-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GW8nxXsCoXHLLouIgjgWZLRLR4d+TXQNN0l3vAj4pezrf3xjtibfJzfilEF0ybQu tRE+IUPpDf0l9eOqMrn4ag== 0000950131-97-007443.txt : 19971229 0000950131-97-007443.hdr.sgml : 19971229 ACCESSION NUMBER: 0000950131-97-007443 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19971224 SROS: NONE GROUP MEMBERS: OREILLY AUTOMOTIVE INC GROUP MEMBERS: SHAMROCK ACQUISITION INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HI LO AUTOMOTIVE INC /DE CENTRAL INDEX KEY: 0000874188 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 760232254 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-41639 FILM NUMBER: 97744024 BUSINESS ADDRESS: STREET 1: 2575 W BELLFORT CITY: HOUSTON STATE: TX ZIP: 77054 BUSINESS PHONE: 7136636700 MAIL ADDRESS: STREET 1: 2575 W BELLFORT CITY: HOUSTON STATE: TX ZIP: 77054 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: OREILLY AUTOMOTIVE INC CENTRAL INDEX KEY: 0000898173 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 440618012 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 233 S PATTERSON CITY: SPRINGFIELD STATE: MO ZIP: 65801 BUSINESS PHONE: 4178626708 MAIL ADDRESS: STREET 1: 233 SOUTH PATTERSON CITY: SPRINGFIELD STATE: MO ZIP: 65802 SC 14D1 1 SCHEDULE 14D-1 AND SCHEDULE 13D - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 ---------------- HI-LO AUTOMOTIVE, INC. (NAME OF SUBJECT COMPANY) SHAMROCK ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF O'REILLY AUTOMOTIVE, INC. (BIDDERS) COMMON STOCK (TITLE OF CLASS OF SECURITIES) 428939D 10 0 (CUSIP NUMBER OF CLASS OF SECURITIES) DAVID E. O'REILLY PRESIDENT AND CHIEF EXECUTIVE OFFICER O'REILLY AUTOMOTIVE, INC. 233 SOUTH PATTERSON SPRINGFIELD, MO 65802 (417) 862-2674 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) WITH A COPY TO: PETER C. KRUPP SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 WEST WACKER DRIVE, SUITE 2100 CHICAGO, ILLINOIS 60606 (312) 407-0700 DECEMBER 24, 1997 (DATE OF EVENT WHICH REQUIRES FILING STATEMENT ON SCHEDULE 13D) CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE** $48,813,229.20 $9,762.65 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- * For purposes of calculating the filing fee only. This calculation assumes the purchase of 11,221,432 shares of Common Stock, par value $.01 per share (the "Common Stock," including the associated preferred stock purchase rights (the "Rights, and together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc. (the "Company") at $4.35 net per share in cash. Such number of Shares represents all the Shares outstanding as of December 15, 1997, plus Shares which may be issued upon the exercise of outstanding employee stock options and pursuant to the Company's employee stock purchase plan. ** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate value of cash offered by Shamrock Acquisition, Inc. for such number of shares. [_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: Not applicable. Filing Party: Not applicable. Form or Registration No.: Not applicable. Dated Filed: Not applicable. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 14D-1 AND 13D CUSIP No. 428939D 10 0 - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON SHAMROCK ACQUISITION, INC. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A)[_] (B) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS BK - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(E) OR 2(F) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- 2 14D-1 AND 13D CUSIP NO. 428939D 10 0 - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON O'REILLY AUTOMOTIVE, INC. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A)[_] (B) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS BK - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(E) OR 2(F) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION MISSOURI - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- 3 This statement relates to a tender offer by Shamrock Acquisition, Inc., a Delaware corporation (the "Purchaser") and wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation ("Parent"), to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights," and together with the Common Stock, the "Shares") of Hi-Lo Automotive, Inc., a Delaware corporation, at $4.35 per Share net to the seller in cash and without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is attached hereto as Exhibit(a)(2) (which together constitute the "Offer"). ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"). The principal executive offices of the Company are located at 2575 West Bellfort, Houston, Texas 77054. (b) The information set forth in the Introduction to, and in Section 1, "Terms of the Offer," of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6, "Price Range of Shares; Dividends," of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. This Statement is being filed by the Purchaser and Parent. The information set forth in the Introduction to, and in Section 9, "Certain Information Concerning the Purchaser and Parent," and Schedule I, "Information Concerning the Directors and Executive Officers of Parent and the Purchaser," of the Offer to Purchase is incorporated herein by reference. (a)-(d) and (g) The name, residence or business address, citizenship, present principal occupation or employment and material occupations during the last 5 years of each executive officer and director of the Purchaser and Parent is set forth in Schedule I of the Offer to Purchase. (e) and (f) During the last five years, neither the Purchaser, Parent nor any of the persons listed in Schedule I of the Offer to Purchase has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, or finding any violation of federal or state securities laws. ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction to, and in Section 9, "Certain Information Concerning the Purchaser and Parent," and Section 10, "Background of the Offer; Contacts with the Company," of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in Section 13, "Source and Amount of Funds," of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. 4 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in the Introduction to, and in Section 11, "Purpose of the Offer and the Merger; Plans for the Company," and Section 13, "Source and Amount of Funds," of the Offer to Purchase is incorporated herein by reference. (f) and (g) The information set forth in Section 7, "Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration; Margin Regulations," of the Offer to Purchase is incorporated herein by reference. Other than as set forth in the Introduction to, or the above-referenced sections of, the Offer to Purchase, Purchaser has no plans or proposals that relate to, or would result in, any transaction, change or other occurrence with respect to the Company or the Shares that is set forth in any of paragraphs (a) through (g) of Item 5 of the Schedule 14D-1. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction to, and in Section 9, "Certain Information Concerning the Purchaser and Parent," and Section 12, "The Merger Agreement; Confidentiality Agreement," of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction to, and in Section 9, "Certain Information Concerning the Purchaser and Parent," Section 10, "Background of the Offer; Contacts with the Company," and Section 12, "The Merger Agreement; Confidentiality Agreement," of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 16, "Fees and Expenses," of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 9, "Certain Information Concerning the Purchaser and Parent," including the financial statements and the notes thereto incorporated by reference in Section 9, is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in the Introduction to, and in Section 11, "Purpose of the Offer and the Merger; Plans for the Company," of the Offer to Purchase is incorporated herein by reference. (b) and (c) The information set forth in the Introduction to, and in Section 15, "Certain Legal Matters," of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7, "Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration; Margin Regulations," of the Offer to Purchase is incorporated herein by reference. (e) None. 5 (f) Reference is hereby made to the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, and which are incorporated herein by reference in their entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a) (1) Offer to Purchase, dated December 24, 1997. (a) (2) Letter of Transmittal. (a) (3) Notice of Guaranteed Delivery. (a) (4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a) (5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a) (6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a) (7) Text of Joint Press Release, dated December 23, 1997, issued by O'Reilly Automotive, Inc. and Hi-Lo Automotive, Inc. (a) (8) Form of Summary Advertisement, dated December 24, 1997. (b) Commitment Letter, dated December 20, 1997, among O'Reilly Automotive, Inc., NationsBank N.A. and NationsBanc Montgomery Securities, Inc. (c) (1) Agreement and Plan of Merger, dated as of December 23, 1997, among O'Reilly Automotive, Inc., Sham- rock Acquisition, Inc. and Hi-Lo Automotive, Inc. (c) (2) Confidentiality Agreement, dated as of November 26, 1997, among O'Reilly Automotive, Inc., Hi-Lo Au- tomotive, Inc. and SBC Warburg Dillon Read, Inc. (d) None. (e) Not applicable. (f) None.
6 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. Shamrock Acquisition, Inc. /s/ David E. O'Reilly By: ___________________ Name: David E. O'Reilly Title: President Dated: December 23, 1997 7 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. O'Reilly Automotive, Inc. /s/ David E. O'Reilly By: ___________________ Name: David E. O'Reilly Title: President and Chief Executive Officer Dated: December 23, 1997 8 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- (a)(1) Offer to Purchase, dated December 24, 1997. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute W-9. (a)(7) Text of Joint Press Release, dated December 23, 1997, issued by O'Reilly Automotive, Inc. and Hi-Lo Automotive, Inc. (a)(8) Form of Summary Advertisement, dated December 24, 1997. (b) Commitment Letter, dated December 20, 1997, among O'Reilly Automotive, Inc., Nationsbank N.A. and NationsBanc Montgomery Securities, Inc. (c)(1) Agreement and Plan of Merger, dated as of December 23, 1997 among O'Reilly Automotive, Inc., Shamrock Acquisition, Inc. and Hi-Lo Automotive, Inc. (c)(2) Confidentiality Agreement, dated as of November 26, 1997, among O'Reilly Automotive, Inc., Hi-Lo Automotive, Inc. and SBC Warburg Dillon Read, Inc. (d) None. (e) Not applicable. (f) None.
9 EX-99.(A)(1) 2 OFFER TO PURCHASE, DATED 12-24-1997 EXHIBIT (a)(1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. AT $4.35 NET PER SHARE BY SHAMROCK ACQUISITION, INC., A WHOLLY OWNED SUBSIDIARY OF O'REILLY AUTOMOTIVE, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. THE BOARD OF DIRECTORS OF HI-LO AUTOMOTIVE, INC. (THE "COMPANY") HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER (EACH AS DEFINED HEREIN), HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES (AS DEFINED HEREIN), WHICH, TOGETHER WITH ANY SHARES BENEFICIALLY OWNED BY PARENT OR PURCHASER, REPRESENT AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (AS DEFINED HEREIN). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE SECTION 14. ---------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (a) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal (or such facsimile), together with the certificate(s) representing tendered Shares and any other required documents to the Depositary or, in lieu of delivering certificates representing such Shares, tender such Shares pursuant to the procedures for book-entry transfer set forth in Section 3, or (b) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available or who cannot comply with the procedures for book-entry transfer on a timely basis may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies. A stockholder may also contact brokers, dealers, commercial banks and trust companies for assistance concerning the Offer. ---------------- The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION December 24, 1997 TABLE OF CONTENTS
PAGE ---- INTRODUCTION.............................................................. 1 THE TENDER OFFER.......................................................... 3 1.Terms of the Offer................................................... 3 2.Acceptance for Payment and Payment for Shares........................ 4 3.Procedures for Tendering Shares...................................... 6 4.Withdrawal Rights.................................................... 8 5.Certain Federal Income Tax Consequences.............................. 9 6.Price Range of Shares; Dividends..................................... 10 7.Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration; Margin Regulations.................. 10 8.Certain Information Concerning the Company........................... 11 9.Certain Information Concerning the Purchaser and Parent.............. 13 10.Background of the Offer; Contacts with the Company................... 15 11.Purpose of the Offer and the Merger; Plans for the Company........... 16 12.The Merger Agreement; Confidentiality Agreement...................... 18 13.Source and Amount of Funds........................................... 25 14.Certain Conditions of the Offer...................................... 26 15.Certain Legal Matters................................................ 27 16.Fees and Expenses.................................................... 30 17.Miscellaneous........................................................ 31 Schedule I--Information Concerning the Directors and Executive Officers of Parent and the Purchaser................................................. I-1
To the Holders of Shares of Common Stock of Hi-Lo Automotive, Inc.: INTRODUCTION Shamrock Acquisition, Inc. ("Purchaser"), a Delaware corporation and a wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation ("Parent"), hereby offers to purchase all outstanding shares of the Common Stock, par value $.01 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement (as defined below), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), at a price of $4.35 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The Parent will pay all fees and expenses of Donaldson, Lufkin & Jenrette Securities Corporation, as Dealer Manager (in such capacity, the "Dealer Manager"), ChaseMellon Shareholder Services, L.L.C., as Depositary (the "Depositary"), and Innisfree M&A Incorporated, as Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 16. THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND THE MERGER AGREEMENT (AS DEFINED BELOW) AND THE MERGER AGREEMENT (AS DEFINED BELOW), HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. SBC Warburg Dillon Read, Inc. ("SBC Warburg Dillon Read"), the Company's financial advisor, has delivered to the Company Board its written opinion that the consideration to be received by the stockholders of the Company pursuant to each of the Offer and the Merger is fair to such stockholders. A copy of the opinion of SBC Warburg Dillon Read is contained in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES BENEFICIALLY OWNED BY PARENT OR PURCHASER, REPRESENT AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). The Company has represented and warranted to the Purchaser and Parent in the Merger Agreement that, as of December 15, 1997, 10,775,109 Shares were issued and outstanding, and 507,223 Shares were issuable pursuant to options ("Options"), excluding 587,566 shares issuable upon the exercise of options which the Company's directors and executive officers have agreed not to exercise, granted under the Company's option plans and pursuant to the Associate Purchase Plan (as defined in Section 12). Based on the foregoing and assuming no additional Shares (or options, warrants or rights exercisable for, or convertible securities convertible into Shares) have been issued since December 15, 1997 (other than Shares issued pursuant to the exercise of the stock options referred to above), if 5,641,167 Shares were validly tendered and not withdrawn prior to the Expiration Date (as hereinafter defined) pursuant to the terms of the Offer, the Minimum Condition would be satisfied. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN SECTION 14. THE PURCHASER EXPRESSLY RESERVES THE RIGHT TO WAIVE ANY ONE OR MORE OF THE CONDITIONS TO THE OFFER (EXCEPT THAT THE MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT THE COMPANY'S CONSENT). SEE SECTION 14. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 23, 1997 (the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Delaware General Corporation Law (the "DGCL"), Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") as a wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Purchaser, Parent, the Company or any wholly owned subsidiary of Parent or the Company and Shares held by stockholders who perfect their dissenters' rights under Delaware law) will be cancelled and converted automatically into the right to receive $4.35 in cash, or any higher price that may be paid per Share in the Offer, without interest (the "Merger Consideration"). The Merger Agreement is more fully described in Section 12. The Merger Agreement provides that, upon the purchase by Purchaser of a majority of the Shares pursuant to the Offer and from time to time thereafter, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board so that the percentage of Parent's nominees on the Company Board equals the percentage of outstanding Shares beneficially owned by Parent and its affiliates. The Company shall, at such time, upon the request of Purchaser promptly use its best efforts to take all action necessary to cause such persons designated by Parent to be elected to the Company Board, if necessary, by increasing the size of the Company Board or securing resignations of incumbent directors or both. Under the DGCL, if the Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the outstanding Shares, the Purchaser will be able to approve the Merger Agreement and the transactions contemplated thereby without a vote of the stockholders. In such event, Parent, Purchaser and the Company have agreed in the Merger Agreement to take, at the request of Parent and subject to the satisfaction of the conditions set forth in the Merger Agreement, all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the stockholders, in accordance with Section 253 of the DGCL. If, however, the Purchaser does not acquire at least 90% of the outstanding Shares pursuant to the Offer or otherwise and a vote of the stockholders is required under the DGCL, a significantly longer period of time would be required to effect the Merger. In the Merger Agreement, Parent, Purchaser and the Company have agreed that, notwithstanding that all conditions to the Offer are satisfied or waived as of the scheduled Expiration Date, Purchaser may extend the Offer for a period not to exceed 10 business days, subject to certain conditions, if the Shares tendered pursuant to the Offer are less than 90% of the outstanding Shares. The Rights. The Company has distributed one Right for each outstanding Share of Common Stock pursuant to the Rights Agreement, dated as of August 28, 1996, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, as amended (the "Rights Agreement"). Based on the information disclosed by the Company in the Schedule 14D-9 in connection with and prior to the Company's entering into the Merger Agreement, on December 23, 1997, the Company Board approved an amendment to the Rights Agreement to provide that the execution of the Merger Agreement and the consummation of the transactions contemplated thereby will not cause (i) Parent and/or the Purchaser to become an Acquiring Person (as defined in the Rights Agreement) or (ii) a Distribution or a Shares Acquisition Date (as each such term is defined in the Rights Agreement) to occur, irrespective of the number of Shares acquired pursuant to the Offer. THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 THE TENDER OFFER 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with the procedures set forth in Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, January 26, 1998, unless and until the Purchaser shall have extended the period of time during which the Offer is open, subject to the terms of the Merger Agreement, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. If requested by the Company, the Purchaser is required to extend the Offer from time to time until 90 days after commencement of the Offer if on the scheduled Expiration Date any of the conditions to Purchaser's obligation to accept for payment and pay for the Shares shall not be satisfied or waived. Consummation of the Offer is conditioned upon satisfaction of the Minimum Condition, the expiration or termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (the "HSR Act") and the other conditions set forth in Section 14. If such conditions are not satisfied prior to the Expiration Date, the Purchaser reserves the right, but shall not be obligated, to decline to purchase any of the Shares tendered, delay the acceptance for payment of any Shares or terminate or amend the Offer, subject to the terms of the Merger Agreement. Subject to the terms and conditions contained in the Merger Agreement, the Purchaser reserves the right (but shall not be obligated) to waive in whole or in part, at any time and from time to time, any or all of such conditions, provided that the Minimum Condition cannot be waived by the Purchaser without the written consent of the Company. In the Merger Agreement, Parent, Purchaser and the Company have agreed that, notwithstanding that all conditions to the Offer are satisfied or waived as of the scheduled Expiration Date, Purchaser may extend the Offer, subject to certain conditions as set forth in the Merger Agreement, (i) for a period not to exceed 10 business days if the Shares tendered pursuant to the Offer are less than 90% of the outstanding Shares and (ii) for a period not to exceed five business days, if an Adverse Market Change (as hereinafter defined) shall have occurred and be continuing on the scheduled Expiration Date. See Section 12. Pursuant to the Merger Agreement, the Purchaser may not, without the written consent of the Company, (i) decrease the price per Share payable in the Offer, (ii) change the form of consideration to be paid in the Offer, (iii) reduce the maximum number of Shares to be purchased in the Offer or the Minimum Condition, (iv) impose additional conditions to the Offer or modify the conditions in a manner adverse to the holders of Shares or (v) amend any other term of the Offer in a manner adverse to the holders of the Shares. Subject to the terms and conditions of the Offer and this Agreement, Purchaser shall, and Parent shall cause Purchaser to, pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Purchaser becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. There can be no assurance that either the Company or the Purchaser will exercise its rights to cause the Purchaser to extend the Offer (other than as required by the Merger Agreement or applicable law). Any extension, amendment or termination of the Offer, or any waiver of any condition of the Offer, will be followed as promptly as practicable by a public announcement. In the case of an extension, Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. As used in this Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1 under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change), and without limiting the manner in which the Purchaser may choose to make any public announcement, the 3 Purchaser will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. During any extension of the Offer, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw its Shares in accordance with the procedures set forth in Section 4. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO PAY INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER. If the Purchaser extends the Offer or if the Purchaser is delayed in its acceptance for payment of or payment for Shares (whether before or after its acceptance for payment of Shares) or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 4. However, the ability of the Purchaser to delay the payment for Shares that the Purchaser has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including, subject to the Merger Agreement, the Minimum Condition), the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following a material change in the terms of the offer or information concerning the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In a public release, the Securities and Exchange Commission (the "Commission") has stated that in its view an offer must remain open for a minimum period of time following a material change in the terms of the Offer and that waiver of a material condition, such as the Minimum Condition, is a material change in the terms of the Offer. The release states that an offer should remain open for a minimum of five business days from the date a material change is first published, sent or given to security holders and that, if material changes are made with respect to information not materially less significant than the offer price and the number of shares being sought, a minimum of ten business days may be required to allow adequate dissemination and investor response. The requirement to extend the Offer will not apply to the extent that the number of business days remaining between the occurrence of the change and the then- scheduled Expiration Date equals or exceeds the minimum extension period that would be required because of such amendment. If, prior to the Expiration Date, the Purchaser increases the consideration offered to holders of Shares pursuant to the Offer, such increased consideration will be paid to all holders whose Shares are purchased in the Offer whether or not such Shares were tendered prior to such increase in consideration. The Company has provided the Purchaser with the Company's stockholder lists and security position listing for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and will be furnished by the Purchaser to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will purchase, by accepting for payment, and will pay for, as soon as it is permitted to do so under applicable law, all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with the procedures set forth in Section 4. All determinations concerning the satisfaction of such terms and conditions will be within the Purchaser's 4 reasonable discretion, which determinations will be final and binding. See Sections 1 and 14. The Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law, including, without limitation, the HSR Act. Any such delays will be effected in compliance with Rule 14e-1(c) promulgated under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below) and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. For purposes of the Offer, the Purchaser shall be deemed to have accepted for payment, and thereby purchased, Shares validly tendered prior to the Expiration Date and not properly withdrawn if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted pursuant to the Offer will be made by deposit of the aggregate purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to such tendering stockholders. Under no circumstances will interest on the purchase price for Shares be paid regardless of any extension of the Offer or any delay in making such payment. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering stockholders, the Purchaser's obligation to make such payment shall be satisfied and tendering stockholders must thereafter look solely to the Depositary for payment of amounts owed to them by reason of the acceptance for payment of Shares pursuant to the Offer. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The Purchaser will pay any charges and expenses of the Depositary and the Information Agent. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing such unpurchased Shares or untendered Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. The Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 5 3. PROCEDURES FOR TENDERING SHARES. Valid Tender of Shares. In order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal or a facsimile thereof, properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary along with the Letter of Transmittal, or (ii) Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, or (iii) the tendering stockholder must comply with the guaranteed delivery procedures described below, in each case prior to the Expiration Date. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY THEREOF WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at each Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of Shares by causing a Book- Entry Transfer Facility to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed and with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date or the tendering stockholder must comply with the guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantees. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available or time will not permit all required documents to reach the 6 Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser herewith, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the Share Certificates for all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantee (or, in the case of a book- entry transfer, an Agent's Message) and any other documents required by such Letter of Transmittal, are received by the Depositary within three trading days after the date of execution of the Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange, Inc. ("NYSE") is open for business. Any Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares purchased pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Shares, or a Book- Entry Confirmation of the delivery of such Shares, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message) and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when the foregoing materials are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Backup Federal Withholding Tax. To prevent backup federal income tax withholding with respect to payment to certain stockholders of the purchase price of Shares purchased pursuant to the Offer, each such stockholder must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") and certify, under penalty or perjury, that such TIN is correct and that such stockholder is not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Purchaser and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Foreign stockholders, if exempt, should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. Appointment as Proxy; Distributions. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of the Purchaser as such stockholder's attorneys-in-fact and proxies, in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and any and all non-cash dividends, distributions, rights, other Shares, or other securities issued or issuable in respect of such Shares on or after the date of the Merger Agreement). All such powers of attorney and proxies shall be considered coupled with an interest in the tendered Shares. This appointment will be effective if, when, and only to the extent that, the Purchaser accepts such Shares for payment pursuant to the 7 Offer. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent powers of attorney or proxies may be given (and, if given, will not be deemed effective). The designees of the Purchaser will, with respect to the Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual, special, adjourned or postponed meeting of the Company's stockholders, by written consent or otherwise, and the Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares the Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Such powers of attorney and proxies will be irrevocable and will be granted in consideration of the purchase of the Shares by the Purchaser in accordance with the terms of the Offer. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Shares pursuant to any of the procedures described above will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding on all parties. The Purchaser reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of, or payment for, such Shares may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right, in its sole discretion, subject to the Merger Agreement to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. None of Parent, the Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. Binding Agreement. A tender of Shares pursuant to any of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer. The Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below or at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after February 21, 1998. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this Section 4. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or 8 otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding on all parties. None of Parent, the Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed to not have been validly tendered for purposes of the Offer. Withdrawals of tenders of Shares may not be rescinded. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3 on or prior to the Expiration Date. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of certain United States federal income tax consequences of the Offer and the Merger to stockholders whose Shares are purchased pursuant to the Offer or whose Shares are converted to cash in the Merger (including pursuant to the exercise of perfected dissenter rights under the DGCL). The discussion applies only to stockholders in whose hands Shares are capital assets, and may not apply to Shares received pursuant to the exercise of employee stock options or otherwise as compensation, or to stockholders who are in special tax situations (such as insurance companies, tax-exempt organizations or dealers in securities). This discussion does not discuss the federal income tax consequences to a stockholder who, for United States federal income tax purposes, is a nonresident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust. THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON CURRENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS TO SUCH STOCKHOLDER OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER INCOME TAX LAWS. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes (and also may be a taxable transaction under applicable state, local and other income tax laws). In general, for federal income tax purposes, a stockholder will recognize gain or loss in an amount equal to the difference between his or her adjusted tax basis in the Shares sold pursuant to the Offer or converted into cash in the Merger and the amount of cash received therefor. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) sold pursuant to the Offer or converted into cash in the Merger. Such gain or loss will be capital gain or loss if the Shares are held as a capital asset by the stockholder, and will be long-term gain or loss if the Shares were held by the stockholder for more than one year on the date of sale (in the case of the Offer) or the Effective Time of the Merger (in the case of the Merger). In addition, the recently enacted Taxpayer Relief Act of 1997 could affect the federal income tax consequences of the Offer and the Merger in that, among other things, it reduces the maximum rate of federal income tax on capital gains of individual taxpayers for capital assets held more than eighteen months. 9 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and traded on the NYSE under the symbol "HLO." The following table sets forth, for the fiscal quarters indicated, the high and low reported sales prices per Share on the NYSE as reported by the Dow Jones News Service.
