition of the Company as a whole.
Such financial activities include the investment of surplus cash, issuance and
repayment of debt, securitization of receivables, proceeds of equity offerings
and sale-leasebacks of real estate. At November 30, 1998, the Company also
maintained $370 million in seasonal lines that are renewed annually with various
banks, as well as a $150 million revolving credit facility.
Management believes that the establishment of an inventory financing program for
CarMax, proceeds from the sales of property and equipment and receivables,
proceeds of equity offerings, other equity issuances, future increases in the
Company's debt allocated to the CarMax Group and cash generated by operations
will be sufficient to fund the CarMax Group's capital expenditures and
operations.
Market Risk
The Company manages the installment loan portfolio of First North American
Credit Corporation ("FNACC"). Portions of this portfolio are securitized and,
therefore, are not presented on the Group's balance sheet. Interest rate
exposure relating to these receivables represents a market risk exposure that
the Company has managed with matched funding and interest rate swaps.
Many of the automobiles that CarMax sells are financed through FNACC. All
receivables represent fixed-rate installment loans with a principal weighted
average life of approximately 20 months. Total principal outstanding at November
30 and February 28, 1998, was as follows:
(Amounts in millions) November 30 February 28
- -------------------------------------------------------------------------------
Fixed APR............................... $ 516 $ 297
Financing for these receivables is achieved through bank conduit securitizations
which, in turn, issue floating-rate securities. Interest rate exposure is hedged
through the use of interest rate swaps matched to projected payoffs. Receivables
held by the Company for investment or sale are financed with working capital.
Financings at November 30 and February 28, 1998, were as follows:
(Amounts in millions) November 30 February 28
- -------------------------------------------------------------------------------
Floating-rate securitizations
synthetically altered to fixed....... $ 311 $ 224
Floating-rate securitizations........... 150 44
Held by the Company:
For investment....................... 34 23
For sale............................. 21 6
-------------------------------
Total ................................. $ 516 $ 297
===============================
Because of the programs in place to manage interest rate exposure relating to
its installment loan portfolio, the Company expects to experience relatively
little impact as interest rates fluctuate in the future.
Year 2000
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the Year 2000
issue and its impact on the Group's financial statements.
Recent Accounting Pronouncements
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of Recent
Accounting Pronouncements and their impact on the Group's financial statements.
Page 32 of 35
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new retail concepts and risks associated with Year 2000 issues.
Additional discussion of factors that could cause actual results to differ
materially from management's projections, forecasts, estimates and expectations
is contained in the Company's 1998 SEC filings, including the Company's report
on Form 10-K for the year ended February 28, 1998.
Page 33 of 35
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Articles of Incorporation and Bylaws
(I) Amended and Restated Articles of
Incorporation of the Company, effective
February 3, 1997, are filed herewith.
(I) (a) Articles of Amendment to the Company's
Amended and Restated Articles of
Incorporation, effective April 28, 1998,
are filed herewith.
(II) Bylaws of the Company as amended and
restated October 13, 1998, are filed
herewith.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 34 of 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRCUIT CITY STORES, INC.
By: s/Richard L. Sharp
Richard L. Sharp
Chairman of the Board and
Chief Executive Officer
By: s/Michael T. Chalifoux
Michael T. Chalifoux
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By: s/Philip J. Dunn
Philip J. Dunn
Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
January 8, 1999
Page 35 of 35
EXHIBIT 3.(I)
CIRCUIT CITY STORES, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Circuit City Stores, Inc.
ARTICLE II
PURPOSES
The purpose for which the Corporation is organized is to engage in any
lawful business not required by the Virginia Stock Corporation Act to be stated
in the Articles of Incorporation.
The Corporation shall have all of the corporate powers of any character
which are not prohibited by law or required to be stated in the Articles of
Incorporation.
ARTICLE III
CAPITAL STOCK
A. Authorized Stock. The aggregate number of shares that the
Corporation shall have authority to issue and the par value per share are as
follows:
Class Number of Shares Par Value
Preferred 2,000,000 $20.00
Common 350,000,000 $ .50
B. Preemptive Rights. No holder of outstanding shares of any
class of stock shall have any preemptive right with respect to (i) any shares of
any class of stock of the Corporation or other security that the Corporation may
determine to issue, whether the shares of stock or other security to be issued
is now or hereafter authorized, (ii) any warrants, rights or options to purchase
any such stock or other security, or (iii) any obligations convertible into any
such stock or other security or into warrants, rights or options to purchase any
such stock or other security.
ARTICLE IV
PREFERRED STOCK
A. General. Certain provisions relating to the Preferred Stock
and the relative rights of the Preferred Stock and the holders of the
outstanding shares thereof, regardless of series, are set forth below.
(1) Issuance in Series. The Board of Directors is authorized
to issue the Preferred Stock from time to time in one or more series and to
provide for the relative rights and preferences of each series by the adoption
of a resolution or resolutions fixing:
(a) The maximum number of shares in a series and the
designation of the series, which designation shall distinguish the
shares thereof from the shares of any other series or class;
(b) The rate of dividend, the time of payment, whether
dividends shall be cumulative and if so, the dates from which they
shall be cumulative, and the extent of participation rights, if any;
(c) Any right to vote with holders of shares of any other
series or class and any right to vote as a class, either generally or
as a condition to specified corporate action; provided, however, that
no holder of shares of Preferred Stock shall ever be entitled to more
than one vote for each share held by him;
(d) The price at and the terms and conditions on which
shares may be redeemed;
(e) The amount payable upon shares in the event of
involuntary liquidation;
(f) The amount payable upon shares in the event of voluntary
liquidation;
(g) Sinking fund provisions for the redemption or purchase
of shares; and
(h) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion; and
(i) Any other designations, rights, preferences or
limitations that are now or hereafter permitted by the laws of the
Commonwealth of Virginia and are not inconsistent with the provisions
of paragraph (A)(1) of this Article.
(2) Articles of Amendment. Before the issuance of any shares
of a series of the Preferred Stock (other than shares for which
provision is already made in these Amended and Restated Articles of
Incorporation), Articles of Amendment establishing such series shall be
filed with and made effective by the State Corporation Commission of
Virginia, as required by law.
(3) Parity of All Shares. All shares of the Preferred Stock,
regardless of series, shall be identical with each other in all
respects except as is permitted in paragraph (A)(1) of this Article.
(4) Definitions. As used herein the following terms shall
have the following meanings:
(a) "Capital Stock" means any capital stock of any class or
series (however designated) of the Corporation.
(b) "Common Stock" means the Common Stock of the
Corporation.
(c) "Dividends Accrued" means, with respect to the shares of
each series of the Preferred Stock an amount equal to the dividends
thereon at the annual dividend rate for such series computed from the
date of issue to the date to which reference is made, plus any
additional amounts provided by participation rights, whether or not
such amounts or any part thereof shall have been declared or set aside
to be paid and whether there shall be or have been any funds out of
which such amounts might legally be paid, less the amount of dividends
or participation rights declared and paid thereon.
(d) "Junior Stock" means any Capital Stock ranking, as to
dividends and as to rights in liquidation, dissolution or winding up of
the affairs of the Corporation, subordinate to the Preferred Stock.
(e) "Parity Stock" means any Capital Stock ranking, as to
dividends and as to rights in liquidation, dissolution or winding up of
the affairs of the Corporation, equally with the Preferred Stock.
(f) "Preferred Stock" means the Preferred Stock of the
Corporation.
(g) "Redemption" means any purchase or acquisition by the
Corporation, for a consideration, of shares of the Preferred Stock,
whether pursuant to an option of the Corporation or a sinking fund or
otherwise, if the holder of the Preferred Stock being acquired by the
Corporation is required to sell the shares the Corporation is acquiring
or if, as a result of any such purchase or acquisition, the Corporation
takes a credit against a sinking fund obligation.
(h) "Redemption Date" means the date fixed for the
Redemption of any shares of the Preferred Stock in a notice of
Redemption given pursuant to paragraph (A)(7) of this Article.
(i) "Redemption Price" means, with respect to the shares of
each series of the Preferred Stock, the price at which the Corporation
shall or may redeem such shares pursuant to the terms of the Articles
of Serial Designation for such series.
(j) "Subsidiary" means any corporation a majority of the
outstanding Voting Stock of which is owned, directly or indirectly, by
the Corporation or by the Corporation and one or more Subsidiaries.
2
(k) "Voting Stock" means stock of any class (however
designated) having voting power for the election of a majority of the
board of directors (or other governing body) of a corporation, other
than stock having such powers only by reason of the happening of a
contingency.
(5) Dividends.
(a) The holders of outstanding shares of each series of the
Preferred Stock shall be entitled to receive, if, when and as declared
by the Board of Directors, out of funds legally available therefor,
cash dividends in accordance with the terms set forth in the amendment
to these Amended and Restated Articles of Incorporation establishing
such series.
(b) No dividends whatsoever shall be declared or paid upon,
or any sums set apart for the payment of dividends upon, any shares of
Preferred Stock or Parity Stock for any dividend period unless a like
proportionate dividend for the same dividend period (ratable in
proportion to the respective annual dividend rates) shall have been
declared and paid upon, or declared and a sufficient sum set apart for
the payment of such dividend upon, all outstanding shares of Preferred
Stock.
(c) Unless Dividends Accrued (to the extent that the amount
thereof shall have been determinable) on all outstanding shares of each
series of the Preferred Stock for all past dividend periods and the
then current period shall have been declared and paid, or declared and
a sum sufficient for the payment thereof set apart, and all mandatory
sinking fund payments required to be made pursuant to the terms of any
series of the Preferred Stock shall have been made in full, then (i) no
dividend whatsoever (other than a dividend payable solely in Junior
Stock) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Stock; (ii) no other
distribution shall be made upon any shares of Junior Stock; (iii) no
shares of Junior Stock shall be purchased, redeemed or otherwise
acquired for value by the Corporation or by any Subsidiary; and (iv) no
monies shall be paid into or set apart or made available for a sinking
or other like fund for the purchase, Redemption or other acquisition
for value of any shares of Junior Stock by the Corporation or any
Subsidiary.
(6) Voting Rights. No holder of outstanding shares of any
series of the Preferred Stock shall be entitled to vote for the
election of directors or upon any other matter, or to receive notice of
or to participate in any meeting of the stockholders of the
Corporation, except (i) as hereinafter provided or as provided in the
amendment to these Amended and Restated Articles of Incorporation
establishing such series and (ii) as may be required by law.
(7) Redemption.
(a) Redemptions of outstanding shares of any series of the
Preferred Stock shall be made pursuant to the terms and conditions set
forth in these Amended and Restated Articles of Incorporation or in the
amendment thereto establishing such series and, unless they provide
otherwise, shall be made in the manner hereinbelow set forth.
(b) No less than thirty (30) nor more than sixty (60) days
prior to the Redemption Date notice of Redemption shall be given by
first class mail, postage prepaid, to the holders of record of the
outstanding shares of the Preferred Stock being redeemed at their last
known post office addresses shown in the Corporation's stock transfer
records. The notice of Redemption shall set forth the paragraph or
paragraphs of these Amended and Restated Articles of Incorporation (or
the amendment thereto establishing the series of which such shares are
a part) pursuant to which the shares are being redeemed, the number of
shares to be redeemed, the date fixed for Redemption, the Redemption
Price, and the place or places where certificates representing shares
to be redeemed may be surrendered. In case less than all of the
outstanding shares of a series are to be redeemed (i) the shares to be
redeemed shall be selected by lot or redeemed ratably or in such other
equitable manner as the Board of Directors may determine, and (ii) the
notice of Redemption shall set forth the numbers of the certificates
representing shares to be redeemed and, if less than all of the shares
represented by any such certificate are to be redeemed, the number of
shares to be redeemed which are represented by such certificate.
3
(c) If notice of Redemption of any outstanding shares of any
series of the Preferred Stock shall have been duly mailed as
hereinabove provided, then on or before the Redemption Date the
Corporation shall deposit cash sufficient to pay the Redemption Price
of such shares in trust for the Benefit of the holders of the shares to
be redeemed in any bank or trust company in the City of Richmond,
Virginia, having capital and surplus aggregating at least $50,000,000
as of the date of its most recent report of financial condition and
named in such notice, with irrevocable instructions and authority to
apply such amount to the Redemption of the shares so called for
Redemption against surrender for cancellation of the certificates
representing such shares. From and after the time of such deposit all
shares for the Redemption of which such deposit shall have been so made
shall, whether or not the certificates therefor shall have been
surrendered for cancellation, be no longer deemed to be outstanding for
any purpose and all rights with respect to such shares shall thereupon
cease and terminate except the right to receive payment of the
Redemption Price, but without interest. Any interest accrued on such
funds shall be paid to the Corporation from time to time. Any fund so
deposited and unclaimed at the end of five years from the Redemption
Date shall be repaid to the Corporation, free of trust, and the holders
of the shares called for Redemption who shall not have surrendered
their certificates representing such shares prior to such repayment
shall be deemed to be unsecured creditors of the Corporation for the
amount of the Redemption Price and shall look only to the Corporation
for payment thereof, without interest, subject to the laws of the
Commonwealth of Virginia.
(d) The Corporation shall also have the right to acquire
outstanding shares of any series of the Preferred Stock otherwise than
by Redemption, from time to time, for such consideration as may be
acceptable to the holders thereof; provided, however, that if all
Dividends Accrued on all outstanding shares of such series shall not
have been declared and paid or declared and a sum sufficient for the
payment thereof set apart, neither the Corporation nor any Subsidiary
shall so acquire any shares of such series except in accordance with a
purchase offer made on the same terms to all the holders of the
outstanding shares of such series.
(e) Shares of any series of the Preferred Stock purchased,
redeemed or otherwise acquired by the Corporation shall constitute
authorized but unissued shares of Preferred Stock but undesignated as
to series, as provided by law, and, unless otherwise provided in these
Amended and Restated Articles of Incorporation or in the amendment
thereto establishing such series of the Preferred Stock, may be
reissued by the Corporation.
(8) Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of shares of each series of the Preferred
Stock then outstanding shall be entitled to be paid in cash out of the
net assets of the Corporation, including its capital, an amount equal
to the Redemption Price and no more, before any distribution or payment
shall be made to the holders of shares of Junior Stock and, after
payment to the holders of the outstanding shares of each series of the
Preferred Stock of the amounts to which they are respectively entitled,
the balance of such assets, if any, shall be paid to the holders of
Junior Stock according to their respective rights. For the purposes of
the preceding sentence, neither the consolidation of the Corporation
with nor the merger of the Corporation into any other corporation, nor
the sale, lease or other disposition of all or substantially all of the
Corporation's properties and assets shall, without further corporate
action, be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation. If the net assets of the Corporation are
insufficient to pay the holders of the outstanding shares of each
series of the Preferred Stock the full amounts to which they are
respectively entitled, the entire net assets of the Corporation
remaining shall be distributed ratably to the holders of the
outstanding shares of the Preferred Stock in proportion to the full
amounts to which they are respectively entitled.
(9) Conflicting Provisions. Subsequent to the date these
Amended and Restated Articles of Incorporation become effective the Corporation
may issue one or more series of Preferred Stock. In the event that any of the
foregoing provisions of these Amended and Restated Articles of Incorporation
conflict with the provisions of the amendment thereto establishing a series of
the Preferred Stock, then, as to such series, the
4
specific provisions which relate to it, and not the general provisions
hereinabove set forth, shall control.
C. Series E Preferred Stock.
The Board of Directors of the Corporation has heretofore designated
500,000 shares of the Preferred Stock as the Cumulative Participating Preferred
Stock, Series E ("Series E Stock"). Such number may from time to time be
decreased (but not below the number of shares of Series E Stock then
outstanding) by the Board of Directors of the Corporation. In addition to any
relative rights and preferences hereinabove granted, the relative rights and
preferences of such series and the holders of the outstanding shares thereof are
as set forth in paragraphs (C)(1) through (C)(5) of this Article.
(1) Dividends and Distributions.
(a) The holders of shares of the Series E Stock, in
preference to the holders of shares of the Circuit City Stock and the
CarMax Stock and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the fifteenth day (or, if not a business day, the preceding
business day) of January, April, July and October in each year (each
such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of the Series E
Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 400 times the aggregate per share amount of all
cash dividends, and 400 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Circuit City Stock, or a subdivision of
the outstanding shares of Circuit City Stock (by reclassification or
otherwise), declared on the Circuit City Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of the Series E Stock. In the event the
Corporation shall at any time after January 1, 1997 declare or pay any
dividend on Circuit City Stock payable in shares of Circuit City Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Circuit City Stock (by reclassification or
otherwise than by payment of a dividend in shares of Circuit City
Stock) into a greater or lesser number of shares of Circuit City Stock,
then in each such case the amount per share to which holders of shares
of the Series E Stock shall be entitled under clause (b) of the
preceding sentence shall be adjusted by multiplying the amount per
share to which holders of shares of the Series E Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence by a fraction the numerator of which is the number of shares
of Circuit City Stock outstanding immediately after such event and the
denominator of which is the number of shares of Circuit City Stock that
were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series E Stock as provided in paragraph (C)(1)(a) of this
Article immediately after it declares a dividend or distribution on the
Circuit City Stock (other than a dividend payable in shares of Circuit
City Stock); provided that, in the event no dividend or distribution
shall have been declared on the Circuit City Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series E Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of the Series E Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of the
Series E Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of the Series E Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not
5
bear interest. Dividends paid on the shares of the Series E Stock in an
amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a
share-byshare basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of the Series E Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
(2) Voting Rights. Except to the extent provided by law, the
holders of shares of the Series E Stock shall not be entitled (i) to vote on any
matter or (ii) to receive notice of, or to participate in, any meeting of
shareholders of the Corporation at which they are not entitled to vote.
(3) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series E Stock as provided in paragraph
(C)(1) of this Article are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of the Series E Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare, set apart or pay dividends on or make
any other distributions on the Common Stock or any shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series E Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series E Stock, except dividends paid
ratably on the Series E Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of the Series E Stock, any such parity
stock or any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series E
Stock, or set aside for or pay to any sinking fund therefor.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (C)(3)(a) of this Article, purchase or otherwise acquire such
shares at such time and in such manner.
(4) Reacquired Shares. Any shares of the Series E Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, par value $20.00 per share, and may be
reissued as a new series or a part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of an
existing series of Preferred Stock.
(5) Redemption.
(a) The Corporation may, at its option and at any time and
from time to time after April 29, 2048, redeem all or any portion of
the outstanding shares of Series E Stock.
(b) The redemption price shall be an amount per share equal
to the greater of (i) $14,000 or (ii) subject to the provision for
adjustment hereinafter set forth, 400 times the current market price
per share of Circuit City Stock on the date fixed for redemption, plus
in each such case an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date fixed for
redemption. The current market price per share of Circuit City Stock on
any date shall be deemed to be the average of the daily closing prices
6
per share of such Circuit City Stock for the 30 consecutive trading
days immediately prior to such date. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange ("NYSE")
or, if the Common Stock is not listed or admitted to trading on the
NYSE, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Circuit City Stock is listed or
admitted to trading or, if the Circuit City Stock is not listed or
admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
Systems ("NASDAQ") or such other system then in use, or, if on any such
date the Circuit City Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Circuit City Stock. If
no professional market maker is then making a market in the Circuit
City Stock, the current market price per share of the Circuit City
Stock shall be deemed to be $1.00. As used herein, the term trading day
shall mean a day on which the principal national securities exchange on
which the Circuit City Stock is listed or admitted to trading is open
for the transaction of business or, if the Circuit City Stock is not
listed or admitted to trading on any national securities exchange, a
business day. In the event the Corporation shall at any time after
January 1, 1997 declare or pay any dividend on Common Stock payable in
shares of Circuit City Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Circuit City Stock) into a greater or lesser number of shares of
Circuit City Stock, then in each such case the aggregate amount per
share to which holders of shares of the Series E Stock shall be
entitled under the provisions of the first sentence of this paragraph
shall be adjusted by multiplying the amount per share to which holders
of shares of the Series E Stock should have been entitled immediately
prior to such event under the provisions of the first sentence of this
paragraph by a fraction the numerator of which is the number of shares
of Circuit City Stock outstanding immediately after such event and the
denominator of which is the number of shares of Circuit City Stock that
were outstanding immediately prior to such event.
