Circuit City stores to liquidate starting tomorrow

Circuit City Stores took its first steps towards going out of business today, after a federal judge today approved its liquidation proposal.

And at its Henrico County headquarters, the company issued notices to some 1,500 employees that their jobs would end in 60 days.

Circuit City's liquidation starts tomorrow, when four specialist companies will begin "everything-must-go" sales at all its 567 stores.

U.S. Bankruptcy Court Judge Kevin Huennekens gave the go-head for the sale this afternoon, saying was doing so reluctantly.

The company's 30-page agreement with four companies that will run the sale say they are to finish by March 31, at which time they are to leave Circuit City's stores "broom clean."

The four would be responsible for all the work and expense in running the sale and will be the ones determining prices and store staffing. Gift cards will be accepted at face value. Items that had been brought in for repair or service will not be sold. The move does not affect warranties, as these are the responsibility of other companies.

The agreement with the four liquidators specifically says the companies will be allowed to post signs and banners saying "store closing," "everything must go" and "going out of business."

In a statement released shortly after 11 a.m., Circuit City's Vice Charman and acting President and CEO James A. Marcum said, "We are extremely disappointed by this outcome. The company had been in continuous negotiations regarding a going-concern transaction. Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company."

The four companies -- Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group -- are guaranteeing that Circuit City will receive at least 70.5 percent of what it paid for the merchandise, including freight costs, the agreement says.

The agreement proposes splitting any proceeds that exceed that amount on a 70-30 basis between Circuit City and the four, up to the point at which the four firms have collected 3 percent of the value of the goods. At that point, the split would become 90-10 between Circuit City and the four firms.

The four will sell all the merchandise in 567 stores, including display items, defective goods and merchandise that is on order. They will not sell items that were returned for service or repair, or those under layaway plans or items subject to manufacturer's recalls.

At the end of the sale, any unsold merchandise will belong to the four firms.

The four will be able to use Circuit City employees they select to run the sale, and may fire them at any time. Circuit City will handle payroll and any hirings needed to conduct the sale.

The agreement includes a $7.5 million fee for the four firms to cover the costs they incurred while arranging the deal.

-- Louis Llovio and David Ress