HIGH LOW ------- ------ Fiscal Year Ended December 31, 1995: First Quarter................................................. $11 5/8 $ 8 Second Quarter................................................ $10 7/8 $7 7/8 Third Quarter................................................. $10 7/8 $ 7 Fourth Quarter................................................ $ 7 1/4 $4 1/2 Fiscal Year Ended December 31, 1996: First Quarter................................................. $ 6 1/8 $3 1/2 Second Quarter................................................ $ 6 1/4 $4 1/4 Third Quarter................................................. $ 4 3/4 $3 1/8 Fourth Quarter................................................ $ 3 5/8 $2 1/4 Fiscal Year Ending December 31, 1997: First Quarter................................................. $ 4 3/8 $2 1/2 Second Quarter................................................ $ 3 5/8 $2 1/2 Third Quarter................................................. $ 3 3/4 $2 3/4 Fourth Quarter (through December 22, 1997).................... $ 5 1/2 $2 5/8
On December 22, 1997, the last full trading day prior to the public announcement of the execution of the Merger Agreement and of Purchaser's intention to commence the Offer, the closing price per Share as reported on the NYSE was $3 1/4. Stockholders are urged to obtain a current market quotation for the Shares. The Company has never paid any cash dividends on the Shares. The Merger Agreement provides that, without the prior written consent of Parent, the Company will not declare, set aside or pay any dividend on or make any other distribution in respect of any of its capital stock. See Section 12. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS. Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Stock Listing. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing and may be delisted from the NYSE and deregistered under Section 12(b) of the Exchange Act. Parent intends to cause the delisting by the NYSE and deregistration of the Shares following consummation of the Offer. According to the published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of holders of at least 100 Shares should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers, directors and their families and other concentrated holdings of 10 percent or more ("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $8,000,000. The Company has advised Purchaser that, as of December 17, 1997, there were 10,775,109 Shares outstanding, held by approximately 430 holders of record. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. 10 If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over the counter market and that price or other quotations would be reported by such exchange or through the Nasdaq Stock Market or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Merger Consideration. Margin Regulations. The Shares are currently "margin securities," as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing banks to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares might no longer be eligible as collateral for loans made by banks. Exchange Act Registration. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would, subject to Section 15(d) of the Exchange Act, substantially reduce the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy or information statement pursuant to Section 14(a) or (c) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended, may be impaired or eliminated. THE PURCHASER INTENDS TO SEEK TO CAUSE THE COMPANY TO APPLY FOR DELISTING OF THE SHARES FROM THE NYSE AND TERMINATION OF REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT AS SOON AFTER THE COMPLETION OF THE OFFER AS THE REQUIREMENTS FOR SUCH DELISTING AND/OR TERMINATION ARE MET. IF REGISTRATION OF THE SHARES IS NOT TERMINATED PRIOR TO THE MERGER, THEN THE REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT WILL BE TERMINATED FOLLOWING THE CONSUMMATION OF THE MERGER. 8. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information, has been furnished by the Company or been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Neither Parent, the Purchaser nor the Dealer Manager assumes any responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent, the Purchaser or the Dealer Manager. The Company is a Delaware corporation and its principal executive offices are located at 2575 West Bellfort, Houston, Texas 77054. 11 The Company sells automotive aftermarket parts, products and accessories for domestic and imported cars, vans and light trucks to "Do-It-Yourself" ("DIY") consumers and commercial auto repair outlets. DIY consumers purchase parts, products and accessories and perform their own installation and maintenance. Commercial repair outlets include professional mechanics, auto repair shops, auto dealers, fleet owners, and mass and general merchandisers with auto repair facilities that perform installation and maintenance work for a fee. At September 30, 1997, the Company had 187 stores, 70 located in the greater Houston metropolitan area, 31 in the Dallas/Fort Worth area, 9 in the Austin area, 8 in San Antonio, 45 located in other cities and communities in Texas, 17 located in Louisiana, and 7 located in Southern California. The Company has closed 8 stores since June 30, 1996 and through September 30, 1997. At September 30, 1997, the Company had consolidated total assets of $142.8 million and consolidated stockholders' equity of $61.2 million and employed approximately 2,560 persons. Set forth below is certain selected consolidated financial information with respect to the Company, excerpted or derived from the Company's 1996 Annual Report to Stockholders and its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, both filed with the Commission pursuant to the Exchange Act. More comprehensive financial information is included in such reports and in other documents filed by the Company with the Commission. The following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information (including any related notes) contained therein. Such reports and other documents may be inspected and copies may be obtained from the Commission in the manner set forth below. HI-LO AUTOMOTIVE, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER SEPTEMBER 30, 31, ----------------- ------------------------------ 1997 1996 1996 1995 1994(1) -------- -------- -------- -------- -------- (UNAUDITED) INCOME STATEMENT DATA: Net sales............... $184,559 $192,323 $248,599 $262,486 $235,384 Income (loss) from operations............. 6,344 (57,541)(2) (59,316)(2) 8,429 17,508 Net income (loss)....... 1,933 (51,905) (53,723) 1,688 9,133 Net income (loss) per share.................. $ 0.18 $ (4.83) $ (4.99) $ .16 $ .85 Weighted average shares outstanding............ 10,775 10,756 10,756 10,733 10,736
AT SEPTEMBER 30, AT DECEMBER 31, ---------------- -------------------- 1997 1996 1995 ---------------- -------- -------- (UNAUDITED) BALANCE SHEET DATA: Inventories............................ $ 92,381 $ 91,401 $ 96,900 Working capital........................ 74,641 73,388 78,392 Property and equipment, net............ 29,716 31,980 47,823 Total assets........................... 142,835 142,338 198,973 Long-term debt, excluding current maturities............................ 42,654 45,612 44,132 Stockholders' equity................... 61,227 59,294(2) 112,978
- -------- (1) Includes the results of operations of the former Wesco Stores from their acquisition date in November 1994. (2) A provision for asset impairment and store closings of $51.4 million was recorded in the third quarter of 1996. The provision included a $37.7 million charge for intangibles, primarily cost in excess of net assets acquired (goodwill), and a $13.7 million charge for store closings, write offs of certain store fixed assets and of certain assets at the Company's distribution center, and liquidation of real estate previously acquired for future expansion. 12 The Company is subject to the informational and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a World Wide Web site on the internet at http://www.sec.gov that contains reports and certain other information regarding registrants that file electronically with the Commission, including the Company. Reports, proxy statements and other information concerning the Company should also be on file at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. 9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT. The Purchaser. The Purchaser is a newly incorporated Delaware corporation organized in connection with the Offer and the Merger and has not carried on any activities other than in connection with its formation and capitalization and the transactions contemplated by the Offer and the Merger. The principal executive offices of the Purchaser are located at 233 South Patterson, Springfield, Missouri 65802. The Purchaser is a wholly owned subsidiary of Parent. Parent. Parent is a corporation organized under the laws of Missouri and its principal executive offices are located at 233 South Patterson, Springfield, Missouri 65802. Parent is a specialty retailer and supplier of automotive aftermarket parts, tools, supplies equipment and accessories to both DIY customers and professional mechanics or service technicians ("Professional Installers"). Parent, which was founded in 1957 by the O'Reilly family in Springfield, Missouri, operates 259 stores (at December 15, 1997) within the states of Missouri, Arkansas, Kansas, Oklahoma, Nebraska and Iowa. Parent stores carry an extensive product line consisting of (i) new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, and brake shoes and pads, (ii) maintenance items, such as oil, antifreeze, fluids, engine additives and appearance products, (iii) accessories, such as floor mats and seat covers, and (iv) a complete line of autobody paint and related materials, automotive tools and professional service equipment. Parent offers machining services through its Parent stores, but does not sell tires or perform automotive repairs or installations. Approximately 97% of its 1996 product sales were generated through the Parent store network, of which approximately one-half was derived from DIY customers and one-half from Professional Installers. The remaining 3% of Parent's product sales was generated by its wholly owned subsidiary, Ozark Automotive Distributors, Inc., through wholesale sales to independently owned auto parts stores. 13 Set forth below is certain selected consolidated financial information with respect to Parent and its subsidiaries for the nine month periods ended September 30, 1997 and 1996 and the fiscal years ended December 31, 1996, 1995 and 1994. Such financial information has been taken from the periodic reports and other documents filed by Parent with the Commission. More comprehensive information concerning Parent is included in such reports and other documents and all of the financial information and notes contained therein. Such reports and other documents may be inspected and copies may be obtained from the offices of the Commission and the Nasdaq National Market in the manner set forth below. O'REILLY AUTOMOTIVE, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- -------------------------- 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) INCOME STATEMENT DATA: Net sales......................... $238,437 $194,535 $259,243 $201,492 $167,057 Income from operations............ 27,888 22,126 28,851 22,037 17,157 Net income........................ 17,710 14,457 18,971 14,091 11,072 Net income per share.............. $ 0.84 $ 0.69 $ 0.91 $ 0.79 $ 0.64 Shares used in computing earnings per share........................ 21,019 20,844 20,864 17,820 17,310
- -------- Note: All earnings per share and weighted average shares outstanding have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend distributed on August 31, 1997.
AT SEPTEMBER 30, AT DECEMBER 31, ---------------- --------------- 1997 1996 1995 ---------------- ------- ------- (UNAUDITED) BALANCE SHEET DATA: Inventory..................................... $107,330 $83,909 $58,979 Working capital............................... 88,569 74,403 80,471 Property and equipment, net................... 98,600 79,785 51,951 Total assets.................................. 229,721 183,623 153,604 Long-term debt, less current portion.......... 13,898 237 358 Stockholders' equity.......................... 175,865 155,782 133,870
- -------- Note: The balance sheet at December 31, 1996, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Parent is subject to the informational and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning Parent's directors and officers, their remuneration, stock options granted to them, the principal holders of Parent's securities, any material interests of such persons in transactions with Parent and other matters is required to be disclosed in proxy statements distributed to Parent's stockholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection and copies may be obtained in the same manner as set forth for the Company in Section 8, except that the Parent's common stock is traded on the Nasdaq National Market, and reports, proxy statements and other information concerning Parent should also be on file at the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006. The name, citizenship, business address, principal occupation or employment and five-year employment history for each of the directors and executive officers of the Purchaser and Parent are set forth in Schedule I hereto. 14 Except as set forth in the following sentence, none of Parent or the Purchaser, or, to the best knowledge of Parent or the Purchaser, any of the persons listed in Schedule I hereto, or any associate or majority-owned subsidiary of such persons, beneficially owns any equity security of the Company, and neither Parent nor the Purchaser, nor, to the best knowledge of Parent and the Purchaser, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. Charles H. O'Reilly, Sr. beneficially owns 10,000 Shares purchased through a broker on November 7, 1997, at a price of $2.75 per share. Charles H. O'Reilly, Jr. may be deemed to beneficially own 1,000 Shares purchased through a broker on November 14, 1997, at a price of $2.75 per share and held in a trust controlled by Mr. O'Reilly and his wife. Except as set forth in this Offer to Purchase, none of Parent or the Purchaser, or, to the best of the knowledge of Parent and the Purchaser, any of the persons listed in Schedule I hereto or any associate or majority-owned subsidiary of any of the foregoing, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, without limitation, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, none of Parent or the Purchaser, or, to the best of the knowledge of Parent and the Purchaser, any of the persons listed in Schedule I hereto nor any associate or majority-owned subsidiary of any of the foregoing has had any transactions with the Company, or any of its executive officers, directors or affiliates that would require reporting under the rules of the Commission. Except as set forth in this Offer to Purchase, there have been no contacts, negotiations or transactions between Parent or the Purchaser, or their respective subsidiaries, or, to the best of the knowledge of Parent or the Purchaser, any of the persons listed in Schedule I hereto, on the one hand, and the Company or its executive officers, directors or affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors, or a sale or other transfer of a material amount of assets. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. In the spring of 1997, a group of dissident stockholders commenced but then abandoned a proxy solicitation with the intention of replacing certain members of the Company Board and adopting a proposal calling for the sale of the Company. In the course of its discussions with stockholders regarding the proxy contest, management became aware of the sentiment of certain of the Company's stockholders that the Company be sold or combined with another auto parts chain. Following discussions at a regularly scheduled meeting of the Company Board on May 20, 1997, the Board concluded that entering into a business combination with a complementary auto parts chain or selling the Company would likely return value to the Company's stockholders sooner and with more certainty than continuing the Company's strategy independently. The Company selected and engaged SBC Warburg Dillon Read to assist and advise the Company Board in seeking out a potential merger partner or acquiror of the Company. During June and July of 1997, SBC Warburg Dillon Read contacted a number of potential acquirors, including Parent. Parent indicated that it was not interested in pursuing a transaction with the Company at that time. The Company entered into confidentiality agreements and provided information to some of these potential acquirors, including Discount Auto Parts, Inc. ("Discount"). The Company entered into negotiations with Discount beginning on September 22, 1997 and on October 17, 1997, the Company and Discount entered into a definitive merger agreement (the "Discount Merger Agreement"). On October 29, 1997, Parent contacted Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), a financial advisor that has provided services to Parent from time to time to discuss the potential benefits of an acquisition of the Company by Parent. Shortly thereafter, DLJ contacted the Company's financial advisor, SBC Warburg Dillon Read, to discuss the procedure for Parent to pursue a transaction with the Company. 15 During the week of November 3, Parent and DLJ conducted a preliminary analysis, based on publicly available information, of a transaction between Parent and the Company. Parent and DLJ had various teleconferences and meetings during this period to review the benefits of a potential transaction with the Company. On November 6, 1997, at a regularly scheduled meeting of the Board of Directors of Parent (the "Parent Board"), senior management presented the results of its preliminary analysis of the Company and the Parent Board discussed the merits of a potential business combination with the Company. Following these discussions, the Parent Board authorized senior management to pursue a transaction with the Company. During the weeks of November 10 and November 17, the Company and DLJ continued to review the merits of the transaction. On November 25, 1997, Parent submitted a written proposal to the Company to acquire all outstanding shares of the Company at a per Share price of $4.25, subject to the satisfactory completion of its due diligence investigation and reaching a definitive agreement. On November 26, 1997, representatives of the Company indicated that the Company would be interested in pursuing further discussions involving a potential transaction with Parent. The Company and Parent entered into a confidentiality agreement on November 26, 1997 agreeing to keep certain information provided by the Company confidential. Discussions between representatives of the Company and representatives of Parent commenced on December 1, 1997 with respect to a potential acquisition of the Company by Parent and certain information about the Company was provided to Parent. During the weeks of December 1 and 8, 1997, various due diligence meetings and conference calls were conducted between Parent, Company and their respective advisors. During the week of December 8, 1997, such due diligence activities included site visits to the Company's retail locations by representatives of the Parent to conduct on-site reviews of the Company's operations. Also during the week of December 8, 1997, representatives of the Company and Parent and their advisors met to discuss the status of the due diligence process and to continue the Parent's due diligence investigation. On December 16, 1997, counsel to Parent provided an initial draft of the Merger Agreement to the Company and its counsel. Commencing December 17, 1997, and continuing through December 22, 1997, extensive negotiations were conducted with respect to the Merger Agreement, including an increase in the Parent's original offer to $4.35 per Share, and revised drafts were exchanged. At a meeting of the Board of Directors of Parent commenced during the morning of December 22, 1997 and reconvened during the afternoon of December 22, the Parent Board considered presentations from, and reviewed the terms and conditions of the current draft of the Merger Agreement with, among others, senior management of Parent, Parent's legal advisor and DLJ. DLJ made a presentation to the Parent Board and delivered its opinion as to the fairness, from a financial point of view, of the consideration to be paid in the Offer to Parent. The Parent Board then unanimously approved and adopted the Merger Agreement and approved the transactions contemplated thereby, subject to termination by the Company of the Discount Merger Agreement pursuant to the terms of the Discount Merger Agreement. Also, on the afternoon of December 22, 1997, the Company Board met to consider the terms of the proposed transaction. SBC Warburg Dillon Read made a presentation to the Company Board and delivered its opinion as to the fairness, from a financial point of view, of the $4.35 cash consideration to be paid in the Offer and the Merger to the Company and the holders of the outstanding Shares. The Company Board then unanimously authorized the termination of the Discount Merger Agreement after payment of the required termination fee, approved and adopted the Merger Agreement and approved the transactions contemplated thereby subject to termination of the Discount Merger Agreement. The Discount Merger Agreement was terminated and a termination fee of $4.0 million was paid by the Company during the morning of December 23, 1997, and immediately thereafter, Parent, Purchaser and the Company entered into the Merger Agreement. 16 The parties issued a press release announcing the transaction immediately thereafter. A copy of the press release has been filed with the Commission as an exhibit to the Schedule 14D-1 of Parent and the Purchaser (the "Schedule 14D-1"). On December 24, 1997, the Purchaser and Parent commenced the Offer. 11. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY. General. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is to acquire all Shares not beneficially owned by the Purchaser following consummation of the Offer. Upon the consummation of the Merger, the Company will become a wholly owned subsidiary of Purchaser. The DGCL requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved by the Company Board and generally by the holders of a majority of the Company's outstanding voting securities. The Company Board has approved the Offer, the Merger and the Merger Agreement and the transactions contemplated thereby; consequently, the only additional action of the Company that may be necessary to effect the Merger is approval by such stockholders if the "short-form" merger procedure described below is not available. Plans for the Company. It is currently expected that, following consummation of the Offer, initially the business and the operations of the Company will, except as set forth in this Offer to Purchase, be continued by the Company, at the discretion of the Company Board which will consist of a majority of Parent's representatives, substantially as they are currently being conducted with such changes as deemed appropriate by such Board. Parent will continue to evaluate the business and operations of the Company during the pendency of the Offer and after the consummation of the Offer and the Merger, and will take such actions as its deems appropriate under the circumstances then existing. Parent intends to seek additional information about the Company during this period. Thereafter, Parent intends to review such information as part of a comprehensive review of the Company's business, operations, capitalization and management with a view to maximizing the Company's potential in conjunction with Parent's businesses. It is expected that the business and operations of the Company would form an important part of Parent's future business plans. Except as indicated in this Offer to Purchase, neither Parent nor Purchaser has any present plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, a sale or transfer of a material amount of assets of the Company or any of its subsidiaries or any material change in the Company's capitalization or dividend policy or any other material changes in the Company's corporate structure or business, or the composition of the Company Board or management. Parent and the Purchaser reserve the right to acquire additional Shares following the expiration of the Offer through private purchases, market transactions, tender or exchange offers or otherwise on terms and at prices that may be more or less favorable than those of the Offer or, subject to any applicable legal restrictions, to dispose of any or all Shares beneficially acquired by Parent and the Purchaser. The Merger. In general, under the DGCL and the Company's Certificate of Incorporation, the Merger requires the approval of the Company Board and the approval by the holders of a majority of all outstanding Shares. If the Purchaser acquires, through the Offer or otherwise, voting power with respect to at least a majority of the outstanding Shares (which would be the case if the Minimum Condition is satisfied and the Purchaser were to accept for payment Shares tendered pursuant to the Offer), the Purchaser would have sufficient voting power to effect the Merger without the vote of any other stockholders. Further, the DGCL provides that if the parent corporation owns 90% or more of each class of outstanding shares of a Delaware subsidiary, the Delaware subsidiary may be the surviving corporation of a merger with its parent corporation upon a majority vote of each corporation's entire board of directors, without action or vote by 17 the stockholders of either corporation. Accordingly, if the Purchaser acquires at least 90% or more of the outstanding Shares pursuant to the Offer or otherwise, the Purchaser will be able to approve the Merger without a vote of the Company's stockholders. In such event, the Purchaser has agreed that it will take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition. If Purchaser does not acquire at least 90% of the outstanding Shares pursuant to the Offer or otherwise, a significantly longer time may be required to effect the Merger because a vote or the consent of the Company's stockholders would be required under the DGCL. Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders of the Company at the time of the Merger will have certain rights under the DGCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Such rights to dissent, if the statutory procedures are complied with, could lead to a judicial determination of the fair value of the Shares (excluding any element of value arising from the accomplishment or expectation of the Merger), required to be paid in cash to such dissenting holders for their Shares. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, a Delaware court would be required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including among other things, asset values and earning capacity of the Company. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Therefore, the value so determined in any appraisal proceeding could be different from the price being paid in the Offer. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that although the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. Rule 13e-3. The Merger would have to comply with any applicable Federal law operative at the time. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions. The Purchaser does not believe that Rule 13e-3 will be applicable to the Merger. Rule 13e-3 requires, among other things, that certain financial information concerning the Company, and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such a transaction, be filed with the Commission and disclosed to minority stockholders prior to consummation of the transaction. 12. THE MERGER AGREEMENT; CONFIDENTIALITY AGREEMENT. The Merger Agreement. The following is a summary of certain provisions of the Merger Agreement. The summary is qualified in its entirety by reference to the Merger Agreement, which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meaning given to them in the Merger Agreement. The Offer. The Merger Agreement provides that the Purchaser will commence the Offer and that, upon the terms and subject to prior satisfaction or waiver of the conditions of the Offer, the Purchaser will purchase all Shares validly tendered and not properly withdrawn pursuant to the Offer. The Offer is conditioned upon, among other things, there being tendered and not withdrawn prior to the Expiration Date, a number of Shares which, together with any Shares beneficially owned by Parent and Purchaser, represent a majority of the outstanding Shares on a Fully Diluted Basis. The Merger Agreement provides that, without the written consent of the Company, the Purchaser will not decrease the Offer Price, change the form of consideration to be paid in the Offer, reduce the maximum number of Shares to be purchased in the Offer or the Minimum Condition, impose additional conditions to the Offer or amend any condition of the Offer in a manner adverse to the holders of Shares. In the event that all conditions of the Offer have not been satisfied or waived by the Expiration Date, January 26, 1998, the Purchaser is required, at the request of the Company, to extend the Offer from time to 18 time until 90 days after the commencement of the Offer. Additionally, the Merger Agreement provides that notwithstanding that all conditions are satisfied or waived prior to the scheduled Expiration Date, the Purchaser may extend the Offer, subject to certain conditions, (i) for a period not to exceed 10 business days if the Shares tendered pursuant to the Offer are less than 90% of the outstanding Shares and (ii) for a period not to exceed five business days if an Adverse Market Change shall have occurred and be continuing on the scheduled Expiration Date. The Purchaser will, on the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, accept for payment and pay for Shares validly tendered and not properly withdrawn as soon as practicable after expiration of the Offer. As used in the Merger Agreement, the following terms shall have the meanings set forth below: "Adverse Market Change" means (i) any general suspension of trading in, or limitation on prices for, securities on the NYSE or the Nasdaq National Market, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) a commencement or escalation of a war, armed hostilities or other international or national calamity directly involving the United States and having an adverse effect on the financial markets in the United States, (iv) any material limitation (whether or not mandatory) by any governmental authority, agency or commission on the extension of credit by banks or other lending institutions in the United States, and (v) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; and "Fully Diluted Basis" means as of any time, all of the Shares plus all shares of the Common Stock issuable upon exercise of outstanding options to acquire the Common Stock minus 587,566 shares of Common Stock issuable upon exercise of options which the holders thereof have irrevocably agreed in writing, in a form satisfactory to Parent, not to exercise. The Merger. Following the consummation of the Offer, the Merger Agreement provides that, subject to the terms and conditions thereof, and in accordance with Delaware law, as soon as practicable, the Purchaser will be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation. The respective obligations of Parent and the Purchaser, on the one hand, and the Company, on the other hand, to effect the Merger are subject to the satisfaction on or prior to the Closing Date (as defined in the Merger Agreement) of each of the following conditions: (i) the Merger Agreement shall have been approved and adopted by the requisite vote of the holders of Shares, if required by applicable law, in order to consummate the Merger; (ii) no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any court or other tribunal or governmental body or authority which prohibits the consummation of the transactions contemplated therein substantially on the terms contemplated thereby; (iii) any waiting periods applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; and (iv) Purchaser shall have purchased Shares pursuant to the Offer. At the Effective Time of the Merger (i) each issued and outstanding Share (other than Dissenting Shares and Shares that are owned by the Company or any wholly owned subsidiary of the Company, any Shares owned by Parent or any wholly owned subsidiary of Parent, or any Shares which are held by stockholders exercising dissenters' rights, if any, under Delaware law) will be converted into the right to receive the Merger Consideration, and (ii) each issued and outstanding share of capital stock of the Purchaser will be converted into one share of common stock of the Surviving Corporation. The Company Board. The Merger Agreement provides that upon the purchase and payment by Parent or the Purchaser of Shares representing at least a majority of the outstanding Shares on a fully diluted basis, Parent shall be entitled to designate such number of directors (rounded up to the next whole number) on the Company Board so that the percentage of Parent's nominees on the Company Board equals the percentage of outstanding Shares beneficially owned by Parent and its affiliates. The Company shall, at such time, upon the request of 19 Purchaser promptly use its best efforts to take all action necessary to cause such persons designated by Parent to be elected to the Company Board, if necessary by increasing the size of the Company Board or securing resignations of incumbent directors or both. At such time, the Company shall also cause persons designated by Parent to constitute at least the same percentage (rounded up to the next whole number) as is on the Company Board of (i) each committee of the Company Board, (ii) each board of directors (or similar body) of each subsidiary of the Company and (iii) each committee (or similar body) of each such subsidiary board of directors. The Merger Agreement further provides that, notwithstanding the provisions of the foregoing paragraph, until the Effective Time of the Merger, the Company Board shall include at least two directors who were directors on the date of the Merger Agreement (the "Independent Directors"). From and after the time, if any, that Parent's designees constitute a majority of the Company Board, the affirmative vote of a majority of Independent Directors shall be required and shall be sufficient to authorize any termination of the Merger Agreement by the Company, any amendment of the Merger Agreement requiring action by the Company Board, any extension of time for the performance of any of the obligations or other acts of Parent or Purchaser under the Merger Agreement, any waiver of compliance with any of the agreements or conditions under the Merger Agreement for the benefit of the Company, any action to seek to enforce any obligation of Parent or Purchaser under the Merger Agreement and any other action by the Company Board under or in connection with the Merger Agreement. The Independent Directors shall be appointed as a Special Committee of the Company Board and have full power and authority solely with respect to the matters set forth in the previous sentence. Stockholders' Meeting. Pursuant to the Merger Agreement, the Company will, if required by applicable law in order to consummate the Merger: (i) duly call, give notice of, convene and hold a special meeting of its stockholders (the "Special Meeting") as soon as practicable following the purchase of Shares by the Purchaser pursuant to the Offer for the purpose of considering and taking action upon the Merger and the adoption of the Merger Agreement; (ii) prepare and file with the Commission a preliminary proxy or information statement relating to the Merger and the Merger Agreement and include in any preliminary or definitive proxy statement or information statement with respect to the Special Meeting (the "Proxy Statement"), the recommendation of the Company Board that stockholders of the Company vote in favor of the approval of the Merger Agreement and the transactions contemplated thereby unless the Company Board determines in good faith, based on advice of its outside counsel, that not taking any such action is necessary in order for the Company Board to comply with its obligations or duties to the Company and its stockholders under applicable law; and (iii) use all reasonable efforts (A) to obtain and furnish the information required to be included by it in the Proxy Statement and, after consultation with the Parent and the Purchaser, respond promptly to any comments made by the Commission with respect to the Proxy Statement and any preliminary version thereof and cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time following the expiration or termination of the Offer and (B) obtain the necessary approvals by its stockholders of the Merger Agreement and the transactions contemplated thereby unless the Company Board determines in good faith, based on advice of its outside counsel, that not taking any such action is necessary in order for the Company Board to comply with its obligations or duties to the Company and its stockholders under applicable law. Purchaser and Parent have agreed to use commercially reasonable efforts to cause the Special Meeting to occur within 90 days after the purchase of Shares pursuant to the Offer and Parent has agreed that it will vote, or cause to be voted, all of the Shares then owned by it, the Purchaser or any of its other subsidiaries and affiliates in favor of the approval of the Merger and the adoption of the Merger Agreement. IF THE PURCHASER ACQUIRES, THROUGH THE OFFER OR OTHERWISE, AT LEAST A MAJORITY OF THE OUTSTANDING SHARES, THE PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO APPROVE THE MERGER, EVEN IF NO OTHER STOCKHOLDERS VOTE IN FAVOR OF THE MERGER. The Merger Agreement provides that in the event that Purchaser shall acquire at least 90% of the then outstanding Shares, the parties agree to take all necessary and appropriate action to cause the Merger to become effective, in accordance with Section 253 of the DGCL, as soon as practicable after such acquisition, without a meeting of the stockholders of the Company. Options. Each option granted to the Company's employees, consultants or directors to acquire shares of Common Stock (each an "Option") that is outstanding immediately prior to the purchase of Shares pursuant to 20 the Offer (irrespective of whether such Option is then exercisable) shall, on the fifth business day after the purchase by Purchaser of Shares pursuant to the Offer, be cancelled in exchange for a single lump sum cash payment equal to the product of (i) the number of shares of Common Stock subject to such Option and (ii) the excess of the Offer Price over the exercise price per share of such Option. Subject to the previous sentence, each Option that is outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall, effective as of the Effective Time, be cancelled and no payments shall be made with respect thereto. Outstanding purchase rights under the Company's 1991 Associate Stock Purchase Plan (the "Associate Purchase Plan") (i) shall be exercised at the next scheduled date of exercise under the Associate Purchase Plan or (ii) shall be terminated. No purchase rights shall be granted or exercised under the Associate Purchase Plan, following such exercise date, and the Associate Purchase Plan shall be terminated as soon as practicable thereafter. Interim Operations. Pursuant to the Merger Agreement, the Company has agreed that, except as expressly contemplated by the Merger Agreement or agreed to in writing by Parent, prior to the time the directors of the Parent constitute a majority of the Company Board, the Company shall (a) cause, and cause each of its subsidiaries to, conduct its operations in all material respects according to their ordinary and usual course of business in substantially the same manner as heretofore conducted; (b) use its reasonable best efforts, and cause each of its subsidiaries to use its reasonable best efforts, to preserve intact its business organization in all material respects, keep available the services of its executive officers and key employees as a group, subject to changes in the ordinary course, and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with them; (c) confer at such times as Parent may reasonably request with one or more representatives of Parent to report material operational matters and the general status of ongoing operations (in each case to the extent Parent reasonably requires such information) and to consult with Parent regarding material operational decisions; (d) promptly notify Parent of any emergency or other change in the normal course of its or its subsidiaries' respective businesses or in the operation of its or its subsidiaries' respective properties and of any complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any governmental body or authority if such emergency, change, complaint, investigation or hearing is reasonably likely to have a Material Adverse Effect on the Company; (e) not authorize or pay any dividends on or make any distribution with respect to its outstanding shares of stock; (f) not, and shall not permit any of its subsidiaries to, except as otherwise contemplated by the Merger Agreement or as may be required by applicable law, enter into or amend any employment, severance or similar agreements or arrangements with any of their respective directors or executive officers; (g) not, and shall not permit any of its subsidiaries to, subject to the provisions described below under the heading "--No Solicitation," authorize, or announce an intention to authorize, or enter into an agreement with respect to, any merger, consolidation or business combination, any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights, in each case, not in the ordinary course of business; (h) not propose or adopt any amendments to its corporate charter or by-laws, except pursuant to the Merger as provided in the Merger Agreement; (i) not, and shall not permit any of its subsidiaries to, issue any shares of their capital stock, except upon exercise of rights or options issued pursuant to existing employee plans, programs or arrangements and non-employee director plans; (j) not, and shall not permit any of its subsidiaries to, grant, confer or award any options, warrants, conversion rights or other rights, not existing on the date of the Merger Agreement, to acquire any shares of its capital stock; (k) not, and shall not permit any of its subsidiaries