(c) In case less than all of the outstanding shares of
Series E Stock are to be redeemed, not more than 60 days prior to the
date fixed for redemption the Corporation shall select the shares to be
redeemed. Such shares shall be selected by lot or designated ratably or
in such other equitable manner as the Corporation may determine. The
Corporation in its discretion may select the particular certificates
(if there are more than one) representing shares registered in the name
of a holder that are to be redeemed.
(d) Not less than 30 nor more than 60 days prior to the date
fixed for redemption, notice of redemption shall be given by first
class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series E Stock to be redeemed at their last
known addresses shown in the Corporation's share transfer records. The
notice of redemption shall set forth the paragraph of this Article
pursuant to which the shares are being redeemed, the number of shares
to be redeemed, the date fixed for redemption, the applicable
redemption price, and the place or places where certificates
representing shares to be redeemed may be surrendered. In case less
than all of the outstanding shares of the Series E Stock are to be
redeemed the notice of redemption shall also set forth the numbers of
the certificates representing shares to be redeemed and, in case less
than all shares represented by any such certificate are to be redeemed,
the number of shares represented by such certificate to be redeemed.
(e) If notice of redemption of any outstanding shares of
Series E Stock shall have been duly mailed as herein provided, then on
or before the date fixed for redemption the Corporation shall deposit
cash sufficient to pay the redemption price of such shares in trust for
the benefit of the holders of the shares to be redeemed with any bank
or trust company in the City of Richmond, Commonwealth of Virginia,
having
7
capital and surplus aggregating at least $50,000,000 as of the date of
its most recent report of financial condition and named in such notice,
to be applied to the redemption of the shares so called for redemption
against surrender for cancellation of the certificates representing
such shares. From and after the time of such deposit all shares for the
redemption of which such deposit shall have been made shall, whether or
not the certificates therefor shall have been surrendered for
cancellation, no longer be deemed to be outstanding for any purpose,
and all rights with respect to such shares shall thereupon cease and
terminate except the right to receive payment of redemption price but
without interest. Any interest earned on funds so deposited shall be
paid to the Corporation from time to time. Any funds so deposited and
unclaimed at the end of five years from the date fixed for redemption
shall be repaid to the Corporation, free of trust, and the holders of
the shares called for redemption who shall not have surrendered their
certificates representing such shares prior to such repayment shall be
deemed to be unsecured creditors of the Corporation for the amount of
the redemption price and shall look only to the Corporation for payment
thereof, without interest, subject to the laws of the Commonwealth of
Virginia.
(f) The Corporation shall also have the right to acquire
outstanding shares of Series E Stock otherwise than by redemption
pursuant to paragraph (C)(5)(a) of this Article, from time to time for
such consideration as may be acceptable to the holders thereof;
provided, however, that if all dividends accrued on all outstanding
shares of Series E Stock shall not have been declared and paid or
declared and a sum sufficient for the payment thereof set apart,
neither the Corporation nor any subsidiary shall so acquire any shares
of Series E Stock except in accordance with a purchase offer made on
the same terms to all the holders of the outstanding shares of Series E
Stock.
D. Series F Preferred Stock.
The Board of Directors of the Corporation has heretofore designated
500,000 shares of the Preferred Stock as the Cumulative Participating Preferred
Stock, Series F ("Series F Stock"). Such number may from time to time be
decreased (but not below the number of shares of Series F Stock then
outstanding) by the Board of Directors of the Corporation. In addition to any
relative rights and preferences hereinabove granted, the relative rights and
preferences of such series and the holders of the outstanding shares thereof are
as set forth in paragraphs (D)(1) through (D)(5) of this Article.
(1) Dividends and Distributions.
(a) The holders of shares of the Series F Stock, in
preference to the holders of shares of the Circuit City Stock and the
CarMax Stock and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the fifteenth day (or, if not a business day, the preceding
business day) of January, April, July and October in each year (each
such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of the Series F
Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 400 times the aggregate per share amount of all
cash dividends, and 400 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of CarMax Stock, or a subdivision of the
outstanding shares of CarMax Stock (by reclassification or otherwise),
declared on the CarMax Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a
share of the Series F Stock. In the event the Corporation shall at any
time after January 1, 1997 declare or pay any dividend on CarMax Stock
payable in shares of CarMax Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of CarMax Stock
(by reclassification or otherwise than by payment of a dividend in
shares of CarMax Stock) into a greater or lesser number of shares of
CarMax Stock, then in each such case the
8
amount per share to which holders of shares of the Series F Stock shall
be entitled under clause (b) of the preceding sentence shall be
adjusted by multiplying the amount per share to which holders of shares
of the Series F Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence by a fraction the numerator
of which is the number of shares of CarMax Stock outstanding
immediately after such event and the denominator of which is the number
of shares of CarMax Stock that were outstanding immediately prior to
such event.
(b) The Corporation shall declare a dividend or distribution
on the Series F Stock as provided in paragraph (D)(1)(a) of this
Article immediately after it declares a dividend or distribution on the
CarMax Stock (other than a dividend payable in shares of CarMax Stock);
provided that, in the event no dividend or distribution shall have been
declared on the CarMax Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series F Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of the Series F Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of the
Series F Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of the Series F Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the
shares of the Series F Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-byshare basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of the Series F Stock entitled
to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
(2) Voting Rights. Except to the extent provided by law, the
holders of shares of the Series F Stock shall not be entitled (i) to
vote on any matter or (ii) to receive notice of, or to participate in,
any meeting of shareholders of the Corporation at which they are not
entitled to vote.
(3) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series F Stock as provided in paragraph
(C)(1) of this Article are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of the Series F Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare, set apart or pay dividends on or make
any other distributions on the Common Stock or any shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series F Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series F Stock, except dividends paid
ratably on the Series F Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of the Series F Stock, any such parity
stock or any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series F
Stock, or set aside for or pay to any sinking fund therefor.
9
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (D)(3)(a) of this Article, purchase or otherwise acquire such
shares at such time and in such manner.
(4) Reacquired Shares. Any shares of the Series F Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, par value $20.00 per share, and may be
reissued as a new series or a part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of an
existing series of Preferred Stock.
(5) Redemption.
(a) The Corporation may, at its option and at any time and
from time to time after April 29, 2048, redeem all or any portion of
the outstanding shares of Series F Stock.
(b) The redemption price shall be an amount per share equal
to the greater of (i) $8,800 or (ii) subject to the provision for
adjustment hereinafter set forth, 400 times the current market price
per share of CarMax Stock on the date fixed for redemption, plus in
each such case an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date fixed for
redemption. The current market price per share of CarMax Stock on any
date shall be deemed to be the average of the daily closing prices per
share of such CarMax Stock for the 30 consecutive trading days
immediately prior to such date. The closing price for each day shall be
the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange ("NYSE") or, if the
Common Stock is not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the CarMax Stock is listed or admitted to trading or,
if the CarMax Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations Systems ("NASDAQ") or
such other system then in use, or, if on any such date the CarMax Stock
is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in the CarMax Stock. If no professional market maker is then
making a market in the CarMax Stock, the current market price per share
of the CarMax Stock shall be deemed to be $1.00. As used herein, the
term trading day shall mean a day on which the principal national
securities exchange on which the CarMax Stock is listed or admitted to
trading is open for the transaction of business or, if the CarMax Stock
is not listed or admitted to trading on any national securities
exchange, a business day. In the event the Corporation shall at any
time after January 1, 1997 declare or pay any dividend on Common Stock
payable in shares of CarMax Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in
shares of CarMax Stock) into a greater or lesser number of shares of
CarMax Stock, then in each such case the aggregate amount per share to
which holders of shares of the Series F Stock shall be entitled under
the provisions of the first sentence of this paragraph shall be
adjusted by multiplying the amount per share to which holders of shares
of the Series F Stock should have been entitled immediately prior to
such event under the provisions of the first sentence of this paragraph
by a fraction the numerator of which is the number of shares of CarMax
Stock outstanding immediately after such event and the denominator of
which is the number of shares of CarMax Stock that were outstanding
immediately prior to such event.
(c) In case less than all of the outstanding shares of
Series F Stock are to be redeemed, not more than 60 days prior to the
date fixed for redemption the Corporation shall select the shares to be
redeemed. Such shares shall be selected by lot or designated ratably or
in such
10
other equitable manner as the Corporation may determine. The
Corporation in its discretion may select the particular certificates
(if there are more than one) representing shares registered in the name
of a holder that are to be redeemed.
(d) Not less than 30 nor more than 60 days prior to the date
fixed for redemption, notice of redemption shall be given by first
class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series F Stock to be redeemed at their last
known addresses shown in the Corporation's share transfer records. The
notice of redemption shall set forth the paragraph of this Article
pursuant to which the shares are being redeemed, the number of shares
to be redeemed, the date fixed for redemption, the applicable
redemption price, and the place or places where certificates
representing shares to be redeemed may be surrendered. In case less
than all of the outstanding shares of the Series F Stock are to be
redeemed the notice of redemption shall also set forth the numbers of
the certificates representing shares to be redeemed and, in case less
than all shares represented by any such certificate are to be redeemed,
the number of shares represented by such certificate to be redeemed.
(e) If notice of redemption of any outstanding shares of
Series F Stock shall have been duly mailed as herein provided, then on
or before the date fixed for redemption the Corporation shall deposit
cash sufficient to pay the redemption price of such shares in trust for
the benefit of the holders of the shares to be redeemed with any bank
or trust company in the City of Richmond, Commonwealth of Virginia,
having capital and surplus aggregating at least $50,000,000 as of the
date of its most recent report of financial condition and named in such
notice, to be applied to the redemption of the shares so called for
redemption against surrender for cancellation of the certificates
representing such shares. From and after the time of such deposit all
shares for the redemption of which such deposit shall have been made
shall, whether or not the certificates therefor shall have been
surrendered for cancellation, no longer be deemed to be outstanding for
any purpose, and all rights with respect to such shares shall thereupon
cease and terminate except the right to receive payment of redemption
price but without interest. Any interest earned on funds so deposited
shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of five years from the date fixed
for redemption shall be repaid to the Corporation, free of trust, and
the holders of the shares called for redemption who shall not have
surrendered their certificates representing such shares prior to such
repayment shall be deemed to be unsecured creditors of the Corporation
for the amount of the redemption price and shall look only to the
Corporation for payment thereof, without interest, subject to the laws
of the Commonwealth of Virginia.
(f) The Corporation shall also have the right to acquire
outstanding shares of Series F Stock otherwise than by redemption
pursuant to paragraph (D)(5)(a) of this Article, from time to time for
such consideration as may be acceptable to the holders thereof;
provided, however, that if all dividends accrued on all outstanding
shares of Series F Stock shall not have been declared and paid or
declared and a sum sufficient for the payment thereof set apart,
neither the Corporation nor any subsidiary shall so acquire any shares
of Series F Stock except in accordance with a purchase offer made on
the same terms to all the holders of the outstanding shares of Series F
Stock.
ARTICLE V
COMMON STOCK
A. General. Certain provisions relating to the Common Stock and the
relative rights of the Common Stock and the holders of the outstanding shares
thereof, regardless of series, are set forth below.
(1) Issuance in Series. The Board of Directors, by an
adoption of an amendment of these Amended and Restated Articles of
Incorporation, may fix, in whole or part, the preferences, limitations and
relative rights, within the limits set forth in applicable law, of one or more
series of Common Stock of the Corporation before the issuance of any shares of
that series.
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(2) Parity of All Shares. All shares of Common Stock,
regardless of series, shall be identical with each other in all respects except
as is permitted in paragraph (A)(1) of this Article.
B. Circuit City Stock and Carmax Stock.
(1) Designation of Series; Number of Shares of Each Series.
One series of Common Stock is hereby designated as "Circuit City Stores, Inc. -
- -Circuit City Group Common Stock" ("Circuit City Stock") consisting of
175,000,000 shares and a second series of Common Stock is hereby designated as
"Circuit City Stores, Inc. -- CarMax Group Common Stock" ("CarMax Stock")
consisting of 175,000,000 shares. The number of shares of each such series may
from time to time be increased (but not above the total number of authorized
shares of the class of Common Stock) or decreased (but not below the number of
shares of such series then outstanding) by the Board of Directors of the
Corporation.
(2) Dividends Subject to any preferences, limitations and
relative rights of any outstanding series of the Preferred Stock and any
qualifications or restrictions on the Common Stock created thereby, dividends
may be declared and paid upon the Circuit City Stock and the CarMax Stock, upon
the terms with respect to each such series, and subject to the limitations
provided for below in this paragraph B(2) of this Article, as the Board of
Directors may determine.
(a) Dividends on Circuit City Stock. Dividends on Circuit
City Stock may be declared and paid only out of the lesser of (i) the
assets legally available therefor and (ii) the Circuit City Group
Available Dividend Amount.
(b) Dividends on Carmax Stock. Dividends on CarMax Stock may
be declared and paid only out of the lesser of (i) the assets legally
available therefor and (ii) the CarMax Group Available Dividend Amount.
(c) Discrimination in Dividends Between Series of Common
Stock. The Board of Directors, subject to the provisions of paragraphs
B(2)(a) and B(2)(b) of this Article, may at any time declare and pay
dividends exclusively on Circuit City Stock, exclusively on CarMax
Stock or on both such series, in equal or unequal amounts,
notwithstanding the relative amounts of the Circuit City Group
Available Dividend Amount and the CarMax Group Available Dividend
Amount, the amount of dividends previously declared on each series, the
respective voting or liquidation rights of each series or any other
factor.
(d) Share Distributions. Subject to paragraphs B(2)(a) and
B(2)(b) of this Article, as the case may be, and except as permitted by
paragraphs B(5)(a) and B(5)(b)(ii)(2) of this Article, the Board of
Directors may declare and pay dividends or distributions of shares of
the Common Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of the Common Stock) on shares
of the Common Stock or shares of the Preferred Stock only as follows:
(i) dividends or distributions of shares of Circuit
City Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of Circuit City Stock)
on shares of Circuit City Stock or shares of the Preferred
Stock attributed to the Circuit City Group;
(ii) dividends or distributions of shares of CarMax
Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of CarMax Stock) on
shares of CarMax Stock or shares of the Preferred Stock
attributed to the CarMax Group; and
(iii) dividends or distributions of shares of CarMax
Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of CarMax Stock) on
shares of Circuit City Stock or shares of the Preferred Stock
attributed to the Circuit City Group, but only if the sum of
(1) the number of shares of CarMax Stock to be so issued (or
the number of such shares which would be issuable upon
conversion, exchange or exercise of any Convertible Securities
to be so issued) and (2) the number of shares of CarMax Stock
which are issuable upon conversion, exchange or exercise of
any Convertible Securities then outstanding that are
attributed in accordance with this Article to
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the Circuit City Group is less than or equal to the Number of
Shares Issuable with Respect to the Inter-Group Interest.
For purposes of this paragraph B(2)(d) of this Article, any
outstanding Convertible Securities that are convertible into or
exchangeable or exercisable for any other Convertible Securities which
are themselves convertible into or exchangeable or exercisable for
Circuit City Stock or CarMax Stock (or other Convertible Securities
that are so convertible, exchangeable or exercisable) shall be deemed
to have been converted, exchanged or exercised in full for such
Convertible Securities.
(3) Voting Rights. Except as otherwise provided by law or by the terms
of any outstanding series of Preferred Stock or any provision of these Amended
and Restated Articles of Incorporation restricting the power to vote on a
specified matter to other shareholders, the entire voting power of the
shareholders of the Corporation shall be vested in the holders of the Common
Stock, who shall be entitled to vote on any matter on which the holders of stock
of the Corporation shall, by law or by the provisions of these Amended and
Restated Articles of Incorporation or Bylaws of the Corporation, be entitled to
vote, and both series of the Common Stock shall vote thereon together as a
single voting group. On each matter to be voted on by the holders of both series
of the Common Stock voting together as a single voting group, (i) each
outstanding share of Circuit City Stock shall have one vote and (ii) each
outstanding share of CarMax Stock shall have a number of votes (including a
fraction of one vote) equal to the number of votes determined by the ratio of
the weighted average during the 20 Trading Days ending on the tenth Trading Day
prior to the record date for determining the shareholders entitled to vote of
the Market Value of the CarMax Stock to the weighted average over the same 20
Trading Days of the Market Value of the Circuit City Stock, expressed as a
decimal fraction rounded to the nearest three decimal places, determined as
follows: (A) the numerator of such fraction shall be the sum of (1) four times
the average Market Value of the CarMax Stock over the period of five Trading
Days ending on such tenth Trading Day prior to such record date, (2) three times
the average Market Value of the CarMax Stock over the period of five Trading
Days ending on the 15th Trading Day prior to such record date, (3) two times the
average Market Value of the CarMax Stock over the period of five Trading Days
ending on the 20th Trading Day prior to such record date and (4) the average
Market Value of the CarMax Stock over the period of five Trading Days ending on
the 25th Trading Day prior to such record date and (B) the denominator of such
fraction shall be the sum of (1) four times the average Market Value of the
Circuit City Stock over the period of five Trading Days ending on such tenth
Trading Day prior to such record date, (2) three times the average Market Value
of the Circuit City Stock over the period of five Trading Days ending on the
15th Trading Day prior to such record date, (3) two times the average Market
Value of the Circuit City Stock over the period of five Trading Days ending on
the 20th Trading Day prior to such record date and (4) the average Market Value
of the Circuit City Stock over the period of five Trading Days ending on the
25th Trading Day prior to such record date.
Notwithstanding the foregoing provisions of this paragraph B(3) of this
Article, if shares of only one series of the Common Stock are outstanding on the
record date for determining the common shareholders entitled to vote on any
matter, then each share of that series shall be entitled to one vote and, if
either series of the Common Stock is entitled to vote as a separate voting group
with respect to any matter, each share of that series shall, for purpose of such
vote, be entitled to one vote on such matter.
In addition to any provision of law or any provision of these Amended
and Restated Articles of Incorporation entitling the holders of outstanding
shares of Circuit City Stock or CarMax Stock to vote as a separate voting group,
the Board of Directors may condition the approval of any matter submitted to
shareholders on receipt of a separate vote of the holders of outstanding shares
of Circuit City Stock or CarMax Stock.
(4) Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or termination of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation and
the full preferential amounts (including any accumulated and unpaid dividends)
to which the holders of any outstanding shares of the Preferred Stock are
entitled (regardless of the Group to which such shares of the Preferred Stock
were attributed), the holders of the Circuit City Stock and CarMax Stock shall
be entitled to receive the assets, if any, of the Corporation remaining for
distribution to holders of the Common Stock on a per
13
share basis in proportion to the respective liquidation units per share of such
series. Each share of Circuit City Stock shall have one liquidation unit and
each share of CarMax Stock shall have .5 of a liquidation unit. Neither a merger
nor share exchange of the Corporation into or with any other company, nor a
merger or share exchange of any other company into or with the Corporation, nor
a sale, lease, exchange or other disposition of all or any part of the assets of
the Corporation, shall, alone, be deemed a liquidation of the Corporation, or
cause the dissolution of the Corporation, for purposes of this paragraph (B)(4)
of this Article.
