UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Circuit City Stores Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
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Notice of Annual Meeting of Shareholders
TO THE HOLDERS OF CIRCUIT CITY STORES, INC.--CIRCUIT CITY GROUP COMMON STOCK
AND CIRCUIT CITY STORES, INC.--CARMAX GROUP COMMON STOCK:
The annual meeting of shareholders of Circuit City Stores, Inc. will be held
at The Jefferson Hotel, Franklin and Adams Streets, Richmond, Virginia, on
Tuesday, June 18, 2002, at 10:00 a.m., Eastern Daylight Time, for the following
purposes:
1. To elect four directors to three-year terms;
2. To consider and vote upon a shareholder proposal, if properly presented;
and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of shares of Circuit City Group Common Stock or
CarMax Group Common Stock at the close of business on April 24, 2002, will be
entitled to vote at the meeting and any adjournments thereof.
Whether or not you plan to attend the meeting, please fill in, date, sign
and return the enclosed proxy promptly in the return envelope provided. You are
cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ Michael T. Chalifoux
MICHAEL T. CHALIFOUX, Secretary
May 10, 2002
PROXY STATEMENT
This Proxy Statement, mailed to holders of Circuit City Group Common Stock
and CarMax Group Common Stock on or about May 10, 2002, is furnished in
connection with the solicitation by Circuit City Stores, Inc. of proxies in the
accompanying form for use at the annual meeting of shareholders to be held on
June 18, 2002, and at any adjournments thereof. A copy of the annual report of
the Company for the fiscal year ended February 28, 2002, is being mailed to you
with this Proxy Statement.
Record Date and Voting Rights
On April 24, 2002, the record date for determining shareholders entitled to
vote at the meeting, 209,183,650 shares of Circuit City Group Common Stock and
37,069,534 shares of CarMax Group Common Stock were outstanding and entitled to
vote. References to "Common Stock" in this Proxy Statement refer to the Circuit
City Group Common Stock and the CarMax Group Common Stock collectively. The
holders of both series of Common Stock will vote together as a single group at
the meeting. Each outstanding share of Circuit City Group Common Stock entitles
the holder thereof to one vote; each outstanding share of CarMax Group Common
Stock entitles the holder thereof to 1.359 votes; and the total number of votes
that shareholders may cast at the meeting, based on shares outstanding on the
record date, is 259,561,147. The voting rights of the CarMax Group Common Stock
have been determined from the recent market values of each series of the
Company's Common Stock in accordance with the formula set forth in the
Company's Articles of Incorporation.
Quorum
A majority of the total votes entitled to be cast on matters to be
considered at the meeting constitutes a quorum. If a share is represented for
any purpose at the meeting, it is deemed to be present for quorum purposes and
for all other matters as well. Abstentions and shares held of record by a
broker or its nominee ("Broker Shares") that are voted on any matter are
included in determining the number of votes present or represented at the
meeting. Broker Shares that are not voted on any matter at the meeting will not
be included in determining whether a quorum is present at such meeting.
Votes Required for Approval
Directors will be elected by a plurality of the votes cast. Votes that are
withheld and Broker Shares that are not voted in the election of directors will
not be included in determining the number of votes cast and, therefore, will
have no effect on the election of directors. Actions on all other matters to
come before the meeting, including the shareholder proposal, require that the
votes cast in favor of the action exceed the votes cast against it. Abstentions
and Broker Shares that are not voted are not considered cast either for or
against a matter and, therefore, will have no effect on the outcome.
Voting of Shares Held in Employee Stock Purchase Plans
Participants in the 1984 Circuit City Stores, Inc. Employee Stock Purchase
Plan will receive a request for voting instructions for the shares of Circuit
City Group Common Stock held on each participant's behalf by Computershare
Trust Co., Inc., as service provider for the Plan. Participants in the 1997
Employee Stock Purchase Plan for CarMax Group Employees also will receive a
request for voting instructions for the shares of CarMax Group Common Stock
held on each participant's behalf by Computershare, as service provider for the
Plan. Voting instructions should be returned, properly executed, in the
envelope provided. Computershare will vote in accordance with the participants'
instructions. If a participant does not return his or her voting instructions,
Computershare will have discretionary power to vote such shares in accordance
with recommendations of the Board and in accordance with New York Stock
Exchange rules.
1
Solicitation of Proxies
In addition to the solicitation of proxies by mail, the Company's officers
and regular employees, without compensation other than regular compensation,
may solicit proxies by telephone, electronic means and personal interview. The
Company also has retained Morrow & Co., Inc. of New York, New York, at an
approximate cost of $7,500 plus out-of-pocket expenses, to assist in the
solicitation of proxies of shareholders whose shares are held in street name by
brokers, banks and other institutions. The Company will bear the cost of all
solicitation.
Voting Proxies
You may vote your proxy by marking, signing and dating your proxy card and
returning it in the enclosed postage-paid envelope. A proxy, if executed and
not revoked, will be voted FOR the election of the nominees for director named
in this proxy statement and AGAINST the shareholder proposal set forth in this
proxy statement, unless it contains specific instructions to the contrary, in
which event it will be voted in accordance with those instructions. If your
shares are held in "street name" by your broker, do not follow the above
instructions. Instead, follow the separate instructions provided by your broker.
Revocation of Proxies
If you are a shareholder of record, you may revoke your proxy or change your
vote at any time before it is voted at the annual meeting by:
. completing and mailing to us another proxy card dated later than your
last proxy;
. submitting a written revocation to the Secretary of Circuit City Stores,
Inc. at 9950 Mayland Drive, Richmond, Virginia 23233; or
. appearing in person and voting at the annual meeting.
If your shares are held in "street name" by your broker, you may revoke your
proxy or change your vote only by following the separate instructions provided
by your broker.
To vote in person at the annual meeting, shareholders of record must attend
the meeting and cast their votes in accordance with the voting provisions
established for the annual meeting. Attendance at the annual meeting without
voting in accordance with the voting procedures will not in and of itself
revoke a proxy. If your broker holds your shares and you want to attend and
vote your shares at the annual meeting, please take to the annual meeting a
letter from your broker identifying you as the beneficial owner of the shares
and authorizing you to vote.
2
ITEM ONE--ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes with
staggered three-year terms. Michael T. Chalifoux and John W. Snow, whose terms
as directors of the Company will expire at the 2002 Annual Meeting, have been
nominated for reelection to the Board. Carolyn H. Byrd and Paula G. Rosput, who
were appointed by the Board after the 2001 Annual Meeting to serve until the
2002 Annual Meeting, also have been nominated for election to the Board.
Richard L. Sharp, after nineteen years of dedicated service, eight of those as
Chairman, has declined to stand for reelection. The Board plans to elect Mr.
McCollough as Chairman at the June 2002 Board meeting.
On February 22, 2002, the Company announced that the Board of Directors had
authorized management to initiate a process that would separate the CarMax auto
superstore business from the Circuit City consumer electronics business through
a tax-free transaction in which CarMax, Inc., presently a wholly owned
subsidiary of Circuit City Stores, Inc., would become an independent,
separately traded public company. Hugh G. Robinson and John W. Snow have been
nominated to serve as directors of CarMax, Inc. if the proposed separation
occurs. At the time of the separation, these directors would resign from the
Company's Board of Directors. The Company's Bylaws allow the Board to appoint
new directors to fill any vacancies. Any new directors so appointed would serve
for a term ending on the date of the 2003 Annual Meeting. In addition, Mr.
Sharp has been nominated to serve as Chairman of the Board of CarMax, Inc. if
the proposed separation occurs.
Although all nominees have indicated their willingness to serve if elected,
if at the time of the annual meeting any nominee is unable to or unwilling to
serve as a director of the Company, shares represented by properly executed
proxies will be voted at the discretion of the persons named in those proxies
for such other person as the Board may designate.
Information about the nominees for election as directors and the other
directors of the Company whose terms of office do not expire this year appears
below.
Nominees for Election to Three-Year Terms
[PHOTO] CAROLYN H. BYRD, 53, Chairman and Chief Executive Officer of
GlobalTech Financial, LLC, a financial services company, since
May 2000. She was President of Coca-Cola Financial Corporation
from 1997 to May 2000. She is a director of Rare Hospitality
International, Inc.; AFC Enterprises, Inc.; and the St. Paul
Companies, Inc. She has been a director of the Company since 2001.
[PHOTO] MICHAEL T. CHALIFOUX, 55, Executive Vice President, Chief
Financial Officer and Secretary of the Company since 1998, Senior
Vice President and Chief Financial Officer from 1990 until 1998.