to, purchase or redeem or offer to purchase or redeem any shares of its stock or any securities convertible into or exchangeable for shares of stock, except for the deemed repurchase of options in accordance with the terms of the Merger Agreement, or purchases, redemptions and offers to purchase in the ordinary course of business in connection with employee incentive and benefit plans, programs or arrangements in existence on the date of the Merger Agreement; (l) not, and shall not permit any of its subsidiaries to, except as contemplated by the Merger Agreement or as may be required by applicable law, amend in any material respect the terms of their respective employee benefit plans, programs or arrangements or any severance or similar agreements or arrangements in existence on the date of the Merger Agreement, enter into or amend any employment or consulting agreement, adopt or enter into any new employee benefit plans, programs or arrangements or any severance or similar 21 agreements or arrangements or increase the base salary of any person who is a party to a Change of Control Employment Agreement or make any payments under any benefit plan to any director, employee, independent contractor or consultant (except in the ordinary course of business and in amounts and in a manner consistent with past practice or as otherwise required by law or the provisions of such benefit plan); (m) not, and shall not permit any of its subsidiaries to, (i) enter into any material loan agreement or incur any indebtedness in excess of an aggregate of $100,000 other than pursuant to additional draws resulting in not in excess of an aggregate amount outstanding of $60,000,000 under the Company's credit facility with the CIT Group or amend the Company's credit facility with the CIT Group to increase the amount that may be borrowed thereunder, (ii) make or enter into any agreement or contract for capital expenditures in excess of $50,000, (iii) enter into any lease for any new store site or for real property in excess of $50,000 or any lease for personal property in excess of $20,000 or (iv) enter into any agreement or contract outside of the ordinary course of business of the Company or any of the Company's subsidiaries that involves performance of services or delivery of goods or materials by or to the Company or any of the Company's subsidiaries of an amount or value in excess of $50,000; (n) not, and shall not permit any of its subsidiaries to, make or change any material Tax election, file any amendment to any federal income Tax Return unless required by law, enter into any closing agreement, settle or compromise any material Tax liability; (o) not adjust, split, combine or reclassify its capital stock; (p) not enter into any agreement, understanding or arrangement with respect to the sale or voting of its capital stock; (q) not, and shall not permit any of its subsidiaries to, create any new subsidiaries; (r) except as required by the Merger Agreement, not take any action which could reasonably be expected to adversely affect or delay the ability of any of the parties to obtain any approval of any governmental or regulatory body required to consummate the transactions contemplated hereby; (s) not, and shall not permit any of its subsidiaries to, directly or indirectly sell, transfer, lease, pledge, mortgage, encumber or otherwise dispose of any material property or assets other than in the ordinary course of business; (t) not enter into any financial derivative contracts; (u) not change in any material respect its accounting policies, methods or procedures except as required by GAAP; (v) except as may be required by the Merger Agreement or applicable law, not do any act or omit to do any act which would cause a breach of any contract, commitment or obligation if the result is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company; (w) except as otherwise permitted, not take any action with the intent of causing the conditions to the Offer set forth in the Merger Agreement to not be satisfied; (x) not, other than pursuant to the Merger Agreement, take any action to cause the Common Stock to cease to be quoted on any of the stock exchanges on which the Common Stock is now quoted; (y) continue to provide training for employees of the Company and its subsidiaries commensurate with the training provided by the Company and its subsidiaries over the past twelve months; (z) subject to the limitations contained in the Merger Agreement, continue the level of recruiting activity and process employed by the Company and its subsidiaries over the past twelve months; (aa) not, and shall not permit any of its subsidiaries to, agree in writing or otherwise, to take any of the foregoing actions or take any action which would make any representation or warranty contained in the Merger Agreement (except for representations and warranties made as of a specified date) untrue and incorrect in any material respect as of the Effective Time; (bb) not pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the September 30, 1997 balance sheet or subsequently incurred in the ordinary course of business and consistent with past practice; or (cc) not settle or compromise any pending or threatened suit, action or claim not covered by insurance (without giving effect to deductibles in determining whether coverage exists) that is material or which relates to the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger; or (dd) not modify, amend or waive any terms or provisions of the Rights Agreement. No Solicitation. Pursuant to the Merger Agreement, the Company shall not, and shall not authorize or permit, any of its officers, directors, employees, attorneys, financial advisors, agents or other representatives or those of any of its subsidiaries to, directly or indirectly, (a) solicit, initiate or knowingly encourage any Takeover Proposal (as hereinafter defined), including without limitation by disclosure of non-public information, or (b) engage in discussions or negotiations relating to or accept any Takeover Proposal; provided, however, that nothing shall prohibit the Company and its Board from (i) taking and disclosing a position with respect to a 22 tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the Commission under the Exchange Act, or (ii) at any time prior to the purchase of Shares pursuant to the Offer, engaging in discussions or negotiations with, and furnishing information (including non-public information) concerning the Company and its subsidiaries, businesses, properties or assets to, any third party which makes a Takeover Proposal (without any solicitation or initiation or knowing encouragement, directly or indirectly, by the Company or any of its representatives after the date of the Merger Agreement) if the Company Board determines in good faith, based on advice of its outside counsel (who may be its regularly engaged outside counsel), that the failure to take such action will violate its obligations or duties to the Company and its stockholders under applicable law, or (iii) provided the Merger Agreement is terminated as described below in clause (iv) under the heading "--Termination; Fees," accepting a Superior Proposal (as hereinafter defined). Prior to furnishing information to or entering into discussions or negotiations with any person, the Company shall receive from such person or entity an executed confidentiality agreement in reasonably customary form on terms not in the aggregate materially more favorable to such person or entity than the terms contained in the Confidentiality Agreement (as defined below) unless the same terms are granted to Parent. The Company shall immediately cease and cause to be terminated any existing solicitation, initiation, encouragement, activity, discussion or negotiation with any person conducted heretofore by the Company or any of its representatives with respect to any Takeover Proposal existing on the date hereof. The Company agrees not to release any third party from, or waive any provision of, any standstill agreement to which it is a party or any confidentiality agreement between it and another person who has made, or who may reasonably be considered likely to make, or who was given access in order to consider making, a Takeover Proposal, unless the Company Board determines in good faith, based on advice of its outside counsel (who may be its regularly engaged outside counsel), that failure to take such action will violate its obligations or duties to the Company and its stockholders under applicable law. The Company shall notify Parent orally and in writing of any such Takeover Proposal received (including, without limitation, the terms and conditions of any such proposal and the identity of the person making it), within 24 hours of the receipt thereof, and shall keep Parent informed of the general status and any material changes in the terms and conditions of such Takeover Proposal. The Company agrees to promptly provide to Parent any information concerning the Company, its subsidiaries, business, properties or assets furnished to any third party which makes a Takeover Proposal and which has not previously been provided to Parent. As used in this Agreement, (i) "Takeover Proposal" shall mean any written proposal or offer, in each case made prior to the stockholder vote at the Special Meeting, other than a proposal or offer by Parent or any of its subsidiaries, for a tender offer, recapitalization, merger, consolidation or other business combination involving, or any purchase of, all or substantially all of the assets or more than 50% of the voting securities of, the Company, and (ii) "Superior Proposal" shall mean a bona fide Takeover Proposal made by a third party on terms that a majority of the members of the Company Board determines in their good faith reasonable judgment is more favorable to the Company and its stockholders than the transactions contemplated by the Merger Agreement. Termination; Fees. The Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time, whether before or after approval of the stockholders of the Company, (i) by mutual written consent of Parent and the Company; (ii) by (a) either the Company or Parent if Shares have not been purchased pursuant to the Offer on or before June 30, 1998 and (b) the Company if after 90 days following the commencement of the Offer the conditions to the Offer have not been satisfied or waived and the Purchaser shall not have elected to extend the Offer; provided, that such right to terminate pursuant to clause (i) or (ii) will not be available to any party whose failure in any material respect to fulfill its obligation under the Merger Agreement proximately contribute to, or resulted in, the failure of Parent or the Purchaser to purchase the Shares pursuant to the Offer on or before such date; (iii) by either the Company or Parent if (a) a statute, rule, regulation or executive order shall have been enacted, entered or promulgated prohibiting the purchase of Shares pursuant to the Offer or the consummation of the Merger substantially on the terms contemplated by the Merger Agreement or (b) an order, decree, ruling or injunction shall have been entered permanently restraining, enjoining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the consummation of the Merger substantially on the terms contemplated by the Merger Agreement and such order, decree, ruling or injunction shall have become final and non- appealable; provided, that the party seeking to terminate the Merger Agreement shall have used its reasonable best efforts to remove such injunction, order or decree; (iv) by the Company prior 23 to the purchase of Shares pursuant to the Offer if the Company Board determines in good faith based upon advice of its outside counsel (a) that a Takeover Proposal constitutes a Superior Proposal and (b) that failure to accept such Superior Proposal will violate its obligations or duties to the Company and the Company's stockholders under applicable law, provided, that the Merger Agreement shall not terminate unless (Y) the Company has provided Parent with two business days' prior written notice of its intention to accept such Superior Proposal, together with a detailed description of the terms and conditions of such Superior Proposal and (Z) simultaneously with such termination the Company enters into a definitive acquisition, merger or similar agreement to effect such Superior Proposal and pays the Termination Fee (as defined below); (v) by either the Company or Parent prior to the purchase of any Shares pursuant to the Offer if the other party shall have breached, or failed to comply with, in any material respect any of its obligations under the Merger Agreement or any representation or warranty made by such other party shall have been untrue when made or as of the time of such termination as if made on and as of such time (except for representations and warranties made as of a specified date, which need be true only as of the specified date), provided such breach, failure or misrepresentation is not cured within thirty days after notice thereof from the other party and with respect to any representation or warranty not qualified by "Material Adverse Effect," such breaches, failures or misrepresentations individually or in the aggregate, result or are reasonably likely to result in a Material Adverse Effect on the Company or Parent, as the case may be; (vi) by Parent if the Company Board or any committee of the Company Board, (a) shall withdraw, modify or change in any adverse manner (including by amendment of the Schedule 14D-9) its approval or recommendation of the Merger Agreement, the Offer or the Merger, (b) shall approve or recommend any Takeover Proposal, other than by Parent or an affiliate of Parent, or (c) shall resolve to take any of the actions specified in clause (a) or (b) above; (vii) by the Company if Purchaser fails to commence the Offer on or prior to five business days following the date of initial public announcement of the Offer, provided that the Company may not terminate the Merger Agreement pursuant to this provision if the Company is at such time in breach in any material respect of its obligations under the Merger Agreement; or (viii) by either of the Company or Parent if the Offer shall have been terminated, or the Offer has expired without any Shares being purchased therein; provided, however, that the right to terminate the Merger Agreement pursuant to this provision shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of, or resulted in, the termination of the Offer or the failure of Parent or Purchaser, as the case may be, to purchase Shares pursuant to the Offer on or prior to such date. Notwithstanding the foregoing, no termination by the Company shall be effective pursuant to clause (vii) above under circumstances in which a Termination Fee would be payable by the Company unless concurrently with such termination, such Termination Fee is paid in full by the Company in accordance with the provisions of the Merger Agreement. In the event that (i) prior to the termination of the Merger Agreement any person shall have commenced, publicly proposed or communicated to the Company a Takeover Proposal and (a) the Offer shall have remained open for at least 20 business days, (b) the Minimum Condition shall not have been satisfied, (c) the Merger Agreement shall have been terminated pursuant to the provisions described in clause (ii), (iii), (v) or (vii) of the preceding paragraph and (d) prior to the first anniversary of such termination, the Company shall consummate such Takeover Proposal; or (ii) if the Merger Agreement is terminated by the Company or Parent pursuant to clauses (iv) and (vi) of the preceding paragraph then in such event the Company shall pay Parent a termination fee of $4.75 million (the "Termination Fee"), which amount shall be paid by wire transfer of immediately available funds to an account designated by Parent. Indemnification. Pursuant to the Merger Agreement, for six years after the Effective Time, the Parent and the Surviving Corporation (or any successor to the Surviving Corporation) will indemnify the present and former officers and directors of the Company and its subsidiaries with respect to matters occurring at or prior to the Effective Time to the full extent permitted under Delaware law, the terms of the Company's charter, by-laws and indemnification agreements, each as in effect as of the date of the Merger Agreement. For six years from the Effective Time, Parent shall maintain in effect the Company's directors' and officers' liability insurance policies and shall purchase such policy at or prior to the Closing Date. Representations and Warranties. Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Parent and the Purchaser with respect to, among other things, its organization, 24 capitalization, authority, financial statements, need for consents or approvals, public filings, conduct of business, employee benefit plans, intellectual property, employment matters, compliance with laws, tax matters, insurance, litigation, title to properties, environmental matters, vote required to approve the Merger Agreement, undisclosed liabilities, information to be contained in the Proxy Statement, the opinion of its financial advisor and significant vendor arrangements. Pursuant to the Merger Agreement, Parent and the Purchaser have made substantially similar representations and warranties as to their organization, authority, need for consents or approvals and information to be contained in the Proxy Statement. Confidentiality Agreement. Pursuant to the Confidentiality Agreement entered into on November 26, 1997 by Parent and the Company (the "Confidentiality Agreement"), the Company and Parent agreed to provide, among other things, for the confidential treatment of their discussions regarding the Offer and the Merger and the exchange of certain confidential information concerning the Company. The Confidentiality Agreement is incorporated herein by reference and a copy of it has been filed with the Commission as an exhibit to the Schedule 14D-1. Parent further agreed that, for a period of 12 months from the date of the Confidentiality Agreement, neither Parent nor any of its affiliates will knowingly, as a result of knowledge or information obtained from the Evaluation Material (as defined therein) or otherwise in connection with a possible transaction: (i) divert or attempt to divert any business or customer of the Company or any of its affiliates; nor (ii) employ or attempt to employ or divert a managerial, professional or executive employee of the Company or any of its affiliates. 13. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required to purchase all Shares validly tendered pursuant to the Offer, consummate the Merger, repay outstanding indebtedness and pay the costs and expenses related to the Offer and the Merger is estimated to be approximately $100 million. Parent and Purchaser intend to obtain all funds required in connection with the Offer and the Merger from borrowings under a new $175 million Credit Facility (the "Facilities"). The Parent has entered into a commitment letter (the "Commitment Letter") for the Facilities with NationsBank, N.A. ("NationsBank") and NationsBanc Montgomery Securities, Inc. ("NMSI"). NationsBank has committed to provide the Facilities upon the terms and subject to the conditions set forth in the Commitment Letter, and NMSI has committed to form a syndicate of financial institutions reasonably acceptable to Parent (the "Lenders") for the Facilities, upon the terms and subject to the conditions of the Commitment Letter. Pursuant to the Commitment Letter, the Facilities are expected to consist of an aggregate principal amount of up to $175 million as follows: (i) a $125 million revolving credit facility available to Parent (the "Revolving Credit Facility") and (ii) a $50 million term loan tender facility (the "Tender Facility") available to Purchaser and Parent. The following is a summary of the principal terms of the Facilities based upon the Commitment Letter. This summary is qualified in its entirety by reference to the Commitment Letter, a copy of which has been filed as an exhibit to the Schedule 14D-1 filed by Parent with the Commission in connection with the Offer. The Commitment Letter provides that the commitments of NationsBank and NMSI will terminate unless the Facilities are closed on or prior to March 31, 1998. The Revolving Credit Facility will mature five years from closing of the Offer and the Tender Facility will be subject to quarterly amortization, in amounts to be determined, over a five year period following the closing of the Offer. In addition, the Facilities will be subject to certain mandatory prepayments and commitment reductions tied to the sale of assets and the issuance of permitted debt. 25 The amounts borrowed pursuant to the Revolving Credit Facility and the Tender Facility will bear interest at a rate equal to, at Purchaser's option, (i) LIBOR plus the Applicable Margin or (ii) the Alternate Base Rate (defined as the higher of (a) the NationsBank prime rate and (b) the Federal Funds Rate plus 0.50%) plus the Applicable Margin. The "Applicable Margin" will be set forth in a schedule to the Facilities to be determined by reference to a ratio of Parent's total funded debt to EBITDA. The Facilities will contain certain representations and warranties, certain negative and affirmative financial covenants, certain conditions and events of default which are customarily required for similar financings. Such covenants will include restrictions and limitations on dividends and stock redemptions and the redemption and/or prepayment of other debt, capital expenditures, leases, incurrence of debt, liens, investments, transactions with affiliates, acquisitions, mergers, consolidations and asset sales. Furthermore, Parent will be required to maintain compliance with certain financial covenants such as minimum tangible net worth, a maximum leverage ratio, a minimum fixed charge coverage ratio, a current ratio and a limitation on capital expenditures. The Facilities will not require the granting of any security by Parent. The funding of the Facilities will be subject to customary closing conditions, including, among other things, the execution of satisfactory documentation, the receipt of all necessary governmental approvals, no material adverse change in the business or financial condition of Parent or the Company and completion of the Merger within 120 days after the Offer. Although Parent expects that the Facilities will be available to provide funds for the consummation of the Offer and the Merger in accordance with their respective terms, there can be no assurance that the Facilities will be consummated. Parent and Purchaser have agreed to pay certain fees to NationsBank and NMSI for their own account and for the account of the Lenders including: (i) an underwriting fee of 0.55% of the entire amount of the Facilities payable upon the closing of the Facilities and (ii) a fee equal to the lesser of 15% of any Termination Fee received by Parent pursuant to the Merger Agreement or $500,000, in the event that the acquisition is not consummated. Parent will pay an annual administrative fee of $35,000 to NationsBank for its own account as Agent for the Lenders under the Facilities, annually in advance on the date of closing of the Facilities and on each anniversary date thereafter, until the Facilities terminate. Purchaser anticipates that indebtedness incurred through borrowings under the Facilities in connection with the Offer and Merger will be repaid from a variety of sources, which may include, but may not be limited to, funds generated internally by Purchaser and its subsidiaries (including, following the Merger, funds generated by the Surviving Corporation), bank financing, and the public or private sale of debt or equity securities. No decision has been made concerning the method Purchaser will employ to repay such indebtedness. Such decision will be made based on Purchaser's review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions and such other factors as Purchaser may deem appropriate. 14. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) Purchaser's rights to extend the Offer under certain circumstances (subject to the provisions of the Merger Agreement), Purchaser shall not be required to accept for payment or, subject to the applicable rules and regulations of the Commission, pay for, and may delay the acceptance for payment of or, subject to the applicable rules and regulations of the Commission, payment for, any Shares tendered pursuant to the Offer, and may terminate the Offer and not accept for payment any Shares, if (x) any applicable waiting period under the HSR Act has not expired or terminated prior to the expiration of the Offer, (y) the Minimum Condition has not been satisfied or (z) at any time on or after the date of the Merger Agreement and before the time of acceptance of Shares pursuant to the Offer, any of the following events shall have occurred: (a) there shall be any statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated, or deemed applicable, pursuant to an authoritative interpretation by or on behalf of a 26 governmental authority, agency or commission ("Governmental Entity"), to the Offer or the Merger, that (i) prohibits or imposes any material limitations on Parent's or Purchaser's ownership or operation (or that of any of their respective subsidiaries or affiliates) of all or a portion of their or the Company's businesses or assets, or to compel Parent or Purchaser or their respective subsidiaries and affiliates to dispose of or hold separate any portion of the business or assets of the Company or Parent and their respective subsidiaries, which prohibition, limitation, disposition or hold separate obligation could reasonably be expected to have a Material Adverse Effect on Parent, (ii) restrains or prohibits the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by the Merger Agreement, (iii) imposes material limitations on the ability of Purchaser, or render Purchaser unable, to accept for payment, pay for or purchase some or all of the Shares pursuant to the Offer and the Merger, or (iv) imposes material limitations on the ability of Purchaser or Parent effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders; or (b) (i) the Company Board (or any committee thereof) shall have withdrawn, modified or changed in any adverse manner to Parent and Purchaser its approval or recommendation of the Offer or the Merger or the Merger Agreement, or shall have endorsed, approved or recommended any other Takeover Proposal or (ii) the Company shall have entered into any agreement with respect to any Superior Proposal pursuant to the provision described in clause (iv) under the heading "Termination Fees" in Section 12 hereof or (c) the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct, in each case (i) as of the date referred to in any representation or warranty which addresses matters as of a particular date, or (ii) as to all other representations and warranties, as of the date of the Merger Agreement and as of the scheduled expiration of the Offer, and with respect to any representations and warranties not qualified by "Material Adverse Effect," unless the inaccuracies under such representation and warranties, taking all the inaccuracies under all such representations and warranties together in their entirety, do not, individually or in the aggregate, result in a Material Adverse Effect on the Company; or (d) the Company shall have failed to perform any obligation or to comply with any agreement or covenant to be performed or complied with by it under the Merger Agreement other than any failure which would not have, either individually or in the aggregate, a Material Adverse Effect on the Company; or (e) the Merger Agreement shall have been terminated by the Company or Parent or Purchaser in accordance with its terms or Parent or Purchaser shall have reached an agreement or understanding in writing with the Company providing for termination or amendment of the Offer or delay in payment for the Shares; which, in the reasonable judgment of Parent and Purchaser, in any such case, and regardless of the circumstances giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions (other than the Minimum Condition) are for the sole benefit of Parent and Purchaser and, subject to the Merger Agreement, may be asserted by Parent or Purchaser regardless of the circumstances giving rise to such condition or may be waived by Parent or Purchaser in whole or in part at any time and from time to time in its sole discretion. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 15. CERTAIN LEGAL MATTERS. Except as described in this Section 15, based on information provided by the Company, none of the Company, Purchaser or Parent is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein or of any approval or other action by a domestic or foreign governmental, administrative or 27 regulatory agency or authority that would be required or desirable for the acquisition and ownership of the Shares (and the indirect acquisition of the stock of the Company's subsidiaries) by the Purchaser as contemplated herein. Should any such approval or other action be required or desirable, the Purchaser and Parent presently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws." While, except as otherwise described in this Offer to Purchase, the Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained, or would be obtained without substantial conditions, or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be disposed of or other substantial conditions complied with in the event that such approvals were not obtained or such other actions were not taken in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, the Purchaser could decline to accept for payment or pay for any Shares tendered. See Section 14 for certain conditions to the Offer, including conditions with respect to governmental actions. (a) State Takeover Laws. The Company is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL prevents an "interested stockholder" (e.g., a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (defined to include mergers and certain other transactions) with a Delaware corporation for a period of three years following the time such person became an interested stockholder unless, among other things, the corporation's board of directors approves such business combination or the transaction in which the interested stockholder becomes such prior to the time the interested stockholder becomes such. The Board of Directors of the Company has approved the Offer, the Merger and the Merger Agreement for the purposes of Section 203 of the DGCL. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining presenting stockholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there. Except as described above with respect to Section 203 of the DGCL, the Purchaser has not attempted to comply with the takeover laws of any other state. Should any person seek to apply any state takeover law, the Purchaser will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer and the Merger. In such case, the Purchaser may not be obligated to accept for payment any Shares tendered. See Section 14. The Company and certain of its subsidiaries conduct business in a number of other states throughout the United States, some of which have enacted takeover laws and regulations. Neither Parent nor the Purchaser knows whether any or all of these takeover laws and regulations will by their terms apply to the Offer, and, except as set forth above, neither Parent nor the Purchaser has currently complied with any other state takeover statute or regulation. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer and nothing in this Offer to Purchase or any action taken in connection with 28 the Offer is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and the Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or may be delayed in consummating the Offer. In such case, the Purchaser may not be obligated to accept for payment or pay for any Shares tendered pursuant to the Offer. See Section 14. (b) Antitrust. The Offer and the Merger are subject to the HSR Act, which provides that certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC") and certain waiting period requirements have been satisfied. Parent and the Company expect to file their Notification and Report Forms with respect to the Offer under the HSR Act in the near future. The waiting period under the HSR Act with respect to the Offer will expire at 11:59 p.m., New York City time, on the 15th day after the date Parent's form is filed unless early termination of the waiting period is granted. However, the Antitrust Division or the FTC may extend the waiting period by requesting additional information or documentary material from Parent or the Company. If such a request is made, such waiting period will expire at 11:59 p.m., New York City time, on the tenth day after substantial compliance by Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. The Purchaser will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. See Section 14. As discussed below, the HSR Act requirements with respect to the Merger will not apply if certain conditions are met. In particular, the Merger may not be consummated until 30 calendar days after receipt by the Antitrust Division and the FTC of the Notification and Report Forms of both Parent and the Company unless the Purchaser acquires 50% or more of the outstanding Shares pursuant to the Offer (which would be the case if the Minimum Condition were satisfied) or the 30-day period is earlier terminated by the Antitrust Division and the FTC. Within such 30-day period, the Antitrust Division or the FTC may request additional information or documentary materials from Parent and/or the Company. The Merger may not be consummated until 20 days after such requests are substantially complied with by both Parent and the Company. Thereafter, the waiting periods may be extended only by court order or with the consent of Parent and the Company. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's acquisition of Shares pursuant to the Offer and the Merger. At any time before or after the Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or otherwise or seeking divestiture of Shares acquired by the Purchaser or divestiture of substantial assets of Parent or its subsidiaries. Private parties, as well as state governments, may also bring legal action under the antitrust laws under certain circumstances. Based upon an examination of information provided by the Company relating to the businesses in which Parent and the Company are engaged, Parent and the Purchaser believe that the acquisition of Shares by the Purchaser will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer or other acquisition of Shares by the Purchaser on antitrust grounds will not be made or, if such a challenge is made, of the result. See Section 14 for certain conditions to the Offer, including conditions with respect to injunctions and certain governmental actions. (c) Federal Reserve Board Regulations. Regulations G, U and X (the "Margin Regulations") of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, 29 including the Shares, if the credit is secured directly or indirectly by margin stock. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of all the direct and indirect collateral securing the credit, including margin stock and other collateral. As described in Section 13 of this Offer to Purchase, the financing of the Offer will not be directly or indirectly secured by the Shares or other securities which constitute margin stock. Accordingly, all financing for the Offer will be in full compliance with the Margin Regulations. Rights Plan. In August of 1996, the Company Board adopted a preferred stock purchase rights plan pursuant to which holders of Common Stock were issued rights (exercisable after certain triggering events) to purchase shares of a series of preferred stock of the Company. The Rights Agreement was amended October 17, 1997. On December 23, 1997, the Rights Agreement was further amended to provide that the transactions contemplated by the Merger Agreement will not trigger the provisions of the Rights Agreement. 16. FEES AND EXPENSES. Except as set forth below, neither Parent nor the Purchaser will pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. DLJ is acting as Dealer Manager in connection with the Offer and is acting as financial advisor to Parent in connection with its effort to acquire the Company. Parent has agreed to pay DLJ for its services an initial financial advisory fee of $300,000, payable upon the earliest of (1) the commencement of the Offer, (2) the execution of a definitive agreement with respect to an acquisition of the Company by Parent, or (3) the time DLJ notifies the Board of Parent that it is prepared to deliver its fairness opinion. Parent has agreed to pay an additional fee of $50,000 for each update of a prior fairness opinion delivered by DLJ with respect to the Offer and, upon request by DLJ from time to time, to reimburse DLJ for all out-of-pocket expenses (including the reasonable fees and expenses of counsel) incurred by DLJ in connection with its engagement, which amount may not exceed $50,000 without the prior approval of Parent. In addition, Parent has agreed to pay DLJ an amount equal to $1.25 million, less any amount paid pursuant to the preceding sentences, upon the earliest of: (a) the acquisition by Parent or any of its affiliates of a majority of the outstanding Shares calculated on a fully diluted basis; (b) a merger or consolidation of the Company with Parent or an affiliate of Parent; (c) the acquisition by Parent or any of its affiliates of assets of the Company representing a majority of the Company's book value; or (d) in the consummation of certain other transactions. Parent has also agreed to indemnify DLJ and certain related persons against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws. DLJ has rendered various investment banking and other advisory services to Parent and its affiliates in the past and is expected to continue to render such services, for which it has received and will continue to receive customary compensation from Parent and its affiliates. The Purchaser has retained Innisfree M&A Incorporated to act as the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities law. In addition, Chase Mellon Shareholder Services, L.L.C. has been retained as the Depositary. The Depositary has not been retained to make solicitations or recommendations in its role as Depositary. The Depositary will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding offering material to their customers. 30 17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, the Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PARENT, THE PURCHASER OR THE COMPANY NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS OFFER TO PURCHASE NOR ANY PURCHASE PURSUANT TO THE OFFER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PARENT, THE PURCHASER OR THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE OF THIS OFFER TO PURCHASE. Parent and the Purchaser have filed with the Commission a Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed with the Commission a Solicitation/Recommendation Statement on Schedule 14D-9 (including exhibits) pursuant to Rule 14d-9 under the Exchange Act. Such statements and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 8 (except that they will not be available at the regional offices of the Commission). SHAMROCK ACQUISITION, INC. December 24, 1997 31 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER 1. Directors and Executive Officers of Parent. Set forth below is the name, current business address, citizenship and the present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each director and executive officer of Parent. Unless otherwise indicated, each person identified below is employed by Parent. The principal address of Parent and, unless otherwise indicated below, the current business address for each individual listed below is 233 South Patterson, Springfield, Missouri 65802. Directors are identified by an asterisk. Unless otherwise indicated, each such person is a citizen of the United States. Each of the directors listed below held the office or position last indicated as of five years ago.
NAME AND CURRENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ---------------- -------------------------------------------------- James R. Batten......... Chief Financial Officer since March, 1994; Finance Manager from January, 1993 to March 1994. From September, 1986 until joining the Company in January, 1993, Mr. Batten was employed by the accounting firm of Whitlook, Selim & Keehn where he at- tained the position of Audit Manager in 1991 *Jay D. Burchfield...... Chairman of the Board and Director of City Bancorp in Spring- field, Missouri from January 1997 to present; Chairman of the Board and CEO of Boatman's National Bank of Oklahoma in Tulsa, Oklahoma from January 1996 to January 1997; Chairman, Presi- dent and CEO of Boatman's Bank of Southern Missouri in Spring- field, Missouri from April 1987 to January 1996 *Joe C. Greene.......... Attorney-At-Law and managing partner of the Springfield, Mis- souri firm of Greene & Curtis, LLP; Mr. Greene has been en- gaged in the private practice of law for more than 30 years *Charles H. O'Reilly, Chairman Emeritus since March 1993 and a co-founder of Parent; Sr..................... Chairman of the Board from 1975 to March 1993 *Charles H. O'Reilly, Chairman of the Board since March 1993; President and Chief Jr..................... Executive Officer of Parent from 1975 to March 1993 *David E. O'Reilly...... President and Chief Executive Officer of Parent since March 1993; Vice President of Parent from 1975 to March 1993 *Lawrence P. O'Reilly... President and Chief Operating Officer of Parent since March 1993; Vice-President of Parent from 1975 to March 1993 Ted F. Wise............. Executive Vice-President since February, 1997. Prior to his current position, Mr. Wise had served as Senior Vice-President from March, 1993 until February, 1997 and as Vice-President-- Operations from June, 1984 until March, 1993 *Rosalie O'Reilly Wooten................. Executive Vice-President of Parent since 1980
I-1 2. Directors and Executive Officers of the Purchaser. Set forth below is the name, current business address, citizenship and the present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each director and officer of the Purchaser. Unless otherwise indicated, each person identified below is employed by the Purchaser. The principal address of the Purchaser and, unless otherwise indicated below, the current business address for each individual listed below is 233 South Patterson, Springfield, Missouri 65802. Directors are identified by an asterisk. Unless otherwise indicated, each such person is a citizen of the United States.