If the Corporation shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of Circuit City Stock or
CarMax Stock, or declare a dividend or other distribution in shares of either
series to holders of such series, the per share liquidation units of either
series of the Common Stock specified in the preceding paragraph of this
paragraph B(4) of this Article, as adjusted from time to time, shall be
appropriately adjusted, as determined by the Board of Directors, so as to avoid
dilution in the aggregate, relative liquidation rights of the shares of any
series of the Common Stock.
(5) Conversion or Redemption of the Common Stock. The Circuit City
Stock is subject to conversion or redemption and the CarMax Stock is subject to
conversion or redemption upon the terms provided below in this paragraph B(5) of
this Article; provided, however, that neither series of the Common Stock may be
converted or redeemed if the other series has been converted or redeemed in its
entirety or notice thereof shall have been given as required by this paragraph
B(5) of this Article.
(a) Mandatory and Optional Conversion and Redemption of
Common Stock Other than for Subsidiary Stock. (i) In the event of the
Disposition, in one transaction or a series of related transactions, by
the Corporation and/or its subsidiaries of all or substantially all of
the properties and assets attributed to either Group to one or more
persons or entities (other than (1) the Disposition by the Corporation
of all or substantially all its properties and assets in one
transaction or a series of related transactions in connection with the
liquidation, dissolution or termination of the Corporation and the
distribution of assets to shareholders as referred to in paragraph B(4)
of this Article, (2) the Disposition of the properties and assets of
either Group as contemplated by paragraph B(5)(b) of this Article or
otherwise to all holders of shares of such Group divided among such
holders on a pro rata basis in accordance with the number of shares of
stock issued in respect of such Group outstanding and, in the case of a
Disposition of the properties and assets attributed to the CarMax
Group, to the Corporation or subsidiaries thereof, divided among such
holders and the Corporation or subsidiaries thereof on a pro rata basis
in accordance with the number of shares of stock issued in respect of
such Group outstanding and the Number of Shares Issuable with Respect
to the Inter-Group Interest, (3) to any person or entity controlled (as
determined by the Board of Directors) by the Corporation or (4) in
connection with a Related Business Transaction), the Corporation shall,
on or prior to the 85th Trading Day after the date of consummation of
such Disposition (the "Disposition Date"), pay a dividend on the series
of the Common Stock relating to the Group subject to such Disposition
or redeem some or all of such Common Stock or convert such Common Stock
into Common Stock relating to the other Group (or another class or
series of common stock of the Corporation), all as provided by the
following paragraphs B(5)(a)(i)(1) and B(5)(a)(i)(2) of this Article
and, to the extent applicable, by paragraph B(5)(d) of this Article, as
the Board of Directors shall have selected among such alternatives:
(1) provided that there are assets legally available therefor:
(a) pay to the holders of the shares of the series
of the Common Stock relating to the Group subject to such
disposition a dividend, as the Board of Directors shall have
declared subject to compliance with paragraph B(2) of this
Article, in cash and/or in securities (other than a dividend
of the Common Stock) or other property having a Fair Value as
of the Disposition Date in the aggregate equal to (I) in the
case of a Disposition of the properties and assets attributed
to the Circuit City Group, the Fair Value of the Net Proceeds
of such Disposition and (II) in the case of a Disposition of
the properties and assets attributed to the CarMax Group, the
product of the Outstanding CarMax Fraction
14
<
as of the record date for determining holders entitled to
receive such dividend multiplied by the Fair Value of the Net
Proceeds of such Disposition; or
(b)(I) subject to the last sentence of this
paragraph B(5)(a)(i) of this Article, if such Disposition
involves all (not merely substantially all) of the properties
and assets attributed to such Group, redeem as of the
Redemption Date provided by paragraph B(5)(d)(iii), all
outstanding shares of the Common Stock relating to the Group
subject to such Disposition in exchange for cash and/or for
securities (other than the Common Stock) or other property
having a Fair Value as of the Disposition Date in the
aggregate equal to (A) in the case of a Disposition of the
properties and assets attributed to the Circuit City Group,
the Fair Value of the Net Proceeds of such Disposition and (B)
in the case of a Disposition of the properties and assets
attributed to the CarMax Group, the product of the Outstanding
CarMax Fraction as of such Redemption Date multiplied by the
Fair Value of the Net Proceeds of such Disposition; or
(II) subject to the last sentence of this
paragraph B(5)(a)(i) of this Article, if such Disposition
involves substantially all (but not all) of the properties and
assets attributed to such Group, redeem as of the Redemption
Date provided by paragraph B(5)(d)(iv) of this Article such
number of whole shares of the series of the Common Stock
relating to the Group subject to such Disposition (which may
be all of, but not more than, such shares outstanding) as have
in the aggregate an average Market Value during the period of
ten consecutive Trading Days beginning on the 16th Trading Day
immediately succeeding the Disposition Date closest to (A) in
the case of a Disposition of the properties and assets
attributed to the Circuit City Group, the Fair Value as of the
Disposition Date of the Net Proceeds of such Disposition, in
consideration for cash and/or securities (other than the
Common Stock) or other property having a Fair Value in the
aggregate equal to such Fair Value of the Net Proceeds or (B)
in the case of a Disposition of the properties and assets
attributed to the CarMax Group, the product of the Outstanding
CarMax Fraction as of the date such shares are selected for
redemption multiplied by the Fair Value as of the Disposition
Date of the Net Proceeds of such Disposition in consideration
for cash and/or securities (other than the Common Stock) or
other property having a Fair Value in the aggregate equal to
such product; or
(2) declare that each outstanding share of the series of the
Common Stock relating to the Group subject to such Disposition shall be
converted as of the Conversion Date provided by paragraph B(5)(d)(v) of
this Article into a number of fully paid and nonassessable shares of
the series of the Common Stock relating to the other Group (or, if the
series of the Common Stock relating to the other Group is not Publicly
Traded at such time and shares of another class or series of the Common
Stock of the Corporation (other than the series of the Common Stock
relating to the Group subject to such Disposition) are then Publicly
Traded, of such other class or series of the common stock as has the
largest Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of such
conversion required by paragraph B(5)(d)(v) of this Article), equal to
110% of the ratio, expressed as a decimal fraction rounded to the
nearest five decimal places, of the average Market Value of one share
of the Common Stock relating to the Group subject to such Disposition
over the period of 10 consecutive Trading Days beginning on the 16th
Trading Day following the Disposition Date to the average Market Value
of one share of the Common Stock relating to the other Group (or such
other class or series of common stock) over the same 10 Trading Day
period.
Notwithstanding the foregoing provisions of this paragraph B(5)(a)(i)
of this Article, the Corporation shall redeem shares of a series of the
Common Stock as provided by paragraphs B(5)(a)(i)(1)(b)(I) or (II) of
this Article only if the amount to be paid in redemption of such stock
is less than or equal to the Available Dividend Amount with respect to
the Group subject to such Disposition as of the Redemption Date.
(ii) For purposes of this paragraph B(5)(a) of this Article:
15
(1) as of any date, "substantially all of the
properties and assets" attributed to either Group shall mean a
portion of such properties and assets (x) that represents at
least 80% of the Fair Value of the properties and assets
attributed to such Group as of such date or (y) from which
were derived at least 80% of the aggregate revenues for the
immediately preceding twelve fiscal quarterly periods of the
Company (calculated on a pro forma basis to include revenues
derived from any of such properties and assets acquired during
such period) derived from the properties and assets of such
Group as of such date;
(2) in the case of a Disposition of the properties
and assets attributed to either Group in a series of related
transactions, such Disposition shall not be deemed to have
been consummated until the consummation of the last of such
transactions; and
(3) the Board of Directors may pay any dividend or
redemption price referred to in paragraph B(5)(a) (i) of this
Article in cash, securities (other than the Common Stock) or
other property, regardless of the form or nature of the
proceeds of the Disposition.
(iii) After the payment of the dividend or the redemption
price with respect to the series of the Common Stock relating to the
Group subject to a Disposition as provided for by paragraph
B(5)(a)(i)(1) of this Article, the Board of Directors may declare that
each share of such series of the Common Stock remaining outstanding
shall be converted, but only as of a Conversion Date (determined as
provided by paragraph B(5)(d)(v) of this Article) prior to the first
anniversary of the payment of such dividend or redemption price, into a
number of fully paid and nonassessable shares of the series of the
Common Stock relating to the other Group (or, if the series of the
Common Stock relating to the other Group is not Publicly Traded at such
time and shares of any other class or series of common stock of the
Corporation (other than the series of the Common Stock relating to the
Group subject to such Disposition) are then Publicly Traded, of such
other class or series of common stock of the Corporation as has the
largest Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of such
conversion required by paragraph B(5)(d)(v) of this Article) equal to
110% of (i) in the case of conversion of the Circuit City Stock, the
Market Value Ratio of the Circuit City Stock to the CarMax Stock or
(ii) in the case of conversion of the CarMax Stock, the Market Value
Ratio of the CarMax Stock to the Circuit City Stock, in each case, as
of the fifth Trading Day prior to the date of the notice of such
conversion required by paragraph B(5)(d)(v) of this Article.
(iv) The Board of Directors may at any time declare that each
outstanding share of either Circuit City Stock or CarMax Stock shall be
converted, as of the Conversion Date provided by paragraph B(5)(d)(v)
of this Article, into the number of fully paid and nonassessable shares
of CarMax Stock or Circuit City Stock, respectively (or, if such latter
series of Common Stock of the Corporation is not Publicly Traded at
such time and shares of any other class or series of common stock of
the Corporation (other than the series of the Common Stock subject to
such conversion) are then Publicly Traded, of such other class or
series of common stock of the Corporation as has the largest Market
Capitalization as of the close of business on the Trading Day
immediately preceding the date of the notice of conversion required by
paragraph B(5)(d)(v) of this Article) equal to 115% of (i) in the case
of conversion of the Circuit City Stock, the Market Value Ratio of the
Circuit City Stock to the CarMax Stock or (ii) in the case of
conversion of the CarMax Stock, the Market Value Ratio of the CarMax
Stock to the Circuit City Stock, in each case, as of the fifth Trading
Day prior to the date of the notice of such conversion required by
paragraph B(5)(d)(v) of this Article.
(b) Redemption of Common Stock for Subsidiary Stock. (i) At
any time at which all of the assets and liabilities attributed to the
CarMax Group (and no other assets or liabilities of the Corporation or
any subsidiary thereof) are held directly or indirectly by one or more
wholly-owned subsidiaries of the Corporation (each, a "CarMax Group
Subsidiary"), the Board of Directors may, provided that there are
assets legally available therefor, redeem all of the outstanding shares
of CarMax Stock, on a Redemption Date of which notice is delivered in
accordance with paragraph B(5)(d)(vi) of this Article, in exchange for
16
the number of shares of common stock of each CarMax Group Subsidiary
equal to the product of the Outstanding CarMax Fraction multiplied by
the number of shares of common stock of such CarMax Group Subsidiary to
be outstanding immediately following such exchange of shares, such
CarMax Group Subsidiary shares to be delivered to the holders of shares
of CarMax Stock on the Redemption Date either directly or indirectly
through another CarMax Group Subsidiary (as a wholly-owned subsidiary
thereof) and to be divided among the holders of CarMax Stock pro rata
in accordance with the number of shares of CarMax Stock held by each on
such Redemption Date, each of which shares of common stock of such
CarMax Group Subsidiary shall be, upon such delivery, fully paid and
nonassessable.
(ii) At any time at which all of the assets and liabilities
attributed to the Circuit City Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) are held
directly or indirectly by one or more wholly-owned subsidiaries of the
Corporation (each, a "Circuit City Group Subsidiary"), the Board of
Directors may, provided that there are assets legally available
therefor,
(1) if the Number of Shares Issuable with Respect to
the Inter-Group Interest is zero, redeem all of the
outstanding shares of Circuit City Stock, on a Redemption Date
of which notice is delivered in accordance with paragraph
B(5)(d)(vi) of this Article, in exchange for all of the shares
of common stock of each Circuit City Group Subsidiary as will
be outstanding immediately following such exchange of shares,
such shares of common stock of each Circuit City Group
Subsidiary to be delivered to the holders of shares of Circuit
City Stock on the Redemption Date either directly or
indirectly through another Circuit City Group Subsidiary (as a
wholly-owned subsidiary thereof) and to be divided among the
holders of Circuit City Stock pro rata in accordance with the
number of shares of Circuit City Stock held by each on such
Redemption Date, each of which shares of common stock of such
Circuit City Group Subsidiary shall be, upon such delivery,
fully paid and nonassessable; or
(2) if the Number of Shares Issuable with Respect to
the Inter-Group Interest is greater than zero, either
(x) redeem all of the outstanding shares of
Circuit City Stock, on such a Redemption Date, in
exchange for (1) all of the shares of common stock of
each Circuit City Group Subsidiary as will be
outstanding immediately following such exchange of
shares and (2) a number of shares of CarMax Stock
equal to the Number of Shares Issuable with Respect
to the Inter-Group Interest, such shares of common
stock of each Circuit City Group Subsidiary to be
delivered to the holders of shares of Circuit City
Stock on the Redemption Date either directly or
indirectly through another Circuit City Group
Subsidiary (as a wholly-owned subsidiary thereof) and
the shares of common stock of each Circuit City Group
Subsidiary and the shares of CarMax Stock to be
divided among the holders of Circuit City Stock pro
rata in accordance with the number of shares of
Circuit City Stock held by each on such Redemption
Date, each of which shares of common stock of each
Circuit City Group Subsidiary and shares of CarMax
Stock shall be, upon such delivery, fully paid and
nonassessable; or
(y) (1) redeem all of the outstanding shares
of Circuit City Stock as contemplated by clause (x)
(1) above and (2) issue to one or more of the Circuit
City Group Subsidiaries a number of shares of CarMax
Stock equal to the Number of Shares Issuable with
Respect to the Inter-Group Interest.
(c) Treatment of Convertible Securities. After any
Conversion Date or Redemption Date on which all outstanding shares of
either series of the Common Stock are converted or redeemed, any share
of such series of the Common Stock that is to be issued on conversion,
exchange or exercise of any Convertible Securities shall, immediately
upon such conversion, exchange or exercise and without any notice from
or to, or any other action on the part of, the Corporation or its Board
of Directors or the holder of such Convertible Security:
17
(i) in the event the shares of such series of the
Common Stock outstanding on such Conversion Date were
converted into shares of the other series of the Common Stock
(or another class or series of common stock of the
Corporation) pursuant to paragraph B(5)(a)(i)(2) or paragraph
B(5)(a)(iii) or (iv) of this Article, be converted into the
amount of cash and/or the number of shares of the kind of
capital stock and/or other securities or property of the
Corporation that the number of shares of such series of the
Common Stock that were to be issued upon such conversion,
exchange or exercise would have received had such shares been
outstanding on such Conversion Date; or
(ii) in the event the shares of such series of the
Common Stock outstanding on such Redemption Date were redeemed
pursuant to paragraph B(5)(a)(i)(1)(b) or paragraph B(5)(b) of
this Article, be redeemed, to the extent of funds of the
Corporation legally available therefor, for $.01 per share in
cash for each share of such series of the Common Stock that
otherwise would be issued upon such conversion, exchange or
exercise.
The provisions of the immediately preceding sentence shall not apply to
the extent that other adjustments in respect of such conversion,
exchange or redemption of a series of the Common Stock are otherwise
made pursuant to the provisions of such Convertible Securities.
(d) Notice and Other Provisions. (i) Not later than the
tenth Trading Day following the consummation of a Disposition referred
to in paragraph B(5)(a)(i) of this Article, the Corporation shall
announce publicly by press release (1) the Net Proceeds of such
Disposition, (2) the number of shares outstanding of the series of the
Common Stock relating to the Group subject to such Disposition, (3) the
number of shares of such series of Common Stock into or for which
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof and
(4) in the case of a Disposition of the properties and assets
attributable to the CarMax Group, the Outstanding CarMax Fraction on
the date of such notice. Not earlier than the 26th Trading Day and not
later than the 30th Trading Day following the consummation of such
Disposition, the Corporation shall announce publicly by press release
which of the actions specified in paragraph B(5)(a)(i) of this Article,
it has irrevocably determined to take in respect of such Disposition.
(ii) If the Corporation determines to pay a dividend pursuant
to paragraph B(5)(a)(i)(1)(a) of this Article, the Corporation shall,
not later than the 30th Trading Day following the consummation of the
Disposition referred to in such paragraph, cause notice to be given to
each holder of shares of the series of the Common Stock relating to the
Group subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such series of Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities), setting forth
(1) the record date for determining holders entitled to receive such
dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such
Disposition, (2) the anticipated payment date of such dividend (which
shall not be more than 85 Trading Days following the consummation of
such Disposition), (3) the type of property to be paid as such dividend
in respect of the outstanding shares of such series of Common Stock,
(4) the Net Proceeds of such Disposition, (5) in the case of a
Disposition of the properties and assets attributable to the CarMax
Group, the Outstanding CarMax Fraction on the date of such notice, (6)
the number of outstanding shares of such series of Common Stock and the
number of shares of such series of Common Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof
and (7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to receive such dividend only if such
holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the record date referred to in clause (1) of
this sentence. Such notice shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same
appears on the transfer books of the Corporation.
18
(iii) If the Corporation determines to undertake a redemption
pursuant to paragraph B(5)(a)(i)(1)(b)(I) of this Article, the
Corporation shall, not less than 35 Trading Days and not more than 45
Trading Days prior to the Redemption Date, cause notice to be given to
each holder of shares of the series of the Common Stock relating to the
Group subject to the Disposition referred to in such paragraph and to
each holder of Convertible Securities convertible into or exchangeable
or exercisable for shares of such series of Common Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) a statement that all shares of such
series of Common Stock outstanding on the Redemption Date shall be
redeemed, (2) the Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (3) the
type of property in which the redemption price for the shares of such
series of Common Stock to be redeemed is to be paid, (4) the Net
Proceeds of such Disposition, (5) in the case of a Disposition of the
properties and assets attributed to the CarMax Group, the Outstanding
CarMax Fraction on the date of such notice, (6) the place or places
where certificates for shares of such series of Common Stock, properly
endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of cash and/or
securities or other property, (7) the number of outstanding shares of
such series of Common Stock and the number of shares of such series of
the Common Stock into or for which such outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof, (8) in the case of
notice to be given to holders of Convertible Securities, a statement to
the effect that a holder of such Convertible Securities shall be
entitled to participate in such redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or
prior to the Redemption Date referred to in clause (2) of this sentence
and a statement as to what, if anything, such holder will be entitled
to receive pursuant to the terms of such Convertible Securities or, if
applicable, this paragraph B(5) of this Article if such holder
thereafter converts, exchanges or exercises such Convertible Securities
and (9) a statement to the effect that, except as otherwise provided by
paragraph B(5)(d)(ix) of this Article, dividends on such shares of the
Common Stock shall cease to be paid as of such Redemption Date. Such
notice shall be sent by first-class mail, postage prepaid, to each such
holder at such holder's address as the same appears on the transfer
books of the Corporation.