Mr. Chalifoux joined the Company in 1983 as Corporate Controller.
He has been a director of the Company since 1991.
3
[PHOTO]
PAULA G. ROSPUT, 45, Chairman, President and Chief Executive
Officer of AGL Resources, Inc., an energy resource company, since
February 2002, President and Chief Executive Officer since August
2000. She was President and Chief Operating Officer of Atlanta
Gas Light Company from 1998 to August 2000. She is a director of
Air Products and Chemicals, Inc. and The Coca-Cola Enterprises,
Inc. She has been a director of the Company since 2001.
[PHOTO]
JOHN W. SNOW, 62, Chairman, President and Chief Executive
Officer, CSX Corporation, a transportation company, since 1991.
He is a director of Johnson & Johnson, Verizon Communications
Inc. and US Steel Corporation. He has been a director of the
Company since 1996.
Directors Whose Terms Do Not Expire This Year
[PHOTO]
RICHARD N. COOPER, 67, Professor of Economics at Harvard
University since 1981. He is a director of The Phoenix Companies,
Inc. and the CNA Corporation. He has been a director of the
Company since 1983. His present term will expire in 2004.
[PHOTO]
BARBARA S. FEIGIN, 64, a consultant specializing in strategic
marketing and branding since February 1999. She served as
Executive Vice President, Worldwide Director of Strategic
Services and member of the Agency Policy Council of Grey
Advertising, Inc., the principal business of which is advertising
and marketing communications, from 1983 until February 1999. She
is a director of VF Corporation. She has been a director of the
Company since 1994. Her present term will expire in 2003.
[PHOTO]
JAMES F. HARDYMON, 67, retired as Chairman of Textron, Inc. in
January 1999. Mr. Hardymon joined Textron, Inc., a global,
multi-industry company with core businesses of aircraft,
automotive, industrial and finance, in 1989 as President and
Chief Operating Officer. He became Chief Executive Officer in
1992 and assumed the title of Chairman in 1993. He is a director
of Air Products and Chemicals, Inc.; Championship Auto Racing
Teams, Inc.; Lexmark International, Inc.; American Standard
Companies, Inc.; and Schneider Electric, S.A. He has been a
director of the Company since 1998. His present term will expire
in 2004.
4
[PHOTO]
ROBERT S. JEPSON, JR., 59, Chairman and Chief Executive Officer
of Jepson Associates, Inc., a private investment company, and
Chairman of the Board and Chief Executive Officer of Jepson
Vineyards, Ltd. Until 1999, Mr. Jepson also served as Chairman of
the Board and Chief Executive Officer of Kuhlman Corporation. He
is a director of AGL Resources, Inc. and Critz, Inc. He has been
a director of the Company since 1997. His present term will
expire in 2003.
[PHOTO]
W. ALAN MCCOLLOUGH, 52, President and Chief Executive Officer of
the Company. Mr. McCollough joined the Company in 1987 as General
Manager of Corporate Operations. He was elected Assistant Vice
President in 1989, Vice President and Central Division President
in 1991, Senior Vice President--Merchandising in 1994, President
and Chief Operating Officer in 1997 and Chief Executive Officer,
effective June 2000. He has been a director of the Company since
December 1999. His present term will expire in 2003.
[PHOTO]
HUGH G. ROBINSON, 69, Chairman and Chief Executive Officer, The
Tetra Group, a consulting firm that provides construction
management and business development services, since 1989. Mr.
Robinson is a retired Major General from the United States Army.
He is a director of A.H. Belo Corporation, TXU Electric Company
and Imco Recycling, Inc. He has been a director of the Company
since 1995. His present term will expire in 2004.
[PHOTO]
MIKAEL SALOVAARA, 48, Partner, Greycliff Partners, the principal
business of which is merchant banking, since 1991. Mr. Salovaara
was a Limited Partner of The Blackstone Group L.P. from 1994 to
1996. He has been a director of the Company since 1995. His
present term will expire in 2003.
[PHOTO]
CAROLYN Y. WOO, 48, Dean of the Mendoza College of Business,
University of Notre Dame, since 1997. From 1995 to 1997, Ms. Woo
served as Associate Executive Vice President of Academic Affairs
at Purdue University. She is a director of AON Corporation and
NISource, Inc. She has been a director of the Company since 2001.
Her present term will expire in 2004.
5
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth beneficial ownership information as of March
18, 2002, for the Circuit City Group Common Stock and the CarMax Group Common
Stock owned by:
. the Company's Chief Executive Officer and four other most highly
compensated officers,
. each director and nominee for director of the Company,
. directors and executive officers of the Company as a group, and
. each person who is known by the Company to beneficially own more than 5
percent of the outstanding shares of Circuit City Group Common Stock or
CarMax Group Common Stock.
Unless otherwise noted, each shareholder has sole voting power and sole
investment power with respect to securities shown in the table below.
CarMax
Circuit City Group
Group Option Shares of
Option Shares of Shares CarMax
Shares Circuit City Which Group
Which May Group May Be Common
be Common Acquired Stock
Acquired Stock Within 60 Beneficially
Within 60 Beneficially Days Owned as
Days After Owned as of Percent After of Percent
March 18, March 18, of March 18, March 18, of
Name 2002 2002 (1) Series 2002 2002 (2) Series
---- ------------ ------------ ------- --------- ------------ -------
Named Executive Officers
W. Alan McCollough**............................. 845,000 1,009,377(3) * 0 0 *
John W. Froman................................... 147,500 263,433(3)(4) * 0 0 *
Michael T. Chalifoux**........................... 447,500 670,683(3) * 0 0 *
Dennis J. Bowman................................. 157,750 179,289(3) * 0 0 *
W. Austin Ligon.................................. 0 26,388(5) * 128,750 1,363,250(6) 3.7%
Directors/Director Nominees
Carolyn H. Byrd.................................. 0 503 * 0 60 *
Richard N. Cooper................................ 11,902 67,656 * 871 962 *
Barbara S. Feigin................................ 12,774 20,227 * 871 871 *
James F. Hardymon................................ 844 6,316 * 0 600 *
Robert S. Jepson, Jr............................. 8,034 39,042 * 895 986 *
Hugh G. Robinson................................. 12,036 13,147 * 871 962 *
Paula G. Rosput.................................. 0 342 * 0 60 *
Mikael Salovaara................................. 7,836 88,309(7) * 871 24,062(8) *
Richard L. Sharp................................. 1,450,000 1,753,737 * 0 0 *
John W. Snow..................................... 11,902 18,510 * 871 962 *
Carolyn Y. Woo................................... 0 594 * 0 66 *
All directors and executive
officers as a group (23 persons)................ 3,665,328 4,881,272(3)(9) 2.3% 134,000 1,392,841(10) 3.8%
Beneficial Owners of More Than 5%
Wellington Management Company, LLP............... N/A 17,814,108(11) 8.5% N/A N/A N/A
75 State Street
Boston, MA 02109
Capital Research and Management Company.......... N/A 20,465,000(12) 9.8% N/A 1,825,000(13) 4.9%
333 South Hope Street
Los Angeles, CA 90071
Ronald Juvonen................................... N/A N/A N/A N/A 3,431,800(14) 9.3%
c/o Downtown Associates, LLC
674 Unionville Road, Suite 105
Kennett Square, PA 19348
Orbis Holdings Limited........................... N/A N/A N/A N/A 2,530,393(15) 6.8%
34 Bermudiana Road
Hamilton HM11 Bermuda
FMR Corporation.................................. N/A N/A N/A N/A 2,098,010(16) 5.7%
82 Devonshire Street
Boston, MA 02109
Stephen F. Mandel, Jr............................ N/A N/A N/A N/A 1,928,500(17) 5.2%
Two Greenwich Plaza
Greenwich, CT 06830
6
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* Less than 1 percent of class, based on the total number of shares of
Circuit City Group Common Stock and CarMax Group Common Stock outstanding
on March 18, 2002.
** Messrs. McCollough and Chalifoux also are directors of the Company.
(1) Includes shares of Circuit City Group Common Stock that could be acquired
through the exercise of stock options within 60 days after March 18, 2002.
(2) Includes shares of CarMax Group Common Stock that could be acquired through
the exercise of stock options within 60 days after March 18, 2002.
(3) Includes restricted shares of Circuit City Group Common Stock as follows:
Mr. McCollough 25,250; Mr. Froman 55,690; Mr. Chalifoux 20,250; Mr. Bowman
9,355; and 71,332 awarded to other executive officers. See Summary
Compensation Table on page 11.