NAME AND CURRENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ---------------- -------------------------------------------------- *David E. O'Reilly...... President of Purchaser since December 1997; President and Chief Executive Officer of Parent since March 1993; Vice Pres- ident of Parent from 1975 to March 1993 *Lawrence P. O'Reilly... Secretary of Purchaser since December 1997; President and Chief Operating Officer of Parent since March 1993; Vice-Pres- ident of Parent from 1975 to March 1993 *Charles H. O'Reilly, Chairman of the Board of Parent since March 1993; President Jr..................... and Chief Executive Officer of Parent from 1975 to March 1993
I-2 Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each stockholder of the Company or his broker-dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: ChaseMellon Shareholder Services, L.L.C. By Mail: Facsimile Transmission: 201-329-8936 By Hand: ChaseMellon Shareholder ChaseMellon Shareholder Services, L.L.C. Services, L.L.C. Confirmation of Receipt of Facsimile by Telephone: 201-296-4860 120 Broadway--13th Floor Post Office Box 3301 New York, NY 10271 South Hackensack, NJ Attn: Reorganization 07606 Department Attn: Reorganization Department By Overnight Courier: ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Mail Drop Reorg. Dept. Ridgefield Park, NJ 07660 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: INNISFREE M&A INCORPORATED 501 Madison Avenue, 20th Floor New York, New York 10022 (212) 750-5833 (Call collect) or Call toll free 1-888-750-5834 The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 (212) 892-3663 (Call collect) EX-99.(A)(2) 3 LETTER OF TRANSMITTAL EXHIBIT (A)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. PURSUANT TO THE OFFER TO PURCHASE DATED DECEMBER 24, 1997 BY SHAMROCK ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF O'REILLY AUTOMOTIVE, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: Facsimile Transmission By Hand: ChaseMellon Shareholder (201) 329-8936 ChaseMellon Shareholder Services, L.L.C. Services, L.L.C. Post Office Box 3301 Confirm Receipt of 120 Broadway--13th Floor South Hackensack, NJ 07606 Facsimile by Telephone New York, NY 10271 Attn: Reorganization (201) 296-4860 Attn: Reorganization Department Department By Overnight Courier: ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Mail Drop Reorg. Dept. Ridgefield Park, NJ 07660 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THAT LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders if certificates for Shares (as defined below) are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each, a "Book-Entry Transfer-Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to the book-entry transfer procedure described in Section 3 of the Offer to Purchase (as defined below). Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other documents required hereby to the Depositary so that they are received prior to 12:00 Midnight, New York City time, on January 26, 1998 (or if the Offer is extended as provided in the Offer to Purchase, prior to the time specified in such extension) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2 of this Letter of Transmittal. Delivery of documents to the Purchaser or Parent (as both are defined below) does not constitute a delivery to the Depositary. [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name(s) of Tendering Institution: _____________________________________________ Check Box of Applicable Book-Entry Transfer Facility: (CHECK ONE) [_] DTC [_] PDTC Account Number _______________________ Transaction Code Number ______________ [_]CHECK HERE IF THE TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) _______________________________________________ Window Ticket Number (if any) _________________________________________________ Date of Execution of Notice of Guaranteed Delivery ____________________________ Name of Institution that Guaranteed Delivery __________________________________ Check Box of Applicable Book-Entry Transfer Facility, if Delivered by Book- Entry Transfer: [_] The Depository Trust Company [_] Philadelphia Depository Trust Company Account Number ________________________________________________________________ Transaction Code Number _______________________________________________________ BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------- PRINT NAME(S) AND ADDRESS(ES) OF CERTIFICATE(S) TENDERED (ATTACH REGISTERED HOLDER(S) (PLEASE FILL IN, ADDITIONAL SIGNED LIST IF NECESSARY) IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON THE CERTIFICATE(S)) - ------------------------------------------------------------------------------- NUMBER OF CERTIFICATE SHARES NUMBER OF NUMBER(S)* REPRESENTED SHARES BY TENDERED** CERTIFICATE(S)* --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- TOTAL SHARES - ------------------------------------------------------------------------------- * NEED NOT BE COMPLETED BY STOCKHOLDERS DELIVERING SHARES BY BOOK-ENTRY TRANSFER. **UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES REPRESENTED BY ANY CERTIFICATES DELIVERED TO THE DEPOSITARY ARE TENDERED. SEE INSTRUCTION 4. [_]CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE ASSISTANCE IN REPLACING THEM. UPON RECEIPT OF NOTIFICATION BY THIS LETTER OF TRANSMITTAL, THE COMPANY'S STOCK TRANSFER AGENT WILL CONTACT YOU DIRECTLY WITH REPLACEMENT INSTRUCTIONS. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. STOCKHOLDER'S AGREEMENT Ladies and Gentlemen: The undersigned hereby tenders to Shamrock Acquisition, Inc., a Delaware corporation (the "Purchaser"), the above-described shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), at $4.35 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated December 24, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase, each as amended or supplemented from time to time, constitute the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole or in part from time to time, to one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer. Accordingly, the undersigned hereby deposits with you the above-described certificates representing the Shares. Subject to, and effective upon, acceptance for payment of and payment for the Shares validly tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser, all right, title and interest in and to all Shares tendered hereby that are purchased pursuant to the Offer (and any and all other distributions, rights, Shares or other securities issued or issuable in respect thereof on or after December 23, 1997) and hereby irrevocably constitutes and appoints the Depositary as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any such other distributions, rights, Shares or other securities), with full power of substitution and resubstitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and any such other distributions, rights, Shares, or other securities), together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, (b) present such certificates (and any such other distributions, rights, Shares or other securities) for cancellation and transfer of such Shares on the Company's books, and (c) receive all benefits (including all dividends or distributions resulting from any stock split, combination or exchange of Shares) and otherwise exercise all rights of beneficial ownership of such Shares (and all such distributions, rights, Shares or other securities), all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any other distributions, rights, Shares or other securities issued or issuable in respect thereof on or after December 23, 1997) and that the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claim, when and to the extent the same are purchased by the Purchaser. Upon request, the undersigned will execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any such Distributions issued to the undersigned, in respect of the tendered Shares, accompanied by documentation of transfer, and pending such remittance or appropriate assurance thereof, the Purchaser shall be entitled to all rights and privileges as owner of any such Distributions and, subject to the terms of the Merger Agreement (as defined in the Offer to Purchase), may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. The undersigned hereby irrevocably appoints David E. O'Reilly, Lawrence P. O'Reilly or James R. Batten, and each of them, and any other designee of the Purchaser, and each of them, the attorneys and proxies of the undersigned, each with full power of substitution, to vote in such manner as such attorney and proxy or his substitute shall in his sole discretion deem proper, and otherwise to act (including pursuant to written consent) with respect to all the Shares tendered hereby which have been accepted for payment by the Purchaser prior to the time of such vote or other action (whether at an annual, special, adjourned or postponed meeting or by means of written consent in lieu of such meetings or otherwise) of the Company's stockholders or otherwise and any and all other shares of capital stock or other securities issued or issuable in respect of such Shares on or after December 23, 1997. This appointment is effective upon the purchase of such Shares by the Purchaser as provided in the Offer to Purchase. This proxy is irrevocable and coupled with an interest and is granted in consideration of the purchase of such Shares. Such purchase shall revoke all prior proxies given by the undersigned at any time with respect to such Shares (and such other distributions, rights, Shares or other securities issued by the undersigned at any time with respect to such Shares (and such other distributions, rights, Shares or other securities issued in respect thereof) and no subsequent proxies will be given with respect thereto by the undersigned, and if given shall not be valid. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting and other rights with respect to such Shares, including voting at any meeting of stockholders then scheduled. The undersigned understands that the valid tender of Shares pursuant to one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions hereto will constitute an agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchaser may not be required to accept for payment any of the tendered Shares. The Purchaser's acceptance for payment of Shares pursuant to the Offer will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy and legal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased and/or return any certificates for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions", please mail the check for the purchase price for any Shares purchased and return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Descriptions of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all shares purchased and return all certificates representing Shares not purchased or not tendered in the name(s) of, and mail such check and certificates to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares tendered hereby and delivered by book-entry transfer, but which are not purchased, by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if the Purchaser does not purchase any of the Shares tendered hereby. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check To be completed ONLY if the check for the purchase price of Shares for the purchase price of Shares purchased or Certificates purchased or Certificates evidencing Shares not tendered or evidencing Shares not tendered or not purchased are to be issued in not purchased are to be mailed to the name of someone other than the someone other than that shown under under- signed, or if Shares "Description of Shares Tendered." tendered hereby and delivered by book-entry transfer which are not purchased are to be returned by credit to an account at one of the Book-Entry Transfer Facilities other than that designated above. Mail [_] check [_] Certificate(s) to: Name:_______________________________ (Print) Address:____________________________ ------------------------------------ (Include Zip Code) Issue [_] check [_] Certificate(s) to: ------------------------------------ Name: ______________________________ TAXPAYER IDENTIFICATION OR SOCIAL (Print) SECURITY NUMBER Address: ___________________________ (SEE SUBSTITUTE FORM W-9 ON REVERSE ------------------------------------ SIDE) (Include Zip Code) ------------------------------------ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) [_] Credit Shares delivered by book-entry transfer and not purchased to the account set forth below: Check appropriate box: [_] DTC [_] PDTC Account Number______________________ STOCKHOLDERS SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Signature(s) of Owner(s)) - -------------------------------------------------------------------------------- (MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON STOCK CERTIFICATE(S) OR ON SECURITY POSITION LISTING OR BY PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS TRANSMITTED HEREWITH. IF SIGNATURE IS BY AN OFFICER OF A CORPORATION, TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH FULL TITLE. SEE INSTRUCTION 5. FOR INFORMATION CONCERNING SIGNATURE GUARANTEES, SEE INSTRUCTION 1.) Dated: __________________________________________________________________, 19 Name(s): _______________________________________________________________________ - -------------------------------------------------------------------------------- (Please Print) Capacity (Full Title): _________________________________________________________ (See Instructions) Address(es): ___________________________________________________________________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- Area Code and Telephone Number: ________________________________________________ Taxpayer Identification or Social Security Number: ________________________________________________________ GUARANTEE OF SIGNATURES (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized Signature: __________________________________________________________ Name: __________________________________________________________________________ (Please Print) Title: _________________________________________________________________________ Name of Firm: __________________________________________________________________ Address: _______________________________________________________________________ Area Code and Telephone No.: ___________________________________________________ Dated: __________________________________________________________________, 19 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution which is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing in the Security Transfer Agents Medallion Program (each an "Eligible Institution"). No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the reverse hereof, or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders either if certificates for Shares are to be forwarded herewith or if a tender of Shares is to be made pursuant to the procedures for delivery by book-entry transfer set forth in Section 3 of the Offer to Purchase. For Shares to be validly tendered pursuant to the Offer, (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of the Depositary's addresses set forth herein and either certificates or a timely Book-Entry Confirmation for tendered Shares must be received by the Depositary at one of such addresses, in each case prior to the Expiration Date (as defined in the Offer to Purchase), or (ii) the tendering stockholder must comply with the guaranteed delivery procedure set forth below. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedures, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery provided by the Purchaser (or facsimile thereof) must be received by the Depositary prior to the Expiration Date and (iii) the certificates for all physically tendered Shares, or a Book-Entry Confirmation with respect to all tendered Shares, together with this properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. A "trading day" is any day on which the New York Stock Exchange is open for business. The stockholder understands that tenders of Shares pursuant to any one of the procedures described in "Procedures for Tendering Shares"--Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the stockholder and the Purchaser upon the terms and conditions of the Offer. THE METHOD OF DELIVERY OF STOCK CERTIFICATES AND OTHER DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OF THE DEPOSITARY. IF SENT BY MAIL, REGISTERED MAIL RETURN RECEIPT REQUIRED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractions of Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal, waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided is inadequate, the certificate numbers and number of Shares should be listed on a separate signed schedule and attached hereto. 4. PARTIAL TENDERS. If fewer than all of the Shares evidenced by any certificate are to be tendered, fill in the number of Shares which are to be tendered in the column entitled "Number of Shares Tendered." A new certificate for the remainder of the Shares evidenced by your old certificate(s) will be sent to you as soon as practicable after the Expiration Date. All Shares represented by certificates delivered to the Depositary are deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. (a) If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the names as written on the face of the certificate(s) without any change whatsoever. (b) If the Shares tendered are held of record by two or more joint holders, all such holders must sign this Letter of Transmittal. (c) If any Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. (d) If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required. If, however, payment is to be made to, or the certificates for Shares not tendered or accepted for payment are to be issued to, a person other than the registered holder(s), then the certificates transmitted hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appears on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. (e) If this Letter of Transmittal is signed by a person other than the registered holder of the certificates tendered, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the certificates. Signatures on such certificates or stock powers required by Instruction 1 above must be guaranteed by an Eligible Institution. (f) If this Letter of Transmittal or any certificates or stock powers are signed by officers of corporations, trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary representative capacity, such persons should so indicate when signing, and must submit proper evidence satisfactory to the Purchaser of their authority so to act. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the Purchaser will pay, or cause to be paid, any stock transfer taxes with respect to the transfer and sale of Shares to it or its assignee pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any persons other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder or such person) payable on the account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby is to be issued, or certificate(s) representing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such certificate is to be sent to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled "Description of Shares Tendered", the appropriate boxes in this Letter of Transmittal must be completed. Stockholders delivering Shares tendered hereby by book entry transfer may request that Shares not purchased be credited to such account maintained at a Book-Entry Transfer Facility as such stockholder may designate in the box entitled "Special Payment Instructions". If no such instructions are given, all such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated herein as the account from which such Shares were delivered. 8. IRREGULARITIES. All questions as to the validity, form, eligibility (including timeliness of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. The Purchaser reserves the absolute right to reject any or all tenders of any Shares determined by it to be not in appropriate form or the acceptance of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to any particular Shares or any particular stockholder, and the Purchaser's interpretations of the terms and conditions of the Offer (including these instructions) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Purchaser shall determine. None of the Purchaser, the Depositary or the Information Agent or any other person will be under duty to give notification of any defects or irregularities in tenders, or incur any liability for failure to give such notification. Tenders will not be deemed to have been validly made until all defects and irregularities have been cured or waived. 9. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9. Failure to provide the information on the form may subject the tendering stockholder to 31% federal income tax withholding on any amount otherwise payable to the stockholder. The box in Part 2 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 2 is checked and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price thereafter until a TIN is provided to the Depositary. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be directed to the Information Agent at the address set forth or your broker, dealer, commercial bank or trust company. 11. LOST OR DESTROYED CERTIFICATES. If any certificate(s) representing Shares has been lost or destroyed, the stockholder should check the appropriate box on the front of the Letter of Transmittal. The Company's stock transfer agent will then instruct such stockholder as to the procedure to be followed in order to replace the certificate(s). The stockholder may have to post a surety bond of approximately 2% of the current market value of the stock. This Letter of Transmittal and related documents cannot be processed until procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF) TOGETHER WITH CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY (OR A FACSIMILE COPY THEREOF) MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a stockholder whose tendered Shares are accepted for payment is required by law to provide the Depositary (as payer) with his correct taxpayer identification number on Substitute Form W-9. If such a stockholder is an individual, the taxpayer identification number is his Social Security number. For businesses and other entities, the taxpayer identification number is its Employer Identification Number. If the Depositary is not provided with the correct taxpayer identification number, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service, and payments made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to federal income tax backup withholding. To prevent federal income tax backup withholding on payments made to a stockholder with respect to Shares purchased pursuant to the Offer, each stockholder is required to notify the Depositary with his correct taxpayer identification number by completing the form certifying that the taxpayer identification number provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a taxpayer identification number) and that (1) the stockholder has not been notified by the Internal Revenue Service that he is subject to federal income tax backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified the stockholder that he is no longer subject to federal income tax backup withholding. Exempt stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these federal income tax backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9 for additional instructions. If federal income tax backup withholding applies, the Depositary is required to withhold 31% of the payments made to a stockholder. Backup withholding is not an additional tax. Rather, the tax liability of person subject to federal income tax backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund generally may be obtained. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the Social Security number or Employer Identification Number of the registered holder of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guideline for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION UMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. PAYOR: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - ------------------------------------------------------------------------------- SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. FORM W-9 TIN: _______ DEPARTMENT OF THE Social TREASURY, Security INTERNAL REVENUE Number SERVICE PAYOR'S REQUEST FOR or Employer TAXPAYER Identification IDENTIFICATION Number --------------------------------------------------------- NUMBER ("TIN") AND CERTIFICATION Name (Please Print) PART 2 ----------------------------------------- Awaiting [_] Address TIN ----------------------------------------- CityStateZip Code ----------------------------------------- --------------------------------------------------------- PART 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: (1) the number shown on this form is my correct taxpayer identification number (or a TIN has not been issued to me I have mailed or delivered an application to receive a TIN or intend to do so in the near future), (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding, and (3) all other information provided on this form is true, correct and complete. --------------------------------------------------------- SIGNATURE __________________________ DATE: ____________ You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. Questions and requests for assistance or additional copies of the Offer to Purchase, Letter of Transmittal and other tender offer materials may be directed to the Information Agent or the Dealer Manager as set forth below: The Information Agent for the Offer is: INNISFREE M&A INCORPORATED 501 Madison Avenue, 20th Floor New York, New York 10022 (212) 750-5833 (Call collect) or CALL TOLL FREE: (888)750-5834 The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 (212) 892-3663 (Call collect) EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY EXHIBIT (A)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. As set forth in Section 3 of the Offer to Purchase (as defined below), this form or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights", and together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), are not immediately available, or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary at the address set forth below prior to the Expiration Date (as defined in the Offer to Purchase). This form may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined in the Offer to Purchase). See Section 3 of the Offer to Purchase. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: Facsimile Transmission: By Hand/Overnight ChaseMellon Shareholder (201) 329-8936 Delivery: Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. Post Office Box 3301 120 Broadway -- 13th Floor South Hackensack, NJ 07606 New York, NY 10271 Attn: Reorganization Attn: Reorganization Department Department Confirm Receipt of Facsimile by telephone: (201) 296-4860 By Overnight Courier: ChaseMellon Shareholder Services, L.L.C. 85 Challenge Road Mall Drop Reorg. Dept. Ridgefield Park, NJ 07660 --------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to Shamrock Acquisition, Inc., a Delaware corporation which is a wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 24, 1997 (the "Offer to Purchase") and the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares (as such term is defined in the Offer to Purchase), set forth below, pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Number of Shares: Name(s) of Record Holder(s): ----------------------------------- Certificate No(s). (if available): ----------------------------------- Please Type or Print ----------------------------------- Address(es) _______________________ Check ONE box if Shares will be ----------------------------------- tendered by book-entry transfer: Zip Code [_] The Depository Trust Company Area Code and Tel. No. ____________ [_] Philadelphia Depository Trust Signature(s) ______________________ Company ----------------------------------- Account Number ____________________ Dated ______________________ , 19 Dated ______________________ , 19 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agent's Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation with respect to such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message, and any other required documents within three trading days (as defined in the Offer to Purchase) after the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. All capitalized terms used herein have the meanings set forth in the Offer to Purchase. - ------------------------------------- ------------------------------------- Name of Firm Authorized Signature - ------------------------------------- ------------------------------------- Address Title - ------------------------------------- Zip Code Name ________________________________ Please Type or Print Area Code and Tel. No. ______________ Date ________________________ , 19 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.(A)(4) 5 LETTER TO BROKERS, DEALERS EXHIBIT (A)(4) OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. BY SHAMROCK ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF O'REILLY AUTOMOTIVE, INC. AT $4.35 NET PER SHARE THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. December 24, 1997 To Brokers, Dealers, Banks, Trust Companies and Other Nominees: We have been engaged by Shamrock Acquisition, Inc., a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation, ("Parent"), to act as Dealer Manager in connection with the Purchaser's offer to purchase all outstanding shares of Common Stock, $.01 par value per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), at a purchase price of $4.35 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated December 24, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments and supplements thereto, collectively constitute the "Offer") enclosed herewith. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 23, 1997 (the "Merger Agreement"), among Parent, the Purchaser and the Company. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are copies of the following documents: 1. Offer to Purchase dated December 24, 1997; 2. Letter of Transmittal to be used by stockholders of the Company in accepting the Offer; 3. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 4. The Notice of Guaranteed Delivery; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. A return envelope addressed to the Depositary. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of shares which, together with any shares beneficially owned by Parent or Purchaser, represent at least a majority of the Shares outstanding on a fully diluted basis. The Offer is also subject to other terms and conditions contained in the Offer to Purchase. See Section 14 of the Offer to Purchase. The Board of Directors of the Company has unanimously approved the Offer and the Merger and the Merger Agreement, has determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company and its stockholders, and recommends that stockholders accept the Offer and tender their Shares. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay promptly after the Expiration Date (as defined in the Offer to Purchase) for all Shares validly tendered prior to the Expiration Date and not properly withdrawn as, if and when the Purchaser gives written notice to the Depositary of the Purchaser's acceptance of such Shares. Payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or a timely Book-Entry Confirmation (as defined in the Offer to Purchase), (ii) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) and (iii) any other documents required by the Letter of Transmittal. If holders of Shares wish to tender their Shares, but it is impracticable for them to deliver their certificates prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. Neither the Purchaser nor Parent will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager, the Depositary and the Information Agent, as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary expenses incurred by them in forwarding the enclosed offering materials to their customers. The Purchaser will pay all stock transfer taxes applicable to its purchase of shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed material may be obtained from, Innisfree M&A Incorporated, the Information Agent, at 501 Madison Avenue, 20th Floor, New York, NY 10022, (212) 750-5833 (call collect), or Donaldson, Lufkin & Jenrette Securities Corporation, the Dealer Manager, at 277 Park Avenue, New York, New York 10172, (212) 892-3663 (call collect). Very truly yours, Donaldson, Lufkin & Jenrette Securities Corporation, as Dealer Manager 277 Park Avenue New York, New York 10172 (212) 892-3663 (Call collect) NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, PARENT, THE DEALER MANAGER, THE DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE THEREOF OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(5) 6 LETTER TO CLIENTS FOR USE BY BROKERS EXHIBIT (A)(5) OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. BY SHAMROCK ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF O'REILLY AUTOMOTIVE, INC. AT $4.35 NET PER SHARE THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated December 24, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to the offer by Shamrock Acquisition, Inc., a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation ("Parent"), to purchase for cash all outstanding shares of Common Stock, $.01 par value per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"). We are the holder of record of Shares held by us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USE TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Offer to Purchase. Accordingly, we request your instructions as to whether you wish to tender any of or all the Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $4.35 per Share, net to the seller in cash, without interest thereon. 2. The Offer is being made for all outstanding Shares. 3. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. 4. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Monday, January 26, 1998, unless the Offer is extended by the Purchaser. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the Share Certificates or timely Book-Entry Confirmation of such Shares, if such procedure is available, into the Depositary's account at the Book- Entry Transfer Facilities pursuant to the procedures set forth in Section 3 of the Offer 1 to Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message and (iii) any other documents required by the Letter of Transmittal. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares which, together with any Shares beneficially owned by Parent or Purchaser, represent at least a majority of the Shares outstanding on a fully diluted basis. 6. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of December 23, 1997 (the "Merger Agreement"), among Parent, the Purchaser and the Company. The Merger Agreement provides that the Purchaser will be merged (the "Merger") with and into the Company after the completion of the Offer and the satisfaction of certain conditions. As a result of the Merger, each Share (and Right) issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) (other than Dissenting Shares (as defined in the Merger Agreement) and Shares (and Rights) then owned by the Company, Parent, the Purchaser, or any other direct or indirect subsidiary of Parent) will be converted into the right to receive the price paid in the Offer in cash, without interest. 7. Any stock transfer taxes applicable to a sale of Shares to the Purchaser pursuant to the Offer will be borne by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any of or all your Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth on the reverse side of this letter. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the reverse side of this letter. Your instructions to us should be forwarded in ample time to permit us to submit a tender on your behalf prior to the expiration of the offer. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. If the securities laws of any jurisdiction require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF HI-LO AUTOMOTIVE, INC. The undersigned acknowledge(s) receipt of your letter, the enclosed Offer to Purchase, dated December 24, 1997, of Shamrock Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of O'Reilly Automotive, Inc., a Missouri corporation, and the related Letter of Transmittal, relating to shares of Common Stock, $.01 par value per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in such Offer to Purchase and related Letter of Transmittal. Dated: , 199 NUMBER OF SHARES TO BE TENDERED* SHARES I (we) understand that if I (we) sign this instruction form without indicating a lesser number of Shares in the space above, all Shares held by you for my (our) account will be tendered. SIGN HERE ------------------------------------- Signature(s) ------------------------------------- ------------------------------------- Print Name(s) ------------------------------------- ------------------------------------- Print Address(es) ------------------------------------- Area Code and Telephone Number(s) ------------------------------------- Tax ID or Social Security Number(s) - -------- * Unless otherwise indicated, it will be assumed that all Shares held by your firm for my (our) account are to be tendered. 3 EX-99.(A)(6) 7 W-9 GUIDELINES EXHIBIT (A)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------- ---------------------------------------
GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ----------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if account) the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor guardian or committee for a or incompetent designated ward, minor or person(3) incompetent person 7. a. The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b. So-called trust account The actual that is not a legal or owner(1) valid trust under State law 8. Sole proprietorship The owner(4) account
GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- -------- 9. A valid trust, estate or The legal entity pension trust (do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable or The organization educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments
