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Published on 4/4/2008 in the Prospect News Special Situations Daily.

Circuit City willing to discuss shareholder's views regarding the company

By Lisa Kerner

Charlotte, N.C., April 4 - Circuit City Stores, Inc. lead director Mikael Salovaara said he will meet with Mark J. Wattles of Wattles Capital Management, LLC to discuss the investor's views regarding the company.

Wattles, in an April 2 letter to the Circuit City board, called for the replacement of company chairman and chief executive officer Philip Schoonover. In February, Wattles Capital put forth a slate of five nominees for election to the company's board on June 24.

In his April 4 reply to Wattles, Salovaara reiterated the need for Circuit City's nominating and governance committee to meet with the investor's nominees. The letter was included in a company news release.

Circuit City's board has an obligation to its shareholders to thoroughly research and personally interview potential members, Salovaara said.

"This is even more true given that your proposal to remove the entire Circuit City board would, if adopted, give your nominees absolute control of the entire board," Salovaara's letter said.

Wattles Capital has a 6.5% stake in the Richmond, Va.-based electronics retailer.

It was previously reported that Wattles Capital wants to "help restore investor faith in Circuit City" and urged the board of directors to:

• Drive revenue growth instead of focusing on cost-cutting strategies and "spin" campaigns;

• Focus on the customer experience and strategies to make current stores more productive;

• Focus on the most immediate and least capital-intensive opportunities to improve the health of the business; and

• Develop and articulate a deliverable promise for the new "The City" brand that works within the realities of the current store footprints.

In its letter to Circuit City, Wattles Capital cited its turnaround of a 32-store chain of consumer electronics stores acquired as a result of Ultimate Electronics' bankruptcy in 2005. Wattles said both the Ultimate Electronics and Circuit City stores have approximately the same square footage and compete "head to head" with Best Buy Co., Inc.

Like Circuit City, Ultimate Electronics was also adversely affected by "poor assortment planning and in-store merchandising, suboptimal and inconsistent pricing, ineffective promotional strategies, and high store-level employee turnover coupled with low morale," Wattles Capital said.

Wattles Capital said that with Ultimate Electronics, it assembled a new management team, formulated a company-wide plan to build sales and rebuilt the stores' sales culture and employee morale.


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