(4) Includes 5,500 shares of Circuit City Group Common Stock held by Mr.
Froman's wife.
(5) Includes 15,000 shares of Circuit City Group Common Stock held by Mr.
Ligon's wife. Mr. Ligon disclaims beneficial ownership of these shares.
(6) Includes 50,700 shares of CarMax Group Common Stock held by Mr. Ligon's
children. Mr. Ligon disclaims beneficial ownership of these shares.
(7) Includes 34,465 shares of Circuit City Group Common Stock held by Trewstar
LLC. Mr. Salvovaara disclaims beneficial ownership of these shares.
(8) Includes 23,100 shares of CarMax Group Common Stock held by Trewstar LLC.
Mr. Salvovaara disclaims beneficial ownership of these shares.
(9) Beneficial ownership is disclaimed for a total of 40,365 shares.
(10) Beneficial ownership is disclaimed for a total of 88,800 shares.
(11) Information concerning the Circuit City Group Common Stock beneficially
owned by Wellington Management Company, LLP ("Wellington") as of December
31, 2001, was obtained from a schedule 13G dated February 12, 2002. The
filing indicates that of the 17,814,108 shares beneficially owned,
Wellington has shared voting power for 10,957,830 shares and shared
dispositive power for 17,814,108 shares. The filing indicates that
Wellington is a parent holding company and may be deemed to beneficially
own the 17,814,108 shares in its capacity as a registered investment
adviser.
(12) Information concerning the Circuit City Group Common Stock beneficially
owned as of December 31, 2001, by Capital Research and Management Company
was obtained from a Schedule 13G/A dated February 11, 2002. According to
this filing, Capital Research and Management Company, an investment
adviser registered under the Investment Advisers Act of 1940, has sole
dispositive power for 20,465,000 shares, has no voting power for these
shares and disclaims beneficial ownership of any shares.
(13) Information concerning the CarMax Group Common Stock beneficially owned as
of December 31, 2001, by Capital Research and Management Company was
obtained from a Schedule 13G/A dated February 11, 2002. According to this
filing, Capital Research and Management Company, an investment adviser
registered under the Investment Advisers Act of 1940, has sole dispositive
power for 1,825,000 shares, has no voting power for these shares and
disclaims beneficial ownership of any shares.
7
(14) Information concerning the CarMax Group Common Stock beneficially owned by
Ronald Juvonen as of December 31, 2001, was obtained from a Schedule 13G/A
dated February 8, 2002. According to this filing, the shares are held by
Downtown Associates I, L.P.; Downtown Associates II, L.P.; Downtown
Associates III, L.P.; Downtown Associates IV, L.P. and Downtown
Foundations, L.P. (collectively, the "Downtown Funds") and Ronald Juvonen
individually. The general partner of the Downtown Funds is Downtown
Associates, L.L.C. Ronald Juvonen, as the managing member of the general
partner, has sole voting power and sole dispositive power with respect to
the shares.
(15) Information concerning the CarMax Group Common Stock beneficially owned by
Orbis Holdings Limited, a parent holding company ("Orbis Holdings"), as of
December 31, 2001, was obtained from a Schedule 13G/A dated February 14,
2002, filed by: Orbis Holdings, Orbis Asset Management Limited ("Orbis
Asset") and Orbis Investment Management Limited ("Orbis Investment"), an
investment adviser. According to this filing of the 2,530,393 shares
beneficially owned: Orbis Holdings has shared voting and dispositive power
for all of the shares, but disclaims beneficial ownership of these shares,
Orbis Investment has shared voting and dispositive power for 2,350,000
shares but disclaims beneficial ownership of these shares and Orbis Asset
has shared voting and dispositive power for 180,393 shares, but disclaims
beneficial ownership of these shares. The filing indicates that Orbis
Holdings, Orbis Investment and Orbis Asset may be deemed to constitute a
"group" for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended.
(16) Information concerning the CarMax Group Common Stock beneficially owned by
FMR Corp. ("FMR") as of December 31, 2001, was obtained from a Schedule
13G dated February 14, 2002. According to the Schedule 13G, FMR Corp. is a
parent holding company and certain members of the family of Edward C.
Johnson 3/rd/ may be deemed members of a group that controls FMR. The
Schedule 13G indicates that of the 2,098,010 shares beneficially owned:
(i) 1,398,400 shares are beneficially owned by Fidelity Management &
Research Company, a wholly owned subsidiary of FMR and a registered
investment adviser ("Fidelity Research"); (ii) 480,510 shares are
beneficially owned by Fidelity Management Trust Company, a wholly owned
subsidiary of FMR Corp. and a bank which serves as investment manager for
certain institutional accounts ("Fidelity Trust"); and (iii) 219,100
shares are beneficially owned by Fidelity International Limited ("Fidelity
International"), a foreign-based subsidiary and investment adviser for
certain institutional investors. FMR and Mr. Johnson have sole power to
dispose of the shares beneficially owned by Fidelity Research and Fidelity
Trust and sole power to vote the shares beneficially owned by Fidelity
Trust. However, the trustees of the mutual funds managed by Fidelity
Research have sole power to vote the shares that are beneficially owned by
Fidelity Research. FMR and Fidelity International believe that they are
not acting as a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, and therefore believe that they are not
otherwise required to attribute to each other the "beneficial ownership"
of the securities "beneficially owned" by the other corporation within the
meaning of Rule 13d-3 of the Exchange Act.
(17) Information concerning the CarMax Group Common Stock beneficially owned by
Stephen F. Mandel, Jr. as of March 18, 2002, was obtained from a Schedule
13G filed March 27, 2002. According to the Schedule 13G, Mr. Mandel, Jr.,
as the managing member of the general partner of certain limited
partnerships that own CarMax Group Common Stock and as managing member of
an entity whose client owns CarMax Group Common Stock, shares power to
vote or dispose of shares directly owned as follows: (i) 69,426 shares
owned by Lone Spruce, L.P.; (ii) 152,352 shares owned by Lone Balsam,
L.P.; (iii) 127,281 shares owned by Lone Sequoia, L.P.; and (iv) 1,579,441
shares owned by Lone Pine Capital LLC. Each of Lone Spruce, Lone Balsam,
Lone Sequoia and Lone Pine Capital has shared voting and shared
dispositive power for the shares they hold.
8
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held eight meetings during the fiscal year ended
February 28, 2002. No director attended less than 75 percent of the aggregate
number of meetings of the Board and the committees on which he or she served,
except for Paula G. Rosput who joined the Board in December with the
understanding she would be unable to attend the February Board meeting because
of a prior conflict.
The Audit Committee is composed of Mikael Salovaara, Chairman; Carolyn H.
Byrd; Richard N. Cooper; Barbara S. Feigin; and Hugh G. Robinson. The Board of
Directors, in its business judgment, has determined that all members of the
Audit Committee are "independent," as defined in the applicable listing
standards of the New York Stock Exchange. Five meetings were held during the
fiscal year ended February 28, 2002. The Audit Committee reviews and recommends
to the Board the independent auditors to be selected to audit the Company's
financial statements. It also reviews the scope of the proposed audits and
audit procedures to be employed, the independence of the auditors and the
effectiveness of the Company's system of internal controls, as well as the
Company's internal audit function. When the audit is complete, the Audit
Committee reviews it with management and separately with the auditors. The
Report of the Audit Committee is included in this Proxy Statement on page 10.
The Compensation and Personnel Committee is composed of Robert S. Jepson,
Jr., Chairman; James F. Hardymon; Paula G. Rosput; and John W. Snow. Five
meetings were held during the fiscal year ended February 28, 2002. The
functions of this Committee include reviewing, evaluating and approving the
amount, design and implementation of compensation programs for officers and key
personnel, making awards under and administering the Company's stock incentive
programs, reviewing and making recommendations with respect to senior
management organization and reviewing the Company's programs for attracting and
compensating management personnel at lower and middle levels. The Report of the
Compensation and Personnel Committee is included in this Proxy Statement on
page 13.
The Pension Committee is composed of Richard N. Cooper, Chairman; Carolyn H.
Byrd; Barbara S. Feigin; Paula G. Rosput; Mikael Salovaara; and Carolyn Y. Woo.
One meeting was held during the fiscal year ended February 28, 2002. The
functions of this Committee are to provide oversight of investment allocations
and fund managers for the Employee Retirement Plan of Circuit City Stores, Inc.
and to receive and review on behalf of the Board periodic reports concerning
the funding status and investment performance of the Retirement Plan from the
management employees of the Company with responsibility for such matters.