--------------------------------------- (1) List first and circle the name of the person whose number you furnish. - --------------------------------------- (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a) or an individual re- tirement plan or a custodial account under Section 403(b)(7). . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . An exempt charitable remainder trust under Section 664 or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not pro- vided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup with- holding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A and 6050N of the code and the regulations promulgated thereunder. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, inter- est or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification pur- poses. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penal- ties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are sub- ject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or pat- ronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or im- prisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.(A)(7) 8 TEXT OF PRESS RELEASE EXHIBIT (a)(7) SPRINGFIELD, MISSOURI and HOUSTON, TEXAS, December 23, 1997 - O'Reilly Automotive, Inc. (Nasdaq-ORLY) ("O'Reilly") and HI-LO Automotive, Inc. (NYSE-HLO) ("Hi/LO") today jointly announced that the two companies have signed a definitive merger agreement for the acquisition of Hi/LO by O'Reilly. Under the terms of the agreement, a subsidiary of O'Reilly will commence a tender offer on December 24, 1997 to acquire all of the outstanding shares of Hi/LO for $4.35 per share in cash. Following the completion of the tender offer, O'Reilly will consummate a second step merger in which remaining Hi/LO stockholders will also receive $4.35 per share in cash. The acquisition will add 188 new stores in Texas, Louisiana and California, along with a 375,000 square foot distribution center in Houston, Texas to O'Reilly's current 259 retail stores and three distribution centers in the Midwest. The acquisition will make O'Reilly one of the top ten auto parts chains in the country. "Like O'Reilly, Hi/LO has been successful in pursuing a dual market strategy, and this fact, combined with their complementary geographic location, offers our company and our team members many excellent opportunities," stated David O'Reilly, President and Chief Executive Officer of O'Reilly. Mike Young, Chief Executive Officer of Hi/LO, stated that "We are very pleased to be combining Hi/LO with the O'Reilly organization because their operating philosophy is so similar to ours. We believe the transaction is in the best interests of the Hi/LO stockholders, our associates and our customers." Donaldson, Lufkin & Jenrette Securities Corporation is acting as advisor to O'Reilly, and will act as Dealer Manager for the tender offer. Bank financing for the transaction will be provided by NationsBank. SBC Warburg Dillon Read, Inc. served as financial advisor to Hi/LO and has provided a fairness opinion in connection with the transaction. The tender offer and merger are subject to customary conditions, including the tender of a majority of Hi/LO's shares and termination of the waiting period under U.S. antitrust laws. The tender offer will be made pursuant to definitive documents to be filed with the Securities and Exchange Commission. The merger agreement was entered into by O'Reilly and Hi/LO after Hi/LO terminated its previously announced merger with Discount Auto Parts, Inc. and paid the required termination fee of $4 million. Hi/LO sells automotive aftermarket parts, products and accessories for domestic and imported cars, vans and light trucks to "Do-It-Yourself" customers and commercial auto repair outlets. O'Reilly is a leading specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment and accessories to both do-it-yourself customers and professional mechanics and service technicians. Founded in 1957 by the O'Reilly family, the company currently operates stores within the states of Missouri, Arkansas, Kansas, Oklahoma, Nebraska and Iowa. Statements contained in this press release which are not historical facts are forward-looking statements. Such forward-looking statements are necessary estimates reflecting the best judgment of the party making such statements based upon current information and involve a number of risks and uncertainties. Forward-looking statements contained in this press release or in other public statements of the parties should be considered in light of those factors. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements. 2 EX-99.(A)(8) 9 FORM OF SUMMARY ADVERTISEMENT Exhibit (a)(8) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer is made solely by the Offer to Purchase dated December 24, 1997 and the related Letter of Transmittal and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction or any administrative or judicial action pursuant thereto. In any jurisdiction where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Shamrock Acquisition, Inc. by Donaldson, Lufkin & Jenrette Securities Corporation or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Hi-Lo Automotive, Inc. at $4.35 Net Per Share by Shamrock Acquisition, Inc. a wholly owned subsidiary of O'Reilly Automotive, Inc. Shamrock Acquisition, Inc., a Delaware corporation (the "Purchaser") which is a wholly owned subsidiary of O'Reilly Automotive Inc., a Missouri corporation ("Parent"), is offering to purchase all outstanding shares of Common Stock, $.01 par value per share (the "Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), at a price of $4.35 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 24, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). See the Offer to Purchase for capitalized terms used but not defined herein. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JANUARY 26, 1998, UNLESS THE OFFER IS EXTENDED. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of December 23, 1997 (the "Merger Agreement"), by and among Parent, the Purchaser and the Company. The Merger Agreement provides that, following consummation of the Offer and the satisfaction or waiver of the other conditions to the Merger, the Purchaser will be merged with and into the Company (the "Merger") and each outstanding Share (other than Shares held by the Company, Parent, the Purchaser, or any other wholly owned subsidiary of Parent, and Shares held by stockholders who perfect dissenters' rights under Delaware law) will be converted into the right to receive $4.35 in each case, without interest thereon, or any higher price paid in the Offer. The Board of Directors of the Company has unanimously approved the Offer and the Merger and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company and its stockholders and recommends that stockholders of the Company accept the Offer and tender their Shares. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH REPRESENT A MAJORITY OF ALL OUTSTANDING SHARES, TOGETHER WITH SHARES BENEFICIALLY OWNED BY PARENT AND PURCHASER, ON A FULLY DILUTED BASIS. For purposes of the Offer, the Purchaser shall be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to the Purchaser and not withdrawn, as, if and when the Purchaser gives oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary"), of the Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering stockholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificate or timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, (ii) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. Under no circumstances will interest be paid on the purchase price of the Shares, regardless of any extension of the Offer, or any delay in making such payment. Except as otherwise provided below, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after February 21, 1998. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth in the Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility (as defined in the Offer to Purchase) to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, any Shares properly withdrawn will thereafter be deemed not validly tendered for any purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 of the Offer to Purchase at any time prior to the Expiration Date. All questions as to form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser in its sole discretion, which determination will be final and binding. Subject to the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. The Merger Agreement provides that if the conditions to the Offer remaining unsatisfied prior to the Expiration Date, then if requested by the Company the Purchaser will extend the Offer from time to time until March 23, 1998. In addition, the Purchaser has the right to extend the Offer for up to 10 business days if less than 90% of the Shares have been tendered as of the Expiration Date. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering Stockholder to withdraw such Shares. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has supplied to the Purchaser the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant material will be mailed to record holders of Shares, and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to purchase and the Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance or for copies of the Offer to Purchase, the Letter of Transmittal and other tender offer documents may be directed to the Information Agent or the Dealer Manager, as set forth below and copies will be furnished at the Purchaser's expense. No fees or commissions will be paid by Parent or the Purchaser to brokers, dealers or other persons other than the Dealer Manager and the Information Agent for soliciting tenders of Shares pursuant to the offer. The Information Agent for the Offer is: Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor New York, New York 10022 (212) 750-5833 (Collect) or Call Toll-Free: (888) 750-5834 The Dealer Manager for the Offer is: Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 (212) 892-3663 (Call Collect) December 24, 1997 EX-99.(B) 10 COMMITTMENT LETTER Exhibit (b) December 20, 1997 Mr. James R. Batten Chief Financial Officer and Treasurer O'Reilly Automotive, Inc. 233 South Patterson Springfield, MO 65802 Re: $175,000,000 Credit Facilities Dear Jim: You have advised us that O'Reilly Automotive, Inc. (the "O'Reilly") has formed a corporation known as Newco and that Newco intends to make a tender offer in the approximate amount of $50 million (the "Tender Offer") to acquire all of the issued and outstanding shares of common stock, par value $.01 per share (the "Shares") of Hi-Lo Automotive, Inc. ("Hi-Lo") and to merge Newco into Hi-Lo (the "Merger") You have advised us that approximately $100 million in senior debt financing will be required in order to effect the Acquisition, refinance certain existing debt of Hi-Lo, to pay the costs and expenses related to the Acquisition and to provide for ongoing general corporate purposes after completion of the Acquisition and that no external financing will be obtained other than the Senior Credit Facilities described below. In connection with the foregoing, NationsBank, N.A. ("NationsBank" or the "Agent") is pleased to advise you of its commitment to provide O'Reilly the full principal amount of the Senior Credit Facilities described in the term sheet attached hereto as Annex I (the "Term Sheet"). NationsBanc Montgomery Securities, Inc. ("NMSI") is pleased to advise you of its commitment, as Arranger and Syndication Agent for the Senior Credit Facilities, to form a syndicate of financial institutions (the "Lenders") reasonably acceptable to you for the Senior Credit Facilities. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet. The commitments of NationsBank and NMSI hereunder are subject to the satisfaction of each of the following conditions precedent in a manner acceptable to NationsBank and NMSI in their sole discretion: (a) each of the terms and conditions set forth herein; (b) each of the terms and conditions set forth in the Term Sheet; O'Reilly Automotive, Inc. December 20, 1997 Page 2 (c) execution by O'Reilly, Newco, Hi-Lo and/or other appropriate parties of the definitive Merger Agreement and other related documentation relating to the Acquisition and Merger, in form and substance reasonably satisfactory to NationsBank and NMSI; (d) execution of a fee letter among O'Reilly, NationsBank and NMSI prior to or concurrently with the acceptance of this letter by O'Reilly and Newco; (e) the negotiation, execution and delivery of definitive documentation with respect to the Senior Credit Facilities consistent with the Term Sheet and otherwise reasonably satisfactory to NationsBank and NMSI; and (f) there shall not have occurred and be continuing since the date hereof a material disruption of, or a material adverse change in, financial, banking or capital market conditions, in each case as determined by NationsBank and NMSI in their reasonable discretion which would adversely affect NMSI's ability to syndicate the Senior Credit Facilities. NationsBank will act as Agent for the Senior Credit Facilities and NMSI will act as Arranger and Syndication Agent for the Senior Credit Facilities. No additional agents will be appointed without the prior approval of NationsBank and NMSI. Furthermore, the commitments of NationsBank and NMSI hereunder are based upon the financial and other information regarding O'Reilly, Newco, Hi-Lo and their subsidiaries previously provided to NationsBank and NMSI and are subject to the condition, among others, that there shall not have occurred after the date of such information, in the opinion of NationsBank and NMSI, any material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of O'Reilly, Newco, Hi-Lo and their subsidiaries taken as a whole. If the continuing review by NationsBank and NMSI of O'Reilly, Newco, Hi-Lo and their subsidiaries discloses information relating to conditions or events not previously disclosed to NationsBank and NMSI or relating to new information or additional developments concerning conditions or events previously disclosed to NationsBank and NMSI which NationsBank and NMSI in their reasonable discretion believe would have a material adverse effect on the condition (financial or otherwise), assets, properties, business, operations or prospects of O'Reilly, Newco, Hi-Lo and their subsidiaries taken as a whole, NationsBank and NMSI may, in their sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the Senior Credit Facilities. You agree to actively assist NationsBank and NMSI in achieving a syndication of the Senior Credit Facilities that is satisfactory to NationsBank, NMSI and you. In the event that such syndication cannot be achieved in a manner satisfactory to NationsBank and NMSI under the structure outlined in the Term Sheet you agree to cooperate with NationsBank and NMSI in developing an alternative structure reasonably acceptable to each party that will permit a O'Reilly Automotive, Inc. December 20, 1997 Page 3 satisfactory syndication of the Senior Credit Facilities. Syndication of the Senior Credit Facilities will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of O'Reilly, Newco and the proposed Lenders. To assist NationsBank and NMSI in the syndication efforts, you hereby agree to (a) provide and cause your advisors to provide NationsBank and NMSI and the other Lenders upon request with all information reasonably deemed necessary by NationsBank and NMSI to complete syndication, (b) assist NationsBank and NMSI upon their reasonable request in the preparation of an Information Memorandum to be used in connection with the syndication of the Senior Credit Facilities and (c) otherwise assist NationsBank and NMSI in their syndication efforts, including by making available officers and advisors of O'Reilly, Newco, Hi-Lo and their subsidiaries from time to time to attend and make presentations regarding the business and prospects of O'Reilly, Newco, Hi-Lo and their subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders. You further agree to refrain from engaging in any additional financings for O'Reilly, Newco, Hi-Lo and their subsidiaries during such syndication process unless otherwise agreed to by NationsBank and NMSI. It is understood and agreed that NationsBank and NMSI, after consultation with you, will manage and control all aspects of the syndication, including decisions as to the selection of proposed Lenders and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. It is understood that no Lender participating in the Senior Credit Facilities will receive compensation from you outside the terms contained herein and in the Term Sheet in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of NationsBank and NMSI and that any syndication prior to execution of definitive documentation will reduce the commitment of NationsBank. You hereby represent, warrant and covenant that to your best knowledge and belief (i) all information, other than Projections (as defined below), which has been or is hereafter made available to NationsBank and NMSI or the Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information") is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading and (ii) all financial projections concerning O'Reilly, Newco and their subsidiaries (including Hi-Lo) that have been or are hereafter made available to NationsBank and NMSI or the Lenders by you or any of your representatives (the "Projections") have been or will be prepared in good faith based upon reasonable assumptions. You agree to furnish us with such Information and Projections as we may reasonably request and to supplement the Information and the Projections from time to time until the closing date for the Senior Credit Facilities so that the representation and warranty in the preceding sentence is correct on such date. In arranging and syndicating the Senior Credit Facilities, NationsBank and NMSI will be using and relying on the Information and the Projections without independent verification thereof. O'Reilly Automotive, Inc. December 20, 1997 Page 4 By acceptance of this offer, O'Reilly agrees to pay all reasonable out-of-pocket fees and expenses (including reasonable attorneys' fees and expenses and expenses of due diligence) incurred before or after the date hereof by the Agent or NMSI in connection with the Senior Credit Facilities and the syndication thereof. In the event that NationsBank or NMSI becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this letter, O'Reilly will reimburse NationsBank and NMSI for their legal and other expenses (including the cost of any investigation and preparation) as they are incurred by NationsBank or NMSI (except any expenses arising out of the gross negligence or willful misconduct of NationsBank or NMSI). O'Reilly also agrees to indemnify and hold harmless NationsBank, NMSI and their affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities, joint or several, related to or arising out of any matters contemplated by this letter (including any arising out of the negligence of any Indemnified Party), unless and only to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted primarily from the gross negligence or willful misconduct of NationsBank or NMSI. The provisions of the immediately preceding two paragraphs shall remain in full force and effect regardless of whether definitive financing documentation for the Senior Credit Facilities shall be executed and delivered and notwithstanding the termination of this letter or the commitments of NationsBank and NMSI hereunder. Neither this offer nor the undertaking and commitment contained herein may be disclosed to or relied upon by any other person or entity other than your accountants, attorneys and other advisors, without the prior written consent of NationsBank and NMSI, except that following your acceptance hereof you may make public disclosure hereof as required by law. As described herein and in the Term Sheet, NMSI will act as Arranger and Syndication Agent for the Senior Credit Facilities. NationsBank reserves the right to allocate, in whole or in part, to NMSI certain fees payable to NationsBank in such manner as NationsBank and NMSI agree in their sole discretion. You acknowledge and agree that NationsBank may share with any of its affiliates (including specifically NMSI) any information relating to the Senior Credit Facilities, O'Reilly, Newco, Hi-Lo and their subsidiaries and affiliates. This letter shall be governed by the laws of the State of Texas without regard to its principles of conflicts of laws. This letter may be modified or amended only in writing. This letter is not assignable by O'Reilly without the prior written consent of NationsBank and NMSI. This letter supersedes and replaces any and all proposals or commitment letters previously delivered by NationsBank or NMSI to O'Reilly or Newco relating to the Senior Credit Facilities. If you are in agreement with the foregoing, please execute and return the enclosed copy of this letter agreement no later than 5:00 p.m. (Dallas, Texas time) on Sunday, December 21, 1997. This letter agreement will become effective upon your delivery to us of executed counterparts O'Reilly Automotive, Inc. December 20, 1997 Page 5 of this letter agreement and the fee letter of even date herewith (the "Fee Letter") and, without limiting the more specific terms hereof and of the Term Sheet, you agree upon acceptance of this commitment to pay the fees set forth in the Term Sheet and in the Fee Letter. This commitment shall terminate if not so accepted by you prior to that time. Following acceptance by you, this commitment will terminate on March 31, 1998, unless the Senior Credit Facilities are closed by such time or this commitment is extended by the mutual agreement of NationsBank, NMSI and O'Reilly. Except as required by applicable law, this letter, the Term Sheet, and the Fee Letter and the contents hereof and thereof shall not be disclosed by you to any third party without the prior consent of NationsBank and NMSI, other than to your attorneys, financial advisors and accountants, in each case to the extent necessary in your reasonable judgment; provided, however, it is understood and agreed that you may disclose the terms of this letter and the Term Sheet (but not the Fee Letter) to Hi-Lo and to the general public to the extent required by the rules and regulations of the Securities and Exchange Commission in connection with the Tender Offer. Without limiting the foregoing, in the event that you disclose the contents of this letter in contravention of the preceding sentence, you shall be deemed to have accepted the terms of this letter and the Fee Letter. THIS WRITTEN AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS AND CONDITIONS) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Very truly yours, NATIONSBANK, N.A., Individually and as Agent /s/ Thomas S. Swiley - --------------------------------- By: Thomas S. Swiley Title: Executive Vice President NATIONSBANC MONTGOMERY SECURITIES, INC. /s/ Joseph Siegel, Jr. - ----------------------------------------- By: Joseph Siegel, Jr. Title: Senior Vice President and Director O'Reilly Automotive, Inc. December 20, 1997 Page 6 ACCEPTED AND AGREED TO: O'REILLY AUTOMOTIVE, INC. /s/ James R. Batten - -------------------------------------------- By: James R. Batten Title: Chief Financial Officer and Treasurer Date: -------------------------------------- ANNEX I O'REILLY AUTOMOTIVE, INC. SUMMARY OF TERMS & CONDITIONS December 20, 1997 ================================================================================ BORROWER: O'Reilly Automotive, Inc. ("Borrower". ________________ Acquisition Corp., a Delaware corporation ("Newco"), a wholly-owned subsidiary of Borrower will acquire (the "Acquisition") the outstanding stock of and be merged with and into Hi-Lo Automotive, Inc. (the "Hi-Lo"). Newco will make a tender offer (the "Tender Offer") for all of the issued and outstanding shares of common stock, par value $.01 per share (the "Shares"), of Hi-Lo, pursuant to the Agreement and Plan of Merger, dated as of December __, 1997 (the "Merger Agreement"), among O'Reilly, Newco and Hi-Lo. The Merger Agreement also provides for the merger (the "Merger") of Newco and Hi-Lo as soon as is practicable after completion of the Tender Offer, subject to any necessary approval of the Merger by the shareholders of Hi-Lo (the survivor of the Merger, "New Hi-Lo"). GUARANTORS: The Senior Credit Facilities shall be guaranteed by all existing and hereafter acquired subsidiaries of Borrower, Newco and Hi-Lo (the "Guarantors"). All guarantees shall be guarantees of payment and not of collection. AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive administrative and collateral agent. As such, NationsBank will negotiate with the Borrower, act as the primary contact for the Borrower and perform all other duties associated with the role of exclusive administrative agent. No other agents or co- agents may be appointed without the prior written consent of NationsBank, NMSI and the Borrower. ARRANGER & SYNDICATION AGENT: NationsBanc Montgomery Securities, Inc. ("NMSI"). LENDERS: A syndicate of financial institutions (including NationsBank) arranged by NMSI, which institutions shall be reasonably acceptable to Borrower and the Agent (collectively, the "Lenders"). - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. 1 NationsBanc Montgomery Securities, Inc. Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- PURPOSES FOR SENIOR CREDIT FACILITY: Subject to the other terms of this Summary of Terms and Conditions, the proceeds of the Senior Credit Facilities shall be used: (i) to refinance the outstanding principal balance of certain existing indebtedness of Hi-Lo; (ii) to pay the cash portion of the purchase price for Hi-Lo in the Tender Offer and the Merger pursuant to the Merger Agreement (as defined below); (iii) to pay fees and expenses incurred in connection with the Acquisition and (iv) to provide for working capital and for general corporate purposes of the Borrower and its subsidiaries. SENIOR CREDIT FACILITIES: An aggregate principal amount of up to $175,000,000 will be available under the conditions hereinafter set forth: Tender Facility: $50,000,000 tender facility. An aggregate principal amount of $50,000,000 of the Senior Credit Facilities will be available to Borrower to be re-advanced to Newco in order to fund the Tender Offer and the Merger (the "Tender Facility"). The loans (the "Tender Loans") made under the Tender Facility will be available for multiple drawings during the period commencing on the date (in no event later than January 19, 1998 on which Newco accepts for payment at least a majority of the Shares (the "Minimum Shares") in the Tender Offer (the "Closing Date") and ending 120 calendar days after the Closing Date, unless extended by mutual agreement of NationsBank, NMSI and Borrower. The proceeds of the Tender Loans will be used only to finance in part (a) the acquisition by Newco of not less than the Minimum Shares pursuant to the Tender Offer and the Merger and (b) the payment of interest, fees and other expenses incurred in connection with the Tender Offer and Merger. Revolving Credit Facility: $125,000,000 revolving credit facility, which will include a $[TBD] sublimit for the issuance of standby and commercial letters of credit (each a "Letter of Credit"). Letters of Credit will be issued by - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. 2 NationsBanc Montgomery Securities, Inc. Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- NationsBank (in such capacity, the "Fronting Bank"), and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit. MATURITY: The Revolving Credit Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full five (5) years from Closing. The Tender Facility shall be subject to repayment according to the Scheduled Amortization, with the final payment of all amounts outstanding, plus accrued interest, being due five (5) years from Closing. AVAILABILITY/SCHEDULED AMORTIZATION: Revolving Credit Facility: Loans under the Revolving Credit Facility ("Revolving Credit Loans", and together with the Term Loans, the "Loans") may be made, and Letters of Credit may be issued subject to availability. Tender Facility: The Tender Facility will be subject to quarterly amortization of principal, based upon the annual amounts shown below (the "Scheduled Amortization").
Term Loan --------- Loan year 1 $[TBD] Loan year 2 $[TBD] Loan year 3 $[TBD] Loan year 4 $[TBD] Loan year 5 $[TBD]
Notwithstanding anything else herein or elsewhere to the contrary, unless waived by 66.67% of the Lenders, all outstanding principal and all accrued and unpaid interest under the Revolving Credit Facility and the Tender Facility shall be immediately due and payable if the Merger does not occur within 120 business days after the Closing Date. SECURITY: The Senior Credit Facilities will be unsecured. - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. 3 NationsBanc Montgomery Securities, Inc. Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: In addition to the amortization set forth above, the Tender Facility will be prepaid by an amount equal to (a) [TBD]% of the net cash proceeds of all asset sales by Borrower, Newco or any subsidiary of Borrower or Newco (including stock of subsidiaries), subject to baskets and reinvestment provisions to be agreed upon and net of selling expenses and taxes to the extent such taxes are paid and (b) [TBD]% of the net cash proceeds from the issuance of any permitted debt by Borrower or Newco or any subsidiary of either of them. In the event the Tender Facility shall have been completely prepaid, the mandatory payments described above shall be applied to permanently reduce the amount available under the Revolving Credit Facility. OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS: The Borrower may prepay the Senior Credit Facilities in whole or in part at any time without penalty, subject to reimbursement of the Lenders' breakage and redeployment costs in the case of prepayment of LIBOR borrowings. CONDITIONS PRE- CEDENT TO CLOSING: The initial funding of the Senior Credit Facilities will be subject to satisfaction of the conditions precedent deemed appropriate by the Agent and the Lenders including, but not limited to, the following: (i) The negotiation, execution and delivery of definitive documentation with respect to the Senior Credit Facilities satisfactory to NMSI and the Agent. (ii) The execution and delivery of the Merger Agreement (including all schedules and exhibits thereto) in form and substance satisfactory to the Agent. (iii) The Tender Offer shall have been, or shall be concurrently, consummated pursuant to the Merger Agreement and in compliance with applicable law and - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 4 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- regulatory approvals. The Merger Agreement shall not be altered, amended or otherwise changed or supplemented or any condition therein waived, without the prior written consent of the Agent. (iv) Newco shall have acquired, concurrently with the making of the first Tender Loans, not fewer than the Minimum Shares, and there not having been any material change in the Shares outstanding as of December 20, 1997 (after giving effect to any dilution). (v) The documents and materials filed publicly by Borrower, Newco and Hi-Lo in connection with the Tender Offer and the Merger shall have been furnished to the Agent in reasonably satisfactory form. (vi) After giving effect to the Acquisition, the corporate capital and ownership structure (including articles of incorporation and by-laws), shareholders agreements and management of Borrower, Newco, Hi-Lo and their subsidiaries, shall be satisfactory to the Agent. (vii) The Agent shall have received and, in each case, approved the consolidated financial statements of Hi-Lo and its subsidiaries for the fiscal years 12/31/94, 12/31/95 and 12/31/96 including balance sheets, income and cash flow statements audited by independent public accountants of recognized national standing and prepared in conformity with GAAP, a pro forma balance sheet of Borrower and its subsidiaries (including Hi-Lo and its subsidiaries) as of the Closing Date giving effect to the Acquisition and the transactions contemplated hereby and reflecting estimated purchase price accounting adjustments, and such other information relating to the Acquisition as the Agent may require including Hi-Lo prepared interim quarterly financial statements since the latest fiscal year-end and annual consolidated projections for the life of the Senior Credit Facilities. (viii) There shall not have occurred a material adverse change since 12/31/96 in the business, assets, operations, condition (financial or otherwise) or prospects of Borrower, Newco or any of their subsidiaries or Hi-Lo and its - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 5 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- subsidiaries either before or after giving effect to the Tender Offer, or in the facts and information regarding such entities as represented to date or on the transactions contemplated hereby. (ix) The Agent shall have been satisfied that the form and content of the reports of the environmental consultants with respect to all real properties owned or leased by the Borrower, Newco, Hi-Lo and their subsidiaries do not indicate that the Borrower, Newco, Hi- Lo or their subsidiaries would or could become subject to a material environmental liability. (x) The Agent shall have received (a) satisfactory opinions of counsel to Borrower, Newco, Hi-Lo and their subsidiaries (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Senior Credit Facilities) and such corporate resolutions, certificates and other documents as the Agent shall reasonably require. (xi) Receipt of all governmental, shareholder and third party consents (including Hart-Scott Rodino clearance) and approvals necessary or, in the reasonable opinion of the Agent, desirable in connection with the Tender Offer and the Merger, and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on Borrower, Newco, Hi-Lo or their subsidiaries, or such other transactions, or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Agent could have such effect. (xii) The absence of any action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that purports to affect Borrower, Newco, Hi-Lo or their subsidiaries or any transaction contemplated hereby, that could reasonably be expected to have a material adverse effect on Borrower, Newco, Hi-Lo or their subsidiaries or any transaction contemplated hereby, or that could reasonably be expected - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 6 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- to have a material adverse affect on the ability of Borrower, Newco, Hi-Lo or their subsidiaries to perform their obligations under the documents to be executed in connection with the Senior Credit Facilities. (xiii) No default or event of default shall have occurred and be continuing under any capital stock or debt of Borrower, Newco or Hi-Lo or any of their subsidiaries (either before or after giving effect to the Tender Offer and the Merger), or would result from the transactions contemplated hereby, except any such defaults or breaches (i) with respect to which default or breach has not been or will not be refinanced or (ii) which would not otherwise have a material adverse effect on Borrower, Newco, Hi-Lo, New Hi-Lo and their subsidiaries, taken as a whole (either before or after giving effect to the Tender Offer and the Merger), or on the transactions contemplated hereby. (xiv) Borrower, Newco, Hi-Lo and their subsidiaries, after giving effect to the Tender Offer and the Merger as contemplated hereby, will have no material indebtedness other than (i) indebtedness of______________ and (ii) __________. (xv) There shall be no less than $___ million of availability under the Revolving Credit Facility at Closing after giving effect to the Merger and all borrowings and outstanding letters of credit under the Revolving Credit Facility on such date. (xvi) Payment of required fees and expenses to the Agent and the Lenders. ON-GOING CONDITIONS PRECEDENT: The making of each Tender Loan and all other loans under the Senior Credit Facilities will be conditioned upon (a) all representations and warranties in all credit and security documents (including, without limitations the material adverse change and litigation representations, which will be consistent with the conditions set forth in clauses (viii) and (xii) under "Conditions Precedent to Closing" above, and compliance with law and regulatory requirements representations) being true and correct in all material - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 7 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- respects, (b) there being no default or event of default in existence at the time of, or after giving effect to the making of, such Tender Loan or other loan and (c) except as disclosed in the Merger Agreement, no governmental inquiries, injunctions or restraining orders instituted or pending, or any statute or rule enacted, promulgated, entered or enforced which would have a material adverse effect upon Borrower, Newco, Hi-Lo or any of their subsidiaries. OTHER MATTERS: Newco will be prohibited from engaging in any business activity other than related to the Tender Offer and the Merger. REPRESENTATIONS & WARRANTIES: Usual and customary for transactions of this type, to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation; (v) correctness of specified financial statements and no material adverse change; (vi) no required governmental or third party approvals; (vii) use of proceeds/compliance with margin regulations; (viii) status under Investment Company Act; (ix) ERISA; (x) environmental matters; (xi) payment of taxes; and (xii) consummation of the Merger. COVENANTS: Usual and customary for transactions of this type, to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance certificates; (iii) notices of default, material litigation and material governmental and environmental proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on liens; (viii) limitations on mergers, consolidations and sales of assets; (ix) limitations on incurrence of debt; (x) limitations on dividends and stock redemptions and the redemption and/or prepayment of other debt; (xi) limitations on investments; (xii) ERISA; and (xiii) limitation on transactions with affiliates. - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 8 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- Financial covenants to include (but not be limited to): . Maintenance at all times of a Minimum Tangible Net Worth, with step-ups equal to [TBD]% of net income and 100% of the proceeds of any equity issuances, . Maintenance on a rolling four quarter basis of a Maximum Leverage Ratio [TBD with stepdowns], . Maintenance on a rolling four quarter basis of a Minimum Fixed Charge Coverage ratio (EBITDAR)/(cash interest + scheduled principal repayments + rents) [TBD], and . Maintenance at all times of a Current Ratio [TBD]. . Limitation on capital expenditures [TBD] EVENTS OF DEFAULT: Usual and customary in transactions of this nature, to include, without limitation, subject to any applicable grace periods, (i) nonpayment of principal, interest, fees or other amounts, (ii) violation of covenants, (iii) inaccuracy of representations and warranties in material respects, (iv) cross-default to other material agreements and indebtedness, (v) bankruptcy, (vi) material judgments, (vii) ERISA, (viii) actual or asserted invalidity of any loan documents or security interests and (ix) Change in Control of the Borrower. ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate, and maturity date and releases of guarantors. An assignment fee of $3,500 is payable by the Lender to the Agent upon any such assignment occurring (including, but not limited to an assignment by a Lender to another Lender). - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 9 Summary of Terms and Conditions (continued...) Confidential - -------------------------------------------------------------------------------- WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the loan agreement and other definitive credit documentation will require the approval of Lenders holding loans and commitments representing more than 66.67% of the aggregate amount of loans and commitments under the Senior Credit Facilities, except that the consent of all the Lenders shall be required with respect to (i) increases in commitment amounts, (ii) reductions of principal, interest, or fees, (iii) extensions of scheduled maturities or times for payment and (iv) releases of guarantors. INDEMNIFICATION: Guarantors and Newco shall indemnify the Lenders from and against all losses, liabilities, claims, damages or expenses relating to their loans, the use of loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlements costs (but excluding the gross negligence or willful misconduct of the institution). This indemnification shall survive and continue for the benefit of the Lenders at all times after Newco's acceptance of the Lenders' commitment for the Senior Credit Facilities, notwithstanding any failure of the Senior Credit Facilities to close. CLOSING: On or before March 31, 1998. GOVERNING LAW: [Texas or New York - TBD] FEES/EXPENSES: As outlined in ADDENDUM I. OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Senior Credit Facilities contemplated hereby. Guarantors, the Borrower and all of their subsidiaries and affiliates shall waive their right to a trial by jury. - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 10 ADDENDUM I FEES AND EXPENSES ================================================================================ COMMITMENT FEE: The commitment fee shall be calculated from and after the Closing Date and shall be payable in arrears on the last day of each calendar quarter following the Closing Date. The commitment fee shall be based upon undrawn commitments. For purposes of this calculation, the face amount of each outstanding letter of credit shall be considered a drawn amount. INTEREST RATES: The Revolving Credit Facility and Tender Facility shall bear interest at a rate equal to LIBOR plus the Applicable Margin or the Alternate Base Rate (defined as the higher of (i) the NationsBank prime rate and (ii) the Federal Funds rate plus .50%) plus the Applicable Margin; provided, that if during the 180 day period following the Closing, any breakage costs, charges or fees are incurred with respect to LIBOR loans on account of the syndication of the Senior Credit Facilities, the Borrower shall immediately reimburse the Agent for any such costs, charges or fees. Such right of reimbursement to be in addition to and not in limitation of customary cost and yield protection. The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A penalty rate shall apply on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. PERFORMANCE PRICING: The Applicable Margin from the Closing through and including the date of the Agent's receipt of Borrower's financial statements for the fiscal quarter ending June 30, 1998, shall be 87.5 bps for LIBOR Loans and 0 bps for Alternative Base Rate Loans, and the commitment fee on all undrawn commitments for such period shall be 25 bps. After the Agent's receipt of Borrower's financial statements for the fiscal quarter ending June 30, 1998 and for each fiscal quarter thereafter, the Applicable Margin and commitment fee shall be, respectively, the applicable rate per annum and commitment fee set forth in the table below opposite the ratio of Total Funded Debt to EBITDA determined as of the last day of the immediately preceding fiscal quarter. - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 1 Addendum I (continued...) Confidential - --------------------------------------------------------------------------------
