O'Reilly Auto Parts 2009 Annual Report Download - page 85

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of 2002, as previously reported, also continues. The previously reported DOJ criminal complaint against two (2) of the former
employees of CSK remains ongoing. However, given the recent death of one (1) of those former employees, we expect no further
action with respect to such former employee.
With respect to the ongoing DOJ investigation discussed above, attorneys from the DOJ have indicated that as a result of conduct
alleged against the former employees, as set forth in the pleadings in United States vs. Fraser, et. al., U.S.Dist.Ct., Dist. of Ariz.; Case
No: 2:09-cr-00372-SRB-2, the DOJ is considering whether to file criminal charges against CSK. O’Reilly is engaged in discussions
with the DOJ to attempt to resolve the matter. O’Reilly cannot predict the outcome of these discussions at this time. O’Reilly intends
to vigorously defend against any such charges if filed. The probability of criminal charges being filed against CSK or the magnitude of
the costs to resolve these issues cannot now be reasonably estimated. Accordingly, the accompanying financial statements do not
reflect an accrued liability for this contingency.
Several of CSK's former directors or officers and current or former employees have been or may be interviewed as part of or become
the subject of criminal, administrative and civil investigations and lawsuits. As described above, certain former employees of CSK are
the subject of civil and criminal litigation commenced by the government. Under Delaware law, the charter documents of the CSK
entities and certain indemnification agreements, CSK has certain obligations to indemnify these persons and O’Reilly is currently
incurring legal fees on the behalf of these persons in relation to pending matters. Some of these indemnification obligations and other
related costs may not be covered by CSK’s insurance policies.
As a result of the CSK acquisition, O’Reilly expects to continue to incur ongoing legal fees related to the ongoing DOJ investigation of
CSK and indemnity obligations for the litigation that has commenced by the DOJ and SEC of CSK’s former employees. O’Reilly
recorded an assumed liability for such fees in the Company’s allocation of purchase price of CSK, of which $20,682,000 remains
accrued as of December 31, 2009. O’Reilly has paid approximately $3,978,000 of such legal costs related to the government
investigations and indemnity obligations in 2009.
The foregoing governmental investigations and indemnification matters are subject to many uncertainties, and, given their complexity
and scope, their final outcome cannot be predicted at this time. It is possible that in a particular quarter or annual period the
Company’s results of operations and cash flow could be materially affected by an ultimate unfavorable resolution of such matters,
depending, in part, upon the results of operations or cash flow for such period. However, at this time, management believes that the
ultimate outcome of all of such regulatory proceedings that are pending, after consideration of applicable reserves and potentially
available insurance coverage benefits not contemplated in recorded reserves, should not have a material adverse effect on the
Company’s consolidated financial condition, results of operations and cash flows.
NOTE 15—SHAREHOLDER RIGHTS PLAN
On May 7, 2002, the Board of Directors adopted a shareholder rights plan whereby one right was distributed for each share of common
stock, par value $0.01 per share, of the Company held by stockholders of record (the “Rights”) as of the close of business on May 31,
2002. The Rights initially entitle stockholders to buy a unit representing one one-hundredth of a share of a new series of preferred
stock of the Company for $160 and expire on May 30, 2012. The Rights generally will be exercisable only if a person or group
acquires beneficial ownership of 15% or more of the Company's common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more of the Company's common stock. If a person or
group acquires beneficial ownership of 15% or more of the Company's common stock, each Right (other than Rights held by the
acquiror) will, unless the Rights are redeemed by the Company, become exercisable upon payment of the exercise price of $160 for an
amount of common stock of the Company having a market value of twice the exercise price of the Right. A copy of the Rights
Agreement was filed on June 3, 2002, with the Securities and Exchange Commission, as Exhibit 4.2 to the Company’s report on Form
8-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report