The Nominating and Governance Committee is composed of John W. Snow,
Chairman; James F. Hardymon; Robert S. Jepson, Jr.; Hugh G. Robinson; and
Carolyn Y. Woo. Five meetings were held during the fiscal year ended February
28, 2002. The functions of this Committee include reviewing significant
corporate governance issues and recommending changes to the Board as
appropriate, recommending candidates for election as directors and reviewing
and recommending policies with regard to the size and composition of the Board.
The Committee for the Board considers nominees recommended by the Company's
shareholders.
The Company's Board of Directors embraces the principle that diversity in
all respects both strengthens its membership and increases its effectiveness.
The Board strives to select for its membership highly qualified individuals who
are dedicated to advancing the interests of the Company's shareholders. When
vacancies on the Board occur, the Nominating and Governance Committee seeks
individuals who, based on their background and qualifications, can promote this
goal in conjunction with the other members of the Board. The Committee actively
seeks nominees who will bring diverse talents, experiences and perspectives to
the Board's deliberations.
The Board is actively involved in the Company's strategic planning process.
For information concerning the Company's strategic planning process, including
the Board's involvement in the process, please visit the Investor Information
section of the Company's website at www.CircuitCity.com.
9
In accordance with the Company's Bylaws, a shareholder who is interested in
nominating a person to the Board should submit to the Secretary of the Company
written notice of his or her intent to make such nomination. Such notice must
be given either by personal delivery or by United States mail, postage prepaid,
not later than 120 days in advance of the annual meeting, or with respect to a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders. The contents of such notice must be as
specified in the Company's Bylaws, a copy of which may be obtained by any
shareholder who directs a written request for the same to the Secretary of the
Company.
Report of the Audit Committee
The Audit Committee acts under a written charter adopted by the Board of
Directors. The charter is included in this proxy statement as Appendix A. The
Committee's primary function is to assist the Board of Directors in its
oversight of the Company's financial reporting process. Management is
responsible for the preparation, presentation and integrity of the Company's
financial statements; accounting and financial reporting principles; internal
controls; and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The independent auditors, KPMG
LLP, are responsible for performing an independent audit of the consolidated
financial statements in accordance with auditing standards generally accepted
in the United States of America.
During fiscal year 2002, the Committee met with management, the internal
auditors and the independent auditors. Periodically throughout the year, the
Committee had separate private sessions with the independent auditors and the
internal auditors to discuss financial management, accounting and internal
control issues.
In performing its oversight role, the Audit Committee has reviewed and
discussed both the quality and acceptability of the audited financial
statements with management and the independent auditors. The Audit Committee
has also discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, and has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. The Audit Committee has
considered whether the provision of non-audit services (none of which related
to financial information systems design and implementation) by the independent
auditors is compatible with maintaining the auditors' independence and has
discussed with the auditors the auditors' independence. Based on the review and
discussions described in this Report, and subject to the limitations on its
role and responsibilities described below and in its charter, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2002.
In performing all of these functions, the Audit Committee acts only in an
oversight capacity. The Committee does not complete its reviews before the
Company's public announcements of financial results and, necessarily, in its
oversight role, the Committee relies on the work and assurances of the
Company's management, which has the primary responsibility for financial
statements and reports, and of the independent auditors who, in their report,
express an opinion on the conformity of the Company's annual financial
statements with accounting principles generally accepted in the United States
of America.
AUDIT COMMITTEE
Mikael Salovaara, Chairman
Carolyn H. Byrd
Richard N. Cooper
Barbara S. Feigin
Hugh G. Robinson
10
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
Summary Compensation Table. The table below sets forth for the three years
ended February 28, 2002, the annual and long-term compensation for services in
all capacities to the Company and its subsidiaries of those persons who served
as the Company's Chief Executive Officer during fiscal 2002 and the other four
most highly compensated executive officers of the Company other than the CEO
(the Named Executive Officers) at February 28, 2002. The only stock
appreciation rights (SARs) granted were Change of Control SARs (described on
page 18), which were granted in connection with each of the options. No
free-standing SARs have been granted. On June 15, 1999, the Board of Directors
declared a two-for-one stock split of the outstanding Circuit City Group Common
Stock. All shares and price per share information reflect this split.
Annual Long-Term
Compensation Compensation Awards
------------------ --------------------------------
Restricted Securities
Fiscal Stock Underlying
Name and Principal Position Year Salary $ Bonus $ Awards $ (1) Options/SARs # (2)
--------------------------- ------ -------- --------- ------------ ------------------
W. Alan McCollough...................... 2002 950,000 1,045,000 0 500,000
President and 2001 928,469 285,000 0 2,000,000
Chief Executive Officer 2000 712,219 815,625 0 0
John W. Froman.......................... 2002 625,000 360,000 0 250,000
Executive Vice President 2001 635,296 0 1,761,000(3) 100,000
Chief Operating Officer 2000 445,380 515,000 0 0
Michael T. Chalifoux.................... 2002 625,000 363,000 0 250,000
Executive Vice President, 2001 636,358 0 0 100,000
Chief Financial Officer and Secretary 2000 608,273 544,500 0 0
Dennis J. Bowman........................ 2002 475,000 180,000 0 125,000
Senior Vice President 2001 462,685 0 0 50,000
Chief Information Officer 2000 330,865 240,000 0 40,000
W. Austin Ligon......................... 2002 603,653 562,500 0 175,000
Senior Vice President 2001 545,488 412,500 0 70,000
Automotive 2000 489,615 371,250 0 100,000
--------
(1) In fiscal 1998, Mr. McCollough was awarded 101,000 shares of restricted
stock, Mr. Froman was awarded 51,880 shares of restricted stock, Mr.
Chalifoux was awarded 81,000 shares of restricted stock, and Mr. Bowman was
awarded 37,422 shares of restricted stock. The stock will vest at the end
of seven years with provisions for accelerated vesting based upon
performance. Performance criteria are based on a total return on Circuit
City Group Common Stock compared with a peer group consisting of publicly
traded consumer electronics companies. Based on the Company's comparative
performance, 25 percent of the awards vested in each of the fiscal years
1999, 2000 and 2002. Based on the Company's comparative performance, the
maximum the awards may vest in any one year is 40 percent of the original
grant. Dividends are paid on restricted stock during the restricted period.
The number and value of each executive officer's restricted stock holdings
at the end of the fiscal year ended February 28, 2002, based on a closing
price on that day for the Circuit City Group Common Stock of $17.88 was as
follows: Mr. McCollough 25,250 shares with a total value of $451,470; Mr.
Froman 55,690 shares with a total value of $995,737; Mr. Chalifoux 20,250
shares each with a total value of $362,070; and Mr. Bowman 9,355 shares
with a total value of $167,267.
(2) All long-term compensation awards are Circuit City Group Common Stock
awards, except for those granted to Mr. Ligon, which are CarMax Group
Common Stock awards.
(3) Mr. Froman was awarded 50,000 shares of restricted stock when he was
promoted to Executive Vice President--Merchandising. The amount in the
above table is based on the closing price for the Circuit City Group Common
Stock, which was $35.22, on the date of the award.
11
Option Grants in Last Fiscal Year. The table below sets forth for the
fiscal year ended February 28, 2002, the grants of Circuit City Group Common
Stock options and CarMax Group Common Stock options to the Named Executive
Officers. No SARs were granted in connection with these options.
Number of Potential Realizable Value at
Securities Assumed Annual Rates of
Underlying % of Total Stock Price Appreciation
Options/ Options/SARs for Option Term
SARs Granted to Exercise Expiration -----------------------------
Granted (1) Employees Price (2) Date 5% 10%
----------- ------------ --------- ---------- ---------- ----------
W. Alan McCollough.. 500,000 11.34% $12.45 4/10/2009 $2,898,287 $7,011,661
John W. Froman...... 250,000 5.67% $12.45 4/10/2009 $1,449,144 $3,505,830
Michael T. Chalifoux 250,000 5.67% $12.45 4/10/2009 $1,449,144 $3,505,830
Dennis J. Bowman.... 125,000 2.84% $12.45 4/10/2009 $ 724,572 $1,752,915
W. Austin Ligon..... 175,000 10.61% $ 4.89 3/01/2008 $ 345,558 $ 807,624
--------
(1) The shares underlying options consist of Circuit City Group Common Stock,
except for the shares underlying Mr. Ligon's options, which consist of
CarMax Group Common Stock.