================================================================================ Applicable Applicable Total Funded Debt to Margin Margin Commitment Level EBITDA Ratio for LIBOR Loans for ABR Loans Fee ================================================================================ I greater than or 125.0 bps 0 bps 35.0 bps equal to [TBD] - -------------------------------------------------------------------------------- II greater than or 100.0 bps 0 bps 30.0 bps equal to [TBD] - -------------------------------------------------------------------------------- III greater than or 87.5 bps 0 bps 25.0 bps equal to [TBD] - -------------------------------------------------------------------------------- IV greater than or 75.0 bps 0 bps 25.0 bps equal to [TBD] - -------------------------------------------------------------------------------- V less than [TBD] 50.0 bps 0 bps 20.0 bps ================================================================================
COST AND YIELD PROTECTION: The usual for transactions and facilities of this type, including, without limitation, in respect of prepayments, changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability, reserves without proration or offset. LETTER OF CREDIT FEES: Letter of credit fees are due quarterly in arrears to be shared proportionately by the Lenders. Fees will be equal to the Applicable Margin for LIBOR loans on a per annum basis plus a fronting fee of 0.125% per annum to be paid to Fronting Bank for its own account. Fees will be calculated on the aggregate stated amount for each letter of credit for the stated duration thereof. EXPENSES: Borrower will pay all reasonable costs and expenses associated with the preparation, due diligence, administration, syndication production of tombstones and enforcement of all documents executed in connection with the Senior Credit Facilities, including without limitation, the legal fees of the Agent's counsel, Jenkens & Gilchrist, a Professional Corporation, regardless of whether or not the Senior Credit Facilities are closed. - -------------------------------------------------------------------------------- O'Reilly Automotive, Inc. NationsBanc Montgomery Securities, Inc. 2 December 20, 1997 Mr. James R. Batten Chief Financial Officer and Treasurer O'Reilly Automotive, Inc. 233 South Patterson Springfield, MO 65802 Re: Commitment Letter, dated December 20, 1997, among O'Reilly Automotive, Inc. ("O'Reilly"), Shamrock Acquisition, Inc. ("Newco"), NationsBank, N.A., ("NationsBank") and NationsBanc Montgomery Securities, Inc. ("NMSI") Dear Jim: This letter is delivered to you in connection with your request that we provide the above-referenced Commitment Letter (the "Commitment Letter") regarding arrangement and syndication of credit facilities in an aggregate principal amount of $175,000,000 (the "Senior Credit Facilities") for O'Reilly. A summary of proposed terms relating to the Facilities is attached to the Commitment Letter as Annex I (the "Term Sheet"). Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Commitment Letter and the Term Sheet. In connection with, and in consideration of the agreements contained in the Commitment Letter, O'Reilly and Newco agree with NationsBank and NMSI as follows: 1. Underwriting Fee: O'Reilly will pay, or cause to be paid, to NationsBank for its own account, a fee of 55 bps on the entire amount of the Senior Credit Facilities. Such fee shall be for underwriting, structuring and syndicating the Senior Credit Facilities. The fee shall be due and payable upon the closing of the Senior Credit Facilities. Alternatively, in the event that (a) O'Reilly, Newco or any of your affiliates (collectively the "Related Parties") consummate the Acquisition or any part of the Tender Offer without NationsBank acting as administrative and collateral agent or without NMSI acting as arranger and syndication agent for any senior credit facilities utilized to complete the Acquisition or any part of the Tender Offer notwithstanding a willingness on the part of NationsBank to provide and NMSI to arrange the Senior Credit Facilities for the Acquisition or Tender Offer in accordance with the Commitment Letter and the Term Sheet, or (b) any Related Party consummates any similar transaction in which any Related Party acquires, directly or indirectly, all or any substantial portion of the stock or assets of Hi-Lo (any such transaction an "Alternate Transaction") without NationsBank acting as administrative and collateral agent or without NMSI acting as arranger and syndication agent for any senior credit facilities utilized to complete such Alternate Transaction, you agree in each case to pay to NationsBank a fee of $500,000 in immediately payable funds, immediately upon the consummation of any part of the Tender Offer, Acquisition or Alternate Transaction. You also agree that if any O'Reilly Automotive, Inc December 20, 1997 Page 2 Related Party enters into a definitive agreement for the Acquisition or any Alternate Transaction that provides for the payment of a so-called "topping fee", "break-up fee", or any similar termination fee or the payment or any other form of consideration (including reimbursement of expenses) in the event that the Acquisition or such Alternate Transaction is not consummated, you agree to pay (or cause the other Related Parties to pay) to NationsBank, in immediately available funds, upon receipt by any Related Parties of such fees or other consideration, a fee equal to the lesser of (A) $500,000 or (B) an amount equal to 15% of such "topping fees", "break-up fees", other termination fees or other forms of consideration received by the Related Parties. 2. Administrative Fee: O'Reilly will pay an annual administrative fee of $35,000 to NationsBank, for its own account as Agent for the Banks under the Facilities, annually in advance on the date of closing of the Facilities and on each anniversary date thereafter, until the Facilities terminate. If the foregoing is in accordance with your understanding, please sign and return the enclosed duplicate copy of this letter. Very truly yours, NATIONSBANK, N.A. /s/ Thomas S. Swiley - ----------------------------------------- By: Thomas S. Swiley Title: Executive Vice President NATIONSBANC MONTGOMERY SECURITIES, INC. /s/ Joseph Siegel, Jr. - ----------------------------------------- By: Joseph Siegel, Jr. Title: Senior Vice President and Director O'Reilly Automotive, Inc December 20, 1997 Page 2 ACCEPTED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: O'REILLY AUTOMOTIVE, INC. /s/ James R. Batten - ----------------------------------- By: James R. Batten Title: Chief Financial Officer and Treasurer Date: ------------------------------ EX-99.(C)(1) 11 AGREEMENT & PLAN OF MERGER Exhibit (c)(1) AGREEMENT AND PLAN OF MERGER AMONG O'REILLY AUTOMOTIVE, INC. SHAMROCK ACQUISITION, INC. AND HI-LO AUTOMOTIVE, INC. Dated as of December 23, 1997 TABLE OF CONTENTS AGREEMENT AND PLAN OF MERGER Page ---- ARTICLE I THE OFFER Section 1.1 The Offer..................................................... 6 Section 1.2 Hi-Lo Action.................................................. 8 Section 1.3 Directors..................................................... 9 ARTICLE II THE MERGER Section 2.1 The Merger.................................................... 11 Section 2.2 Closing....................................................... 11 Section 2.3 Effective Time................................................ 11 Section 2.4 Effects of the Merger......................................... 12 Section 2.5 Certificate of Incorporation.................................. 12 Section 2.6 Directors and Officers........................................ 12 ARTICLE III MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER; DISSENTING SHARES Section 3.1 Consideration for the Merger; Conversion or Cancellation of Shares in the Merger....................... 12 Section 3.2 Stockholders Meeting.......................................... 13 Section 3.3 Payment for Shares in the Merger.............................. 15 Section 3.4 Transfer of Shares After the Effective Time................... 16 Section 3.5 Stock Options and Associate Purchase Plan..................... 16 i Page ---- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HI-LO Section 4.1 Organization, Qualification, Etc.............................. 18 Section 4.2 Capital Stock................................................. 19 Section 4.3 Corporate Authority Relative to this Agreement; No Violation; No Conflict..................................... 20 Section 4.4 Reports and Financial Statements; Corporate Records........... 21 Section 4.5 No Undisclosed Liabilities.................................... 22 Section 4.6 No Violation of Law........................................... 22 Section 4.7 Environmental Laws and Regulations............................ 23 Section 4.8 Employee Matters; ERISA....................................... 24 Section 4.9 Absence of Certain Changes or Events.......................... 26 Section 4.10 Investigations; Litigation.................................... 27 Section 4.11 Proxy Statement; Offer Documents; Schedule 14D-9; Proxy Statement..................................................... 27 Section 4.12 Hi-Lo Rights.................................................. 28 Section 4.13 Takeover Laws................................................. 28 Section 4.14 Tax Matters................................................... 28 Section 4.15 Opinion of Financial Advisor.................................. 30 Section 4.16 Required Vote of Hi-Lo Stockholders........................... 30 Section 4.17 Labor Matters................................................. 30 Section 4.18 Certain Agreements............................................ 31 Section 4.19 Title to Assets; Liens........................................ 32 Section 4.20 Insurance..................................................... 32 Section 4.21 Intellectual Property......................................... 33 Section 4.22 Significant Vendor Arrangements............................... 33 Section 4.23 Termination of Discount Agreement............................. 33 ii Page ---- ARTICLE V REPRESENTATIONS AND WARRANTIES OF O'REILLY AND SUB Section 5.1 Organization, Qualification, Etc.............................. 34 Section 5.2 Corporate Authority Relative to this Agreement; No Violation; No Conflict................................................... 34 Section 5.3 Financing..................................................... 35 Section 5.4 Offer Documents; Schedule 14D-9; Proxy Statement.............. 35 ARTICLE VI COVENANTS AND AGREEMENTS Section 6.1 Conduct of Business by Hi-Lo.................................. 36 Section 6.2 Investigation................................................. 40 Section 6.3 Obligations of O'Reilly and Sub............................... 41 Section 6.4 [Intentionally Omitted]....................................... 41 Section 6.5 Employee Benefit Plans........................................ 41 Section 6.6 Filings; Other Action......................................... 42 Section 6.7 Further Assurances............................................ 43 Section 6.8 No Solicitation............................................... 43 Section 6.9 Public Announcements.......................................... 44 Section 6.10 Indemnification and Insurance................................. 44 Section 6.11 Additional Reports............................................ 45 Section 6.12 [Intentionally Omitted]....................................... 45 Section 6.13 [Intentionally Omitted]....................................... 45 Section 6.14 Amendments to Change of Control Agreements.................... 45 Section 6.15 Notifications................................................. 46 Section 6.16 Indemnifications.............................................. 47 ARTICLE VII CONDITIONS TO THE MERGER Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.... 48 iii Page ---- ARTICLE VIII TERMINATION, WAIVER, AMENDMENT AND CLOSING Section 8.1 Termination or Abandonment.................................... 48 Section 8.2 Effect of Termination......................................... 50 Section 8.3 Amendment or Supplement....................................... 51 Section 8.4 Extension of Time, Waiver, Etc................................ 52 ARTICLE IX MISCELLANEOUS Section 9.1 No Survival of Representations and Warranties................. 52 Section 9.2 Expenses...................................................... 52 Section 9.3 Counterparts; Effectiveness................................... 53 Section 9.4 Governing Law................................................. 53 Section 9.5 Notices....................................................... 53 Section 9.6 Assignment; Binding Effect.................................... 54 Section 9.7 Severability.................................................. 54 Section 9.8 Enforcement of Agreement...................................... 54 Section 9.9 Miscellaneous................................................. 55 Section 9.10 Headings...................................................... 55 Section 9.11 Subsidiaries; Affiliates...................................... 55 Section 9.12 Finders or Brokers............................................ 55 iv AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of December 23, 1997 (this "Agreement"), is among O'REILLY AUTOMOTIVE, INC., a Missouri corporation ("O'Reilly"), SHAMROCK ACQUISITION, INC., a Dela ware corporation and a wholly- owned subsidiary of O'Reilly ("Sub"), and HI-LO AUTOMOTIVE, INC., a Delaware corporation ("Hi-Lo"). WHEREAS, the Board of Directors of each of O'Reilly, Sub and Hi-Lo, has, subject to the conditions set forth in this Agreement, unanimously deter mined that it is in the best interests of their respective stockholders for Sub to acquire Hi-Lo on the terms and subject to the conditions set forth herein; and WHEREAS, in furtherance thereof, it is proposed that Sub shall make a tender offer (the "Offer") to acquire all of the outstanding shares (the "Shares") of Common Stock, par value $.01 per share (the "Hi-Lo Common Stock"), of Hi-Lo, together with the associated Rights (as hereinafter defined), at a price of $4.35 per share (such amount, or any greater amount per share paid pursuant to the Offer, being hereinafter referred to as the "Per Share Amount"), net to the seller in cash, in accordance with the terms and subject to the conditions of this Agreement; and WHEREAS, the parties desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger (as hereinafter defined) and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: 5 ARTICLE I THE OFFER Section 1.1 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Section 8.1, Sub shall commence, within the meaning of Rule 14d- 2 under the Securities Exchange Act of 1934, as amended (the "Ex change Act"), the Offer as promptly as practicable (but in no event later than the fifth business day from and including the date of initial public announcement of this Agreement). Sub shall accept for payment Shares which have been validly tendered and not withdrawn pursuant to the Offer following expiration of the Offer promptly following the time that all conditions to the Offer shall have been satisfied or waived by Sub (except that the Minimum Condition (as hereinafter defined) may not be waived). The obligation of Sub to accept for payment, purchase and pay for Shares tendered pursuant to the Offer shall be subject only to the conditions set forth in Annex A and to the further condition that a number of Shares which, together with any Shares beneficially owned by O'Reilly or Sub, represent not less than a majority of the Shares then outstanding on a Fully Diluted Basis (as hereinafter defined) shall have been validly tendered and not withdrawn prior to the final expiration date of the Offer (the "Minimum Condition"). Unless previously approved by Hi-Lo in writing, no change in the Offer may be made (i) which decreases the price per Share payable in the Offer, (ii) which changes the form of consideration to be paid in the Offer, (iii) which reduces the maximum number of Shares to be purchased in the Offer or the Minimum Condition, (iv) which imposes conditions to the Offer in addition to those set forth in Annex A hereto or which modifies the conditions set forth in Annex A in a manner adverse to the holders of Shares or (v) which amends any other term of the Offer in a manner adverse to the holders of the Shares. Notwithstanding the foregoing, Sub shall and O'Reilly agrees to cause Sub to, if requested by Hi-Lo, extend the Offer from time to time until 90 days from the commencement of the Offer if and to the extent that, at the then scheduled expiration date (the initial scheduled expiration date being 20 business days following commencement of the Offer), any of the conditions to Sub's obligation to accept for payment and pay for the Shares shall not be satisfied or waived, until such time as such conditions are satisfied or waived. If any of the conditions to Sub's obligation to accept for payment and pay for the Shares are not satisfied or waived upon the expiration of 90 days after the commencement of the Offer, Sub may, in its sole discretion, extend the Offer until such time as such conditions are satisfied or waived. Additionally, notwith standing that all conditions to the Offer are satisfied as of the expiration date of the 6 Offer (as it may have been previously extended), Sub may extend the Offer, without the consent of Hi-Lo, (a) for a period not to exceed ten business days if the Shares tendered and not withdrawn pursuant to the Offer equal less than 90% of the out standing Shares and (b) for a period not to exceed five business days if an Adverse Market Change (as hereinafter defined) shall have occurred, and be continuing on the scheduled expiration date of the Offer, and at the time of such extension pursuant to (a) or (b) the Sub waives the satisfaction of the condition set forth in clause (c) of Annex A and its right to terminate the Merger Agreement pursuant to Section 8.1(e). Subject to the terms and conditions of the Offer and this Agreement, Sub shall, and O'Reilly shall cause Sub to, pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) As used herein, the following terms shall have the meaning set forth herein: "Adverse Market Change" shall mean any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or the NASDAQ National Market, a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (1) a commencement or escalation of a war, armed hostilities or other international or national calamity directly involving the United States and having an adverse effect on the financial markets in the United States, any material limitation (whether or not mandatory) by any governmental authority, agency or commission ("Governmental Entity"), on the extension of credit by banks or other lending institutions in the United States, and in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; "Fully Diluted Basis" shall mean as of any time all of the Shares plus all shares of Hi-Lo Common Stock issuable upon exercise of outstanding options to acquire Hi-Lo Common Stock minus 587,566 shares of Hi-Lo Common Stock issuable upon exercise of options which the holder thereof has irrevocably agreed in writing, in a form satisfactory to O'Reilly, not to exercise. (c) As soon as practicable on the date of commencement of the Offer, O'Reilly and Sub shall file with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer (together with any supplement or amendments thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as exhibits, the Offer to Purchase, form of letter of 7 transmittal and summary advertisement (collectively, together with any amendments and supplements thereto, the "Offer Documents"). The Offer Documents will comply in all material respects as to form with the requirements of applicable federal securities laws. O'Reilly, Sub and Hi-Lo each agree promptly to correct any information provided by them for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect and O'Reilly and Sub agree to take all steps necessary to cause the Offer Documents and any amendments or supplements thereto to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Hi-Lo and its counsel shall be given a reasonable opportunity to review and comment upon the Offer Documents and any amendments thereto in each case prior to the filing thereof with the SEC. O'Reilly and Sub agree to provide Hi-Lo and its counsel a written copy of any comments or other communications (whether written or oral) that O'Reilly, Sub or their counsel may receive from time to time from the SEC or its Staff with respect to the Offer Documents as soon as practicable after receipt thereof. Section 1.2 Hi-Lo Action. (a) Hi-Lo hereby approves of and consents to the Offer and represents that the Board of Directors, including all of the disinterested directors, at a meeting duly called and held, has, subject to the terms and conditions set forth herein, (i) approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger (as defined in Section 2.1) and such approval constitutes approval of this Agreement and the transactions contemplated hereby, including the Offer and the Merger, for purposes of Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"), such that it will not apply to the transactions contemplated by this Agreement, (ii) unanimously determined that each of the Offer and the Merger are fair to and in the best interests of Hi-Lo and Hi-Lo's stockholders, and (iii) resolved to recommend that the stockholders of Hi-Lo accept the Offer, tender their Shares thereunder to Sub and approve and adopt this Agreement and the Merger; provided, that such recommendation may be withdrawn, modified or amended if, Hi-Lo determines in good faith, based on advice of its outside counsel, that such action is necessary in order for the Board of Directors of Hi-Lo to comply with its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law. Hi-Lo consents to the inclusion of such recommendation and approval in the Offer Documents, subject to Hi-Lo's right to withdraw, modify or amend its recommendation. 8 (b) Hi-Lo hereby agrees to file with the SEC, concurrently with the commencement of the Offer, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the "Schedule 14D- 9") containing the recommendation described in Section 1.2(a). The Schedule 14D-9 will comply in all material respects as to form with the requirements of applicable federal securities laws. Hi-Lo, O'Reilly and Sub each agree promptly to correct any information provided by them for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect and Hi-Lo further agrees to take all steps necessary to cause the Schedule 14D-9 and any amendments or supplements thereto to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Notwithstanding anything to the contrary in this Agreement, the Board of Directors may withdraw, modify or amend its recommendation if Hi-Lo reasonably determines in good faith, based on advice of its outside counsel, that such action is necessary in order for the Board of Directors of Hi-Lo to comply with its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law. O'Reilly and its counsel shall be given a reasonable opportunity to review and comment upon the Schedule 14D-9 and any amendments thereto in each case prior to the filing thereof with the SEC. Hi-Lo agrees to provide O'Reilly and Sub and their counsel a written copy of any comments or other communications (whether written or oral) that Hi-Lo or its counsel may receive from time to time from the SEC or its Staff with respect to the Schedule 14D-9 as soon as practicable after receipt thereof. (c) In connection with the Offer, Hi-Lo will promptly furnish O'Reilly and Sub with mailing labels, security position listings and any available listing or computer files containing the names and addresses of the record holders of the Shares as of a recent date and shall furnish Sub with such additional information and assistance (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) as Sub or its agents may reason ably request in communicating, and advocating acceptance of the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents, O'Reilly and Sub shall hold such listings and other information in confidence and in accordance with the terms of the Hi-Lo Confidentiality Agreement (as hereinafter defined), and shall use the information contained in any such labels, listings and files only in connection with the Offer and the Merger, and, if this Agreement is terminated, will deliver to Hi-Lo all copies of such information (and extracts and summaries thereof) then in their or their agent's or advisor's possession in accordance with the terms of the Hi-Lo Confidentiality Agreement. 9 Section 1.3 Directors. (a) Promptly upon the purchase of and payment for any Shares by O'Reilly or any of its Subsidiaries which represent at least a majority of the outstanding Shares on a fully diluted basis, O'Reilly shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of Hi-Lo as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by O'Reilly pursuant to this sentence) multiplied by the percentage that the number of Shares so purchased bears to the total number of Shares then outstanding on a fully diluted basis. In furtherance thereof, Hi-Lo shall, upon request of Sub, use its best efforts promptly either (at Hi-Lo's election) to increase the size of its Board of Directors or secure the resignations of such number of its incumbent directors, or both, as is necessary to enable O'Reilly's designees to be so elected to Hi-Lo's Board, and shall take all actions available to Hi-Lo to cause O'Reilly's designees to be so elected. At such time, Hi-Lo shall, if requested by O'Reilly, also cause persons designated by O'Reilly to constitute at least the same percentage (rounded up to the next whole number) as is on Hi- Lo's Board of Directors of (i) each committee of Hi-Lo's Board of Directors, (ii) each board of directors (or similar body) of each Subsidiary (as defined in Section 9.11) of Hi-Lo and (iii) each committee (or similar body) of each such board. (b) Hi-Lo's obligations to appoint designees to the Board of Directors of Hi-Lo shall be subject to Section 14(f) of the Exchange Act. At the request and expense of O'Reilly, Hi-Lo shall promptly take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under Section 1.3(a), including mailing to stockholders the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable O'Reilly's designees to be elected to Hi-Lo's Board of Directors. O'Reilly or Sub will supply Hi-Lo and be solely responsible for any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1. (c) In the event that O'Reilly's designees are elected or appointed to Hi-Lo's Board of Directors, until the Effective Time (as defined in Section 2.3), Hi-Lo's Board shall include at least two directors who are directors on the date hereof (the "Independent Directors"), provided that, in such event, if the number of Independent Directors shall be reduced below two for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no Inde- 10 pendent Director then remains, the other directors shall designate two persons to fill such vacancies who shall not be stockholders, affiliates or associates of O'Reilly or Sub and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that O'Reilly's designees are elected to Hi-Lo's Board, after the acceptance for payment of Shares pursuant to the Offer and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors shall be required and shall be sufficient to authorize, any termination of this Agreement by Hi-Lo, any amendment of this Agreement requiring action by the Board of Directors of Hi-Lo, any extension of time for the performance of any of the obligations or other acts of O'Reilly or Sub under this Agreement, any waiver of compliance with any of the agreements or conditions under this Agreement for the benefit of Hi-Lo, any action to seek to enforce any obligation of O'Reilly or Sub under this Agreement and any other action by Hi-Lo's Board of Directors under or in connection with this Agreement. The Independent Directors shall be appointed as a Special Committee of the Hi-Lo Board of Directors and shall have full power solely with respect to the matters set forth in the previous sentence to be approved by the Independent Directors. In connection herewith, the Independent Directors (in their capacity as the Special Committee) shall be authorized, on behalf of and at the expense of Hi- Lo, to retain legal advisors. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, Sub shall be merged with and into Hi-Lo (the "Merger") at the Effective Time. Following the Effective Time, the separate corporate existence of Sub shall cease and Hi-Lo shall be the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL. Section 2.2 Closing. The closing of the Merger (the "Closing") will take place at a location mutually acceptable to the parties hereto at 10:00 a.m. on a date to be specified by the parties (the "Closing Date"), which shall be no later than the first business day after satisfaction or waiver of the conditions set forth in Article VII, unless another time or date is agreed to by the parties hereto. 11 Section 2.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, the parties shall file a certificate of merger or other appropriate documents (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Delaware Secretary of State accepts the Certificate of Merger for record, or at such subsequent date or time as O'Reilly and Hi-Lo shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being hereinafter referred to as the "Effective Time"). Section 2.4 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Section 2.5 Certificate of Incorporation. The Certificate of Incorporation of Sub, as in effect immediately prior to the execution of this Agreement, shall be the Certificate of Incorporation of the Surviving Corporation except that Article FIRST thereof shall read as follows: "FIRST: The name of the corporation is "Hi/Lo Automotive, Inc." and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation. (a) The by-laws of Sub, as in effect immediately prior to the execution of this Agreement, shall be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. Section 2.6 Directors and Officers. The directors of Sub at the Effective Time shall be the directors of the Surviving Corporation and the officers of Hi- Lo at the Effective Time shall be the officers of the Surviving Corporation, in each case until their respective successors are duly elected and qualified. ARTICLE III MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER; DISSENTING SHARES Section 3.1 Consideration for the Merger; Conversion or Cancellation of Shares in the Merger. At the Effective Time, by virtue of the Merger and without any action on the part of the holders of any Shares or capital stock of Sub: 12 (a) Each Share, together with any preferred stock purchase rights (the "Rights"), issued pursuant to the Rights Agreement, dated as of August 28, 1996, by and between Hi-Lo and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (the "Rights Agreement"), that are issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares (as defined in Section 3.6) and Shares (and Rights) owned by O'Reilly, Sub or any direct or indirect wholly owned subsidiary of O'Reilly (collectively, "O'Reilly Companies") or any of Hi-Lo's direct or indirect wholly owned subsidiaries or shares held in the treasury of Hi-Lo) shall, by virtue of the Merger and without any action on the part of Sub, Hi-Lo or the holder thereof, be cancelled and extinguished and converted into the right to receive the Per Share Amount in cash (the "Merger Consideration"), payable to the holder thereof, without interest thereon, less any applicable withholding of taxes, upon the surrender of the certificate formerly representing such Share in the manner provided in Section 3.3. (b) Each Share (and Rights) issued and outstanding and owned by O'Reilly or any of O'Reilly's direct or indirect wholly owned subsidiaries or any of Hi-Lo's direct or indirect wholly owned subsidiaries or authorized but unissued shares held by Hi-Lo immediately prior to the Effective Time shall cease to be outstanding, be cancelled and retired without payment of any consideration therefor and cease to exist. (c) Each share of common stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation. Section 3.2 Stockholders Meeting. Hi-Lo, acting through its Board of Directors, shall, if required by applicable law in order to consummate the Merger: (i) duly call, give notice of, convene and hold a special meeting of its stockholders (the "Stockholders Meeting"), to be held as soon as practicable after Sub shall have purchased Shares pursuant to the Offer, for the purpose of considering and taking action upon this Agreement; (ii) prepare and file with the SEC a preliminary proxy or information statement relating to the Merger and this Agreement and include in any preliminary or definitive proxy statement or 13 information statement with respect to the Stockholders' Meeting (the "Proxy Statement"), the recommendation of the Board of Directors that stockholders of Hi-Lo vote in favor of the approval of this Agreement and the transactions contemplated hereby unless the Board of Directors of Hi-Lo determines in good faith, based on advice of its outside counsel, that not taking any such action is necessary in order for the Board of Directors of Hi-Lo to comply with its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law; and (iii) use all reasonable efforts to obtain and furnish the information required to be included by it in the Proxy Statement and, after consultation with O'Reilly and Sub, respond promptly to any comments made by the SEC with respect to the Proxy Statement and any preliminary version thereof and cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time following the expiration or termination of the Offer and obtain the necessary approvals by its stockholders of this Agreement and the transactions contemplated hereby unless the Board of Directors of Hi-Lo determines in good faith, based on advice of its outside counsel, that not taking any such action is necessary in order for the Board of Directors of Hi-Lo to comply with its obligations or duties to Hi- Lo and Hi-Lo's stockholders under applicable law. (a) O'Reilly agrees that it will provide Hi-Lo with the information concerning O'Reilly and Sub required by applicable law to be included in the Proxy Statement. Hi-Lo and O'Reilly agree to use commercially reasonable efforts to cause the Special Meeting to occur within 90 days after the purchase of Shares pursuant to the Offer. At the Stockholders' Meeting, O'Reilly, Sub and their affiliates will vote all Shares owned by them in favor of approval of this Agreement and the transactions contemplated hereby. (b) Notwithstanding the foregoing, in the event that O'Reilly, Sub and any of their Subsidiaries shall acquire at least 90% of the then outstanding Shares, the parties hereto agree subject to Article VII, to take all necessary and appropriate action to cause the Merger to become effective, in accordance with Section 253 of the DGCL, as soon as practicable after such acquisition, without a meeting of the stockholders of Hi-Lo. 14 Section 3.3 Payment for Shares in the Merger. The manner of making payment for Shares in the Merger shall be as follows: (a) At or prior to the Effective Time, O'Reilly shall deposit with ChaseMellon Shareholder Services, L.L.C. (the "Exchange Agent"), or such other exchange agent selected by O'Reilly and reasonably acceptable to Hi-Lo, for the benefit of the holders of Shares, the funds necessary to make the payments contemplated by Section 3.1 (the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration out of the Exchange Fund. (b) As soon as practicable after the Effective Time, but in any event no later than five (5) business days thereafter, the Exchange Agent shall mail to each holder of record (other than holders of certificates representing Shares referred to in Section 3.1(b)) of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in such form and have such other customary provisions as O'Reilly and Hi-Lo may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment of the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration without any interest thereon, less any applicable withholding of taxes, and the Certificate so surrendered shall forthwith be canceled. The Merger Consideration with respect to the Shares represented thereby may be paid to a person other than the person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other nonincome taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.3, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender thereof, the Merger Consideration with respect to each of the Shares represented thereby. 