CIRCUIT
CITY STORES, INC.
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(Name
of Registrant as Specified in Its Charter)
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WATTLES
CAPITAL MANAGEMENT, LLC
HKW
TRUST
MARK
J. WATTLES
JAMES
A. MARCUM
ELLIOTT
WAHLE
DON
R. KORNSTEIN
ANTHONY
BERGAMO
ALEXANDER
M. BOND
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(Name
of Persons(s) Filing Proxy Statement, if Other Than the
Registrant)
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined):
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1.
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To
elect four of WCM’s director nominees, James A. Marcum, Elliott Wahle, Don
R. Kornstein and Anthony Bergamo, to serve as directors of the Company for
a three-year term ending in 2011 and to elect WCM’s other director
nominee, Alexander M. Bond, to serve as a director of the Company for a
two-year term ending in 2010;
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2.
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If
a majority of WCM’s nominees are elected in Proposal 1, to remove, without
cause, each member of the Circuit City Board, including any director
(other than those elected by the Company’s shareholders at the Annual
Meeting) elected or appointed to the Circuit City Board by such directors
to fill any vacancy on the Circuit City Board or any newly-created
directorships at any time from February 28, 2008 until and including the
conclusion of the Annual Meeting;
and
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3.
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If
applicable, to (i) repeal any amendments adopted by the Circuit City
Board without shareholder approval to the Company’s Bylaws, as amended as
of August 21, 2007 (the “Bylaws”), between August 21, 2007 and up through
and including the Annual Meeting, (ii) repeal any new bylaws adopted
by the Circuit City Board between August 21, 2007 and up through and
including the Annual Meeting and (iii) provide that the Circuit City
Board may not reinstate or amend any amended bylaw or new bylaw that is
repealed by shareholders pursuant to this
proposal.
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1.
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To
elect four of WCM’s director nominees, James A. Marcum, Elliott Wahle, Don
R. Kornstein and Anthony Bergamo, to serve as directors of the Company for
a three-year term ending in 2011 and to elect WCM’s other director
nominee, Alexander M. Bond, to serve as a director of the Company for a
two-year term ending in 2010 (collectively, the
“Nominees”);
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2.
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If
a majority of the Nominees are elected in Proposal 1, to remove, without
cause, each member of the Board, including any person (other than those
elected by the Company’s shareholders at the Annual Meeting) elected or
appointed to the Board by such directors to fill any vacancy on the Board
or any newly-created directorships at any time from February 28, 2008
until and including the conclusion of the Annual Meeting;
and
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3.
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If
applicable, to (i) repeal any amendments adopted by the Board without
shareholder approval to the Company’s Bylaws, as amended as of August 21,
2007 (the “Bylaws”), between August 21, 2007 and up through and including
the Annual Meeting, (ii) repeal any new bylaws adopted by the Board
between August 21, 2007 and up through and including the Annual Meeting
and (iii) provide that the Board may not reinstate or amend any
amended bylaw or new bylaw that is repealed by shareholders pursuant to
this proposal.
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·
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If
your Shares are registered in your own name, please sign and date the
enclosed GOLD
proxy card and return it to WCM, c/o MacKenzie Partners, Inc., in the
enclosed envelope today.
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·
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If
your Shares are held in a brokerage account or bank, you are considered
the beneficial owner of the Shares, and these proxy materials, together
with a GOLD voting
form, are being forwarded to you by your broker or bank. As a
beneficial owner, you must instruct your broker, trustee or other
representative how to vote. Your broker cannot vote your Shares
on your behalf without your
instructions.
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·
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Depending
upon your broker or custodian, you may be able to vote either by toll-free
telephone or by the Internet. Please refer to the enclosed
voting form for instructions on how to vote electronically. You
may also vote by signing, dating and returning the enclosed voting
form.
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·
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Circuit
City’s stock performance has significantly deteriorated under senior
management and the Board;
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·
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Circuit
City’s operational performance has significantly deteriorated under senior
management and the Board;
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·
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Circuit
City’s ill-advised and
poorly executed turnaround strategy has eroded shareholder value;
and
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·
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Circuit
City’s track record of rejecting third-party interest in acquiring the
Company and refusing to negotiate potential transactions that could
maximize shareholder value;
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·
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Its
powerful brand with a long history and enormous reach across a
wide range of demographic
groups;
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·
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National
advertising capabilities;
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·
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A
store base that has been and still has the ability to be
very productive; and
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·
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Its
strong cash position, minimal debt and access to a
newly-expanded line of credit.