(2) The exercise price for all of the options is the fair market value of the
Circuit City Group Common Stock or CarMax Group Common Stock on the date of
grant.
Aggregated Options/SAR Exercises and Fiscal Year-End Option/SAR Value
Table. The following table sets forth information concerning Circuit City
Group Common Stock and CarMax Group Common Stock option exercises and fiscal
year-end option/SAR values as of February 28, 2002, for the executive officers
named in the Summary Compensation Table. The only SARs outstanding were Change
of Control SARs (described on page 18).
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Number of February 28, 2002 (1) February 28, 2002
Shares Acquired Value ------------------------- -------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- -------- ----------- ------------- ----------- -------------
W. Alan McCollough.. 0 $ 0 696,000 2,072,000 $ 472,080 $2,854,560
John W. Froman...... 5,500 $13,778 77,500 352,500 $ 0 $1,320,000
Michael T. Chalifoux 0 $ 0 421,000 397,000 $1,065,840 $1,534,560
Dennis J. Bowman.... 0 $ 0 120,500 188,500 $ 101,640 $ 660,000
W. Austin Ligon..... 0 $ 0 67,500 277,500 $1,472,375 $6,172,875
--------
(1) The shares underlying options consist of Circuit City Group Common Stock,
except for the shares underlying Mr. Ligon's options, which consist of
CarMax Group Common Stock.
12
Pension Plan/Benefit Restoration Plan. The following table illustrates
estimated annual retirement benefits payable under the Company's defined
benefit pension plan (the "Pension Plan") to persons in specified compensation
and years of service classifications calculated as a straight life annuity with
no Social Security or other offsets.
Estimated* Annual Pension for Representative Years of Credited Service
Highest Consecutive Five-Year ----------------------------------------------------------------------
Average Compensation 15 20 25 30 35
----------------- ------- ------- ------- --------- ---------
$ 900,000.......... 198,654 264,872 331,090 397,308 463,526
$1,100,000.......... 243,654 324,872 406,090 487,308 568,526
$1,300,000.......... 288,654 384,872 481,090 577,308 673,526
$1,500,000.......... 333,654 444,872 556,090 667,308 778,526
$1,700,000.......... 378,654 504,872 631,090 757,308 883,526
$1,900,000.......... 423,654 564,872 706,090 847,308 988,526
$2,100,000.......... 468,654 624,872 781,090 937,308 1,093,526
$2,300,000.......... 513,654 684,872 856,090 1,027,308 1,198,526
$2,500,000.......... 558,654 744,872 931,090 1,117,308 1,303,526
--------
* For 2002, the Internal Revenue Code limit on the annual retirement benefits
that may be paid from the Pension Plan was $160,000 and the limit on the
amount of compensation that may be recognized by the Pension Plan was
$200,000. The maximum benefit payable under the Benefit Restoration Plan is
$400,000 in 2002. The benefits shown on this table have not been limited by
these caps.
The Pension Plan covers employees who satisfy certain age and service
requirements. Benefits are based on a designated percentage of the average of
compensation for the five highest of the last 10 consecutive years of
employment, weighted according to years of credited service, and integrated
with Social Security covered compensation. For Pension Plan purposes,
compensation of participants includes base pay, bonuses, overtime and
commissions and excludes amounts realized under any employee stock purchase
plan or stock incentive plan. For Pension Plan purposes, compensation for those
individuals listed in the Summary Compensation Table is substantially the same
as the amounts listed under the Salary and Bonus headings.
For purposes of the Pension Plan, credited years of past and future service
will be 28 years for Mr. McCollough; 33, for Mr. Froman; 29, for Mr. Chalifoux;
23, for Mr. Bowman; and 25, for Mr. Ligon at age 65.
Report of Compensation and Personnel Committee
Compensation Philosophy
The Compensation and Personnel Committee, which is composed entirely of
outside independent directors, reviews, evaluates and approves the amount,
design and implementation of the Company's compensation system for executive
officers. The Committee believes that corporate performance and, in turn,
shareholder value will be best enhanced by a compensation system that supports
and reinforces the Company's key operating and strategic goals while aligning
the financial interests of the Company's executive officers with those of the
shareholders. The Company utilizes both short-term and long-term incentive
compensation programs to achieve these objectives. Executive officer incentive
compensation programs generally are tied to Company-wide achievement of annual
financial goals and the market value of the Company's stock. The Committee
believes that the use of Company-wide performance in setting goals promotes a
unified vision for senior management and creates common motivation among the
executives. Incentives may relate to performance of the Circuit City Group, the
CarMax Group or both, depending on the responsibilities of the executives.
For the Company's 2002 fiscal year, the Committee made its compensation
decisions based on the Company's 2002 fiscal year performance. The Company is
subject to Internal Revenue Code provisions that may limit the income tax
deductibility of certain forms of compensation paid to the executive officers
named in the Summary Compensation Table that precedes this report. These
provisions allow full deductibility of certain types
13
of performance-based compensation. The Company's compensation practices, to the
extent practicable, provide deductibility for compensation payments. Payments
under the Annual Performance-Based Bonus Plan and awards under the Stock
Incentive Plans qualify for deductibility under these provisions of the
Internal Revenue Code.
Components of the Executive Compensation Program
The Company's compensation program for executive officers consists generally
of three components: base salary, an annual performance-based cash bonus and
long-term stock incentives. In making compensation decisions for officers other
than the Chief Executive Officer, the Committee considers the recommendations
of the Chief Executive Officer, which may include a comparison of the
compensation of the Company's executive officers with compensation of officers
at certain other retail companies as well as other companies with which it
competes for executive talent. During the 2002 fiscal year, the Committee also
utilized the services of a compensation consultant to assist with certain
aspects of its evaluation. The Committee periodically has used the same
consultant in the past.
As it deems necessary, the Committee compares various short- and long-term
performance measures, including total shareholder return, return on average
shareholders' equity, sales, net income and earnings per share for the Company
and other companies with which it competes for executive talent. The Committee
has not established any particular level at which overall compensation will be
set in respect to the compensation peer group. The Committee believes that the
total compensation of the Named Executive Officers is supported by the
Company's competitive comparisons on the short- and long-term performance
factors and is appropriate given the Company's overall performance. The
individual elements of the executive compensation program are addressed below.
Annual Salary
Each year, the Committee establishes salaries for executive officers. Such
salaries are based on proposals submitted by the Company's Chief Executive
Officer for the annual salaries of the executive officers other than himself.
The Committee believes that the 2002 fiscal year salaries for executive
officers are appropriate. The Committee intends that the salary levels also
provide for a large percentage of total compensation to be at risk under the
incentive programs. In evaluating individual executive officers, the Committee
also may consider, among other factors, (1) a qualitative evaluation of the
individual executive officer's performance provided by the Chief Executive
Officer, (2) the job responsibilities of the individual executive, including
changes in those responsibilities, and (3) the Company's performance in
relation to its target financial goals for the prior fiscal year.
Annual Performance-Based Bonus
All salaried employees are eligible to receive cash bonuses under the Annual
Performance-Based Bonus Plan based on targets established each year by the
Committee and approved by the Board of Directors. The Bonus Plan is designed to
motivate the Company's employees to achieve the Company's annual operating and
financial goals. The Bonus Plan allows the Committee to establish performance
goals based on pretax earnings, earnings per share or both. The goals for the
Bonus Plan are established with the purpose of continuing the Company's
long-term record of superior performance in comparison with its competitors.
For the 2002 fiscal year, the Bonus Plan measured the Company's achievement
of its target financial goals for earnings per share for Circuit City Group
operations and for CarMax Group operations. The target EPS and pretax earnings
goals were established early in the fiscal year as part of the Company's
budgeting process and were approved by the Committee. Consistent with the
Committee's compensation philosophy of tying a large percentage of total
compensation to performance, the potential maximum bonus for each executive
officer was a significant percentage of that individual's salary for the year.
14
For the 2002 fiscal year, the bonus amounts were targeted at 100 percent for
senior executives and the Chief Executive Officer. This bonus percentage
reflects competitive practices as recently determined by the compensation
consultant. The amount of bonus payments depends upon the extent to which the
Company achieves its target financial goals for the year. For the 2002 fiscal
year, the Company achieved the threshold financial performance for the payment
of bonuses for the Circuit City officers. The Committee awarded Mr. McCollough
a 100 percent payout for the Circuit City portion of his bonus (80 percent) and
a 150 percent payout for the CarMax portion of his bonus (20 percent). The
Committee exercised its descretion and awarded the other senior managers of
Circuit City at the rate of 60 percent for Executive Vice Presidents and 40
percent for Senior Vice Presidents. The CarMax senior executives received a
maximum bonus payout of 150 percent, which in Mr. Ligon's case amounted to a
total bonus of 90 percent of his pay.