15 (c) Any portion of the Exchange Fund which remains undistributed to the holders of the Certificates as of the date which is one year after the Effective Time shall be delivered to O'Reilly, upon demand, and any holders of the Certificates who have not \theretofore complied with this Article III shall thereafter look only to O'Reilly or the Surviving Corporation for payment of their claim for Merger Consideration. (d) None of O'Reilly, Hi-Lo, Sub or the Exchange Agent shall be liable to any person in respect of any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration, would otherwise escheat to or become the property of any govern mental body or authority) any such Merger Consideration, to the extent permitted by applicable law, shall become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (e) The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by O'Reilly, on a daily basis. Any interest and other income resulting from such investments shall be paid to O'Reilly. (f) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration. Section 3.4 Transfer of Shares After the Effective Time. No transfers of Shares shall be made on the stock transfer books of Hi-Lo after the Effective Time. Section 3.5 Stock Options and Associate Purchase Plan. (a) Each option granted to a Hi-Lo employee, consultant or director to acquire shares of Hi-Lo Common Stock ("Option") that is outstanding immediately prior to the purchase of Shares pursuant to the Offer (irrespective of whether such Options are then exercisable) shall on the fifth business day after the purchase by Sub of Shares pursuant to the Offer be cancelled in exchange for a single 16 lump sum cash payment equal to the product of (i) the number of shares of Hi-Lo Common Stock subject to such Option and (ii) the excess of the Per Share Amount over the exercise price per share of such Option. (b) Except as set forth in Section 3.5(a), each Option that is outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall, effective as of the Effective Time, be cancelled and no payments shall be made with respect thereto; (c) Hi-Lo has taken all actions so that following the purchase of Shares pursuant to the Offer no holder of employee stock options will have any right to receive Shares upon exercise of an employee stock option; and (d) Outstanding purchase rights under Hi-Lo's 1991 Associate Stock Purchase Plan (the "Associate Purchase Plan") (i) shall be exercised at the next scheduled date of exercise under the Associate Purchase Plan or (ii) shall be terminated. No purchase rights shall be granted or exercised under the Associate Purchase Plan following such exercise date, and the Associate Purchase Plan shall be terminated as soon as practicable thereafter. Section 3.6 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, any Shares which are held by stockholders who did not vote in favor of the Merger and who comply with all of the relevant provisions of Section 262 of the DGCL (the "Dissenting Shares") shall not be converted into or be exchanged for the right to receive the Merger Consideration (but instead shall be converted into the right to receive payment from the Surviving Corporation with respect to such Dissenting Shares in accordance with the DGCL), unless and until such holders shall have failed to perfect or shall have effectively withdrawn or lost their rights to appraisal under the DGCL. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right, such holder's Shares shall be entitled to the Merger Consideration in accordance with Section 3.3. Hi-Lo shall give prompt notice to Sub and O'Reilly of any demands received by Hi-Lo for appraisal of Shares, and Sub and O'Reilly shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Hi-Lo shall not, except with the prior written consent of Sub and O'Reilly, make any payments with respect to, or settle or offer to settle, any such demands. 17 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HI-LO Hi-Lo represents and warrants to O'Reilly and Sub that: Section 4.1 Organization, Qualification, Etc. Hi-Lo is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect (as hereinafter defined) on Hi-Lo. As used in this Agreement, any reference to any state of facts, event, change or effect having a "Material Adverse Effect" on or with respect to Hi-Lo or O'Reilly, as the case may be, means a material adverse effect on the business, results of operations or financial condition of Hi-Lo and its Subsidiaries (as defined in Section 9.11), taken as a whole, or O'Reilly and its Subsidiaries, taken as a whole, as the case may be. Hi-Lo has heretofore furnished, or otherwise made available, to O'Reilly a complete and correct copy, as applicable, of the Certificate or Articles of Incorporation, the By-laws, the Certificate of Limited Partnership, and/or the Limited Partnership Agreement, each as amended to, and in full force and effect as of, the date hereof, of Hi-Lo and each of its Subsidiaries. Neither Hi-Lo nor any of its Subsidiaries is in violation of any of the provisions of its respective Certificate or Articles of Incorporation, By-laws, Certificate of Limited Partnership, or Limited Partnership Agreement. (a) Hi-Lo does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise, except for the Subsidiaries. Hi-Lo is not subject to any corporate or contractual obligation or requirement to make any investment, loan or capital contribution to any corporation, partnership, joint venture or other entity or enterprise, other than its Subsidiaries. Each of Hi-Lo's Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate and/or partnership power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good 18 standing would not, individually or in the aggregate, have a Material Adverse Effect on Hi-Lo. All the outstanding shares of capital stock of, or other ownership interests in, Hi-Lo's Subsidiaries are validly issued, fully paid and non-assessable and are owned by Hi-Lo, directly or indirectly, free and clear of all liens, claims, charges or encumbrances, except such as are contained in credit agreements and similar instruments to which Hi-Lo is a party under which no event of default exists and no event has occurred which with the giving of notice or passage of time would constitute an event of default thereunder. There are no existing subscriptions, options, warrants, rights of first refusal, preemptive rights, calls, commitments, agreements or conversion rights of any character relating to the issued or unissued capital stock or other securities of, or other ownership interests in, any Subsidiary of Hi-Lo. Section 4.2 Capital Stock. The authorized stock of Hi-Lo consists of 30,000,000 shares of common stock, par value $.01 per share ("Hi-Lo Common Stock"), and 5,000,000 shares of preferred stock, par value $.01 per share ("Hi- Lo Preferred Stock"), of which 50,000 shares have been designated as Series A Junior Participating Preferred Stock ("Hi-Lo Series A Preferred Stock"). As of December 15, 1997, 10,775,109 shares of Hi-Lo Common Stock and no shares of Hi- Lo Preferred Stock were issued and outstanding. All the outstanding shares of Hi-Lo Common Stock have been validly issued and are fully paid and non- assessable and have not been issued in violation of any preemptive or similar rights. As of December 15, 1997, there were no outstanding subscriptions, options, warrants, rights or other arrangements or commitments obligating Hi-Lo to issue any shares of its capital stock nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of Hi-Lo, and Hi-Lo has no obligations of any kind to issue any additional securities other than: (i) rights to acquire shares of Hi-Lo Series A Preferred Stock pursuant to the Rights Agreement; and (ii) options and other rights to receive or acquire not in excess of 1,094,789 shares of Hi-Lo Common Stock granted on or prior to November 30, 1997, pursuant to employee incentive or benefit plans, programs and arrangements and non-employee director plans. (a) Except for the issuance of shares of Hi-Lo Common Stock pursuant to the options and other rights referred to in Section 4.2(a)(i) and except as permitted in Section 6.1(i) and (j), since September 30, 1997, no shares of Hi- Lo Common Stock or Hi-Lo Preferred Stock have been issued. 19 (b) Except as disclosed in the letter so designated and executed by Hi-Lo dated the date hereof and delivered to O'Reilly on the date hereof ("Hi-Lo's Disclosure Letter") the issuance and sale of all of the outstanding shares of capital stock described in Section 4.2 have been in compliance with federal and state securities laws. Except pursuant to the terms of that certain Shareholder's Agreement, dated October 7, 1987, as amended, Hi-Lo has not agreed to register any securities under the Securities Act of 1933, as amended (the "Securities Act") or under any state securities law or granted registration rights to any persons or entity. Except as disclosed in Hi-Lo's Disclosure Letter, there are no outstanding obligations of Hi-Lo or any of Hi-Lo's Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Hi-Lo and no person has any right to cause Hi-Lo or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Hi-Lo. Section 4.3 Corporate Authority Relative to this Agreement; No Violation; No Conflict. Hi-Lo has the corporate power and authority necessary to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Hi-Lo and, except, with respect to the Merger, for the approval of its stockholders, no other corporate proceedings on the part of Hi-Lo are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Hi-Lo and, assuming this Agreement constitutes a valid and binding Agreement of the other parties hereto, this Agreement constitutes a valid and binding agreement of Hi- Lo, enforceable against Hi-Lo in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affect ing creditors' rights generally, or by principles governing the availability of equitable remedies). Other than in connection with or in compliance with the provisions of the DGCL (including the approval of the Merger by the stockholders of Hi-Lo), the Exchange Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") (collectively, the "Hi-Lo Required Approvals"), no authorization, consent or approval of, or filing by Hi-Lo with, any governmental body or authority or other person is necessary for the execution and delivery of this Agreement or for the consummation by Hi-Lo of the transactions contemplated by this Agreement except where the failure to obtain such authorizations, consents or approvals or make such filings is not reasonably likely to have a Material Adverse Effect on Hi-Lo. Except as disclosed in Hi-Lo's Disclosure Letter, neither the execution and delivery of this Agreement by Hi-Lo nor the consummation by Hi-Lo 20 of the transactions contemplated by this Agreement will (a) result in a breach or violation of the organizational documents of Hi-Lo or of any of Hi-Lo's Subsidiaries, (b) result in a breach or violation of any provision of, or constitute a default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a default), under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate or modify, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Hi-Lo or any of Hi-Lo's Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, contract, agreement, lease or other instrument or obligation to which Hi-Lo or any of its Subsidiaries is a party, (c) subject to the matters set forth in the preceding sentence violate any order, writ, injunction, decree, statute, rule or regulation applicable to Hi-Lo or any of its Subsidiaries or any of their respective properties or assets or (d) give any govern mental body the right to revoke, withdraw, suspend, cancel, terminate or modify any governmental authorization held by Hi-Lo or any of its Subsidiaries, except as otherwise disclosed in Hi-Lo's Disclosure Letter or that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Hi-Lo. Section 4.4 Reports and Financial Statements; Corporate Records. Hi-Lo has previously made available to O'Reilly true and complete copies of: (i) Hi- Lo's Annual Reports on Form 10-K filed with the SEC for each of the years ended December 31, 1994 through 1996 (the "Annual Reports"); (ii) Hi-Lo's Quarterly Reports on Form 10-Q filed with the SEC for the quarters ended March 31, June 30 and September 30, 1997 (the "Quarterly Reports"); (iii) each definitive proxy statement filed by Hi-Lo with the SEC from December 31, 1994 until the date of this Agreement (the "Hi-Lo Proxy Statements"); (iv) each final prospectus filed by Hi-Lo with the SEC from December 31, 1994 until the date of this Agreement; and (v) all Current Reports on Form 8-K filed by Hi-Lo with the SEC since the end of its last fiscal year until the date of this Agreement ("Current Reports"). (a) All of the Annual Reports, Quarterly Reports, Current Reports, Hi-Lo Proxy Statements and prospectuses filed with the SEC since December 31, 1994 (collectively, the "Hi-Lo SEC Reports") at the time filed (and in the case of registration statements and proxy statements, on the dates of their effective ness and the dates of mailing, respectively) (i) complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited 21 consolidated interim financial statements included in the Hi-Lo SEC Reports (including any related notes and schedules) fairly present the financial position of Hi-Lo and its consolidated Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, where appropriate, to normal year-end adjustments), in each case in accordance with past practice and generally accepted accounting principles in the United States ("GAAP") consistently applied during the periods involved (except as otherwise disclosed in the notes thereto or in the case of unaudited statements, as permitted by the rules of the SEC or Form 10-Q). Since December 31, 1994, Hi-Lo has timely filed all material reports, registration statements and other filings required to be filed by it with the SEC under the Exchange Act, the Securities Act and the rules and regulations of the SEC. (b) The minute books of Hi-Lo and each of Hi-Lo's corporate Subsidiaries contain accurate records of all meetings held of, and corporate action taken by, the stockholders and the Board of Directors of such companies, and no meeting of any such stockholders or Board of Directors has been held for which minutes have not been prepared and are not contained in such minute books except as disclosed in Hi-Lo's Disclosure Letter. Section 4.5 No Undisclosed Liabilities. As of the date hereof neither Hi- Lo nor any of its Subsidiaries has any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected on a consolidated balance sheet of Hi-Lo, except liabilities or obligations (a) reflected in any of the Hi-Lo SEC Reports filed prior to the date of this Agreement, (b) incurred in the ordinary course of business since December 31, 1996, or (c) liabilities or obligations which are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo. Section 4.6 No Violation of Law. The businesses of Hi-Lo and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any governmental body or authority or any judgment, decision or order entered by any governmental authority (provided that no representation or warranty is made in this Section 4.6 with respect to Environmental Laws (as hereinafter defined)) except (a) as described in any of the Hi-Lo SEC Reports filed prior to the date of this Agreement and (b) for violations or possible violations which are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo. 22 Section 4.7 Environmental Laws and Regulations. Except as described in any of the Hi-Lo SEC Reports filed prior to the date of this Agreement or in Section 4.7 of Hi-Lo's Disclosure Letter, as of the date hereof (a) Hi-Lo and each of its Subsidiaries is in compliance with all applicable federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) (collectively, "Environmental Laws"), except for non-compliance which are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo, which compliance includes, but is not limited to, the possession by Hi-Lo and its Subsidiaries of material permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof; (b) neither Hi-Lo nor any of its Subsidiaries has received written notice of, or, to the knowledge of Hi-Lo, is the subject of, any actions, causes of action, claims, investigations, demands or notices by any person alleging liability under or non-compliance with any Environmental Law ("Environmental Claims") which are reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo; and (c) to the knowledge of Hi-Lo, there are no circumstances that are reasonably likely to prevent or interfere with such compliance in the future. Except as set forth in Section 4.7 of Hi-Lo's Disclosure Letter, to the knowledge of Hi-Lo, there are no past or present actions or activities, including, without limitation, the release, emission, discharge or disposal of any Hazardous Material at any site presently owned by Hi-Lo or its Subsidiaries in the conduct of their business, that could form the basis of any claim against Hi-Lo or its Subsidiaries under Environmental Laws, which claims, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Hi-Lo. For purposes of this Section 4.7, "Hazardous Material" means chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products and any other substance or material regulated as toxic or hazardous pursuant to Environmental Law. Section 4.8 Employee Matters; ERISA. Set forth in Hi-Lo's Disclosure Letter is a true and complete list of all material employee benefit plans maintained or contributed to as of the date hereof by Hi-Lo or any of its Subsidiaries covering their present and former employees or directors or their beneficiaries, or providing benefits to such persons in respect of services provided to any such entity, including, but not limited to, any employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any deferred compensation, bonuses, stock options, restricted stock plans, incentive compensation, severance or change in control agreements and any 23 other material benefit arrangements or payroll practices (collectively, the "Hi- Lo Benefit Plans"). (a) Except for contributions and other payments that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo, all contributions and other payments required to be made by Hi-Lo or any of its Subsidiaries to or under any Hi-Lo Benefit Plan (or to any person pursuant to the terms thereof) have been made or the amount of such payment or contribution obligation has been reflected in the Hi-Lo SEC Reports. (b) Each of the Hi-Lo Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favor able determination letter from the Internal Revenue Service (the "IRS") as to such qualified status. (c) Except as described in any of the Hi-Lo SEC Reports filed prior to the date of this Agreement, all Hi-Lo Benefit Plans are in compliance with all applicable provisions of ERISA and the Code, and Hi-Lo and its Subsidiaries do not have any liabilities or obligations with respect to any Hi-Lo Benefit Plan, whether or not accrued, contingent or otherwise, except (i) as described in any of the Hi-Lo SEC Reports or disclosed in writing to O'Reilly in Hi-Lo's Disclosure Letter and (ii) for instances of non-compliance or liabilities or obligations that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Hi-Lo. (d) With respect to Hi-Lo Benefit Plans, individually and in the aggregate, no event has occurred and, to Hi-Lo's knowledge, there does not now exist any condition or set of circumstances that could subject Hi-Lo or any of its Subsidiaries to any material liability arising under ERISA or the Code (including, without limitation, any liability to any such plan or the Pension Benefit Guaranty Corporation (the "PBGC")), or under any indemnity agreement to which Hi-Lo or any of its Subsidiaries is a party, excluding (1) liability for benefit claims and funding obligations payable in the ordinary course and (2) liabilities that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo. 24 (e) Except as disclosed in writing to O'Reilly in Hi-Lo's Disclosure Letter, none of the Hi-Lo Benefit Plans that are "welfare plans" within the meaning of Section 3(1) of ERISA provides for any retiree benefits other than continuation coverage required to be provided under Section 4980B of the Code or Part 6 of Title I of ERISA. (f) Except (i) as contemplated in this Agreement, (ii) as provided in the termination benefit agreements listed and identified as such in Hi-Lo's Disclosure Letter which are in effect on the date hereof (the "Change of Control Employment Agreements"), (iii) as described in any of the Hi-Lo SEC Reports or (iv) as disclosed in writing to O'Reilly in Hi-Lo's Disclosure Letter, the consummation or announcement of any transaction contemplated by this Agreement will not (whether alone or upon the occurrence of any additional or further acts or events) result in any (A) payment (whether of severance pay or otherwise) becoming due from Hi-Lo or any of its Subsidiaries to any officer, employee, former employee or director thereof or to the trustee under any "rabbi trust" or similar arrangement, or (B) benefit under any Hi-Lo Benefit Plan being established or becoming accelerated, vested or payable. Except as disclosed in Hi-Lo's Disclosure Letter or as described in any of the Hi-Lo SEC Reports, neither Hi-Lo nor any of its Subsidiaries is a party to (A) any management, employment, deferred compensation, severance (including any payment, right or benefit resulting from a change in control), bonus or other contract for personal services with any current or former officer, director or employee (whether or not characterized as a plan for purposes of ERISA), (B) any material consulting contract with any person who prior to entering into such contract was a director or officer of Hi-Lo or any of its Subsidiaries, or (C) any plan, agreement, arrangement or understanding similar to any of the items described in clause (A) or (B) of this sentence. (g) The consummation or announcement of any transaction contemplated by this Agreement will not (either alone or upon the occurrence of any additional or further acts or events) result in the disqualification of any of the Hi-Lo Benefit Plans intended to be qualified under, result in a prohibited transaction or breach of fiduciary duty under, or otherwise violate, ERISA or the Code. (h) Neither Hi-Lo nor any of its Subsidiaries nor any of their directors, officers, employees or agents, nor any "party in interest" or "disqualified person," as such terms are defined in Section 3 of ERISA and Section 4975 of the Code has, with respect to any Hi-Lo Benefit Plan, engaged in or been a party to any "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA which is not otherwise exempt, which could result in the 25 imposition of either a penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code or which could constitute a breach of fiduciary duty, in each case applicable to Hi-Lo and which is reasonably likely to have a Material Adverse Effect on Hi-Lo. (i) No Hi-Lo Benefit Plan subject to Section 412 of the Code has incurred any now existing "accumulated funding deficiency" (as defined in ERISA), whether or not waived. Neither Hi-Lo nor any of its Subsidiaries has incurred, and none of such entities reasonably expects to incur, any material liability to the PBGC with respect to any Hi-Lo Benefit Plan. Neither Hi-Lo nor any of its Subsidiaries is a party to, and neither has incurred or reasonably expects to incur, any withdrawal liability with respect to any "multiemployer plan" (as defined in Section 3(37) of ERISA) for which there is any outstanding liability. (j) None of the assets of any of Hi-Lo Benefit Plans which hold assets are invested in securities of Hi-Lo. (k) Hi-Lo is in material compliance with the notice provisions and all other provisions of COBRA and the Health Insurance Portability and Accountability Act of 1996, except for instances of non-compliance that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo. (l) Except as disclosed in writing to O'Reilly in Hi-Lo's Disclosure Letter or as described in any of the Hi-Lo SEC Reports, since December 31, 1996, no change has occurred in the base salary of any person who is a party to a Change of Control Employment Agreement. Section 4.9 Absence of Certain Changes or Events. Except as disclosed in the Hi-Lo SEC Reports filed prior to the date of this Agreement or in Hi-Lo's Disclosure Letter, from December 31, 1996 to the date of this Agreement, the businesses of Hi-Lo and its Subsidiaries have been conducted in all material respects in the ordinary course and there has not been any event, occurrence, development or state of circumstances or facts that has had or is reasonably likely to have a Material Adverse Effect on Hi-Lo. Since December 31, 1996, neither Hi-Lo nor any of its Subsidiaries has engaged in any transaction which, if done after the execution of this Agreement, would violate Sections 6.1(e) through (k), 6.1(n) through (q), or 6.1(s) through (u) hereof, except as disclosed in Hi-Lo's SEC Reports filed prior to the date of this Agreement or disclosed in Hi-Lo's Disclosure Letter. 26 Section 4.10 Investigations; Litigation. As of the date of this Agreement, except as described in any of the Hi-Lo SEC Reports filed prior to the date of this Agreement or disclosed in Hi-Lo's Disclosure Letter: (a) no investigation or review by any governmental body or authority with respect to Hi-Lo or any of its Subsidiaries is pending nor has any governmental body or authority notified Hi-Lo in writing of an intention to conduct the same and, to the knowledge of Hi-Lo no such investigation or review has been threatened in each case which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo; and (b) there are no actions, suits or proceedings pending (or, to Hi-Lo's knowledge, threatened) against or affecting Hi-Lo or its Subsidiaries, or any of their respective properties at law or in equity, or before any federal, state, local or foreign governmental body or authority, which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect on Hi-Lo. Section 4.11 Proxy Statement; Offer Documents; Schedule 14D-9; Proxy Statement. None of the Schedule 14D-9, any information supplied in writing by Hi-Lo specifically for inclusion in the Offer Documents or the information to be filed by Hi-Lo in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement"), shall at the respective times the Schedule 14D-9, the Offer Documents, the Information Statement or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders of Hi-Lo, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. The Proxy Statement and the Information Statement shall not, at the date such document (or any amendment or supplement thereto) is first mailed to stockholders of Hi-Lo, with respect to the Information Statement at the time Shares are accepted for payment in the Offer, and with respect to the Proxy Statement at the time of the Stockholders' Meeting, be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein in the light of the circumstances under which they are made, not misleading. The Schedule 14D-9, the Information Statement and the Proxy Statement shall comply in all material respects as to form with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder. Notwithstanding the foregoing, Hi-Lo makes no representation or warranty with respect to statements 27 made in any of the foregoing documents based on information supplied in writing by O'Reilly or Sub or any of their representatives specifically for inclusion therein. Section 4.12 Hi-Lo Rights. Hi-Lo has taken all action which may be necessary to amend the Rights Agreement, so that the execution of this Agreement and any amendments thereto by the parties hereto and the consummation of the transactions contemplated hereby or thereby shall not cause (i) O'Reilly or Sub to become an Acquiring Person (as defined in the Rights Agreement) or (ii) a Distribu tion, or a Shares Acquisition Date (as each such term is defined in the Rights Agreement) to occur, irrespective of the number of Shares acquired pursuant to the Offer. Section 4.13 Takeover Laws. Prior to the date hereof, the Board of Directors of Hi-Lo has taken all necessary action to exempt under or make not subject to Section 203 of the DGCL or any other state law that purports to limit or restrict business combinations or the ability to acquire shares of capital stock, the execution of this Agreement and the consummation of the transactions contemplated hereby, including the Offer and the Merger. Section 4.14 Tax Matters. (a) Except for matters that are not reason ably likely to have a Material Adverse Effect on Hi-Lo or are disclosed in Hi-Lo's Disclosure Letter: (i) all Tax Returns, which are required to be filed on or before the Closing Date by or with respect to Hi-Lo or any of its Subsidiaries have been or will be duly and timely filed and reflect all tax liabilities of Hi-Lo and its Subsidiaries required to be shown thereon; (ii) all Taxes which are shown to be due on any Hi-Lo Tax Returns have been or will be timely paid in full; (iii) all withholding tax require ments imposed on or with respect to Hi- Lo or any of its Subsidiaries have been satisfied in full in all respects; (iv) no action, suit, proceeding, audit, claim assess ment, deficiency or adjustment has been asserted, assessed or is pending with respect to any Hi-Lo Tax Return or any of its Subsidiaries; (v) neither Hi-Lo nor any of its Subsidiaries has any liability for any Taxes in excess of amounts paid or reserves established therefor; and (vi) there is not in force any extension of time with respect to the due date for the filing of any Hi-Lo Tax Return or any waiver or agreement for any extension of time for the assessment or payment of any tax due with respect to the period covered by any Hi-Lo Tax Return and no requests for such waivers or agreements are pending. Except as disclosed in Hi-Lo's Disclosure Letter, neither Hi-Lo nor any of its Subsidiaries is the subject of any currently ongoing tax audit which is reasonably likely to have a Material Adverse Effect on Hi-Lo. With respect to any taxable period ended prior to December 31, 1993, all federal income Hi-Lo 28 Tax Returns have been audited by the Internal Revenue Service or are closed by the applicable statute of limitations. (b) There are no material liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible of Hi-Lo or any of its Subsidiaries (other than liens with respect to Taxes not yet due). No material claim made in writing by an authority in a jurisdiction where none of Hi-Lo or its Subsidiaries files tax returns that Hi-Lo or any of its Subsidiaries is or may be subject to taxation by that jurisdiction is currently pending. Hi-Lo has not filed an election under Section 341(f) of the Internal Revenue Code to be treated as a consenting corporation. Neither Hi-Lo nor any of its Subsidiaries is obligated by any contract, agreement or other arrangement to indemnify any other person with respect to any material Taxes. (c) Except for matters that are disclosed in Hi-Lo's Disclosure Letter: none of Hi-Lo or any of its Subsidiaries is a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of (x) any "excess parachute payments" within the meaning of Section 280G of the Code (without regard to the exceptions set forth in Section 280G(b)(4) and 280G(b)(5) of the Code) or (y) any amount for which a deduction would be disallowed under Section 162 of the Code; since January 1, 1993, none of Hi-Lo or any of its Subsidiaries has been a member of a group filing a consolidated federal income Tax Return (other than a group the common parent of which was Hi-Lo); no liability has been asserted with respect to Hi-Lo or any of its Subsidiaries for the Taxes of any Person (other than any of Hi-Lo or its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state, local or foreign Tax law), as a transferee or successor, by contract, or otherwise; and none of Hi-Lo or any of its Subsidiaries has net operating losses or other tax attributes presently subject (without regard to the transactions contemplated by this Agreement) to limitation under Sections 382, 383, or 384 of the Code, or the federal consolidated return regulations. (d) For purposes of this Agreement: (i) "Taxes" means any and all federal, state, local, foreign or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, occupation, transfers, premiums, leases, services, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth, environmental taxes and taxes or other charges 29 in the nature of excise, withholding, customs duties, ad valorem or value added, and (ii) "Tax Return" means any return, report or similar statement (including the attached schedules) filed or required to be filed with respect to any Tax, including, without limitation, any information return, claim for refund or declaration of estimated Tax (or any amendments to any of the foregoing). Section 4.15 Opinion of Financial Advisor. The Board of Directors of Hi-Lo has received the opinion of SBC Warburg Dillon Read Inc., dated the date of this Agreement, to the effect that, as of such date, the cash consideration to be received by Hi-Lo's stockholders pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view. A copy of the written opinion of SBC Warburg Dillon Read Inc. has been delivered to O'Reilly. Section 4.16 Required Vote of Hi-Lo Stockholders. The affirmative vote of the holders of a majority of the outstanding shares of Hi-Lo Common Stock is required to approve the Merger. No other vote of the stockholders of Hi-Lo is required by law, the charter or by-laws of Hi-Lo or otherwise to approve this Agreement and the transactions contemplated hereby. Section 4.17 Labor Matters. No labor organization or group of employees of Hi-Lo or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or to the knowledge of Hi-Lo threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority except for demands, proceedings or petitions which are not reasonably likely to have a Material Adverse Effect on Hi-Lo. There are no strikes, work stoppages, lockouts, material arbitrations or material grievances, or other material labor disputes pending or to the knowledge of Hi-Lo threatened against or involving Hi-Lo or any of its Subsidiaries except such as are not reasonably likely to have a Material Adverse Effect on Hi-Lo. None of Hi-Lo or any of its Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization. Section 4.18 Certain Agreements. Except as disclosed in Hi-Lo's Disclosure Letter or in the Hi-Lo SEC Reports filed prior to the date of this Agreement, neither Hi-Lo nor any of its Subsidiaries is a party or subject to any oral or written agreement, contract, policy, license, document, instrument, arrangement or commitment relating to or constituting (i) Indebtedness (as hereinafter defined) in an amount exceeding $500,000 other than pursuant to Hi-Lo's revolving credit facility with the CIT Group which would in no event cause the aggregate amount outstanding 30 under such facility to exceed $60,000,000, (ii) leases for real or personal property in which the amounts of payments which Hi-Lo or any Subsidiary is required to make on an annual basis exceeds $250,000, (iii) agreement, contract, policy, license document, instrument, arrangement or commitment that limits in any material