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·
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Blockbuster
is not a competitor of Circuit City so providing such information poses no
competitive threat;
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·
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Blockbuster’s
Board fully supports the offer;
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·
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Carl
Icahn, or an affiliate, appears willing to and capable of helping to
finance the offer;
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·
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Cooperating
with Blockbuster’s request to perform “a very short due diligence process
immediately” is necessary to answer the very transaction financing
questions the Company has cited in its effort to thwart
Blockbuster;
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·
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Blockbuster
could raise a significant portion of the financing from Circuit City’s own
balance sheet, including, but not limited to, excess cash on hand, a
multi-million dollar tax refund due to the Company this summer and
proceeds from a potential sale of the Company’s international InterTAN
subsidiary;
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·
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James
Keyes, Blockbuster’s Chairman and CEO, stated in a letter to Phil
Schoonover that the Blockbuster offer is “conditioned upon timely
commencement of the due diligence process,” and has subsequently indicated
to the media that Blockbuster is unlikely to pursue a hostile bid for
Circuit City; and
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·
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If
Blockbuster withdraws its offer because of a lack of cooperation by the
Board, we believe Circuit City shareholders will be immediately and
substantially damaged.
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·
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Replace
the current Chairman, President and CEO with a seasoned executive capable
of restoring credibility with employees, vendors and
shareholders;
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·
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Focus
on the “customer experience” and strategies for making the current stores
more productive;
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·
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Begin
addressing the actual issues facing the Company with an emphasis on
driving store traffic and increasing
revenue;
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·
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Focus
on the most immediate and least capital-intensive opportunities to improve
the health of the business; and
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·
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Develop
and articulate a deliverable promise for the new “The City” brand that
works within the realities of the current store
footprints.
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·
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We
made our first investment in Shares of Circuit City in May
2006.
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·
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On
February 25, 2008, WCM delivered a letter to the Corporate Secretary of
Circuit City (the “Nomination Letter”) nominating the Nominees for
election to the Board at the Annual
Meeting.
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·
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On
February 25, 2008, the Company issued a press release confirming receipt
of the Nomination Letter.
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·
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On
February 28, 2008, Circuit City delivered a letter notifying us that there
would be four directors up for election at the Annual Meeting, not five as
we had originally anticipated.
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·
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On
February 28, 2008, WCM delivered a letter to the Corporate Secretary of
Circuit City (the “Proposal Letter”) submitting two business proposals for
consideration at the 2008 Annual
Meeting.
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·
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On
February 28, 2008, Circuit City issued a press release confirming receipt
of the Proposal Letter and stating that the Board intended to review the
Proposals and the qualifications of the Nominees in accordance with its
fiduciary duties.
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·
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On
April 2, 2008, WCM sent a public letter to the Board on behalf of the
Group expressing the Group’s significant concerns with Circuit City's
current business strategy and requesting certain immediate actions be
taken by the Board, including replacing Philip Schoonover as the Company’s
Chairman and CEO and changing the Company’s focus to immediate and
minimally capital-intensive opportunities available to the Company for
improving the health of the Company’s business. The letter
expressed our belief that there is potential to unlock significant value
in Circuit City in the near and long term but that the Company’s
“turnaround” efforts have been disastrous. The letter outlined
the qualifications and experience of the Group, including WCM’s successful
turnaround of a 32-store chain of consumer electronics stores that were
acquired as a result of the bankruptcy of Ultimate Electronics, Inc. in
2005. The letter further explained that we were declining
Circuit City’s request that the Nominees meet with the Board’s Nominating
& Governance Committee to discuss the Nominees’ qualifications, based
on our belief that the Nominees’ qualifications should have been apparent
to the Company from information provided in the Nomination
Letter. Additionally, we demanded that the Board engage a
nationally recognized investment bank to evaluate any indications of
interest from a potential acquirer or merger partner and requested a
meeting with the Board as soon as possible in order to discuss our
concerns.
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·
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On
April 4, 2008, the lead director of the Board, Mikael Salovaara, delivered
a letter to WCM in response to our April 2 letter stating Mr. Salovaara
would contact us in due course.