During the 2002 fiscal year, the Committee approved salary increases for
certain executive officers and other officers contingent on meeting earnings
targets. The Company achieved the threshold financial performance under the
arrangement and the affected Circuit City officers received the approved salary
increases under the arrangement.
Long-Term Incentive Compensation
Grants under the Company's Stock Incentive Plans provide long-term incentive
compensation and are a significant component of total compensation. These
programs are a part of the Company's performance-based incentive compensation,
rewarding officers as total shareholder value increases. For executive officers
and other officers, grants under the Stock Incentive Plans are made in the form
of nonqualified stock options and restricted stock. Grants based on Circuit
City Group Common Stock are used for officers whose duties are principally for
the Circuit City business and grants based on CarMax Group Common Stock, for
officers whose duties are principally for the CarMax business.
The Committee considers stock-based grants to be an important means of
ensuring that executive officers have a continuing incentive to increase the
long-term return to shareholders and the value of the Company's stock.
Stock-based grants also aid in retention of executives. Additional stock grants
may be made for officers who are promoted in order to maintain parity with
comparable officers.
Stock options generally vest and become exercisable ratably over a period of
four years from the date of grant and may be exercised within eight years of
the date of grant. The number of stock options to be granted to a particular
executive officer is determined by the Committee. The Committee primarily uses
a formula based on an individual's target bonus for the fiscal year, the market
price of the Company's stock, and the results of periodic compensation surveys
to determine the appropriate grant size. For the 2002 fiscal year, the
Committee received the advice of the compensation consultant about the size of
option grants for senior officers and generally followed that advice. The
Committee intends these grants to cover both the fiscal years 2002 and 2003.
The value of stock options is entirely a function of increases in the value of
the Company's stock, thus the Committee believes that this component of the
Company's compensation arrangement closely aligns the interests of the
executive officers with those of the Company's shareholders.
During the 1998 fiscal year, an additional long-term incentive program was
instituted for senior management using restricted stock under the Stock
Incentive Plan. The program provides for vesting at the end of a seven-year
period if the executive's employment continues. Accelerated vesting of the
stock may occur based on the Company's total shareholder return on Circuit City
Group Common Stock measured against the performance of a peer group. In the
2002 fiscal year, the Company ranked second in its peer group based on total
shareholder return. Based on the Company's comparative performance, 25 percent
of the awards that were previously granted to senior management under this
program vested in the 2002 fiscal year.
Other Matters
To maintain compensation competitiveness and to create a retirement program
that restores benefits for the Company's more senior executives who are
affected by Internal Revenue Code limits on benefits provided under
15
the Company's Pension Plan, the Company maintains a retirement benefit
restoration plan. Subject to an annual limit, the benefit restoration plan and
the Pension Plan together provide benefits to all employees affected by the
Internal Revenue Code limits at approximately the same percentage of
compensation as for other employees. The Named Executive Officers participate
in this plan.
Chief Executive Officer's Compensation
Mr. McCollough became the Chief Executive Officer of the Company during the
2001 fiscal year. At that time, the Committee set Mr. McCollough's salary for
the 2001 fiscal year at $950,000 with a performance-bonus target at 100 percent
of salary. In setting Mr. McCollough's compensation, the Committee examined
general information about the competitive market for senior executives and
considered the compensation paid to his predecessor. The Committee believes
that Mr. McCollough has shown leadership during difficult market conditions
since his recent promotion to Chief Executive Officer. Due to his recent
promotion, the Committee decided to continue Mr. McCollough's salary and
performance-bonus target for the 2002 fiscal year at the levels set for him for
the 2001 fiscal year. The Committee believes this was appropriate in light of
the increases he received in salary and performance-bonus potential as result
of the promotion. Mr. McCollough's bonus is based upon the performance of the
Circuit City Group and the CarMax Group according to the relative time that Mr.
McCollough anticipated devoting to each group.
The Committee believes that the structure of incentives to Mr. McCollough is
appropriate for Mr. McCollough's role as Chief Executive Officer in the overall
operations of the Company. The Committee views his fiscal 2002 compensation as
appropriate when compared to results of the Company, particularly in light of
the leadership shown by Mr. McCollough in the Company's exit from the appliance
business and related activities.
COMPENSATION AND PERSONNEL COMMITTEE
Robert S. Jepson, Jr., Chairman
James F. Hardymon
Paula G. Rosput
John W. Snow
16
Performance Graphs
[CHART]
TOTAL RETURN TO SHAREHOLDERS
Fiscal Year 1997 1998 1999 2000 2001 2002
Circuit City Group
Common Stock $100.00 $124.08 $174.85 $261.10 $98.25 $116.36
S&P 500 Index $100.00 $135.00 $161.65 $180.61 $165.80 $150.03
Retail Stores Composite $100.00 $153.40 $229.94 $245.64 $238.35 $277.16
[CHART]
TOTAL RETURN TO SHAREHOLDERS
Fiscal Year 1997 1998 1999 2000 2001 2002
CarMax Group Common Stock $100.00 $45.96 $22.36 $8.07 $25.59 $132.87
S&P 500 Index $100.00 $135.00 $161.65 $180.61 $165.80 $150.03
Retail Stores Composite $100.00 $153.40 $229.94 $245.64 $238.35 $277.16
17
Employment Agreements and Change-In-Control Arrangements
The Company has employment agreements with each of the Named Executive
Officers which have recently been revised based upon recommendations by a
compensation consultant. Generally, these agreements provide for annual salary
review and participation in the Company's bonus, stock incentive and other
employee benefit programs. They also provide for continuation of base salary,
target bonus and continued participation in employee benefit plans for two
years following termination by the Company without cause. In such
circumstances, the agreements also generally provide that the employee will be
paid any prorata bonus to which he would otherwise be entitled for that year.
The aforementioned benefits extend for another year under the agreements if,
following a change in control, the executive is terminated, demoted or the
executive voluntarily terminates employment in the thirteenth month. Each
agreement contains provisions confirming the employee's obligation to maintain
the confidentiality of proprietary information and not to compete with the
Company for a specified period of time after the termination of his employment.
The employment agreements with the Named Executive Officers became effective in
2002. The current base salaries of Messrs. McCollough, Froman, Chalifoux,
Bowman, and Ligon under their employment agreements are $950,000, $600,000,
$605,000, $450,000 and $625,000, respectively.
The Named Executive Officers have been granted SARs in connection with some
of the stock options granted to them under the Company's stock incentive plans.
The options also provide for accelerated vesting in the event of a change of
control. The SARs are Change of Control SARs that may only be exercised in the
event of a change of control. Upon exercise of the SAR and the surrender of the
related option, the holder is entitled to receive cash from the Company in the
amount of the spread between the option exercise price and the market value of
the Common Stock at the time of exercise. The market value is determined by a
formula designed to take into account the effect of the change of control.
COMPENSATION OF DIRECTORS
During fiscal 2002, directors who were not employees of the Company received
a combination of equity-based and cash compensation. The cash compensation for
non-employee directors included: an annual retainer of $28,500 for service on
the Board, an annual retainer of $2,500 for serving as a committee chairperson
and $1,500 for each Board and Committee meeting attended. The non-employee
directors' equity-based compensation was comprised of a stock grant with a fair
market value on the date of grant of $10,000 and a stock option grant with a
value as of the date of grant (based on the Black-Scholes method) of $43,300.
The equity-based components of director compensation were divided between
Circuit City Group Common Stock and CarMax Group Common Stock based on the
relative market values of each Group's Common Stock on the date of the grant.
The fiscal 2002 stock grant consisted of 594 shares of Circuit City Group
Common Stock and 66 shares of CarMax Group Common Stock. The fiscal 2002 stock
option grants were made under the Company's 2000 Non-Employee Directors Stock
Incentive Plan and consisted of options to purchase 5,085 shares of Circuit
City Group Common Stock and options to purchase 635 shares of CarMax Group
Common Stock. Carolyn H. Byrd and Paula G. Rosput were elected to the Board
after the 2001 Annual Meeting. On the date of her election, Ms. Byrd was
granted 503 shares of Circuit City Group Common Stock, 60 shares of CarMax
Group Common Stock and options to purchase 4,393 shares of Circuit City Group
Common Stock and 507 shares of CarMax Group Common Stock. On the date of her
election, Ms. Rosput was granted 342 shares of Circuit City Group Common Stock;
60 shares of CarMax Group Common Stock and options to purchase 2,962 shares of
Circuit City Group Common Stock and 517 shares of CarMax Group Common Stock.