(iv) If the Corporation determines to undertake a redemption
pursuant to paragraph B(5)(a)(i)(1)(b)(II) of this Article, the
Corporation shall, not later than the 30th Trading Day following the
consummation of the Disposition referred to in such paragraph, cause
notice to be given to each holder of shares of the series of the Common
Stock relating to the Group subject to such Disposition and to each
holder of Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such series of Common Stock
(unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such
Convertible Securities) setting forth (1) a date not earlier than the
40th Trading Day and not later than the 50th Trading Day following the
consummation of the Disposition in respect of which such redemption is
to be made on which shares of such series of the Common Stock shall be
selected for redemption, (2) the anticipated Redemption Date (which
shall not be more than 85 Trading Days following the consummation of
such Disposition), (3) the type of property in which the redemption
price for the shares to be redeemed is to be paid, (4) the Net Proceeds
of such Disposition, (5) in the case of a Disposition of the properties
and assets attributed to the CarMax Group, the Outstanding CarMax
Fraction, (6) the number of shares of such series of Common Stock
outstanding and the number of shares of such series of Common Stock
into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof, (7) in the case of notice to be given to
holders of Convertible Securities, a statement to the effect that a
holder of such Convertible Securities shall be eligible to participate
in such selection for redemption only if such holder properly converts,
exchanges or exercises such Convertible Securities on or prior to the
record date referred to in clause (1) of this sentence, and a statement
as to what, if anything, such holder will be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable,
this paragraph B(5) of this Article if
19
such holder thereafter converts, exchanges or exercises such
Convertible Securities and (8) a statement that the Corporation will
not be required to register a transfer of any shares of such series of
the Common Stock for a period of 15 Trading Days next preceding the
date referred to in clause (1) of this sentence. Promptly following the
date referred to in clause (1) of the preceding sentence, but not
earlier than 40 Trading Days nor later than 50 Trading Days following
the consummation of such Disposition, the Corporation shall cause a
notice to be given to each holder of record of shares of such series of
Common Stock to be redeemed setting forth (1) the number of shares of
such series of Common Stock held by such holder to be redeemed, (2) a
statement that such shares of such series of Common Stock shall be
redeemed, (3) the Redemption Date, (4) the kind and per share amount of
cash and/or securities or other property to be received by such holder
with respect to each share of such series of Common Stock to be
redeemed, including details as to the calculation thereof, (5) the
place or places where certificates for shares of such series of Common
Stock, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement), are to be surrendered for
delivery of such cash and/or securities or other property, (6) if
applicable, a statement to the effect that the shares being redeemed
may no longer be transferred on the transfer books of the Corporation
after the Redemption Date and (7) a statement to the effect that,
subject to paragraph B(5)(d)(ix) of this Article, dividends on such
shares of such series of Common Stock shall cease to be paid as of the
Redemption Date. Such notices shall be sent by first-class mail,
postage prepaid, to each such holder at such holder's address as the
same appears on the transfer books of the Corporation.
(v) If the Corporation determines to convert either series
of the Common Stock into the other series (or another class or series
of common stock of the Corporation) pursuant to paragraph B(5)(a)(i)(2)
or paragraph B(5)(a)(iii) or (iv) of this Article, the Corporation
shall, not less than 35 Trading Days and not more than 45 Trading Days
prior to the Conversion Date, cause notice to be given to each holder
of shares of the series of the Common Stock to be so converted and to
each holder of Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such series of Common Stock
(unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such
Convertible Securities) setting forth (1) a statement that all
outstanding shares of such series of Common Stock shall be converted,
(2) the Conversion Date (which, in the case of a conversion after a
Disposition, shall not be more than 85 Trading Days following the
consummation of such Disposition), (3) the per share number of shares
of Circuit City Stock or CarMax Stock or another class or series of
common stock of the Corporation, as the case may be, to be received
with respect to each share of such series of Common Stock, including
details as to the calculation thereof, (4) the place or places where
certificates for shares of such series of Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates
for shares of such series of Common Stock, (5) the number of
outstanding shares of such series of Common Stock and the number of
shares of such series of Common Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (6)
a statement to the effect that, subject to paragraph B(5)(d)(ix) of
this Article, dividends on such shares of CarMax Stock shall cease to
be paid as of such Conversion Date and (7) in the case of notice to
holders of such Convertible Securities, a statement to the effect that
a holder of such Convertible Securities shall be entitled to receive
shares of such series of Common Stock upon such conversion only if such
holder properly converts, exchanges or exercises such Convertible
Securities on or prior to such Conversion Date and a statement as to
what, if anything, such holder will be entitled to receive pursuant to
the terms of such Convertible Securities or, if applicable, this
paragraph B(5) of this Article if such holder thereafter converts,
exchanges or exercises such Convertible Securities. Such notice shall
be sent by first-class mail, postage prepaid, to each such holder at
such holder's address as the same appears on the transfer books of the
Corporation.
(vi) If the Corporation determines to redeem shares of either
series of the Common Stock pursuant to paragraph B(5)(b) of this
Article, the Corporation shall cause notice to be given to each holder
of shares of such series of the Common Stock to be redeemed and to each
holder of Convertible Securities that are convertible into or
20
exchangeable or exercisable for shares of such series of the Common
Stock (unless alternate provision for such notice to the holders of
such Convertible Securities is made pursuant to the terms of such
Convertible Securities), setting forth (1) a statement that all shares
of such series of the Common Stock outstanding on the Redemption Date
shall be redeemed in exchange for shares of common stock of each
Circuit City Group Subsidiary (and, if such redemption is pursuant to
paragraph B(5)(b)(ii)(2)(x) of this Article, CarMax Stock) or common
stock of each CarMax Group Subsidiary, as the case may be, (2) the
Redemption Date, (3) in the case of a redemption of the CarMax Stock,
the Outstanding CarMax Fraction on the date of such notice, (4) the
place or places where certificates for shares of the series of the
Common Stock to be redeemed, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be
surrendered for delivery of certificates for shares of the common stock
of each Circuit City Group Subsidiary (and, if such redemption is
pursuant to paragraph B(5)(b)(ii)(2)(x) of this Article, CarMax Stock)
or common stock of each CarMax Group Subsidiary, as the case may be,
(5) a statement to the effect that, subject to paragraph B(5)(d)(ix) of
this Article, dividends on such shares of the Common Stock shall cease
to be paid as of such Redemption Date, (6) the number of shares of such
series of the Common Stock outstanding and the number of shares of such
series of Common Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof and (7) in the case of
notice to holders of Convertible Securities, a statement to the effect
that a holder of Convertible Securities shall be entitled to receive
shares of common stock of each Circuit City Group Subsidiary (and, if
such redemption is pursuant to paragraph B(5)(b)(ii)(2)(x) of this
Article, CarMax Stock) or common stock of each CarMax Group Subsidiary,
as the case may be, upon redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or
prior to the Redemption Date and a statement as to what, if anything,
such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this paragraph B(5) of this
Article, if such holder thereafter converts, exchanges or exercises
such Convertible Securities. Such notice shall be sent by first-class
mail, postage prepaid, not less than 30 Trading Days nor more than 45
Trading Days prior to the Redemption Date to each such holder at such
holder's address as the same appears on the transfer books of the
Corporation.
(vii) If less than all of the outstanding shares of the Common
Stock of a series are to be redeemed pursuant to paragraph
B(5)(a)(i)(1) of this Article, the shares to be redeemed by the
Corporation shall be selected from among the holders of shares of such
series of the Common Stock outstanding at the close of business on the
record date for such redemption on a pro rata basis among all such
holders or by lot or by such other method as may be determined by the
Board of Directors of the Corporation to be equitable.
(viii) The Corporation shall not be required to issue or
deliver fractional shares of any capital stock or of any other
securities to any holder of either series of the Common Stock upon any
conversion, redemption, dividend or other distribution pursuant to this
paragraph B(5) of this Article. If more than one share of either series
of the Common Stock shall be held at the same time by the same holder,
the Corporation may aggregate the number of shares of any capital stock
that shall be issuable or any other securities or property that shall
be distributable to such holder upon any conversion, redemption,
dividend or other distribution (including any fractional shares). If
there are fractional shares of any capital stock or of any other
securities remaining to be issued or distributed to the holders of
either series of the Common Stock, the Corporation shall, if such
fractional shares are not issued or distributed to the holder, pay cash
in respect of such fractional shares in an amount equal to the Fair
Value thereof on the fifth Trading Day prior to the date such payment
is to be made (without interest).
(ix) No adjustments in respect of dividends shall be made
upon the conversion or redemption of any shares of either series of the
Common Stock; provided, however, that if the Conversion Date or
Redemption Date, as the case may be, with respect to any shares of
either series of the Common Stock shall be subsequent to the record
date for the payment of a dividend or other distribution thereon or
with respect thereto, the holders of such series of the Common Stock at
the
21
close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such
shares on the date set for payment of such dividend or other
distribution, in each case without interest, notwithstanding the
subsequent conversion or redemption of such shares.
(x) Before any holder of either series of the Common Stock
shall be entitled to receive any cash payment and/or certificates or
instruments representing shares of any capital stock and/or other
securities or property to be distributed to such holder with respect to
such series of the Common Stock pursuant to this paragraph B(5) of this
Article, such holder shall surrender at such place as the Corporation
shall specify certificates for such shares of the Common Stock,
properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement). The Corporation shall as soon as
practicable after receipt of certificates representing such shares of
the Common Stock deliver to the person for whose account such shares of
the Common Stock were so surrendered, or to such person's nominee or
nominees, the cash and/or the certificates or instruments representing
the number of whole shares of the kind of capital stock and/or other
securities or property to which such person shall be entitled as
aforesaid, together with any payment in respect of fractional shares
contemplated by paragraph B(5)(d)(viii) of this Article, in each case
without interest. If less than all of the shares of either series of
the Common Stock represented by any one certificate are to be redeemed,
the Corporation shall issue and deliver a new certificate for the
shares of such series of Common Stock not redeemed.
(xi) From and after any applicable Conversion Date or
Redemption Date, as the case may be, all rights of a holder of shares
of either series of the Common Stock that were converted or redeemed
shall cease except for the right, upon surrender of the certificates
representing such shares of the Common Stock as required by paragraph
B(5)(d)(x) of this Article, to receive the cash and/or the certificates
or instruments representing shares of the kind and amount of capital
stock and/or other securities or property for which such shares were
converted or redeemed, together with any payment in respect of
fractional shares contemplated by paragraph B(5)(d)(viii) of this
Article and rights to dividends as provided in paragraph B(5)(d)(ix) of
this Article, in each case without interest. No holder of a certificate
that immediately prior to the applicable Conversion Date represented
shares of a series of the Common Stock shall be entitled to receive any
dividend or other distribution or interest payment with respect to
shares of any kind of capital stock or other security or instrument for
which such series of the Common Stock was converted until the surrender
as required by this paragraph B(5) of this Article of such certificate
in exchange for a certificate or certificates or instrument or
instruments representing such capital stock or other security. Subject
to applicable escheat and similar laws, upon such surrender, there
shall be paid to the holder the amount of any dividends or other
distributions (without interest) which theretofore became payable on
any class or series of capital stock of the Corporation as of a record
date after the Conversion Date, but that were not paid by reason of the
foregoing, with respect to the number of whole shares of the kind of
capital stock represented by the certificate or certificates issued
upon such surrender. From and after a Conversion Date, the Corporation
shall, however, be entitled to treat the certificates for a series of
the Common Stock that have not yet been surrendered for conversion as
evidencing the ownership of the number of whole shares of the kind or
kinds of capital stock of the Corporation for which the shares of such
series of the Common Stock represented by such certificates shall have
been converted, notwithstanding the failure to surrender such
certificates.
(xii) The Corporation shall pay any and all documentary, stamp
or similar issue or transfer taxes that may be payable in respect of
the issuance or delivery of any shares of capital stock and/or other
securities upon conversion or redemption of shares of either series of
the Common Stock pursuant to this paragraph B(5) of this Article. The
Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance or delivery
of any shares of capital stock and/or other securities in a name other
than that in which the shares of such series of the Common Stock so
converted or redeemed were registered, and no such issuance or delivery
shall be made unless and until the person requesting such issuance or
delivery has paid to the Corporation the amount of any such tax or has
22
established to the satisfaction of the Corporation that such tax has
been paid.
(xiii) Neither the failure to mail any notice required by this
paragraph B(5)(d) of this Article to any particular holder of the
Common Stock or of Convertible Securities nor any defect therein shall
affect the sufficiency thereof with respect to any other holder of
outstanding shares of the Common Stock or of Convertible Securities or
the validity of any such conversion or redemption.
(xiv) The Board of Directors may establish such rules and
requirements to facilitate the effectuation of the transactions
contemplated by this paragraph B(5) of this Article as the Board of
Directors shall determine to be appropriate.
(6) Application of the Provisions of this Certificate of Designations.
(a) Certain Determinations by the Board of Directors. The
Board of Directors shall make such determinations with respect to the
assets and liabilities to be attributed to the Groups, the application
of the provisions of this paragraph B of this Article to transactions
to be engaged in by the Corporation and the preferences, limitations
and relative rights of the holders of either series of the Common
Stock, and the qualifications and restrictions thereon, provided by
these Amended and Restated Articles of Incorporation as may be or
become necessary or appropriate to the exercise of such preferences,
limitations and relative rights, including, without limiting the
foregoing, the determinations referred to in the following paragraphs
B(6)(a)(i), (ii), (iii), (iv) and (v) of this Article. A record of any
such determination shall be filed with the records of the actions of
the Board of Directors.
(i) Upon any acquisition by the Corporation or its
subsidiaries of any assets or business, or any assumption of
liabilities, outside of the ordinary course of business of the
Circuit City Group or the CarMax Group, as the case may be,
the Board of Directors shall determine whether such assets,
business and liabilities (or an interest therein) shall be for
the benefit of the Circuit City Group or the CarMax Group or
that an interest therein shall be partly for the benefit of
the Circuit City Group and partly for the benefit of the
CarMax Group and, accordingly, shall be attributed to the
Circuit City Group or the CarMax Group, or partly to each, in
accordance with paragraph B(7)(a) or (d) of this Article, as
the case may be.
(ii) Upon any issuance of any shares of CarMax Stock
at a time when the Number of Shares Issuable with Respect to
the InterGroup Interest is greater than zero, the Board of
Directors shall determine, based on the use of the proceeds of
such issuance and any other relevant factors, whether all or
any part of the shares of CarMax Stock so issued shall reduce
the Number of Shares Issuable with Respect to the Inter-Group
Interest, and the Number of Shares Issuable with Respect to
the Inter-Group Interest shall be adjusted accordingly.
(iii) Upon any issuance by the Corporation or any
subsidiary thereof of any Convertible Securities that are
convertible into or exchangeable or exercisable for shares of
CarMax Stock, if at the time such Convertible Securities are
issued the Number of Shares Issuable with Respect to the
Inter-Group Interest is greater than zero, the Board of
Directors shall determine, based on the use of the proceeds of
such issuance of Convertible Securities in the business of the
Circuit City Group or the CarMax Group and any other relevant
factors, whether, upon conversion, exchange or exercise
thereof, the issuance of shares of CarMax Stock pursuant
thereto shall, in whole or in part, reduce the Number of
Shares Issuable with Respect to the Inter-Group Interest.
(iv) Upon any issuance of any shares of the
Preferred Stock of any series, the Board of Directors shall
attribute, based on the use of proceeds of such issuance of
shares of the Preferred Stock in the business of the Circuit
City Group or the CarMax Group and any other relevant factors,
the shares so issued entirely to the Circuit City Group or
entirely to the CarMax Group
23
or partly to the Circuit City Group and partly to the CarMax
Group in such proportion as the Board of Directors shall
determine.
(v) Upon any redemption or repurchase by the
Corporation or any subsidiary thereof of shares of the
Preferred Stock of any class or series or of other securities
or debt obligations of the Corporation, the Board of Directors
shall determine, based on the property used to redeem or
purchase such shares, other securities or debt obligations,
which, if any, of such shares, other securities or debt
obligations redeemed or repurchased shall be attributed to the
Circuit City Group and which, if any, of such shares, other
securities or debt obligations shall be attributed to the
CarMax Group and, accordingly, how many of the shares of such
series of the Preferred Stock or of such other securities, or
how much of such debt obligations, that remain outstanding, if
any, are thereafter attributed to the Circuit City Group or to
the CarMax Group.
(b) Certain Determinations Not Required. Notwithstanding the
foregoing provisions of this paragraph B(6) of this Article, the
provisions of paragraphs B(7)(a), (c), (d) or (f) of this Article or
any other provision of this Article, at any time when there are not
outstanding both (i) one or more shares of Circuit City Stock or
Convertible Securities convertible into or exchangeable or exercisable
for Circuit City Stock and (ii) one or more shares of CarMax Stock or
Convertible Securities convertible into or exchangeable or exercisable
for CarMax Stock, the Corporation need not (A) attribute any of the
assets or liabilities of the Corporation or any of its subsidiaries to
the Circuit City Group or the CarMax Group or (B) make any
determination required in connection therewith, nor shall the Board of
Directors be required to make any of the determinations otherwise
required by this Article, and in such circumstances the holders of the
shares of Circuit City Stock or CarMax Stock outstanding, as the case
may be, shall (unless otherwise specifically provided by these Amended
and Restated Articles of Incorporation) be entitled to all the
preferences or other relative rights of both series of the Common Stock
without differentiation between the Circuit City Stock and the CarMax
Stock.
(c) Board Determinations Binding. Subject to applicable law,
any determinations made in good faith by the Board of Directors of the
Corporation under any provision of this paragraph B(6) of this Article
or otherwise in furtherance of the application of this Article shall be
final and binding on all shareholders.
(7) Certain Definitions. As used in this Article, the following terms
shall have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires. As used in this paragraph B(7) of this Article, a
"contribution" or "transfer" of assets or properties from one Group to another
shall refer to the reattribution of such assets or properties from the
contributing or transferring Group to the other Group and correlative phrases
shall have correlative meanings.