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·
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On
April 11, 2008, Mark Wattles and Alexander Bond of WCM met with lead
independent director Mikael Salovaara and Timothy Ingrassia of Goldman,
Sachs & Co. (“Goldman”), Circuit City’s financial advisor, to discuss
issues in connection with the Annual
Meeting.
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·
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WCM
has had subsequent discussions with Goldman regarding a possible agreement
in connection with the Annual Meeting between WCM and the
Company.
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·
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On
April 14, 2008, Blockbuster issued a press release announcing that it had
offered to acquire Circuit City for at least $6.00 per share in cash,
subject to due diligence.
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·
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On
April 14, 2008, Circuit City issued a press release confirming receipt of
the Blockbuster’ offer and stating that the Board would continue to
carefully consider and evaluate the Blockbuster Offer. Circuit
City did not convey any plans it had to allow Blockbuster to conduct the
diligence necessary for the Blockbuster
Offer.
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·
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On
April 23, 2008, we delivered a letter to the Board urging Circuit City to
permit Blockbuster to conduct proper due diligence relating to the
Blockbuster’s offer. In the letter we explained why we believed
the Board should provide immediate access to due diligence information and
commence good-faith negotiations with Blockbuster, including the fact that
Blockbuster is not a competitor of Circuit City, Blockbuster’s Board of
Directors fully supports the Blockbuster Offer, Carl Icahn or an affiliate
would be willing to finance the deal, Blockbuster could raise a
significant portion of the financing from the Company’s balance sheet, the
Blockbuster Offer would be supported by a majority of the Company’s
shareholders and the Blockbuster Offer is conditioned on a timely
commencement of the due diligence process. The letter also
expressed our belief that an acquisition for between $6 and $8 per share
is in the best interest of Circuit City
shareholders.
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·
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On April 23, 2008, Circuit City
issued a statement in response to our letter merely stating that the
Company’s financial adviser believes that Blockbuster’s offer could not be
consummated in light of the “difficult current financing
environment.”
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Name
and Business Address
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Age
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Present
Principal Occupation and
Five
Year Employment History
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James
A. Marcum
c/o
Tri-Artisan Capital Partners 110 East 59th
Street, 37th
Floor
New
York, New York 10022
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48
|
Mr.
Marcum is an Operating Partner and has served as an Operating Executive of
Tri-Artisan Capital Partners, LLC, a merchant banking firm, since January
2004. In addition, since April 2007, Mr. Marcum has been a
principal shareholder and has served as the Chairman and Chief Strategic
Officer of Enabl-u Technologies Corp., an early stage interactive training
and data management solutions provider. From January 2005 to
January 2006, he served in various capacities, including Chief Executive
Officer and as a director, of Ultimate Electronics, Inc., a consumer
electronics retailer specializing in home and car
entertainment. From May 2001 to July 2003, he served in various
capacities, including as Executive Vice President and Chief Financial
Officer and Executive Vice President of Operations, of Hollywood
Entertainment Corporation, a video home entertainment specialty
retailer. Prior to Hollywood Entertainment Corporation, Mr.
Marcum was recruited by private equity investors to serve in such roles as
Executive Vice President and Chief Operating Officer of Lids, Inc., a
specialty retailer of hats, and Vice Chairman and Chief Financial Officer
of Stage Stores, Inc., a specialty retailer bringing branded apparel to
small town America. Mr. Marcum has also served in senior
executive capacities at Melville Corporation, a conglomerate of specialty
retail chains in the apparel, footwear, drug, health and beauty aids and
furniture and accessories sectors. Mr. Marcum currently serves
as a director of Iconix Brand Group,
Inc.
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Elliott
Wahle
c/o
Rustique Home Furnishings
114
Railside Road
Toronto,
Ontario M3A 1A3
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56
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Mr.
Wahle serves as Chairman and Chief Executive Officer of Rustique Home
Furnishings, a Toronto based importer and distributor of quality wood
furnishing products. He is Chairman and cofounder of Generation
Capital Inc. and President of Rycom Enterprises, a private investment
company. Mr. Wahle also serves as an Operating Director of
Tri-Artisan Capital Partners, a New York based Merchant Banking
company. Mr. Wahle has over thirty years of business leadership
experience in both domestic and multinational corporations that span the
Entertainment, Consumer Products and Retail industries. His
early career covered a period of ten years with the New York Yankees and
the Toronto Blue Jays where he oversaw the development of the Player
Personnel organizations. He spent twelve years as the founding
President of Toys “R” Canada followed by a five year stint as C.E.O. of
Dylex Limited. Mr. Wahle returned to Toys “R” US to oversee the
development of its International Flagship Store in Times Square New York
and then ran the Babies “R” Us organization until the company initiated a
sale to Private Equity interests. Mr. Wahle has a B.S. in
Commerce from Rider University in Lawrenceville, New Jersey. He
currently serves on the Board of Skyservice Airlines as well as several
not for profit organizations.