The exercise price for each option is 100 percent of the fair market value
of the relevant Common Stock on the date of grant. The options vest evenly over
three years from the date of grant and expire in eight years. Non-employee
directors have the right to defer the receipt of compensation under the
Company's deferred compensation plan.
Directors who are employees of the Company receive no compensation for
service as members of the Board or Board committees.
18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
officers, directors and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent shareholders are
required by regulation to furnish the Company with copies of all Forms 3, 4 and
5 they file.
Based solely on the Company's review of the copies of such forms and any
amendments it has received and written representations from certain reporting
persons that they were not required to file Form 5 for specified fiscal years,
the Company believes that all officers, directors and beneficial owners of more
than 10 percent of the Company's Common Stock complied with all of the filing
requirements applicable to them with respect to transactions during the fiscal
year ended February 28, 2002.
ITEM TWO--SHAREHOLDER PROPOSAL
The Company's Board of Directors recommends that, if it is properly
presented at the 2002 Annual Meeting, shareholders vote AGAINST the following
shareholder proposal submitted by the American Federation of State, County and
Municipal Employees Pension Plan. Upon receiving an oral or written request,
the Company will furnish the address and number of shares of Common Stock held
by this shareholder.
RESOLVED, that the shareholders of Circuit City Stores Inc. ("Circuit City" or
the "Company") request the Board of Directors (the "Board") to redeem the
preference share purchase rights distributed on April 29, 1998, unless such
distribution is approved by the affirmative vote of holders of a majority of
shares present and voting, to be held as soon as may be practicable.
SUPPORTING STATEMENT
On March 30, 2000, Circuit City's stock closed at $61 per share. On November
8, 2001, it closed at $15.65, a drop of over 74 percent. In the fiscal second
quarter of 2001, the Company lost six cents per share, compared with a 21 cents
per share profit in the second quarter of 2000.
We believe this is an appropriate time for our Board to begin to eliminate
management-entrenching corporate governance structures, particularly the
Company's poison pill. The Board created the current poison pill rights plan in
April of 1998 with the distribution of preference share purchase rights to
shareholders.
We do not share the Board's view that our Company should have put a rights
plan into effect without shareholder approval. While management and the Board
of Directors should have appropriate tools to ensure that all shareholders
benefit from any proposal to buy the Company, we do not believe that the future
possibility of an unsolicited bid justifies the unilateral implementation of a
poison pill.
The effect of poison pills on the value of companies' stock has been the
subject of extensive research. A 1986 study by the Office of the Chief
Economist of the U.S. Securities and Exchange Commission on the economics of
rights plans states that "The stock-returns evidence suggests that the effect
of poison pills to deter prospective hostile takeover bids outweighs the
beneficial effects that might come from increased bargaining leverage of the
target management." A 1992 study by Professor John Pound of Harvard
University's Corporate Research Project and Lilli A. Gordon of the Gordon Group
found a correlation between high corporate performance and the absence of
poison pills.
A recent study found that firms with the strongest shareholder rights
significantly outperform companies with weaker shareholder rights. A 2001 study
of 1,500 firms conducted by researchers at Harvard University and
19
the University of Pennsylvania's Wharton School found a significant positive
relationship between greater shareholder rights, as measured by a governance
index, and both firm valuation and performance from 1990 to 1999. Shareholder
rights were measured by a governance index which took into account, among other
things, whether a company had a poison pill rights plan.
Rights plans like ours have become increasingly unpopular in recent years.
In 2001, a majority of stockholders at 19 companies, including McDermott
International, Profit Recovery Group and Southwest Gas, voted in favor of
proposal asking management to redeem or obtain shareholder approval for poison
pills.
We urge shareholders to vote for this resolution!
Board of Directors' Statement in Opposition
The Board recommends that you vote against this shareholder proposal because
the proposal would limit significantly the Board's ability to protect the
Company's shareholders. Moreover, the Board believes that the Company's
shareholder rights plan is in the best interest of the Company's shareholders
and is consistent with preserving and maximizing long-term shareholder value.
The Company's shareholder rights plan was adopted by the Board on April 14,
1998, and replaced a similar shareholder rights plan originally adopted by the
Board in 1988. In each case, the rights plan was adopted after careful and
deliberate consideration and was adopted by a Board that had a substantial
majority of independent directors. The purpose of the shareholder rights plan
is to maximize shareholder value by encouraging negotiation with the Board and
by giving the Board adequate time to consider, respond to and seek alternatives
to unsolicited bids for the Company. Moreover, the Company's shareholder rights
plan deters coercive or unfair acquisition techniques that would not treat all
shareholders fairly, including partial or two-tiered tender offers, gradual
accumulations of the Company's stock in the open market and squeeze-out
mergers. Even though the shareholder rights plan makes it more difficult for
the Company to be acquired on terms that are not fair to all shareholders, it
does not and cannot prevent an acquisition of the Company that is in the
shareholders' best interests, such as an all-cash offer at a full and fair
price. In addition, the Company's shareholder rights plan does not prevent a
proxy fight to remove and replace the Board if it refuses to redeem the rights.
Both Virginia's legislature and courts have decided that directors of
Virginia corporations are expected to and should play an important role in the
context of a hostile takeover. Several statutes impose additional requirements
for completion of significant corporate actions that do not have disinterested
director approval. In addition, Virginia's legislature has endorsed the use of
shareholder rights plans by granting to the Board the ability to create or
issue rights for the purchase of shares of a corporation on terms and
conditions, and for the consideration determined by the Board, unless this
authority has been reserved to the corporation's shareholders in its articles
of incorporation. Each of these statutes has been upheld by Virginia's courts
when challenged.
The Board would like to highlight that the 2001 study titled "Corporate
Governance and Equity Prices" and cited by the proponent in fact provides
support for the Board's statements concerning the benefits derived from a
rights plan. The study acknowledged that when management uses judiciously the
additional power granted to them to resist takeovers, management's actions
could lead to an overall increase in shareholder wealth. In addition, the
study's authors at Harvard University and The Wharton School acknowledged that
there is a weak or nonexistent link between firm value or performance and
takeover defenses such as poison pills. Moreover, the authors conclude that
their report presents no evidence that fewer shareholder rights as measured by
the governance index actually entrenches management.
A 1997 study by Georgeson & Company, Inc., a proxy solicitation firm that
analyzed takeover data from 1992-1996, concluded that premiums paid to acquire
target companies with shareholder rights plans were on average 26 percent
higher than premiums paid to target companies that did not have shareholder
rights plans. In addition, Georgeson's study estimated that shareholder rights
plans had contributed an additional $13 billion in
20
shareholder value during the period analyzed, and that shareholders of acquired
companies that did not have shareholder rights plans had forfeited $14.5
billion in potential premiums. It is important to note that, Georgeson
concluded that the presence of a shareholder rights plan did not increase the
likelihood of the withdrawal of a friendly takeover bid nor the defeat of a
hostile bid and did not reduce the likelihood of a company becoming a takeover
target.
The results of Georgeson's study were consistent with the results found by
J.P. Morgan & Co., which analyzed 300 transactions in the U.S. from 1993
through 1997. J.P. Morgan found that the median takeover premium paid for
companies that had a shareholder rights plan in place was higher than for
companies that did not have one. Furthermore, J.P. Morgan found that in hostile
deals during the period from 1988 through 1997, the takeover premium paid was
14 percent greater for companies with shareholder rights plans in place.
Although the proponent asserts that plans similar to the Company's
shareholder rights plan have become increasingly unpopular, it continues to be
the case that more than 2,000 companies, including most of the companies in the
Fortune 500, have adopted, and continue to have in place, shareholder rights
plans in order to protect their shareholders against abusive acquisition
tactics. The Board does not believe that the shareholder rights plan is
designed to entrench management. It is important to note that the Board has a
fiduciary duty to the Company and its shareholders that prohibits the Board
from placing the interest of management in retaining their employment above the
best interests of the shareholders.
In conclusion, the Board believes that the shareholder rights plan is a tool
that the Board should have for the protection of its shareholders and that any
decision to redeem the rights should be made in the context of a specific
acquisition proposal.
THE BOARD RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
21
RELATIONSHIP WITH INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG LLP served during the Company's fiscal year ended February 28, 2002, as
the Company's independent certified public accountants and has been selected as
the Company's independent certified public accountants for the current fiscal
year. Representatives of KPMG LLP will be present at the meeting of the
Company's shareholders. Such representatives will have the opportunity to make
a statement if they so desire and will be available to respond to appropriate
questions.