(a) "Carmax Group" shall mean, as of any date:
(i) all businesses, assets and liabilities of each
of CarMax Auto Superstores, Inc., a Virginia corporation,
CarMax, Inc., a Virginia corporation, and C-Max Auto
Superstores, Inc., a California corporation (the "CarMax Group
Companies"), as of the date of the first issuance of CarMax
Stock;
(ii) all assets and liabilities of the Corporation
and its subsidiaries attributed by the Board of Directors to
the CarMax Group, whether or not such assets or liabilities
are or were also assets and liabilities of any of the CarMax
Group Companies;
(iii) all properties and assets transferred to the
CarMax Group from the Circuit City Group (other than a
transaction pursuant to paragraph B(7)(a)(iv) of this Article)
pursuant to transactions in the ordinary course of business of
both the Circuit City Group and the CarMax Group or otherwise
as the Board of Directors may have directed as permitted by
this Article;
(iv) all properties and assets transferred to the
CarMax Group from the Circuit City Group in connection with an
increase
24
in the Number of Shares Issuable with respect to the
Inter-Group Interest; and
(v) the interest of the Corporation or any of its
subsidiaries in any business or asset acquired and any
liabilities assumed by the Corporation or any of its
subsidiaries outside of the ordinary course of business and
attributed to the CarMax Group, as determined by the Board of
Directors as contemplated by paragraph B(6)(a)(i) of this
Article;
provided that (1) from and after the payment date of any dividend or
other distribution with respect to shares of CarMax Stock (other than a
dividend or other distribution payable in shares of CarMax Stock, with
respect to which adjustment shall be made as provided in paragraph
B(7)(s)(i) of this Article, or in securities of the Corporation
attributed to the CarMax Group, for which provision shall be made as
set forth in clause (2) of this proviso), the CarMax Group shall no
longer include an amount of assets or properties previously attributed
to the CarMax Group of the same kind as so paid in such dividend or
other distribution with respect of shares of CarMax Stock as have a
Fair Value on the record date for such dividend or distribution equal
to the product of (a) the Fair Value on such record date of the
aggregate of such dividend or distribution to holders of shares of
CarMax Stock declared multiplied by (b) a fraction the numerator of
which is equal to the Inter-Group Interest Fraction in effect on the
record date for such dividend or distribution and the denominator of
which is equal to the Outstanding CarMax Fraction in effect on the
record date for such dividend or distribution, (2) if the Corporation
shall pay a dividend or make some other distribution with respect to
shares of CarMax Stock payable in securities of the Corporation that
are attributed to the CarMax Group for purposes of this Article (other
than CarMax Stock), there shall be excluded from the CarMax Group an
interest in the CarMax Group equivalent to the number or amount of such
securities that is equal to the product of the number or amount of
securities so distributed to holders of CarMax Stock multiplied by the
fraction specified in clause 1(b) of this proviso (determined as of the
record date for such distribution) (and such interest in the CarMax
Group shall be attributed to the Circuit City Group) and, to the extent
interest is or dividends are paid on the securities so distributed, the
CarMax Group shall no longer include a corresponding ratable amount of
the kind of assets paid as such interest or dividends as would have
been paid in respect of the securities equivalent to such interest in
the CarMax Group deemed held by the Circuit City Group if the
securities equivalent to such interest were outstanding (and in such
eventuality such assets as are no longer included in the CarMax Group
shall be attributed to the Circuit City Group) and (3) from and after
any transfer of any assets or properties from the CarMax Group to the
Circuit City Group, the CarMax Group shall no longer include such
assets or properties so contributed or transferred. The Corporation may
also, to the extent a dividend or distribution on the CarMax Stock has
been paid in Convertible Securities that are convertible into or
exchangeable or exercisable for CarMax Stock, cause such Convertible
Securities as are deemed to be held by the Circuit City Group in
accordance with the third to last sentence of paragraph B(7)(d) of this
Article and clause (2) of the proviso to the immediately preceding
sentence to be deemed to be converted, exchanged or exercised as
provided in the penultimate sentence of paragraph B(7)(d) of this
Article, in which case such Convertible Securities shall no longer be
deemed to be held by the Circuit City Group.
(b) "Carmax Group Available Dividend Amount", on any date,
shall mean the excess, if any, of
(i) the product of (x) the Outstanding CarMax
Fraction and (y) an amount equal to the total assets of the
CarMax Group less its total liabilities as of such date
determined in accordance with generally accepted accounting
principles as in effect at such time applied on a basis
consistent with that applied in determining the CarMax Group
Net Earnings (Loss), over
(ii) except to the extent that these Amended and
Restated Articles of Incorporation permit otherwise, the
amount that would be needed to satisfy the preferential rights
to which holders of any Preferred Stock attributed to the
CarMax Group are entitled upon dissolution of the Corporation;
25
provided, that such excess shall be reduced by an amount sufficient to
ensure that the CarMax Group would be able to pay its debts as they
become due in the usual course of business.
(c) "Carmax Group Net Earnings (Loss)", for any period
through any date, shall mean the net earnings or loss of the CarMax
Group for such period (or in respect of fiscal periods of the
Corporation commencing prior to the date of the first issuance of
CarMax Stock, the pro forma net earnings or loss of the CarMax Group
for such period as if such date had been the first day of such period)
determined in accordance with generally accepted accounting principles
in effect at such time, reflecting income and expense of the
Corporation attributed to the CarMax Group on a basis substantially
consistent with attributions of income and expense made in the
calculation of the Circuit City Group Net Earnings (Loss), including,
without limitation, corporate administrative costs, net interest and
other financial costs and income taxes.
(d) "Circuit City Group" shall mean, as of any date:
(i) the interest of the Corporation or any of its
subsidiaries on such date in all of the assets, liabilities
and businesses of the Corporation or any of its subsidiaries
(and any successor companies), other than any assets,
liabilities and businesses attributed in accordance with this
Article to the CarMax Group;
(ii) a proportionate undivided interest in each and
every business, asset and liability attributed to the CarMax
Group equal to the Inter-Group Interest Fraction as of such
date;
(iii) all properties and assets transferred to the
Circuit City Group from the CarMax Group (other than pursuant
to paragraph B(7)(d)(iv) or (vi) of this Article) pursuant to
transactions in the ordinary course of business of both the
Circuit City Group and the CarMax Group or otherwise as the
Board of Directors may have directed as permitted by this
Article;
(iv) all properties and assets transferred to the
Circuit City Group from the CarMax Group in connection with a
reduction of the Number of Shares Issuable with Respect to the
Inter-Group Interest;
(v) the interest of the Corporation or any of its
subsidiaries in any business or asset acquired and any
liabilities assumed by the Corporation or any of its
subsidiaries outside the ordinary course of business and
attributed to the Circuit City Group, as determined by the
Board of Directors as contemplated by paragraph B(6)(a)(i) of
this Article; and
(vi) from and after the payment date of any
dividend, redemption or other distribution with respect to
shares of CarMax Stock (other than a dividend or other
distribution payable in shares of CarMax Stock, with respect
to which adjustment shall be made as provided in paragraph
B(7)(s)(i) of this Article, or in securities of the
Corporation attributed to the CarMax Group, for which
provision shall be made as set forth in the third to last
sentence of this definition), an amount of assets or
properties previously attributed to the CarMax Group of the
same kind as were paid in such dividend or other distribution
with respect to shares of CarMax Stock as have a Fair Value on
the record date for such dividend or distribution equal to the
product of (1) the Fair Value on such record date of the
aggregate of such dividend or distribution to holders of
shares of CarMax Stock declared multiplied by (2) a fraction
the numerator of which is equal to the Inter-Group Interest
Fraction in effect on the record date for such dividend or
distribution and the denominator of which is equal to the
Outstanding CarMax Fraction in effect on the record date for
such dividend or distribution;
provided that from and after any transfer of any assets or properties
from the Circuit City Group to the CarMax Group, the Circuit City Group
shall no longer include such assets or properties so transferred (other
than as reflected in respect of such a transfer by the Inter-Group
26
Interest Fraction, as provided by paragraph B(7)(d)(ii) of this
Article).
If the Corporation shall pay a dividend or make some other
distribution with respect to shares of CarMax Stock payable in
securities of the Corporation that are attributed to the CarMax Group
for purposes of this Article (other than CarMax Stock), the Circuit
City Group shall be deemed to hold an interest in the CarMax Group
equivalent to the number or amount of such securities that is equal to
the product of the number or amount of securities so distributed to
holders of CarMax Stock multiplied by the fraction specified in clause
(2) of paragraph B(7)(d)(vi) of this Article (determined as of the
record date for such distribution) and, to the extent interest is or
dividends are paid on the securities so distributed, the Circuit City
Group shall include, and there shall be transferred thereto from the
CarMax Group, a corresponding ratable amount of the kind of assets paid
as such interest or dividends as would have been paid in respect of
such securities so deemed to be held by the Circuit City Group if such
securities were outstanding. The Corporation may also, to the extent
the securities so paid as a dividend or other distribution to the
holders of CarMax Stock are Convertible Securities and at the time are
convertible into or exchangeable or exercisable for shares of CarMax
Stock, treat such Convertible Securities as are so deemed to be held by
the Circuit City Group to be deemed to be converted, exchanged or
exercised, and shall do so to the extent such Convertible Securities
are mandatorily converted, exchanged or exercised (and to the extent
the terms of such Convertible Securities require payment of
consideration for such conversion, exchange or exercise, the Circuit
City Group shall then no longer include an amount of the kind of
properties or assets required to be paid as such consideration for the
amount of Convertible Securities deemed converted, exchanged or
exercised (and the CarMax Group shall be attributed such properties or
assets), in which case, from and after such time, the securities into
or for which such Convertible Securities so deemed to be held by the
Circuit City Group were so considered converted, exchanged or exercised
shall be deemed held by the Circuit City Group (as provided in clause
(3) of paragraph B(7)(s)(iii) of this Article) and such Convertible
Securities shall no longer be deemed to be held by the Circuit City
Group. A statement setting forth the election to effectuate any such
deemed conversion, exchange or exercise of Convertible Securities so
deemed to be held by the Circuit City Group and the properties or
assets, if any, to be attributed to the CarMax Group in consideration
of such conversion, exchange or exercise (if any) shall be filed in the
records of the actions of the Board of Directors and, upon such filing,
such deemed conversion, exchange or exercise shall be effectuated.
(e) "Circuit City Group Available Dividend Amount", on any
date, shall mean the excess, if any, of:
(i) an amount equal to the total assets of the
Circuit City Group less its total liabilities as of such date
determined in accordance with generally accepted accounting
principles as in effect at such time applied on a basis
consistent with that applied in determining the Circuit City
Group Net Earnings (Loss), over
(ii) except to the extent that these Amended and
Restated Articles of Incorporation permit otherwise, the
amount that would be needed to satisfy the preferential rights
to which holders of any Preferred Stock attributed to the
Circuit City Group are entitled upon dissolution of the
Corporation;
provided, that such excess shall be reduced by an amount sufficient to
ensure that the Circuit City Group would be able to pay its debts as
they become due in the usual course of business.
(f) "Circuit City Group Net Earnings (Loss)", for any period
through any date, shall mean the net earnings or loss of the Circuit
City Group for such period (or in respect of fiscal periods of the
Corporation commencing prior to the date of the first issuance of
CarMax Stock, the pro forma net earnings or loss of the Circuit City
Group for such period as if such date had been the first day of such
period) determined in accordance with generally accepted accounting
principles in effect at such time, reflecting income and expense of the
Corporation attributed to the Circuit City Group on a basis
substantially consistent
27
with attributions of income and expense made in the calculation of
CarMax Group Net Earnings (Loss), including, without limitation,
corporate administrative costs, net interest and other financial costs
and income taxes.
(g) "Common Stock" shall mean the collective reference to
the Circuit City Stock and the CarMax Stock, and either may sometimes
be called a series of Common Stock.
(h) "Conversion Date" shall mean the date fixed by the Board
of Directors as the effective date for the conversion of shares of
Circuit City Stock or CarMax Stock, as the case may be, into shares of
CarMax Stock or Circuit City Stock, respectively (or another class or
series of common stock of the Corporation, as the case may be) as shall
be set forth in the notice to holders of shares of the series of Common
Stock subject to such conversion and to holders of any Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of the series of Common Stock subject to such conversion
required pursuant to paragraph B(5)(d)(v) of this Article.
(i) "Convertible Securities" at any time shall mean any
securities of the Corporation or of any subsidiary thereof (other than
shares of the Common Stock), including warrants and options,
outstanding at such time that by their terms are convertible into or
exchangeable or exercisable for or evidence the right to acquire any
shares of either series of the Common Stock, whether convertible,
exchangeable or exercisable at such time or a later time or only upon
the occurrence of certain events, but in respect of antidilution
provisions of such securities only upon the effectiveness thereof.
(j) "Disposition" shall mean a sale, transfer, assignment or
other disposition (whether by merger, consolidation, sale or
contribution of assets or stock or otherwise) of properties or assets
(including stock, other securities and goodwill).
(k) "Fair Value" shall mean, (i) in the case of equity
securities or debt securities of a class or series that has previously
been Publicly Traded for a period of at least 15 months, the Market
Value thereof (if such Market Value, as so defined, can be determined);
(ii) in the case of an equity security or debt security that has not
been Publicly Traded for at least 15 months or the Market Value of
which cannot be determined, the fair value per share of stock or per
other unit of such security, on a fully distributed basis, as
determined by an independent investment banking firm experienced in the
valuation of securities selected in good faith by the Board of
Directors, or, if no such investment banking firm is, as determined in
the good faith judgment of the Board of Directors, available to make
such determination, in good faith by the Board of Directors; (iii) in
the case of cash denominated in U.S. dollars, the face amount thereof
and in the case of cash denominated in other than U.S. dollars, the
face amount thereof converted into U.S. dollars at the rate published
in The Wall Street Journal on the date for the determination of Fair
Value or, if not so published, at such rate as shall be determined in
good faith by the Board of Directors based upon such information as the
Board of Directors shall in good faith determine to be appropriate in
accordance with good business practice; and (iv) in the case of
property other than securities or cash, the "Fair Value" thereof shall
be determined in good faith by the Board of Directors based upon such
appraisals or valuation reports of such independent experts as the
Board of Directors shall in good faith determine to be appropriate in
accordance with good business practice. Any such determination of Fair
Value shall be described in a statement filed with the records of the
actions of the Board of Directors.
(l) "Group" shall mean, as of any date, the Circuit City
Group or the CarMax Group, as the case may be.
(m) "Inter-Group Interest Fraction" as of any date shall
mean a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to the Inter-Group Interest on such date and the
denominator of which shall be the sum of (A) such Number of Shares
Issuable with Respect to the Inter-Group Interest and (B) the aggregate
number of shares of CarMax Stock outstanding on such date. A statement
setting forth the Inter-Group Interest Fraction as of the record date
for any dividend or distribution on either series of the Common Stock,
28
as of the effective date of any conversion, exchange or exercise of
Convertible Securities into or for shares of CarMax Stock and as of the
end of each fiscal quarter of the Corporation shall be filed by the
Secretary of the Corporation in the records of the Board of Directors
of the Corporation not later than ten days after such date.
(n) "Market Capitalization" of any class or series of common
stock on any date shall mean the product of (i) the Market Value of one
share of such class or series of common stock on such date and (ii) the
number of shares of such class or series of common stock outstanding on
such date.
(o) "Market Value" of a share of any class or series of
capital stock of the Corporation on any day shall mean the average of
the high and low reported sales prices regular way of a share of such
class or series on such Trading Day or, in case no such reported sale
takes place on such Trading Day, the average of the reported closing
bid and asked prices regular way of a share of such class or series on
such Trading Day, in either case as reported on the New York Stock
Exchange Composite Tape or, if the shares of such class or series are
not listed or admitted to trading on such Exchange on such Trading Day,
on the principal national securities exchange in the United States on
which the shares of such class or series are listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on The Nasdaq National Market
or, if the shares of such class or series are not listed or admitted to
trading on any national securities exchange or quoted on The Nasdaq
National Market on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter
market on such Trading Day as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation or, if such
closing bid and asked prices are not made available by any such New
York Stock Exchange member firm on such Trading Day, the Fair Value of
a share of such class or series as set forth in clause (ii) of the
definition of Fair Value; provided that, for purposes of determining
the market value of a share of any class or series of capital stock for
any period, (i) the "Market Value" of a share of capital stock on any
day prior to any "ex-dividend" date or any similar date occurring
during such period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (ii)(B) of this
sentence) paid or to be paid with respect to such capital stock shall
be reduced by the Fair Value of the per share amount of such dividend
or distribution and (ii) the "Market Value" of any share of capital
stock on any day prior to (A) the effective date of any subdivision (by
stock split or otherwise) or combination (by reverse stock split or
otherwise) of outstanding shares of such class or series of capital
stock occurring during such period or (B) any "ex-dividend" date or any
similar date occurring during such period for any dividend or
distribution with respect to such capital stock to be made in shares of
such class or series of capital stock or Convertible Securities that
are convertible, exchangeable or exercisable for such class or series
of capital stock shall be appropriately adjusted, as determined by the
Board of Directors, to reflect such subdivision, combination, dividend
or distribution.
(p) "Market Value Ratio of the Carmax Stock to the Circuit
City Stock" as of any date shall mean the fraction (which may be
greater or less than 1/1), expressed as a decimal (rounded to the
nearest five decimal places), of a share of Circuit City Stock (or
another class or series of common stock of the Corporation, if so
provided by paragraph B(5)(a) of this Article because Circuit City
Stock is not then Publicly Traded) to be issued in respect of a share
of CarMax Stock upon a conversion of CarMax Stock into Circuit City
Stock (or another class or series of common stock of the Corporation)
in accordance with paragraph B(5)(a) of this Article, based on the
ratio of the Market Value of a share of CarMax Stock to the Market
Value of a share of Circuit City Stock (or such other common stock) as
of such date, determined by the fraction the numerator of which shall
be the sum of (A) four times the average Market Value of one share of
CarMax Stock over the period of five consecutive Trading Days ending on
such date, (B) three times the average Market Value of one share of
CarMax Stock over the period of five consecutive Trading Days ending on
the fifth Trading Day prior to such date, (C) two times the average
Market Value of one share of CarMax Stock over the period of five
consecutive Trading Days ending on the 10th Trading Day prior to such
date and (D) the average Market Value of one share of CarMax Stock over
the period of five consecutive Trading
29
Days ending on the 15th Trading Day prior to such date and the
denominator of which shall be the sum of (A) four times the average
Market Value of one share of Circuit City Stock (or such other common
stock) over the period of five consecutive Trading Days ending on such
date, (B) three times the average Market Value of one share of Circuit
City Stock (or such other common stock) over the period of five
consecutive Trading Days ending on the fifth Trading Day prior to such
date, (C) two times the average Market Value of one share of Circuit
City Stock (or such other common stock) over the period of five
consecutive Trading Days ending on the 10th Trading Day prior to such
date and (D) the average Market Value of one share of Circuit City
Stock (or such other common stock) over the period of five consecutive
Trading Days ending on the 15th Trading Day prior to such date.
(q) "Market Value Ratio of the Circuit City Stock to the
Carmax Stock" as of any date shall mean the fraction (which may be
greater or less than 1/1), expressed as a decimal (rounded to the
nearest five decimal places), of a share of CarMax Stock (or another
class or series of common stock of the Corporation, if so provided by
paragraph B(5)(a) of this Article because CarMax Stock is not then
Publicly Traded) to be issued in respect of a share of Circuit City
Stock upon a conversion of Circuit City Stock into CarMax Stock (or
another class or series of common stock of the Corporation) in
accordance with paragraph B(5)(a) of this Article, based on the ratio
of the Market Value of a share of Circuit City Stock to the Market
Value of a share of CarMax Stock (or such other common stock) as of
such date, determined by the fraction the numerator of which shall be
the sum of (A) four times the average Market Value of one share of
Circuit City Stock over the period of five consecutive Trading Days
ending on such date, (B) three times the average Market Value of one
share of Circuit City Stock over the period of five consecutive Trading
Days ending on the fifth Trading Day prior to such date, (C) two times
the average Market Value of one share of Circuit City Stock over the
period of five consecutive Trading Days ending on the 10th Trading Day
prior to such date and (D) the average Market Value of one share of
Circuit City Stock over the period of five consecutive Trading Days
ending on the 15th Trading Day prior to such date and the denominator
of which shall be the sum of (A) four times the average Market Value of
one share of CarMax Stock (or such other common stock) over the period
of five consecutive Trading Days ending on such date, (B) three times
the average Market Value of one share of CarMax Stock (or such other
common stock) over the period of five consecutive Trading Days ending
on the fifth Trading Day prior to such date, (C) two times the average
Market Value of one share of CarMax Stock (or such other common stock)
over the period of five consecutive Trading Days ending on the 10th
Trading Day prior to such date and (D) the average Market Value of one
share of CarMax Stock (or such other common stock) over the period of
five consecutive Trading Days ending on the 15th Trading Day prior to
such date.