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Don
R. Kornstein
c/o
Alpine Advisors LLC
825
Lakeshore Blvd.
Incline
Village, Nevada 89451
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56
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Mr.
Kornstein serves as the Managing Member of Alpine Advisors LLC, a
strategic, management and financial consulting firm. Mr.
Kornstein previously served as interim Chairman and Chief Restructuring
Officer of Bally Total Fitness, Inc. (“Bally”) prior to and at the time of
its pre-packaged bankruptcy filing and through completion of the
consensual restructuring process. The events relating to
Bally’s bankruptcy filing and restructuring process are not material to an
evaluation of the ability or integrity of Mr. Kornstein to serve as a
director of the Company. Mr. Kornstein was appointed Chairman
and Chief Restructuring Officer for his broad leadership skills and
expertise to assist Bally in navigating through its operational and
financial restructuring. From 1994 through 2000, Mr. Kornstein
was the President and Chief Executive Officer of Jackpot Enterprises Inc.,
an NYSE-listed company engaged in the gaming industry through the
operation of over 5,000 gaming devices in a variety of retail
establishments and casinos. From 1977 through 1994, Mr.
Kornstein was an investment banker at Bear, Stearns & Co. Inc., where
he most recently served as a Senior Managing Director and head of the
firm’s gaming industry
practice.
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Anthony
Bergamo
c/o
MB Real Estate
335
Madison Avenue, 14th
Floor
New
York, New York 10017
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60
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Mr.
Bergamo has been a Director of SP Acquisition Holdings, Inc., since July
2007, where he serves on the Governance and Nominating Committee and as
Audit Chairman. Mr. Bergamo has served as the Chief Executive
Officer of Niagara Falls Redevelopment, Ltd., a real estate development
company, since August 1998. He has held various positions with
MB Real Estate, a property management company based in New York City and
Chicago, since April 1996, including the position of Vice Chairman since
May 2003. From April 1996 until July 2007, Mr. Bergamo served
as Managing Director with Milstein Hotel Group, a hotel
operator. Mr. Bergamo served as a director from 2002 to 2006
for of Lone Star Steakhouse & Saloon, Inc., an owner and operator of
restaurants, where he served as the Chair of the Audit
Committee. He has also been a director since 1995, a Trustee
since 1986 and currently is Chairman of the Audit Committee, and a member
of the Executive and Nominating Committees of Dime Community
Bancorp. Mr. Bergamo is also the Founder and Chairman of the
Federal Law Enforcement Foundation, a foundation that provides economic
assistance to both federal and local law enforcement officers suffering
from serious illness and to communities recovering from natural disasters,
and has served as its Chairman since 1988. Mr. Bergamo received
a B.S. in history from Temple University and a J.D. from New York Law
School.
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Alexander
M. Bond
c/o
Wattles Capital Management
7945
W. Sahara Ave.
Las
Vegas, Nevada 89117
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38
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Mr.
Bond is a director and executive officer of Wattles Acquisition Corp., a
special purpose acquisition corporation which currently has a registration
statement on file with the Securities and Exchange
Commission. Since January 1, 2008, he has been a managing
director of WCM. From October 2005 until January 2008, Mr. Bond
was a consultant to WCM and certain of its portfolio
companies. From March 2003 until July 2005, Mr. Bond was Senior
Vice President of Finance and Business Development for Hollywood
Entertainment Corporation, where his primary responsibility was overseeing
the sale of the company, which occurred in April 2005. From
September 2000 until October 2002, Mr. Bond was a Principal at the
investment banking firm of Thomas Weisel Partners, where he was head of
the semiconductor and semiconductor capital equipment investment banking
group. Prior to September 2000, Mr. Bond held investment
banking positions at Montgomery Securities (now Banc of America
Securities) and senior executive positions in the retail industry,
including with Hollywood Entertainment Corporation. Mr. Bond
does not have and has never had an operating role in Ultimate Acquisition
Partners, LLP, an affiliate of WCM and competitor of the Company, which
operates consumer electronics
stores.