Audit Fees
For fiscal 2002, KPMG LLP, our independent auditors, billed the Company
$459,000 for audit fees. The audit fees category includes the amounts billed
for the fiscal 2002 audit and quarterly reviews.
All Other Fees
KPMG LLP billed the Company $316,000 for audit-related services consisting
of employee benefit plan audits, attestation services related to securitization
activities and services related to SEC registration statements. KPMG LLP billed
the Company $285,000 for non-audit-related tax services. There were no
financial information systems design and implementation fees.
OTHER BUSINESS
If any other business properly comes before the meeting, your proxy may be
voted by the persons named in it in such manner as they deem proper.
At this time, the Company does not know of any other business that will be
presented to the meeting.
22
PROPOSALS BY SHAREHOLDERS FOR PRESENTATION
AT THE 2003 ANNUAL MEETING
Section 1.3 of the Company's Bylaws provides that, in addition to other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must give timely written notice to
the Secretary or an Assistant Secretary at the principal office of the Company.
In order to be timely, that notice must be received (i) on or after February
1st and before March 1st of the year in which the annual meeting will be held,
if clause (ii) is not applicable, or (ii) not less than 90 days before the date
of the annual meeting if the date for the meeting prescribed in the Bylaws has
been changed by more than 30 days. The shareholder's notice shall set forth (i)
the name and address, as they appear on the Company's stock transfer books, of
the shareholder, (ii) the class and number of shares of stock of the Company
beneficially owned by the shareholder, (iii) a representation that the
shareholder is a shareholder of record at the time of the giving of the notice
and intends to appear in person or by proxy at the meeting to present the
business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business and (v) any interest that the shareholder may have in such business.
The proxies will have discretionary authority to vote on any matter that
properly comes before the meeting if the shareholder has not provided timely
written notice as required by the Bylaws.
Proposals that any shareholder desires to have included in the proxy
statement for the 2003 Annual Meeting of shareholders must be received by the
Company no later than January 10, 2003.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 2002, as filed with the Securities and Exchange Commission, may be
obtained by any shareholder after May 31, 2002, free of charge, upon written
request to Office of the Corporate Secretary, Circuit City Stores, Inc., 9950
Mayland Drive, Richmond, Virginia 23233, or by calling (804) 527-4022.
By Order of the Board of Directors
/s/ Michael T. Chalifoux
Michael T. Chalifoux, Secretary
May 10, 2002
23
APPENDIX A
CIRCUIT CITY STORES, INC.
AUDIT COMMITTEE CHARTER
Organization and Composition
There shall be a committee of the Board of Directors to be known as the
Audit Committee. The Audit Committee shall consist of at least three directors,
all of whom have no relationship to the corporation that may, in the opinion of
the Board of Directors, interfere with the exercise of their independence from
management and the corporation. In addition, the members of the committee shall
satisfy the requirements for audit committee membership imposed by the New York
Stock Exchange on audit committees of listed public companies and any
eligibility requirements of the Securities and Exchange Commission with regard
to companies whose securities are registered under the Securities Exchange Act
of 1934, as amended.
The Board of Directors shall interpret the foregoing requirements and
determine the qualifications of committee members in its business judgment.
Subject to approval by the Board of Directors, the committee shall revise
this charter from time to time as needed to take into account the requirements
of the Securities and Exchange Commission and the New York Stock Exchange and
such other factors as the committee deems appropriate.
Statement of Policy
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its responsibility relating to the corporate accounting and
reporting practices of the corporation. In so doing, it is the responsibility
of the Audit Committee to foster open communication between the directors, the
independent auditors, the internal auditors, and the financial management of
the corporation.
Responsibilities
In carrying out its responsibilities, the Audit Committee believes its
procedures should remain flexible, in order to best react to changing
conditions and to foster compliance with applicable requirements and integrity
with respect to the corporate accounting and reporting practices of the
corporation. In carrying out these responsibilities, the Audit Committee will:
. Review and recommend to the directors, after consulting with management,
the independent auditors to be selected to audit the financial statements
of the corporation and its divisions and subsidiaries. The independent
auditors shall be responsible to the Board of Directors and shall report
directly to the Audit Committee, as the Board of Director's
representative, on matters pertaining to its engagement. The Board of
Directors and the Audit Committee shall have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditors.
. Require the independent auditors to submit a written statement to the
committee, consistent with Independence Standards Board Standard No. 1,
delineating all relationships between the corporation and the independent
auditors, engage in dialogue with respect to any such disclosed
relationships or services which may impact the objectivity and
independence of the auditors, and take, or recommend that the directors
take, appropriate action to ensure the independence of the auditors.
. Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized. At the conclusion of the
audit, review such audit, including any comments or recommendations of
the independent auditors and the information required to be communicated
to the committee by the independent auditors by Statements on Auditing
Standard No. 61.
A-1
. Review the audited financial statements to be contained in the
corporation's Annual Report on Form 10-K with management and the
independent auditors to determine that the independent auditors are
satisfied with the disclosure and content of the financial statements.
Any changes in accounting principles should also be reviewed. Based on
such reviews and related discussions, make a recommendation to the Board
of Directors concerning whether the audited financial statements should
be included in the Form 10-K.
. Review with the independent auditors, the corporation's internal auditor,
and financial management of the corporation, the adequacy and
effectiveness of the accounting and financial controls of the
corporation, including the adequacy of such internal controls to expose
any payments, transactions, or procedures that might be deemed illegal or
otherwise improper, and review any plans for the improvement of such
internal control procedures. Further, the committee periodically should
review with the corporation's general counsel the corporation's Code of
Business Conduct.
. Review the internal audit function of the corporation, the proposed audit
plans for the coming year, and the coordination of such plans with the
independent auditors.
. Provide sufficient opportunity for the internal and independent auditors
to meet with the members of the Audit Committee without members of
management present. Among the items to be discussed in these meetings are
the independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
. Submit the minutes of all meetings of the Audit Committee to, or discuss
the matters discussed at each committee meeting with, the Board of
Directors.
. Investigate, if it deems it appropriate, any matter brought to its
attention within the scope of its duties, with the power to retain
outside counsel for this purpose if, in its judgment, that is appropriate.
A-2
CIRCUIT CITY STORES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 18, 2002.
The undersigned, having received the Annual Report to Shareholders and the
accompanying Notice of Annual Meeting of Shareholders and Proxy Statement dated
May 10, 2002, hereby appoints W. Alan McCollough and Robert L. Burrus, Jr., and
each of them, proxies, with full power of substitution, and hereby authorizes
them to represent and vote the shares of Circuit City Group Common Stock and
CarMax Group Common Stock of Circuit City Stores, Inc. (the "Company"), which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders of the Company to be held on Tuesday, June 18, 2002, at
10:00 a.m., Eastern Daylight Time, and any adjournment thereof, and especially
to vote as set forth below.
The Board of Directors Recommends a Vote FOR Item 1.
1. Election of directors: 01 Carolyn H. Byrd 03 Paula G. Rosput [ ] Vote FOR all nominees [ ] Vote WITHHELD
02 Michael T. Chalifoux 04 John W. Snow for the terms set forth from all nominees
in the Proxy Statement
(except as marked)
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(Instructions: to Withhold Authority to Vote for Any Indicated Nominee, | |
Write the Number(s) of the Nominee(s) in the Box Provided to the Right.) | |
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Please fold here
The Board of Directors Recommends a Vote AGAINST Item 2.
2. Shareholder proposal regarding the Company's shareholder
rights plan (described in the Proxy Statement). [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting and
any adjournments thereof.
IF YOU SPECIFY A CHOICE AS TO THE ACTION TO BE TAKEN ON AN ITEM, THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH SUCH CHOICE. IF YOU DO NOT SPECIFY A CHOICE, IT WILL
BE VOTED FOR THE NOMINEES NAMED IN THE PROXY STATEMENT AND AGAINST ITEM 2.
Any proxy or proxies previously given for the meeting are revoked.
PLEASE MARK, SIGN, DATE AND RETURN PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
Address Change? Mark Box [ ] Indicate changes below:
Date
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Signature(s) in Box
Please sign exactly as your name(s) appear on the Proxy. If
held in joint tenancy, all persons must sign. Trustees, adminis-
trators, etc., should include title and authority. Corporations
should provide full name of corporation and title of authorized
officer signing the proxy.