(r) "Net Proceeds" shall mean, as of any date with respect
to any Disposition of any of the properties and assets attributed to
the Circuit City Group or the CarMax Group, as the case may be, an
amount, if any, equal to what remains of the gross proceeds of such
Disposition after payment of, or reasonable provision is made as
determined by the Board of Directors for, (A) any taxes payable by the
Corporation (or which would have been payable but for the utilization
of tax benefits attributable to the other Group) in respect of such
Disposition or in respect of any resulting dividend or redemption
pursuant to paragraphs B(5)(a)(i)(1)(a) or (b) of this Article, (B) any
transaction costs, including, without limitation, any legal, investment
banking and accounting fees and expenses and (C) any liabilities
(contingent or otherwise) of or attributed to such Group, including,
without limitation, any liabilities for deferred taxes or any indemnity
or guarantee obligations of the Corporation incurred in connection with
the Disposition or otherwise, and any liabilities for future purchase
price adjustments and any preferential amounts plus any accumulated and
unpaid dividends in respect of the Preferred Stock attributed to such
Group. For purposes of this definition, any properties and assets
attributed to the Group, the properties and assets of which are subject
to such Disposition, remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs and liabilities
(contingent or otherwise) as the Board of Directors determines can be
expected to be supported by such properties and assets.
30
(s) "Number of Shares Issuable with Respect to the
Inter-Group Interest" shall be determined by the Board of Directors
prior to the first issuance of shares of CarMax Stock to be the number
of shares of CarMax Stock that initially represents 100% of the common
shareholders' equity of the Corporation attributable to the CarMax
Group, which determination shall be set forth in a statement filed with
the records of the actions of the Board of Directors; provided,
however, that such number shall from time to time thereafter be:
(i) adjusted, if before such adjustment such number
is greater than zero, as determined by the Board of Directors
to be appropriate to reflect equitably any subdivision (by
stock split or otherwise) or combination (by reverse stock
split or otherwise) of the CarMax Stock or any dividend or
other distribution of shares of CarMax Stock to holders of
shares of CarMax Stock or any reclassification of CarMax
Stock;
(ii) decreased (but to not less than zero), if
before such adjustment such number is greater than zero, by
action of the Board of Directors by (1) the number of shares
of CarMax Stock issued or sold by the Corporation that,
immediately prior to such issuance or sale, were included in
the Number of Shares Issuable with Respect to the Inter-Group
Interest, (2) the number of shares of CarMax Stock issued upon
conversion, exchange or exercise of Convertible Securities
that, immediately prior to the issuance or sale of such
Convertible Securities, were included in the Number of Shares
Issuable with Respect to the Inter-Group Interest, (3) the
number of shares of CarMax Stock issued by the Corporation as
a dividend or other distribution (including in connection with
any reclassification or exchange of shares) to holders of
Circuit City Stock, (4) the number of shares of CarMax Stock
issued upon the conversion, exchange or exercise of any
Convertible Securities issued by the Corporation as a dividend
or other distribution (including in connection with any
reclassification or exchange of shares) to holders of Circuit
City Stock, or (5) the number (rounded, if necessary, to the
nearest whole number) equal to the quotient of (a) the
aggregate Fair Value as of the date of contribution of
properties or assets (including cash) transferred from the
CarMax Group to the Circuit City Group in consideration for a
reduction in the Number of Shares Issuable with Respect to the
Inter-Group Interest divided by (b) the Market Value of one
share of CarMax Stock as of the date of such transfer; and
(iii) increased by (1) the number of outstanding
shares of CarMax Stock repurchased by the Corporation for
consideration that is attributed as provided by paragraph
B(7)(d) of this Article to the Circuit City Group and (2) the
number (rounded, if necessary, to the nearest whole number)
equal to the quotient of (a) the Fair Value of properties or
assets (including cash) theretofore attributed as provided by
paragraph B(7)(d) of this Article to the Circuit City Group
that are contributed to the CarMax Group in consideration of
an increase in the Number of Shares Issuable with Respect to
the Inter-Group Interest, divided by (b) the Market Value of
one share of CarMax Stock as of the date of such contribution
and (3) the number of shares of CarMax Stock into or for which
Convertible Securities are deemed converted, exchanged or
exercised pursuant to the penultimate sentence of the
definition of "Circuit City Group" in paragraph B(7)(d) of
this Article.
(t) "Outstanding Carmax Fraction", as of any date, means the
fraction (which may simplify to 1/1) the numerator of which shall be
the number of shares of CarMax Stock outstanding on such date and the
denominator of which shall be the sum of the number of shares of CarMax
Stock outstanding on such date and the Number of Shares Issuable with
Respect to the Inter-Group Interest on such date. A statement setting
forth the Outstanding CarMax Fraction as of the record date for the
payment of any dividend or distribution on either series of the Common
Stock and as of the end of each fiscal quarter of the Corporation shall
be filed by the Secretary of the Corporation in the records of the
actions of the Board of Directors not later than ten days after such
date.
(u) "Publicly Traded" with respect to any security shall
mean (i) registered under Section 12 of the Securities Exchange Act of
1934,
31
as amended (or any successor provision of law), and (ii) listed for
trading on the New York Stock Exchange or the American Stock Exchange
(or any national securities exchange registered under Section 7 of the
Securities Exchange Act of 1934, as amended (or any successor provision
of law), that is the successor to either such exchange) or listed on
The Nasdaq Stock Market (or any successor market system).
(v) "Redemption Date" shall mean the date fixed by the Board
of Directors as the effective date for a redemption of shares of either
series of the Common Stock, as set forth in a notice to holders thereof
required pursuant to paragraphs B(5)(d)(iii), (iv) or (vi) of this
Article.
(w) "Related Business Transaction" means any Disposition of
all or substantially all the properties and assets attributed to the
Circuit City Group or the CarMax Group, as the case may be, in a
transaction or series of related transactions that result in the
Corporation receiving in consideration of such properties and assets
primarily equity securities (including, without limitation, capital
stock, debt securities convertible into or exchangeable for equity
securities or interests in a general or limited partnership or limited
liability company, without regard to the voting power or other
management or governance rights associated therewith) of any entity
which (i) acquires such properties or assets or succeeds (by merger,
formation of a joint venture or otherwise) to the business conducted
with such properties or assets or controls such acquiror or successor
and (ii) is primarily engaged or proposes to engage primarily in one or
more businesses similar or complementary to the businesses conducted by
such Group prior to such Disposition, as determined by the Board of
Directors.
(x) "Trading Day" shall mean each weekday other than any day
on which the relevant series of common stock of the Corporation is not
traded on any national securities exchange or quoted on The Nasdaq
National Market or in the over-the-counter market."
C. Redesignation of Existing Common Stock. As of the effective date of
the Articles of Amendment pursuant to which this Section C is added to these
Amended and Restated Articles of Incorporation, and without any further action
on the part of the Corporation or its shareholders, each share of the Common
Stock then issued shall automatically be redesignated, changed and converted
into one fully paid and nonassessable share of Circuit City Stock.
ARTICLE VI
DIRECTORS
The number of directors shall be fixed by the bylaws. In the absence of
such a provision in the bylaws, the number of directors shall be ten. In no
event, however, shall the number of directors exceed seventeen. The directors of
the corporation shall be divided into three classes as nearly equal in number as
possible. The term of office of the first class of directors shall expire at the
first annual meeting of stockholders after the initial election dividing
directors into such classes, that of the second class shall expire at the second
annual meeting after such election and that of the third class at the third
annual meeting after such election. At each annual meeting of stockholders,
successors to the class of directors whose terms shall then expire and any other
nominees for election as a director of such class shall be elected to hold
office until the third succeeding annual meeting. If the number of directors is
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as possible. Notwithstanding the foregoing, if the holders of one or more
series of Preferred Stock voting as a separate class shall become entitled to
elect members of the Board pursuant to the provisions of the Articles of Serial
Designation for such series, the terms of all members of the Board of Directors
previously elected shall expire at the time of such election and each director
shall then serve until the next meeting of stockholders at which directors are
elected; and whenever the holders of any series of Preferred Stock are no longer
entitled to so elect directors voting as a separate class, all of the directors
shall be elected by classes at the next annual meeting of stockholders held for
such purpose in the manner provided hereinabove in this paragraph with respect
to the initial election dividing directors into such classes. Subject to the
foregoing, at each annual meeting of stockholders the successors to the class of
directors whose terms shall then expire and any other nominees for election as a
director of such class shall be elected to hold office until the third
succeeding annual
32
meeting. The aggregate number of vacancies resulting from an increase in the
number of directors which may be created and filled by action of the Board of
Directors between annual meetings of stockholders shall be limited to two.
ARTICLE VIII
INDEMNIFICATION
A. Definitions. For purposes of this Article the following definitions
shall apply:
"Corporation" means this Corporation only and no predecessor entity or
other legal entity.
"Expenses" include counsel fees, expert witness fees, and costs of
investigation, litigation and appeal, as well as any amounts expended in
asserting a claim for indemnification.
"Liability" means the obligation to pay a judgment, settlement,
penalty, fine, or other such obligation, including, without limitation, any
excise tax assessed with respect to an employee benefit plan.
"Legal Entity" means a corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
"Predecessor Entity" means a legal entity the existence of which ceased
upon its acquisition by the Corporation in a merger or otherwise.
"Proceeding" means any threatened, pending, or completed action, suit,
proceeding or appeal whether civil, criminal, administrative or investigative
and whether formal or informal.
B. Indemnification of Directors and Officers. The Corporation shall
indemnify and may contract in advance to indemnify an individual who is, was or
is threatened to be made a party to a proceeding because he is or was a director
or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving the Corporation or any other legal entity in any
capacity at the request of the Corporation against all liabilities and
reasonable expenses incurred in the proceeding except such liabilities and
expenses as are incurred because of his willful misconduct or knowing violation
of the criminal law (regardless of whether the proceeding is by or in the right
of the Corporation). The determination that indemnification under this Paragraph
B is permissible and the evaluation as to the reasonableness of expenses in a
specific case shall be made, in the case of a director, as provided by law, and
in the case of an officer, as provided in Paragraph C of this Article; provided,
however, that if a majority of the directors of the Corporation has changed
after the date of the alleged conduct giving rise to a claim for
indemnification, such determination and evaluation shall, at the option of the
person claiming indemnification, be made by special legal counsel agreed upon by
the Board of Directors and such person. Unless a determination has been made
that indemnification is not permissible, the Corporation shall make advances and
reimbursements for expenses incurred by a director or officer in a proceeding
upon receipt of an undertaking from him to repay the same if it is ultimately
determined that he is not entitled to indemnification. Such undertaking shall be
an unlimited, unsecured general obligation of the director or officer and shall
be accepted without reference to his ability to make repayment. The termination
of a proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not of itself create a presumption that
a director or officer acted in such a manner as to make him ineligible for
indemnification.
C. Indemnification of Others. The Corporation may, to a lesser extent
or to the same extent that the Corporation is required to provide
indemnification and make advances and reimbursements for expenses to its
directors and officers, provide indemnification and make advances and
reimbursements for expenses to its employees and agents, the directors,
officers, employees and agents of its subsidiaries and predecessor entities, and
any person serving any other legal entity in any capacity at the request of the
Corporation, and, if authorized by general or specific action of the Board of
Directors, may contract in advance to do so. The determination that
indemnification under this Paragraph C is permissible, the authorization of such
indemnification and the evaluation as to the reasonableness of expenses in a
specific case shall be made as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before or
after a claim for indemnification is made, or as otherwise provided by law.
33
No person's rights under Paragraph B of this Article shall be limited by the
provisions of this Paragraph C.
D. Miscellaneous. Every reference in this Article to persons who are
or may be entitled to indemnification shall include all persons who formerly
occupied any of the positions referred to and their respective heirs, executors
and administrators. Special legal counsel selected to make determinations under
this Article may be counsel for the Corporation. Indemnification pursuant to
this Article shall not be exclusive of any other right of indemnification to
which any person may be entitled including indemnification pursuant to a valid
contract, indemnification by legal entities other than the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no person shall be entitled to indemnification
by the Corporation to the extent he is indemnified by another, including an
insurer. The Corporation is authorized to purchase and maintain insurance
against any liability it may have under this Article or to protect any of the
persons named above against any liability arising from their service to the
Corporation or any other legal entity at the request of the Corporation
regardless of the Corporation's power to indemnify against such liability. The
provisions of this Article shall not be deemed to prohibit the Corporation from
entering into contracts otherwise permitted by law with any individuals or legal
entities, including those named above, for the purposes of conducting the
business of the Corporation. If any provision of this Article or its application
to any person or circumstance is held invalid by a court of competent
jurisdiction, the invalidity shall not affect other provisions or applications
of this Article, and to this and the provisions of this Article are severable.
ARTICLE IX
LIMITATION OF LIABILITY
To the full extent that the Virginia Stock Corporation Act, as it now
exists or is hereafter amended, permits the limitation or elimination of the
liability of directors or officers, a director or officer of the Corporation
shall not be liable to the Corporation or its stockholders for monetary damages.
ARTICLE X
VOTE TO AMEND OR RESTATE
As to each voting group entitled to vote on an amendment or restatement
of these Amended and Restated Articles of Incorporation the vote required for
approval shall be (i) the vote required by the Virginia Stock Corporation Act
(as applied without regard to the effect of clause (iii) of this Article) if the
effect of the amendment or restatement is (a) to reduce the shareholder vote
required to approve a merger, a statutory share exchange, a sale of all or
substantially all of the assets of the Corporation or the dissolution of the
Corporation, (b) to modify any provision of Article VI of these Amended and
Restated Articles of Incorporation, or (c) to delete all or any part of this
clause (i) of this Article; (ii) the vote required by the terms of these Amended
and Restated Articles of Incorporation, as amended or as restated from time to
time, if such terms require the approval of more than a majority of the votes
entitled to be cast thereon by such voting group; or (iii) a majority of the
votes entitled to be cast thereon if neither clause (i) nor clause (ii) of this
Article is applicable.
34
EXHIBIT 3.(I)a
CIRCUIT CITY STORES, INC.
ARTICLES OF AMENDMENT
1. Name. The name of the corporation is Circuit City Stores, Inc.
2. The Amendment. The Amendment amends and restates Sections C and D of
Article IV of the corporation's Amended and Restated Articles of Incorporation
in the form attached hereto. The Amendment did not require shareholder approval.
3. Board Action. The Board of Directors adopted the Amendment at a
meeting held on April 14, 1998.
4. Certificate Required by Law. These Articles of Amendment contain all
of the information required by Section 13.1-710 of the Code of Virginia and this
paragraph constitutes the Certificate required by that Section.
Dated: April 21, 1998 CIRCUIT CITY STORES, INC.
By: Michael T. Chalifoux
Senior Vice President,
Chief Financial Officer and
Secretary
C. Series E Preferred Stock.
The Board of Directors of the Corporation has heretofore designated
500,000 shares of the Preferred Stock as the Cumulative Participating Preferred
Stock, Series E ("Series E Stock"). Such number may from time to time be
decreased (but not below the number of shares of Series E Stock then
outstanding) by the Board of Directors of the Corporation. In addition to any
relative rights and preferences hereinabove granted, the relative rights and
preferences of such series and the holders of the outstanding shares thereof are
as set forth in paragraphs (C)(1) through (C)(5) of this Article.
(1) Dividends and Distributions.
(a) The holders of shares of the Series E Stock, in preference
to the holders of shares of the Circuit City Stock and the CarMax Stock
and of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
fifteenth day (or, if not a business day, the preceding business day)
of January, April, July and October in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of the Series E Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (a)
$4.00 or (b) subject to the provision for adjustment hereinafter set
forth, 400 times the aggregate per share amount of all cash dividends,
and 400 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend
payable in shares of Circuit City Stock, or a subdivision of the
outstanding shares of Circuit City Stock (by reclassification or
otherwise), declared on the Circuit City Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of the Series E Stock. In the event the
Corporation shall at any time after January 1, 1997 declare or pay any
dividend on Circuit City Stock payable in shares of Circuit City Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Circuit City Stock (by reclassification or
otherwise than by payment of a dividend in shares of Circuit City
Stock) into a greater or lesser number of shares of Circuit City Stock,
then in each such case the amount per share to which holders of shares
of the Series E Stock shall be entitled under clause (b) of the
preceding sentence shall be adjusted by multiplying the amount per
share to which holders of shares of the Series E Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence by a fraction the numerator of which is the number of shares
of Circuit City Stock outstanding immediately after such event and the
denominator of which is the number of shares of Circuit City Stock that
were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series E Stock as provided in paragraph (C)(1)(a) of this
Article immediately after it declares a dividend or distribution on the
Circuit City Stock (other than a dividend payable in shares of Circuit
City Stock); provided that, in the event no dividend or distribution
shall have been declared on the Circuit City Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $4.00 per share on the
Series E Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of the Series E Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of the
Series E Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of the Series E Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the
shares of the Series E Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of the Series E Stock entitled
to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
(2) Voting Rights. Except to the extent provided by law, the
holders of shares of the Series E Stock shall not be entitled (i) to vote on any
matter or (ii) to receive notice of, or to participate in, any meeting of
shareholders of the Corporation at which they are not entitled to vote.
(3) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series E Stock as provided in paragraph
(C)(1) of this Article are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of the Series E Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare, set apart or pay dividends on or make any
other distributions on the Common Stock or any shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series E Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series E Stock, except dividends paid
ratably on the Series E Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of the Series E Stock, any such parity
stock or any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series E
Stock, or set aside for or pay to any sinking fund therefor.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (C)(3)(a) of this Article, purchase or otherwise acquire such
shares at such time and in such manner.
(4) Reacquired Shares. Any shares of the Series E Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, par value $20.00 per share, and may be reissued as a
new series or a part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors or as part of an existing
series of Preferred Stock.
(5) Redemption.
(a) The Corporation may, at its option and at any time and
from time to time after April 14, 2058, redeem all or any portion of
the outstanding shares of Series E Stock.
(b) The redemption price shall be an amount per share equal to
the greater of (i) $100,000.00 or (ii) subject to the provision for
adjustment hereinafter set forth, 400 times the current market price
per share of Circuit City Stock on the date fixed for redemption, plus
in each such case an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date fixed for
redemption. The current market price per share of Circuit City Stock on
any date shall be deemed to be the average of the daily closing prices
per share of such Circuit City Stock for the 30 consecutive trading
days immediately prior to such date. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange ("NYSE")
or, if the Common Stock is not listed or admitted to trading on the
NYSE, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Circuit City Stock is listed or
admitted to trading or, if the Circuit City Stock is not listed or
admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
Systems ("NASDAQ") or such other system then in use, or, if on any such
date the Circuit City Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Circuit City Stock. If
no professional market maker is then making a market in the Circuit
City Stock, the current market price per share of the Circuit City
Stock shall be deemed to be $1.00. As used herein, the term trading day
shall mean a day on which the principal national securities exchange on
which the Circuit City Stock is listed or admitted to trading is open
for the transaction of business or, if the Circuit City Stock is not
listed or admitted to trading on any national securities exchange, a
business day. In the event the Corporation shall at any time after
January 1, 1997 declare or pay any dividend on Circuit City Stock
payable in shares of Circuit City Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Circuit City
Stock (by reclassification or otherwise than by payment of a dividend
in shares of Circuit City Stock) into a greater or lesser number of
shares of Circuit City Stock, then in each such case the aggregate
amount per share to which holders of shares of the Series E Stock shall
be entitled under the provisions of the first sentence of this
paragraph shall be adjusted by multiplying the amount per share to
which holders of shares of the Series E Stock should have been entitled
immediately prior to such event under the provisions of the first
sentence of this paragraph by a fraction the numerator of which is the
number of shares of Circuit City Stock outstanding immediately after
such event and the denominator of which is the number of shares of
Circuit City Stock that were outstanding immediately prior to such
event.