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Name
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Current
Position
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Philip
J. Schoonover
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Chairman
of the Board, President and Chief Executive Officer
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Barbara
S. Feigin
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Director
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Allen
B. King
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Director
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Carolyn
Y. Woo
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Director
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James
F. Hardymon
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Director
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Ronald
M. Brill
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Director
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Carolyn
H. Byrd
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Director
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Ursula O.
Fairbairn1
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Director
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Alan
Kane
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Director
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Mikael
Salovaara
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Director
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J.
Patrick Spainhour
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Director
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Ronald
L. Turner
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Director
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Name
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Cash
Severance
($)
(1)
|
|
Pro
Rata
Bonus
for
Termination
Year
($)
|
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Acceleration
of Long-term
Incentives
($)
(2)
|
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Present Value
of
Retirement
Benefits
($)
|
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Benefit
Continuation
($)
(3)
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280G
Excise
Tax
Gross-ups
($)
(4)
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Total
($)
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|||||
Schoonover
|
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3,600,000
|
|
—
|
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1,654,800
|
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—
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|
202,360
|
|
1,638,561
|
|
7,095,721
|
|||||
Besanko
|
|
1,800,000
|
|
—
|
|
1,662,760
|
|
—
|
|
84,860
|
|
1,420,114
|
|
4,967,734
|
|||||
Hedgebeth
|
|
696,000
|
|
—
|
|
1,019,160
|
|
—
|
|
140,878
|
|
959,599
|
|
3,511,637
|
|||||
Jonas
|
|
627,040
|
|
—
|
|
1,019,160
|
|
—
|
|
136,490
|
|
870,846
|
|
3,280,576
|
|||||
Weedfald
|
|
571,200
|
|
—
|
|
884,088
|
|
—
|
|
116,294
|
|
867,960
|
|
3,010,742
|
(1)
|
Cash
severance payable in a lump sum equal to the sum of current base salary
and target annual bonus multiplied by
two.
|
(2)
|
Immediate
vesting of all outstanding stock awards, assuming the
Compensation & Personnel Committee exercises its authority to
accelerate vesting of all outstanding awards upon a change in control.
Amount also includes payment of an accelerated portion of the cash
retention award as follows: Mr. Schoonover, $0; Mr. Besanko,
$1,000,000; Mr. Hedgebeth, $600,000; Mr. Jonas, $600,000; and
Mr. Weedfald, $600,000.
|
(3)
|
Includes
the value of continued participation in all health and welfare benefit
plans for two years following termination, a lump sum payment equal to two
times the cost of perquisites currently provided to each executive officer
and outplacement fees not to exceed
$50,000.
|
(4)
|
Includes
reimbursement for the excise tax imposed by Section 4999 of the
Internal Revenue Code, plus all taxes imposed on the reimbursement
payment. However, in the case of each of Messrs. Besanko, Hedgebeth and
Weedfald, the value of change in control severance benefits is capped at
2.99x base salary and most recent bonus paid (or if no bonus has been
paid, his target annual bonus). This limit applies to the cash severance
payments, outplacement fees, health and welfare benefits continuation and
payments based on the cost of perquisites. The value of accelerated stock
options and restricted shares is not subject to this limit. Excise tax
reimbursements will continue to apply and may cause total benefits to
exceed the 2.99 limit.
|
Wattles
Capital Management, LLC
|
Sales:
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase
/ Sale
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HKW
Trust
|
Purchases:
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase
/ Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
Class
of
Security
|
Quantity
Purchased/(Sold)
|
Price
Per
Share
($)
|
Date
of
Purchase/Sale
|
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·
|
SIGNING
the enclosed GOLD
proxy card,
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|
·
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DATING
the enclosed GOLD
proxy card, and
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|
·
|
MAILING
the enclosed GOLD
proxy card TODAY in the envelope provided (no postage is required if
mailed in the United States).
|
FOR
ALL NOMINEES
|
WITHHOLD
AUTHORITY TO VOTE FOR ALL NOMINEES
|
FOR
ALL EXCEPT NOMINEE(S) WRITTEN BELOW
|
|
Nominees: James
A. Marcum
Elliott
Wahle
Don
R. Kornstein
Anthony
Bergamo
Alexander
M. Bond
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[ ]
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[ ]
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[ ] ________________________________
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