(c) In case less than all of the outstanding shares of Series
E Stock are to be redeemed, not more than 60 days prior to the date
fixed for redemption the Corporation shall select the shares to be
redeemed. Such shares shall be selected by lot or designated ratably or
in such other equitable manner as the Corporation may determine. The
Corporation in its discretion may select the particular certificates
(if there are more than one) representing shares registered in the name
of a holder that are to be redeemed.
(d) Not less than 30 nor more than 60 days prior to the date
fixed for redemption, notice of redemption shall be given by first
class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series E Stock to be redeemed at their last
known addresses shown in the Corporation's share transfer records. The
notice of redemption shall set forth the paragraph of this Article
pursuant to which the shares are being redeemed, the number of shares
to be redeemed, the date fixed for redemption, the applicable
redemption price, and the place or places where certificates
representing shares to be redeemed may be surrendered. In case less
than all of the outstanding shares of the Series E Stock are to be
redeemed the notice of redemption shall also set forth the numbers of
the certificates representing shares to be redeemed and, in case less
than all shares represented by any such certificate are to be redeemed,
the number of shares represented by such certificate to be redeemed.
(e) If notice of redemption of any outstanding shares of
Series E Stock shall have been duly mailed as herein provided, then on
or before the date fixed for redemption the Corporation shall deposit
cash sufficient to pay the redemption price of such shares in trust for
the benefit of the holders of the shares to be redeemed with any bank
or trust company in the City of Richmond, Commonwealth of Virginia,
having capital and surplus aggregating at least $50,000,000 as of the
date of its most recent report of financial condition and named in such
notice, to be applied to the redemption of the shares so called for
redemption against surrender for cancellation of the certificates
representing such shares. From and after the time of such deposit all
shares for the redemption of which such deposit shall have been made
shall, whether or not the certificates therefor shall have been
surrendered for cancellation, no longer be deemed to be outstanding for
any purpose, and all rights with respect to such shares shall thereupon
cease and terminate except the right to receive payment of redemption
price but without interest. Any interest earned on funds so deposited
shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of five years from the date fixed
for redemption shall be repaid to the Corporation, free of trust, and
the holders of the shares called for redemption who shall not have
surrendered their certificates representing such shares prior to such
repayment shall be deemed to be unsecured creditors of the Corporation
for the amount of the redemption price and shall look only to the
Corporation for payment thereof, without interest, subject to the laws
of the Commonwealth of Virginia.
(f) The Corporation shall also have the right to acquire
outstanding shares of Series E Stock otherwise than by redemption
pursuant to paragraph (C)(5)(a) of this Article, from time to time for
such consideration as may be acceptable to the holders thereof;
provided, however, that if all dividends accrued on all outstanding
shares of Series E Stock shall not have been declared and paid or
declared and a sum sufficient for the payment thereof set apart,
neither the Corporation nor any subsidiary shall so acquire any shares
of Series E Stock except in accordance with a purchase offer made on
the same terms to all the holders of the outstanding shares of Series E
Stock.
(6) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the shares of Circuit City Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case the shares of the Series E Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 400 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Circuit City Stock is changed or
exchanged. If the Corporation shall at any time after January 1, 1997 declare or
pay any dividend on Circuit City Stock payable in shares of Circuit City Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Circuit City Stock (by reclassification or otherwise than by payment
of a dividend in shares of Circuit City Stock) into a greater or lesser number
of shares of Circuit City Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of the
Series E Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Circuit City Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Circuit City Stock that were outstanding immediately prior to such
event.
D. Series F Preferred Stock.
The Board of Directors of the Corporation has heretofore designated
500,000 shares of the Preferred Stock as the Cumulative Participating Preferred
Stock, Series F ("Series F Stock"). Such number may from time to time be
decreased (but not below the number of shares of Series F Stock then
outstanding) by the Board of Directors of the Corporation. In addition to any
relative rights and preferences hereinabove granted, the relative rights and
preferences of such series and the holders of the outstanding shares thereof are
as set forth in paragraphs (D)(1) through (D)(5) of this Article.
(1) Dividends and Distributions.
(a) The holders of shares of the Series F Stock, in preference
to the holders of shares of the Circuit City Stock and the CarMax Stock
and of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
fifteenth day (or, if not a business day, the preceding business day)
of January, April, July and October in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of the Series F Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (a)
$4.00 or (b) subject to the provision for adjustment hereinafter set
forth, 400 times the aggregate per share amount of all cash dividends,
and 400 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend
payable in shares of CarMax Stock, or a subdivision of the outstanding
shares of CarMax Stock (by reclassification or otherwise), declared on
the CarMax Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
the Series F Stock. In the event the Corporation shall at any time
after January 1, 1997 declare or pay any dividend on CarMax Stock
payable in shares of CarMax Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of CarMax Stock
(by reclassification or otherwise than by payment of a dividend in
shares of CarMax Stock) into a greater or lesser number of shares of
CarMax Stock, then in each such case the amount per share to which
holders of shares of the Series F Stock shall be entitled under clause
(b) of the preceding sentence shall be adjusted by multiplying the
amount per share to which holders of shares of the Series F Stock were
entitled immediately prior to such event under clause (b) of the
preceding sentence by a fraction the numerator of which is the number
of shares of CarMax Stock outstanding immediately after such event and
the denominator of which is the number of shares of CarMax Stock that
were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series F Stock as provided in paragraph (D)(1)(a) of this
Article immediately after it declares a dividend or distribution on the
CarMax Stock (other than a dividend payable in shares of CarMax Stock);
provided that, in the event no dividend or distribution shall have been
declared on the CarMax Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $4.00 per share on the Series F Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of the Series F Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of the
Series F Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of the Series F Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the
shares of the Series F Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of the Series F Stock entitled
to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
(2) Voting Rights. Except to the extent provided by law, the
holders of shares of the Series F Stock shall not be entitled (i) to vote on any
matter or (ii) to receive notice of, or to participate in, any meeting of
shareholders of the Corporation at which they are not entitled to vote.
(3) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series F Stock as provided in paragraph
(C)(1) of this Article are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of the Series F Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare, set apart or pay dividends on or make any
other distributions on the Common Stock or any shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series F Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series F Stock, except dividends paid
ratably on the Series F Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of the Series F Stock, any such parity
stock or any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series F
Stock, or set aside for or pay to any sinking fund therefor.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (D)(3)(a) of this Article, purchase or otherwise acquire such
shares at such time and in such manner.
(4) Reacquired Shares. Any shares of the Series F Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, par value $20.00 per share, and may be reissued as a
new series or a part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors or as part of an existing
series of Preferred Stock.
(5) Redemption.
(a) The Corporation may, at its option and at any time and
from time to time after April 14, 2058, redeem all or any portion of
the outstanding shares of Series F Stock.
(b) The redemption price shall be an amount per share equal to
the greater of (i) $40,000.00 or (ii) subject to the provision for
adjustment hereinafter set forth, 400 times the current market price
per share of CarMax Stock on the date fixed for redemption, plus in
each such case an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date fixed for
redemption. The current market price per share of CarMax Stock on any
date shall be deemed to be the average of the daily closing prices per
share of such CarMax Stock for the 30 consecutive trading days
immediately prior to such date. The closing price for each day shall be
the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange ("NYSE") or, if the
Common Stock is not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the CarMax Stock is listed or admitted to trading or,
if the CarMax Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations Systems ("NASDAQ") or
such other system then in use, or, if on any such date the CarMax Stock
is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in the CarMax Stock. If no professional market maker is then
making a market in the CarMax Stock, the current market price per share
of the CarMax Stock shall be deemed to be $1.00. As used herein, the
term trading day shall mean a day on which the principal national
securities exchange on which the CarMax Stock is listed or admitted to
trading is open for the transaction of business or, if the CarMax Stock
is not listed or admitted to trading on any national securities
exchange, a business day. In the event the Corporation shall at any
time after January 1, 1997 declare or pay any dividend on CarMax Stock
payable in shares of CarMax Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of CarMax Stock
(by reclassification or otherwise than by payment of a dividend in
shares of CarMax Stock) into a greater or lesser number of shares of
CarMax Stock, then in each such case the aggregate amount per share to
which holders of shares of the Series F Stock shall be entitled under
the provisions of the first sentence of this paragraph shall be
adjusted by multiplying the amount per share to which holders of shares
of the Series F Stock should have been entitled immediately prior to
such event under the provisions of the first sentence of this paragraph
by a fraction the numerator of which is the number of shares of CarMax
Stock outstanding immediately after such event and the denominator of
which is the number of shares of CarMax Stock that were outstanding
immediately prior to such event.
(c) In case less than all of the outstanding shares of Series
F Stock are to be redeemed, not more than 60 days prior to the date
fixed for redemption the Corporation shall select the shares to be
redeemed. Such shares shall be selected by lot or designated ratably or
in such other equitable manner as the Corporation may determine. The
Corporation in its discretion may select the particular certificates
(if there are more than one) representing shares registered in the name
of a holder that are to be redeemed.
(d) Not less than 30 nor more than 60 days prior to the date
fixed for redemption, notice of redemption shall be given by first
class mail, postage prepaid, to the holders of record of the
outstanding shares of the Series F Stock to be redeemed at their last
known addresses shown in the Corporation's share transfer records. The
notice of redemption shall set forth the paragraph of this Article
pursuant to which the shares are being redeemed, the number of shares
to be redeemed, the date fixed for redemption, the applicable
redemption price, and the place or places where certificates
representing shares to be redeemed may be surrendered. In case less
than all of the outstanding shares of the Series F Stock are to be
redeemed the notice of redemption shall also set forth the numbers of
the certificates representing shares to be redeemed and, in case less
than all shares represented by any such certificate are to be redeemed,
the number of shares represented by such certificate to be redeemed.
(e) If notice of redemption of any outstanding shares of
Series F Stock shall have been duly mailed as herein provided, then on
or before the date fixed for redemption the Corporation shall deposit
cash sufficient to pay the redemption price of such shares in trust for
the benefit of the holders of the shares to be redeemed with any bank
or trust company in the City of Richmond, Commonwealth of Virginia,
having capital and surplus aggregating at least $50,000,000 as of the
date of its most recent report of financial condition and named in such
notice, to be applied to the redemption of the shares so called for
redemption against surrender for cancellation of the certificates
representing such shares. From and after the time of such deposit all
shares for the redemption of which such deposit shall have been made
shall, whether or not the certificates therefor shall have been
surrendered for cancellation, no longer be deemed to be outstanding for
any purpose, and all rights with respect to such shares shall thereupon
cease and terminate except the right to receive payment of redemption
price but without interest. Any interest earned on funds so deposited
shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of five years from the date fixed
for redemption shall be repaid to the Corporation, free of trust, and
the holders of the shares called for redemption who shall not have
surrendered their certificates representing such shares prior to such
repayment shall be deemed to be unsecured creditors of the Corporation
for the amount of the redemption price and shall look only to the
Corporation for payment thereof, without interest, subject to the laws
of the Commonwealth of Virginia.
(f) The Corporation shall also have the right to acquire
outstanding shares of Series F Stock otherwise than by redemption
pursuant to paragraph (D)(5)(a) of this Article, from time to time for
such consideration as may be acceptable to the holders thereof;
provided, however, that if all dividends accrued on all outstanding
shares of Series F Stock shall not have been declared and paid or
declared and a sum sufficient for the payment thereof set apart,
neither the Corporation nor any subsidiary shall so acquire any shares
of Series F Stock except in accordance with a purchase offer made on
the same terms to all the holders of the outstanding shares of Series F
Stock.
(6) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the shares of CarMax Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case the shares of Series F Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 400 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of CarMax Stock is changed or
exchanged. If the Corporation shall at any time after January 1, 1997 declare or
pay any dividend on CarMax Stock payable in shares of CarMax Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of CarMax
Stock (by reclassification or otherwise than by payment of a dividend in shares
of CarMax Stock) into a greater or lesser number of shares of CarMax Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series F Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of CarMax Stock outstanding immediately after such event and the
denominator of which is the number of shares of CarMax Stock that were
outstanding immediately prior to such event.
Exhibit 3.(II)
CIRCUIT CITY STORES, INC.
BYLAWS
AS AMENDED AND RESTATED
October 13, 1998
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings...................................3
1.2 Organization and Order of Business...........................3
1.3 Annual Meeting...............................................3
1.4 Special Meetings.............................................5
1.5 Record Dates.................................................5
1.6 Notice of Meetings...........................................5
1.7 Waiver of Notice; Attendance at Meeting......................6
1.8 Quorum and Voting Requirements...............................6
1.9 Proxies......................................................7
1.10 Voting List..................................................7
ARTICLE II
DIRECTORS
2.1 General Powers...............................................8
2.2 Number and Term..............................................8
2.3 Nomination of Directors......................................8
2.4 Election.....................................................9
2.5 Removal; Vacancies...........................................9
2.6 Annual and Regular Meetings.................................10
2.7 Special Meetings............................................10
2.8 Notice of Meetings..........................................10
2.9 Waiver of Notice; Attendance at Meeting.....................10
2.10 Quorum; Voting..............................................11
2.11 Telephonic Meetings.........................................11
2.12 Action Without Meeting......................................11
2.13 Compensation................................................11
2.14 Director Emeritus...........................................12
2.15 Chairman and Vice Chairman..................................12
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees..................................................12
3.2 Authority of Committees.....................................12
1
3.3 Executive Committee.........................................13
3.4 Audit Committee.............................................13
3.5 Nominating and Structure Committee..........................13
3.6 Compensation and Personnel Committee........................14
3.7 Committee Meetings; Miscellaneous...........................14
ARTICLE IV
OFFICERS
4.1 Officers....................................................15
4.2 Election; Term..............................................15
4.3 Removal of Officers.........................................15
4.4 Duties of the President.....................................15
4.5 Duties of the Vice President................................15
4.6 Duties of the Secretary.....................................16
4.7 Duties of the Chief Financial Officer.......................16
4.8 Duties of the Assistant Secretary...........................16
4.9 Duties of Other Officers....................................16
4.10 Voting Securities of Other Corporations.....................16
4.11 Compensation................................................17
4.12 Bonds.......................................................17
ARTICLE V
EVIDENCE OF SHARES
5.1 Form........................................................17
5.2 Transfer....................................................18
5.3 Restrictions on Transfer....................................18
5.4 Lost or Destroyed Share Certificates........................18
5.5 Registered Shareholders.....................................18
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Certain Definitions.........................................18
6.2 Corporate Seal..............................................19
6.3 Fiscal Year.................................................19
6.4 Amendments..................................................19
6.5 General.....................................................19
2
<PAGE>
CIRCUIT CITY STORES, INC.
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held at
the principal office of the Corporation or at such place, either within or
without the Commonwealth of Virginia, and at such time as may be provided in the
notice of the meeting and approved by the Board of Directors.
1.2 Organization and Order of Business. The Chairman or, in the Chairman's
absence, the President shall serve as chairman at all meetings of the
shareholders. In the absence of both of the foregoing persons or if both of them
decline to serve, a majority of the shares entitled to vote at a meeting may
appoint any person entitled to vote at the meeting to act as chairman. The
Secretary or, in the Secretary's absence, an Assistant Secretary shall act as
secretary at all meetings of the shareholders. In the event that neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he or she
may deem necessary or desirable for the proper conduct of each meeting of the
shareholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing of business not properly
presented, (ii) maintaining of order and safety, (iii) placing limitations on
the time allotted to questions or comments on the affairs of the Corporation,
(iv) placing restrictions on attendance at a meeting by persons or classes of
persons who are not shareholders or their proxies, (v) restricting entry to a
meeting after the time prescribed for the commencement thereof and (vi)
commencing, conducting and closing voting on any matter.
Any business which might properly have been conducted on an original
meeting date may come before an adjourned meeting when reconvened.
1.3 Annual Meeting. The annual meeting of shareholders shall be held on the
Tuesday in June of each year which is closest to June 16. If such day is a legal
holiday, then the annual meeting of shareholders shall be held on the next
succeeding business day. Alternatively, the annual meeting
3
may be held at such other time as may be provided in the notice of the meeting
and approved by the Board of Directors.
At each annual meeting of shareholders, only such business shall be
conducted as is proper to consider and has been brought before the meeting (i)
pursuant to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors or (iii) by a shareholder who is a shareholder of
record of a class of shares entitled to vote on the business such shareholder is
proposing and who is such a shareholder of record, both at the time of the
giving of the shareholder's notice hereinafter described in this Section 1.3 and
on the record date for such annual meeting, and who complies with the notice
procedures set forth in this Section 1.3.
In order to bring before an annual meeting of shareholders any business
which may properly be considered and which a shareholder has not sought to have
included in the Corporation's proxy statement for the meeting, a shareholder who
meets the requirements set forth in the preceding paragraph must give the
Corporation timely written notice. To be timely, a shareholder's notice must be
given, either by personal delivery to the Secretary or an Assistant Secretary at
the principal office of the Corporation or by first class United States mail,
with postage thereon prepaid, addressed to the Secretary at the principal office
of the Corporation. Any such notice must be received (i) on or after February
1st and before March 1st of the year in which the meeting will be held, if
clause (ii) is not applicable, or (ii) not less than 90 days before the date of
the meeting if the date of such meeting, as prescribed in these bylaws, has been
changed by more than 30 days.
Each such shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
shareholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such shareholder, (iii) a representation
that such 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.
The Secretary or Assistant Secretary shall deliver each shareholder's
notice that has been timely received to the Chairman for review.
4
Notwithstanding the foregoing provisions of this Section 1.3, a shareholder
seeking to have a proposal included in the Corporation's proxy statement for an
annual meeting of shareholders shall comply with the requirements of Regulation
14A under the Securities Exchange Act of 1934, as amended from time to time, or
with any successor regulation.
1.4 Special Meetings. Special meetings of the shareholders may be called
only by the Chairman, the President or the Board of Directors. Only business
within the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
1.5 Record Dates. The Board of Directors shall fix, in advance, a record
date to make a determination of shareholders entitled to notice of or to vote at
any meeting of shareholders or to receive any dividend or for any purpose, such
date to be not more than 70 days before the meeting or action requiring a
determination of shareholders.
When a determination of shareholders entitled to notice of or to vote at
any meeting of shareholders has been made, such determination shall be effective
for any adjournment of the meeting unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
1.6 Notice of Meetings. Written notice stating the place, day and hour of
each meeting of shareholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given by mail not less
than 10 nor more than 60 days before the date of the meeting (except when a
different time is required in these Bylaws or by law) to each shareholder of
record entitled to vote at such meeting. Such notice shall be deemed to be
effective when deposited in first class United States mail with postage thereon
prepaid and addressed to the shareholder at his or her address as it appears on
the share transfer books of the Corporation.
Notice of a shareholder's meeting to act on (i) an amendment of the
Articles of Incorporation, (ii) a plan of merger or share exchange, (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of merger or share exchange or (z) a summary of the agreement
pursuant to which the proposed transaction
5
will be effected. If only a summary of the agreement is sent to the
shareholders, the Corporation shall also send a copy of the agreement to any
shareholder who requests it.
If a meeting is adjourned to a different date, time or place, notice need
not be given if the new date, time or place is announced at the meeting before
adjournment. However, if a new record date for an adjourned meeting is fixed,
notice of the adjourned meeting shall be given to shareholders as of the new
record date unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of shareholders need
be given to a shareholder if (i) an annual report and proxy statements for two
consecutive annual meetings of shareholders or (ii) all, and at least two,
checks in payment of dividends or interest on securities during a 12-month
period, have been sent by first-class United States mail, with postage thereon
prepaid, addressed to the shareholder at his or her address as it appears on the
share transfer books of the Corporation, and returned undeliverable. The
obligation of the Corporation to give notice of meetings of shareholders to any
such shareholder shall be reinstated once the Corporation has received a new
address for such shareholder for entry on its share transfer books.
1.7 Waiver of Notice; Attendance at Meeting. A shareholder may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time of the meeting that is the subject of such notice. The
waiver shall be in writing, be signed by the shareholder entitled to the notice
and be delivered to the Secretary for inclusion in the minutes or filing with
the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting unless the shareholder, at the
beginning of the meeting, objects to holding the meeting or transacting business
at the meeting and (ii) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to considering the matter when it
is presented.
1.8 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action unless a greater number of affirmative
6
votes is required by law. Directors shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Less than a quorum may adjourn a meeting.
1.9 Proxies. A shareholder may vote his or her shares in person or by
proxy. A shareholder may appoint a proxy to vote or otherwise act for such
shareholder by signing an appointment form, either personally or by his or her
attorney-in-fact. An appointment of a proxy is effective when received by the
Secretary or other officer or agent authorized to tabulate votes and is valid
for eleven (11) months unless a longer period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his or her
authority under the appointment. An irrevocable appointment is revoked when the
interest with which it is coupled is extinguished. A transferee for value of
shares subject to an irrevocable appointment may revoke the appointment if the
transferee did not know of its existence when the shares were acquired and the
existence of the irrevocable appointment was not noted conspicuously on the
certificate representing the shares or on the information statement for shares
without certificates. Subject to any legal limitations on the right of the
Corporation to accept the vote or other action of a proxy and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, the Corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment. Any fiduciary who is entitled to
vote any shares may vote such shares by proxy.
1.10 Voting List. The officer or agent having charge of the share transfer
books of the Corporation shall make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, with the address of and the number of shares
held by each. For a period of ten days prior to the meeting, such list shall be
kept on file at the registered office of the Corporation or at its principal
office or at the office of its transfer agent or registrar and shall be subject
to inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purpose thereof. The original share transfer books shall
be prima facie evidence
7
as to which shareholders are entitled to examine such list or transfer books or
to vote at any meeting of the shareholders. The right of a shareholder to
inspect such list prior to the meeting shall be subject to the conditions and
limitations set forth by law. If the requirements of this section have not been
substantially complied with, the meeting shall, on the demand of any shareholder
in person or by proxy, be adjourned until such requirements are met. Refusal or
failure to prepare or make available the shareholders' list does not affect the
validity of action taken at the meeting prior to the making of any such demand,
but any action taken by the shareholders after the making of any such demand
shall be invalid and of no effect.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, and such officers and agents as the Board of Directors may
elect to employ, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number and Term. The number of directors shall be twelve (12). This
number may be increased or decreased from time to time by amendment to these
Bylaws to the extent permitted by law and by the Corporation's Articles of
Incorporation. Except as provided in Section 2.5, directors shall be elected for
terms of three (3) years in the manner set forth in the Articles of
Incorporation and shall serve until the election of their successors. No
decrease in the number of directors shall have the effect of changing the term
of any incumbent director. Unless a director resigns or is removed by the
majority vote of the shareholders, every director shall hold office for the term
elected or until a successor to such director shall have been elected.
2.3 Nominations of Directors. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to vote in the
election of directors generally. However, any shareholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to be held at an
annual meeting of shareholders 120 days in advance of such meeting or (ii) with
respect to a special meeting of shareholders
8
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.
Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The Chairman may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
2.4 Election. Except as provided in Section 2.5, the directors shall be
elected by the holders of the common shares at each annual meeting of
shareholders or at a special meeting called for such purpose. Those persons who
receive the greatest number of votes shall be deemed elected even though they do
not receive a majority of the votes cast. No individual shall be named or
elected as a director without such individual's prior consent.
2.5 Removal; Vacancies. The shareholders may remove one or more directors
with or without cause. If a director is elected by a voting group, only the
shareholders of that voting group may elect to remove the director. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove the director constitutes a majority of the
votes entitled to be cast at an election of directors of the voting group or
voting groups by which such director was elected. A director may be removed by
the shareholders only at a meeting called for the purpose of removing such
director and the meeting notice must state that the purpose, or one of the
purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from the
removal of a director or an increase in the number of directors, may be filled
by (i) the shareholders, (ii) the Board of Directors or (iii) the affirmative
vote of a majority of the remaining directors though less than a quorum of
9
the Board of Directors and may, in the case of a resignation that will become
effective at a specified later date, be filled before the vacancy occurs but the
new director may not take office until the vacancy occurs. The foregoing
notwithstanding, the aggregate number of vacancies resulting from increases in
the number of directors which may be created and filled by action of the Board
of Directors between annual meetings of shareholders shall be limited to two.
Any director elected by the Board of Directors shall serve until the next annual
meeting of shareholders or until the election of a successor to such director.
2.6 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.7 Special Meetings. Special meetings of the Board of Directors may be
called by the President, the Board of Directors or any two Directors of the
Corporation and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 Notice of Meetings. No notice need be given of regular meetings of the
Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to his or her residence or business address
(or such other place as the director may have directed in writing) not less than
twenty-four (24) hours before the meeting by mail, messenger, telecopy,
telegraph or other means of written communication or by telephoning such notice
to the director. Any such notice shall set forth the time and place of the
meeting.
2.9 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time stated in the notice and such waiver shall be equivalent
to the giving of such notice. Except as provided in the next paragraph of this
section, the waiver shall be in writing, signed by the
10
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to such director of the meeting unless the director, at the
beginning of the meeting or promptly upon arrival, objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
2.10 Quorum; Voting. A majority of the number of directors fixed in these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board of Directors. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present is the act of the Board
of Directors. A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless (i) the director objects, at
the beginning of the meeting or promptly upon arrival, to holding it or
transacting specified business at the meeting or (ii) the director votes against
or abstains from the action taken.
2.11 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 Action Without Meeting. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall be evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action is taken and included in the minutes or filed with
the corporate records. Action taken under this section shall be effective when
the last director signs the consent unless the consent specifies a different
effective date in which event the action taken is effective as of the date
specified therein provided the consent states the date of execution by each
director.
2.13 Compensation. Directors shall not receive a stated salary for their
services, but directors may be paid a fixed sum and expenses for attendance at
any regular or special meeting of the Board of Directors or any meeting of any
Committee and such other compensation as the Board of Directors shall determine.
A director may serve or be employed by the Corporation in any other capacity and
receive compensation thereafter.
11
2.14 Director Emeritus. The Board may appoint to the position of Director
Emeritus any retiring director who has served not less than three years as a
director of the Corporation. Such person so appointed shall have the title of
"Director Emeritus" and shall be entitled to receive notice of, and to attend
all meetings of the Board, but shall not in fact be a director, shall not be
entitled to vote, shall not be counted in determining a quorum of the Board and
shall not have any of the duties or liabilities of a director under law.
2.15 Chairman and Vice Chairman. The Chairman of the Board, if one is
designated by the Board of Directors, shall preside at all meetings of the Board
and of shareholders and perform such other duties as the Board shall assign from
time to time. The Vice Chairman of the Board, if one is designated by the Board
of Directors, shall at the request of or in the absence of the Chairman of the
Board, preside at meetings of the Board and of shareholders and, when requested
to do so by the Board, shall perform all of the functions of the Chairman of the
Board during the absence or incapacity of the latter.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees. The Board of Directors may create one or more committees
and appoint members of the Board of Directors to serve on them. Unless otherwise
provided in these Bylaws, each committee shall have two or more members who
serve at the pleasure of the Board of Directors. The creation of a committee and
appointment of members to it shall be approved by a majority of all of the
directors in office when the action is taken.
3.2 Authority of Committees. To the extent specified by the Board of
Directors, each committee may exercise the authority of the Board of Directors,
except that a committee may not (i) approve or recommend to shareholders action
that is required by law to be approved by shareholders, (ii) fill vacancies on
the Board of Directors or on any of its committees, (iii) amend the Articles of
Incorporation, (iv) adopt, amend, or repeal these Bylaws, (v) approve a plan of
merger not requiring shareholder approval, (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares; provided, however,
that the Board of Directors may authorize a committee, or a senior executive
officer of the Corporation, to do so within limits specifically prescribed by
the Board of Directors.
12
3.3 Executive Committee. The Board of Directors may appoint an Executive
Committee consisting of not less than two directors which committee shall have
all of the authority of the Board of Directors except to the extent such
authority is limited by the provisions of Section 3.2.
3.4 Audit Committee. The Board of Directors shall appoint each year an
Audit Committee, all of whose members shall be independent directors (as defined
in Section 6.1) and which shall perform such duties as its members consider
necessary and desirable properly to evaluate and generally to supervise the
Corporation's accounting procedures including but not limited to the following:
1. Recommend independent public accountants for the Corporation to the
Board.
2. Determine that the scope of the audit is adequate and approve the
audit fee.
3. Review audit results with the Corporation's independent public
accountants.
4. Review and approve the retention of the outside auditors to perform
non-audit services and approve the fee therefor.
5. Recommend policy for the scope, frequency, and method of internal
audit reports and review the results thereof. Develop a direct line of
communication with internal auditors, if and when such are employed.
6. Review pending lawsuits.
7. Review insurance coverage.
The Audit Committee shall have complete access to the Corporation's
independent public accountants, internal auditors, if any, and inside and
outside general counsel.
3.5 Nominating and Structure Committee. The Board of Directors shall
appoint each year a Nominating and Structure Committee, which shall be composed
of at least three members of the Board, a majority of whom shall be independent
directors (as defined in Section 6.1). The functions of this Committee shall
include the following:
1. Review the performance and contributions of existing directors for the
purpose of recommending whether they be nominated for a successive
term.
13
2. Recommend policies with regard to the size, composition and function
of the Board.
3. Suggest persons to fill vacancies on the Board and maintain files on
names submitted.
4. Assist the Chairman of the Board in carrying out an orientation
program for new directors.
5. Review and recommend to the Board changes and improvements in the
functioning of the Board.
6. Review and recommend compensation levels for non-management directors.
3.6 Compensation and Personnel Committee. The Board of Directors shall
appoint each year a Compensation and Personnel Committee, which shall be
composed of at least three members of the Board, all of whom shall be
independent directors (as defined in Section 6.1), and which shall have the
following duties:
1. Review and recommend to the Board current management compensation
programs including salaries, bonuses and fringe benefits and the
creation of new officerships.
2. Review and report to the Board on the funding and adequacy of existing
retirement programs, and recommend new programs, if appropriate. (This
responsibility does not include investment policy and other
responsibilities of the Trustees of the Retirement Plan.)
3. Award and administer pursuant to existing authority, the Corporation's
stock incentive programs and review and recommend similar future
programs, if any.
4. Review top management organization, assist the CEO in determining that
the Corporation has adequate depth and breadth of management to carry
out its expansion programs and to provide for succession in the event
of retirement or the unanticipated departure of a key executive.
5. Review the Corporation's programs for attracting, developing and
compensating management personnel at lower and middle levels.
3.7 Committee Meetings; Miscellaneous. The provisions of these Bylaws which
govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
14
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall be a President, a
Secretary, a Chief Financial Officer, and, in the discretion of the Board of
Directors or the President, one or more Vice-Presidents and such other officers
as may be deemed necessary or advisable to carry on the business of the
Corporation. Any two or more offices may be held by the same person.
4.2 Election; Term. Officers shall be elected by the Board of Directors.
The President may, from time to time, appoint other officers. Officers elected
by the Board of Directors shall hold office, unless sooner removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Officers appointed by the President shall hold office, unless sooner
removed, until their successors are appointed. The action of the President in
appointing officers shall be reported to the next regular meeting of the Board
of Directors after it is taken. Any officer may resign at any time upon written
notice to the Board of Directors or the President and such resignation shall be
effective when notice is delivered unless the notice specifies a later effective
date.
4.3 Removal of Officers. The Board of Directors may remove any officer at
any time, with or without cause. The President may remove any officer he
appointed by the President at any time, with or without cause. Such action shall
be reported to the next regular meeting of the Board of Directors after it is
taken.
4.4 Duties of the President. The President shall be the Chief Executive
Officer of the Corporation and a member of the Board of Directors. The
President, in the absence of the Chairman of the Board and the Vice Chairman of
the Board, shall preside at all meetings of the Board of Directors and
shareholders, shall have power to call special meetings of the shareholders and
directors for any purpose; may hire, appoint and discharge employees and agents
of the Corporation and fix their compensation; may make and sign deeds,
mortgages, deeds of trust, notes, leases, powers of attorney, contracts and
agreements in the name and on behalf of the Corporation; shall have power to
carry into effect all directions of the Board of Directors; and shall have
general supervision of the business of the Corporation, except as may be limited
by the Board of Directors, the Articles of Incorporation, or these bylaws.
4.5 Duties of the Vice President. Such Vice Presidents, in the order
designated by the Board of Directors from time to time, shall exercise all of
the functions of the President during the absence or incapacity of the latter
and shall perform such other
15
duties as may be assigned to them by the Board of Directors or the President.
4.6 Duties of the Secretary. The Secretary shall be the ex-officio clerk of
the Board of Directors and shall give, or cause to be given, notices of all
meetings of shareholders and directors, and all other notices required by law or
by these Bylaws. The Secretary shall record the proceedings of the meetings of
the shareholders, Board of Directors and committees of the Board of Directors,
in books kept for that purpose and shall keep the seal of the Corporation and
attach it to all documents requiring such impression unless some other officer
is designated to do so by the Board of Directors. The Secretary shall also
perform such other duties as may be assigned by the Board of Directors or the
President.
4.7 Duties of the Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept full and accurate books of account, and may make
and sign deeds, mortgages, deeds of trust, notes, leases, contracts and
agreements in the name and on behalf of the Corporation. Whenever required by
the Board of Directors or the President, the Chief Financial Officer shall
render a financial statement showing all transactions of the Corporation and the
financial condition of the Corporation.
4.8 Duties of the Assistant Secretary. There may be one or more Assistant
Secretaries who shall exercise all of the functions of the Secretary during the
absence or incapacity of the latter and such other duties as may be assigned
from time to time by the Board of Directors or the President.
4.9 Duties of Other Officers. The other officers of the Corporation, which
may include Assistant Vice Presidents, a Treasurer, Assistant Treasurers, a
Controller or Assistant Controllers, shall have such authority and perform such
duties as shall be prescribed by the Board of Directors or by officers
authorized by the Board of Directors to appoint them to their respective
offices. To the extent that such duties are not so stated, such officers shall
have such authority and perform the duties which generally pertain to their
respective offices, subject to the control of the President or the Board of
Directors.
4.10 Voting Securities of Other Corporations. Unless otherwise provided by
the Board of Directors, each of the President or the Chief Financial Officer, in
the name and on behalf of the Corporation, may appoint from time to time himself
or herself or any other person (or persons) proxy, attorney or agent for the
Corporation to cast the votes which the Corporation may be entitled to cast as a
shareholder, member or otherwise in any other corporation, partnership or other
legal entity,
16
domestic or foreign, whose stock, interests or other securities are held by the
Corporation, or to consent in writing to any action by such other entity, or to
exercise any or all other powers of this Corporation as the holder of the stock,
interests or other securities of such other entity. Each of the President or the
Chief Financial Officer may instruct the person or persons so appointed as to
the manner of casting such votes or giving such consent and may execute or cause
to be executed on behalf of the Corporation and under its corporate seal such
written proxies, consents, waivers, or other instruments as may be deemed
necessary or proper. Each of the President or the Chief Financial Officer may
attend any meeting of the holders of stock, interests or other securities of any
such other entity and vote or exercise any or all other powers of this
Corporation as the holder of the stock, interest or other securities of such
other entity.
4.11 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or the Compensation and Personnel
Committee.
4.12 Bonds. The Board of Directors may require that any or all officers,
employees and agents of the Corporation give bond to the Corporation, with
sufficient sureties, conditioned upon the faithful performance of the duties of
their respective offices or positions.
ARTICLE V
EVIDENCE OF SHARES
5.1 Form. Shares of the Corporation shall, when fully paid, be evidenced by
certificates containing such information as is required by law and approved by
the Board of Directors. Alternatively, the Board of Directors may authorize the
issuance of some or all shares without certificates. In such event, within a
reasonable time after issuance, the Corporation shall mail to the shareholder a
written confirmation of its records with respect to such shares containing the
information required by law. When issued, certificates shall be signed by the
Chairman of the Board, the President or a Vice President designated by the Board
and the Secretary or an Assistant Secretary and may (but need not) be sealed
with the seal of the Corporation. The seal of the Corporation and any or all of
the signatures on a share certificate may be facsimile. If any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such individual were such officer, transfer agent or
registrar on the date of issue.
17
5.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of shares and/or certificates
representing the shares of the Corporation. Transfers of shares and/or of the
certificates representing such shares shall be made upon the books of the
Corporation by surrender of the certificates representing such shares, if any,
accompanied by written assignments given by the record owners thereof or their
attorneys-in-fact.
5.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of any
certificate representing the shares or has been otherwise communicated in
accordance with the requirements of law. Unless so noted or communicated, a
restriction is not enforceable against a person without knowledge of the
restriction.
5.4 Lost or Destroyed Share Certificates. The Corporation may issue a new
share certificate or a written confirmation of its records with respect to
shares in the place of any certificate theretofore issued which is alleged to
have been lost or destroyed and may require the owner of such certificate, or
such owner's legal representative, to give the Corporation a bond, with or
without surety, or such other agreement, undertaking or security as the Board of
Directors shall determine is appropriate, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
5.5 Registered Shareholders. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the owner thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person. The
Corporation shall not be liable for registering any transfer of shares which are
registered in the name of a fiduciary unless done with actual knowledge of facts
which would cause the Corporation's action in registering the transfer to amount
to bad faith.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Certain Definitions. As used in these Bylaws, the term "independent"
has the following meaning: A director is considered to be independent if the
individual (i) is not currently a member of management, (ii) has not been a
member of management for at least five years, (iii) is not employed on a
18
part time or consulting basis by the Company, (iv) has no direct, personal
transaction in excess of $60,000 with the Company and (v) is not an owner of
more than 10% of an entity engaged in transactions with the Company exceeding 5%
of the lesser of the entity's or the Company's revenues.
6.2 Corporate Seal. The corporate seal of the Corporation shall be circular
and shall have inscribed thereon, within and around the circumference, the name
of the Corporation. In the center shall be the word "SEAL".
6.3 Fiscal Year. The fiscal year of the Corporation shall begin on the
first day of March of each year and end on the last day of February in the next
succeeding year.
6.4 Amendments. The power to alter, amend or repeal the Bylaws or adopt new
bylaws shall be vested in the Board of Directors unless otherwise provided in
the Articles of Incorporation. Bylaws adopted by the Board of Directors may be
repealed or changed or new bylaws adopted by the shareholders, and the
shareholders may prescribe that any bylaw adopted by them may not be altered,
amended or repealed by the Board of Directors.
6.5 General. Any matters not specifically covered by these Bylaws shall be
governed by the applicable provisions of the Code of Virginia in force at the
time.
19
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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