respect the freedom of Hi-Lo or any Subsidiary of Hi-Lo to compete in any line of business or with any person or in any geographical area or which would so limit the freedom of Hi-Lo or any Subsidiary of Hi-Lo after the Effective Time, (iv) agreement or contract outside of the ordinary course of business of Hi-Lo or any of Hi-Lo's Subsidiaries that involves performance of services or delivery of goods or materials by or to Hi-Lo or any of Hi-Lo's Subsidiaries of an amount or value in excess of $250,000, (v) joint venture or partnership agreements involving a sharing of profits, losses, costs, or liabilities by Hi-Lo or any of Hi-Lo's Subsidiaries with any person other than Hi-Lo and its Subsidiaries, (vi) power of attorney granted by Hi-Lo or any of Hi-Lo's Subsidiaries that is currently effective and outstanding, (vii) agreement or contract entered into other than in the ordinary course of business that contains or provides for an express undertaking by Hi-Lo or any of Hi-Lo's Subsidiaries to be responsible for consequential damages, (viii) agreement or contract for capital expenditures in excess of $200,000, (ix) a written warranty, guaranty, and/or other similar undertaking with respect to contractual performance extended by Hi-Lo or any of Hi-Lo's Subsidiaries other than in the ordinary course of business, or (x) which, after giving effect to the transactions contemplated by this Agreement, purports to restrict or bind O'Reilly or any of its Subsidiaries other than the Surviving Corporation and its Subsidiaries in any respect. "Indebtedness" means any liability in respect of (A) borrowed money, (B) capitalized lease obligations, (C) the deferred purchase price of property or services (other than trade payables in the ordinary course of business) and (D) guarantees of any of the foregoing. Except as disclosed in Hi-Lo's Disclosure Letter, neither Hi-Lo nor any of its Subsidiaries is in default (or would be in default with notice or lapse of time, or both) under any indenture, note, credit agreement, loan document, lease, contract, policy, license, document, instrument, arrangement or commitment, whether or not such default has been waived, which default, alone or in the aggregate with other such defaults, is reasonably likely to have a Material Adverse Effect on Hi-Lo. Section 4.19 Title to Assets; Liens. Hi-Lo owns or holds through valid leases, directly or through its Subsidiaries, all of its inventory, accounts receivable, property, equipment and other assets except where the failure to own or hold such property is not reasonably likely to have a Material Adverse Effect on Hi-Lo, and except as disclosed in Hi-Lo's SEC Reports filed prior to the date of this Agreement, such assets are free and clear of any mortgages, liens, charges, encumbrances, or title defects of any nature whatsoever, except for such mortgages, liens, 31 charges, encumbrances or title defects which are not reasonably likely to adversely affect the value of such property as carried on Hi-Lo's financial statements contained in Hi-Lo's SEC Reports filed prior to the date of this Agreement and would not have a Material Adverse Effect on Hi-Lo. Hi-Lo and its Subsidiaries have valid and enforceable leases for the premises and the equipment, furniture and fixtures purported to be leased by them, except for leases, the failure of which to have or be enforceable, are not reasonably likely to have a Material Adverse Effect on Hi-Lo. Section 4.20 Insurance. Except as disclosed in Hi-Lo's Disclosure Letter, Hi-Lo and each of its Subsidiaries are insured, and during each of the past five calendar years have been insured with insurers whose current rating by A M Best is at least B+6 against such risks and in such amounts as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Except as disclosed in Hi-Lo's Disclosure Letter, the policies of fire, theft, liability and other insurance maintained with respect to the assets or businesses of Hi-Lo and its Subsidiaries (copies of which have been made available to O'Reilly) (i) provide coverage which Hi-Lo deems to be adequate coverage against loss, (ii) are sufficient for Hi-Lo and its Subsidiaries to be in compliance with all legal requirements applicable to Hi-Lo or any of its Subsidiaries and all agreements and contracts to which Hi-Lo or any of its Subsidiaries is a party or by which any of them are bound, except where such insufficiency is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo, (iii) will continue (absent affirmative action by O'Reilly to cancel such policies) in full force and effect following consummation of the Merger and (iv) do not provide for any retrospective premium adjustment or other experienced-based liability on the part of Hi-Lo or any of Hi-Lo's Subsidiaries. Except as disclosed in Hi-Lo's Disclosure Letter, neither Hi-Lo nor any of its Subsidiaries has received written notice of cancellation or termination with respect to any material insurance policy of Hi-Lo or its Subsidiaries or will not be renewed or that the issuer of any material insurance policy is not willing or able to perform its obligations thereunder. The insurance policies of Hi-Lo and its Subsidiaries are valid and enforceable policies. Hi-Lo and Hi-Lo's Subsidiaries have paid all premiums due, and have otherwise performed all of their respective material obligations, under each material insurance policy and Hi-Lo and Hi-Lo's Subsidiaries have given notice to the respective insurer of all material claims that may be insured by any material insurance policy. Section 4.21 Intellectual Property. To Hi-Lo's knowledge, neither Hi-Lo nor any of its Subsidiaries utilizes or has utilized any patent, trademark, trade name, service mark, copyright, software, trade secret or know-how, except for those which are owned, possessed or lawfully used by Hi-Lo or its Subsidiaries in their 32 operations, and, to the knowledge of Hi-Lo, neither Hi-Lo nor any of its Subsidiaries infringes upon or unlawfully or wrongfully uses any patent, trademark, tradename, service mark, copyright or trade secret owned or validly claimed by another, where such infringement or unlawful or wrongful use is reasonably likely to have a Material Adverse Effect on Hi-Lo. Section 4.22 Significant Vendor Arrangements. Except as set forth in a list which is included as part of Hi-Lo's Disclosure Letter, as of the date of this Agreement, neither Hi-Lo nor any of its Subsidiaries is a party to any contract or arrangement with any supplier or vendor which represents a commitment in excess of $300,000. The list of such contracts and arrangements which is included as part of Hi-Lo's Disclosure Letter accurately identifies each such supplier or vendor and the significant terms concerning termination, term of the agreement, and the amount of up-front vendors' allowances that would need to be repaid upon early termination as of December 1, 1997. Section 4.23 Termination of Discount Agreement. Hi-Lo has taken all action necessary to terminate, and has terminated, the Agreement and Plan of Merger among Discount Auto Parts, Inc., HLA Acquisition, Inc. and Hi-Lo dated as of October 17, 1997 in accordance with the terms thereof and has paid the $4,000,000 termination fee pursuant to Section 7.2(b) thereof. ARTICLE V REPRESENTATIONS AND WARRANTIES OF O'REILLY AND SUB O'Reilly and Sub jointly and severally represent and warrant to Hi-Lo that: Section 5.1 Organization, Qualification, Etc. Each of O'Reilly and Sub is a corporation duly organized, validly existing and of active status or in good standing under the laws of its jurisdiction of organization and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted and is duly qualified to do business and is of active status or in good standing in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect on O'Reilly. The copies of O'Reilly's and Sub's Certificate of Incorporation and By-laws which have been made available 33 to Hi-Lo are complete and correct and in full force and effect on the date hereof. Neither O'Reilly nor Sub is in violation of any of the provisions of its respective Articles or Certificate of Incorporation or By-laws. Section 5.2 Corporate Authority Relative to this Agreement; No Violation; No Conflict. Each of O'Reilly and Sub has the corporate power and authority necessary to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Boards of Directors of O'Reilly and Sub and no other corporate proceedings on the part of O'Reilly or Sub are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by O'Reilly and Sub and, assuming this Agreement constitutes a valid and binding Agreement of the other parties hereto, this Agreement constitutes a valid and binding agreement of O'Reilly and Sub, enforceable against each of them in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). Other than in connection with or in compliance with the provisions of the DGCL, the Securities Act, the Exchange Act or the HSR Act (collectively, the "O'Reilly Required Approvals"), no authorization, consent or approval of, or filing by O'Reilly or Sub with, any governmental body or authority or other person is necessary for the execution and delivery of this Agreement or for the consummation by O'Reilly or Sub of the transactions contemplated hereby except where the failure to obtain such authorizations, consents or approvals or make such filing is not reasonably likely to have a Material Adverse Effect on O'Reilly. Except as disclosed in O'Reilly's Disclosure Letter, neither the execution and delivery of this Agreement by O'Reilly and Sub nor the consummation by O'Reilly and Sub of the transactions contemplated by this Agreement will (a) result in a breach or violation of the organizational documents of O'Reilly or Sub or of any of O'Reilly's Subsidiaries, (b) result in a breach or violation of any provision of, or constitute a default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a default), under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate or modify, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of O'Reilly or Sub or any of O'Reilly's Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, contract, agreement, lease or other instrument or obligation to which O'Reilly or Sub or any of its O'Reilly's Subsidiaries is a party, or (c) subject to the matters set forth in the preceding sentence violate any order, writ, injunction, decree, statute, rule or regulation 34 applicable to O'Reilly or Sub or any of O'Reilly's Subsidiaries or any of their respective properties or assets or (d) give any governmental body the right to revoke, withdraw, suspend, cancel, terminate or modify any governmental authorization held by O'Reilly or any of its Subsidiaries, except for such violations which would not in the aggregate have a Material Adverse Effect on O'Reilly. Section 5.3 Financing. O'Reilly has, or has commitments to obtain, sufficient funds (through existing credit arrangements or otherwise) to (a) pay the Per Share Amount pursuant to the Offer, (b) pay the Merger Consideration pursuant to the Merger, (c) refinance such of Hi-Lo's existing indebtedness as shall be necessary to consummate the Offer and the Merger and the financing therefor and provide working capital prior to the Effective Time and (d) pay related fees and expenses. Section 5.4 Offer Documents; Schedule 14D-9; Proxy Statement. None of the Offer Documents nor any of the information supplied by O'Reilly or any of its Subsidiaries in writing specifically for inclusion in the Schedule 14D-9 shall, at the respective times the Offer Documents or the Schedule 14D-9 or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders of Hi-Lo, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. The information supplied in writing by O'Reilly specifically for inclusion in the Proxy Statement or Information Statement shall not, at the date such document (or any amendment or supplement thereto) is first mailed to stockholders of Hi-Lo, with respect to the Information Statement at the time Shares are accepted for payment in the Offer, and with respect to the Proxy Statement at the time of the Stockholders' Meeting be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein in the light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, O'Reilly and Sub make no representation or warranty with respect to any of the foregoing documents based on information supplied by Hi-Lo or any of its representatives. The Offer Documents shall comply in all material respects as to form with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder. Section 5.5 Lack of Ownership of Shares. Neither O'Reilly nor any of its Subsidiaries owns any Shares or other securities convertible into Shares. 35 ARTICLE VI COVENANTS AND AGREEMENTS It is further agreed as follows: Section 6.1 Conduct of Business by Hi-Lo. From the date hereof and prior to the time the directors of O'Reilly have been elected to, and shall constitute a majority of, the Board of Directors of Hi-Lo pursuant to Section 1.3(a) or the date, if any, on which this Agreement is earlier terminated pursuant to Section 8.1 (the "Termination Date"), and except as specifically disclosed in Hi-Lo's Disclosure Letter or as may be agreed to in writing by O'Reilly hereto or as may be permitted pursuant to this Agreement, Hi-Lo: (a) shall, and shall cause each of its Subsidiaries to, conduct its operations in all material respects according to their ordinary and usual course of business in substantially the same manner as heretofore conducted; (b) shall use its reasonable best efforts, and cause each of its Subsidiaries to use its reasonable best efforts, to preserve intact its business organization in all material respects, keep available the services of its executive officers and key employees as a group, subject to changes in the ordinary course, and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with them; (c) shall confer at such times as O'Reilly may reasonably request with one or more representatives of O'Reilly to report material operational matters and the general status of ongoing operations (in each case to the extent O'Reilly reasonably requires such information) and to consult with O'Reilly regarding material operational decisions; (d) shall promptly notify O'Reilly of any emergency or other change in the normal course of its or its Subsidiaries' respective businesses or in the operation of its or its Subsidiaries' respective properties and of any complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any governmental body or authority if such emergency, change, complaint, investigation or hearing is reasonably likely to have a Material Adverse Effect on Hi-Lo; 36 (e) shall not authorize or pay any dividends on or make any distribution with respect to its outstanding shares of stock; (f) shall not, and shall not permit any of its Subsidiaries to, except as contemplated by Section 6.5 or 6.14 hereof or as may be required by applicable law, enter into or amend any employment, severance or similar agreements or arrangements with any of their respective directors or executive officers except for the Deferral Agreements with directors and officers dated as of the date hereof; (g) shall not (subject to the provisions of Section 6.8), and shall not permit any of its Subsidiaries to, authorize, or announce an intention to authorize, or enter into an agreement with respect to, any merger, consolidation or business combination (other than this Agreement and the transactions contemplated hereby), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights, in each case, not in the ordinary course of business; (h) except pursuant to the Merger as provided for in Section 2.5, shall not propose or adopt any amendments to its corporate charter or by-laws; (i) shall not, and shall not permit any of its Subsidiaries to, issue any shares of their capital stock, except upon exercise of rights or options issued pursuant to existing employee plans, programs or arrangements and non-employee director plans; (j) shall not, and shall not permit any of its Subsidiaries to, grant, confer or award any options, warrants, conversion rights or other rights, not existing on the date hereof, to acquire any shares of its capital stock; (k) shall not, and shall not permit any of its Subsidiaries to, purchase or redeem or offer to purchase or redeem any shares of its stock or any securities convertible into or exchangeable for shares of stock, except for the deemed repurchase of options in accordance with Section 3.5 of this Agreement, or purchases, redemptions and offers to purchase in the ordinary course of business in connection with employee incentive and benefit plans, programs or arrangements in existence on the date hereof; 37 (l) shall not, and shall not permit any of its Subsidiaries to, except as contemplated by this Agreement or as may be required by applicable law, amend in any material respect the terms of their respective employee benefit plans, programs or arrangements or any severance or similar agreements or arrangements in existence on the date hereof, enter into or amend any employment or consulting agreement, adopt or enter into any new employee benefit plans, programs or arrangements or any severance or similar agreements or arrangements or increase the base salary of any person who is a party to a Change of Control Employment Agreement or make any payments under any Hi-Lo Benefit Plan to any director, employee, independent contractor or consultant (except in the ordinary course of business and in amounts and in a manner consistent with past practice or as other wise required by law or the provisions of such Hi-Lo Benefit Plan); (m) shall not, and shall not permit any of its Subsidiaries to, (i) enter into any material loan agreement or incur any indebtedness in excess of an aggregate of $100,000 other than pursuant to additional draws resulting in not in excess of an aggregate amount outstanding of $60,000,000 under Hi-Lo's credit facility with the CIT Group or amend Hi-Lo's credit facility with the CIT Group to increase the amount that may be borrowed thereunder, (ii) make or enter into any agreement or contract for capital expenditures in excess of $50,000, (iii) enter into any lease for any new store site or for real property in excess of $50,000 or any lease for personal property in excess of $20,000 or (iv) enter into any agreement or contract outside of the ordinary course of business of Hi- Lo or any of Hi-Lo's Subsidiaries that involves performance of services or delivery of goods or materials by or to Hi-Lo or any of Hi-Lo's Subsidiaries of an amount or value in excess of $50,000; (n) shall not, and shall not permit any of its Subsidiaries to, make or change any material Tax election, file any amendment to any federal income Tax Return unless required by law, enter into any closing agreement, settle or compromise any material Tax liability; (o) shall not adjust, split, combine or reclassify its capital stock; (p) shall not enter into any agreement, understanding or arrangement with respect to the sale or voting of its capital stock; (q) shall not, and shall not permit any of its Subsidiaries to, create any new subsidiaries; 38 (r) except as required by this Agreement, shall not take any action which could reasonably be expected to adversely affect or delay the ability of any of the parties hereto to obtain any approval of any governmental or regulatory body required to consummate the transactions contemplated hereby; (s) shall not, and shall not permit any of its Subsidiaries to, directly or indirectly sell, transfer, lease, pledge, mortgage, encumber or otherwise dispose of any material property or assets other than in the ordinary course of business; (t) shall not enter into any financial derivative contracts; (u) shall not change in any material respect its accounting policies, methods or procedures except as required by GAAP; (v) except as may be required by this Agreement or applicable law, shall not do any act or omit to do any act which would cause a breach of any contract, commitment or obligation if the result is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Hi-Lo; (w) except as otherwise permitted by Section 6.8, shall not take any action with the intent of causing the conditions to the Offer set forth on Annex A hereto to not be satisfied; (x) shall not, other than pursuant to this Agreement, take any action to cause the shares of Hi-Lo Common Stock to cease to be quoted on any of the stock exchanges on which such shares are now quoted; (y) shall continue to provide training for employees of Hi-Lo and its Subsidiaries commensurate with the training provided by Hi-Lo and its Subsidiaries over the past twelve months; (z) subject to the limitations contained in this Agreement, shall continue the level of recruiting activity and process employed by Hi-Lo and its Subsidiaries over the past twelve months; and (aa) shall not, and shall not permit any of its Subsidiaries to, agree in writing or otherwise, to take any of the foregoing actions or take any action which would make any representation or warranty contained in Article IV 39 hereof (except for representations and warranties made as of a specified date) untrue and incorrect in any material respect as of the Effective Time. (bb) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the September 30, 1997 balance sheet or subsequently incurred in the ordinary course of business and consistent with past practice; (cc) settle or compromise any pending or threatened suit, action or claim not covered by insurance (without giving effect to deductibles in determining whether coverage exists) that is material or which relates to the Agreement or any of the transactions contemplated thereby, including the Offer and the Merger; or (dd) shall not modify, amend or waive any terms or provisions of the Rights Agreement. Section 6.2 Investigation. Hi-Lo shall afford to O'Reilly and to O'Reilly's officers, employees, accountants, counsel and other authorized representatives full and complete access during normal business hours, throughout the period prior to the earlier of the Effective Time or the Termination Date, to its and its Subsidiaries' facilities, properties, contracts, commitments, books, and records (including but not limited to tax returns) and any report, schedule or other document filed or received by it pursuant to the requirements of federal or state securities laws and shall use its reasonable best efforts to cause its representatives to furnish promptly such additional financial and operating data and other information as to Hi-Lo's and its Subsidiaries' respective businesses and properties as may from time to time be reasonably requested; provided, that nothing herein shall require Hi-Lo or any of its Subsidiaries to disclose any information to the other that would cause a violation of any contractual confidentiality obligation. The parties hereby agree that each of them will treat any such information in accordance with the Confidentiality Agreement, dated as of November 26, 1997, between Hi-Lo and O'Reilly (the "Hi-Lo Confidentiality Agreement"). Notwithstanding any provision of this Agreement to the contrary, no party shall be obligated to make any disclosure in violation of applicable laws or regulations. 40 Section 6.3 Obligations of O'Reilly and Sub. Neither O'Reilly nor Sub or any of their Subsidiaries shall take any action which would make any representation or warranty contained in Article V hereof (except for representations and warranties made as of a specific date) untrue or incorrect in any material respect or cause any of the conditions to the Offer set forth in Annex A or the conditions to the Merger set forth in Article VII not to be satisfied. Section 6.4 [Intentionally Omitted] Section 6.5 Employee Benefit Plans. Simultaneously with the consummation of the Offer, O'Reilly shall assume each Change of Control Employment Agreement then in effect and all of Hi-Lo's rights and obligations under each such agreement. (a) O'Reilly shall take all actions necessary or appropriate with respect to employees employed by Hi-Lo or any of its Subsidiaries from and after the purchase of any Shares pursuant to the Offer (a "Hi-Lo Employee") to either, at the sole election of O'Reilly, (i) continue to participate from and after the Closing Date in the employee benefit plans and programs maintained by Hi-Lo immediately prior to the Closing Date other than the 1990 Stock Option Plan and the 1991 Associate Stock Purchase Plan or (ii) permit Hi-Lo Employees to immediately thereafter participate in the employee benefit plans or programs maintained by O'Reilly or any of its Subsidiaries for their employees generally (the "O'Reilly Plans") other than O'Reilly's stock option plans or any employee stock purchase plan meeting the requirements of Section 423 of the Code; provided, however, that, if Hi-Lo's group health plan is terminated or discontinued, O'Reilly shall permit each Hi-Lo Employee and his or her eligible dependents (including, without limitation, all such Hi-Lo Employee's dependents covered by Hi-Lo's group health plan as of the time such coverage ceases) to be covered under a O'Reilly Plan that (i) provides medical and dental benefits to the Hi-Lo Employee and such eligible dependents effective immediately upon the cessation of coverage of such individuals under Hi-Lo's group health plan, (ii) credits such Hi-Lo Employee, for the year during which such coverage under such O'Reilly Plan begins, with any deductibles and co-payment already incurred during such year under Hi-Lo's group health plan, and (iii) waives any preexisting condition restrictions to the extent necessary to provide immediate coverage. O'Reilly, the Surviving Corporation, their respective Subsidiaries, and the O'Reilly Plans shall recognize each Hi-Lo Employee's years of service and level of seniority with Hi-Lo and its Subsidiaries for purposes of terms of employment and eligibility, vesting and benefit determination under the O'Reilly Plans. The provisions of this Section 6.5(b) shall be applicable only during an 41 employee's employment with Hi-Lo, O'Reilly or one of their Subsidiaries and shall not constitute an agreement to employ or continue the employment of any person. Section 6.6 Filings; Other Action. Subject to the terms and conditions herein provided, Hi-Lo and O'Reilly shall (a) as soon as practicable make their respective filings and thereafter make any other required submissions under the HSR Act, (b) use reasonable efforts to cooperate with one another in (i) determining whether any filings are required to be made with, or consents, permits, authorizations or approvals are required to be obtained from any third party, governmental or regulatory bodies or authorities of federal, state and local jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby, and (ii) timely making all such filings and timely seeking all such consents, permits, authorizations or approvals, and (c) use reasonable efforts to take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby, including, without limitation, taking all such further action as reasonably may be necessary to resolve such objections, if any, as the Federal Trade Commission, the Antitrust Division of the Department of Justice, state antitrust enforcement authorities or any other person may assert under relevant antitrust or competition laws with respect to the transactions contemplated hereby. Section 6.7 Further Assurances. Each of the Parties shall use its reasonable best efforts to take all action and to do all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement (including, without limitation, using its reasonable efforts to cause the conditions to the consummation of the Offer set forth in Annex A hereto and the conditions to the Merger set forth in Article VII for which they are responsible to be satisfied as soon as reasonably practicable and to prepare, execute and deliver such further instruments and take or cause to be taken such other and further action as any other party hereto shall reasonably request). Section 6.8 No Solicitation. From the date hereof until the termination of this Agreement, Hi-Lo will not, and shall not authorize or permit, any of its officers, directors, employees, attorneys, financial advisors, agents or other representatives or those of any of its Subsidiaries ("Hi-Lo's Representatives") to, directly or indirectly, (a) solicit, initiate or knowingly encourage any Takeover Proposal (as hereinafter defined), including without limitation by disclosure of non-public information, or (b) engage in discussions or negotiations relating to or accept any Takeover Proposal; provided, however, that nothing contained in this Section 6.8 42 shall prohibit Hi-Lo and its Board of Directors from (i) taking and disclosing a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the SEC under the Exchange Act, or (ii) at any time prior to the purchase of Shares pursuant to the Offer, engaging in discussions or negotiations with, and furnishing information (including non-public information) concerning Hi-Lo and its Subsidiaries, businesses, properties or assets to, any third party which makes a Takeover Proposal (without any solicitation or initiation or knowing encouragement, directly or indirectly, by Hi-Lo or any of Hi-Lo's Representatives after the date of this Agreement) if the Board of Directors of Hi-Lo determines in good faith, based on advice of its outside counsel (who may be its regularly engaged outside counsel), that the failure to take such action will violate its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law, or (iii) provided this Agreement is terminated pursuant to Section 8.1(d), accepting a Superior Proposal. Prior to furnishing information to or entering into discussions or negotiations with any person, Hi-Lo shall receive from such person or entity an executed confidentiality agreement in reasonably customary form on terms not in the aggregate materially more favorable to such person or entity than the terms contained in Hi-Lo Confidentiality Agreement (as defined in Section 6.2 hereof) unless the same terms are granted to O'Reilly under the Hi-Lo Confidentiality Agreement. Hi-Lo shall immedi ately cease and cause to be terminated any existing solicitation, initiation, encourage ment, activity, discussion or negotiation with any person conducted heretofore by Hi-Lo or any Hi-Lo Representative with respect to any Takeover Proposal existing on the date hereof. Hi-Lo agrees not to release any third party from, or waive any provision of, any standstill agreement to which it is a party or any confidentiality agreement between it and another person who has made, or who may reasonably be considered likely to make, or who was given access in order to consider making, a Takeover Proposal, unless its Board of Directors determines in good faith, based on advice of its outside counsel (who may be its regularly engaged outside counsel), that failure to take such action will violate its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law. Hi-Lo shall notify O'Reilly orally and in writing of any such Takeover Proposal received (including, without limitation, the terms and conditions of any such proposal and the identity of the person making it), within 24 hours of the receipt thereof, and shall keep O'Reilly informed of the general status and any material changes in the terms and conditions of such Takeover Proposal. Hi-Lo agrees to promptly provide to O'Reilly any information concerning Hi-Lo, its Subsidiaries, business, properties or assets furnished to any third party which makes a Takeover Proposal and which has not previously been provided to O'Reilly. As used in this Agreement, (i) "Takeover Proposal" shall mean any written proposal or offer, in each case made prior to the stockholder vote at Hi-Lo Meeting, other than a proposal or offer by O'Reilly or any of its Subsidiaries, for a tender offer, recapital- 43 ization, merger, consolidation or other business combination involving, or any purchase of, all or substantially all of the assets or more than 50% of the voting securities of, Hi-Lo, and (ii) "Superior Proposal" shall mean a bona fide Takeover Proposal made by a third party on terms that a majority of the members of the Board of Directors of Hi-Lo determines in their good faith reasonable judgment is more favorable to Hi-Lo and to its stockholders than the transactions contemplated hereby. Section 6.9 Public Announcements. Hi-Lo and O'Reilly will consult with each other before issuing any press release relating to this Agreement or the transactions contemplated herein and shall not issue any such press release prior to such consultation except as may be required by law or by obligations pursuant to any listing agreement with any national securities exchange. Section 6.10 Indemnification and Insurance. O'Reilly and Sub agree that all rights to exculpation and indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of Hi-Lo as provided in its Certificate of Incorporation or by-laws or in any agreement, in each case as in effect as of the date hereof, shall survive the Merger and shall continue in full force and effect in accordance with their terms without amendment thereof. For six years from the Effective Time, O'Reilly shall indemnify the Indemnified Parties to the same extent as such Indemnified Parties are entitled to indemnification pursuant to the preceding sentence. (a) For six years from the Effective Time, O'Reilly shall, maintain in effect Hi-Lo's current directors' and officers' liability insurance covering those persons who are currently covered by Hi-Lo's directors' and officers' liability insurance policies and shall purchase such policy on or prior to the Closing Date; provided, however, that in no event shall O'Reilly be required to expend in the aggregate an amount in excess of 200% of the annual premiums currently paid by Hi-Lo for such insurance, and, provided, further, that if the aggregate premiums of such insurance coverage exceed such amount, O'Reilly shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. Section 6.11 Additional Reports. Hi-Lo shall furnish to O'Reilly copies of any reports of the type referred to in Section 4.4 which it files with the SEC on or after the date hereof, and Hi-Lo represents and warrants that as of the respective dates thereof, such reports will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. Any unaudited consolidated interim financial statements included in 44 such reports (including any related notes and schedules) will fairly present the financial position of Hi-Lo and its consolidated Subsidiaries as of the dates thereof and the results of operations and changes in financial position or other information included therein for the periods or as of the date then ended (subject, where appropriate, to normal year-end adjustments), in each case in accordance with past practice and GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto). Section 6.12 [Intentionally Omitted] Section 6.13 [Intentionally Omitted] Section 6.14 Amendments to Change of Control Agreements. Hi-Lo has secured a commitment to amend from each employee who is a party to a Change of Control Employment Agreement and shall cause to be amended each Change of Control Employment Agreement to provide that it shall be a condition to the receipt of any lump sum payment payable thereunder that the employee execute and deliver to Hi-Lo a general release by the employee of all claims against Hi-Lo, its predecessors, parents, subsidiaries, divisions, related or affiliated companies, officers, directors, stockholders, members, employees, heirs, successors, assigns, representatives, agents and counsel, including without limitation a release of (i) any and all claims arising out of or relating to the employee's employment by or service with Hi-Lo and its Subsidiaries and the employee's termination of employment, (ii) any and all claims of discrimination, including but not limited to claims of discrimination on the basis of sex, race, age, national origin, marital status, religion or handicap, including, specifically, but without limiting the generality of the foregoing, any claims under the Age Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, and the Americans with Disabilities Act, and (iii) any and all claims of wrongful or unjust discharge or breach of any contract or promise, express or implied, provided that such release shall not release claims of such person under the Change of Control Agreements or pursuant to any indemnification rights or under any directors and officers insurance policies. Section 6.15 Notifications. Between the date of this Agreement and the Closing Date, Hi-Lo will promptly notify O'Reilly in writing if Hi-Lo becomes aware that any of Hi-Lo's representations and warranties were materially untrue as of the date of this Agreement or if Hi-Lo shall become aware of any fact or condition that causes any of Hi-Lo's representations or warranties to be materially untrue as of such date as if made on and as of such date (except for representations and warranties made as of a specified date, which need be true only as of such specified date). 45 During the same period, Hi-Lo will promptly notify O'Reilly of the occurrence of any material breach of any covenant of Hi-Lo in this Article VI or of the occurrence of any event that may make the satisfaction of the conditions in Annex A hereto or Article VII impossible or unlikely. (a) Between the date of this Agreement and the Closing Date, O'Reilly will promptly notify Hi-Lo in writing if O'Reilly becomes aware that any of O'Reilly's representations and warranties were materially untrue as of the date of this Agreement or if O'Reilly shall become aware of any fact or condition that causes any of O'Reilly's representations or warranties to be materially untrue as of such date as if made on and as of such date (except for representations and warranties made as of a specified date, which need be true only as of such specified date). During the same period, O'Reilly will promptly notify Hi-Lo of the occurrence of any material breach of any covenant of O'Reilly in this Article VI or of the occurrence of any event that may make the satisfaction of the conditions in Annex A hereto or Article VII impossible or unlikely. Section 6.16 Indemnifications. Neither O'Reilly nor any of its Subsidiaries or any of their respective officers, directors or employees shall be liable to Hi-Lo or any of its Subsidiaries for any losses, claims, damages or liabilities suffered as a result of any actions taken or any omission to take action by Hi- Lo at the request of O'Reilly or its affiliates provided such request is not made with willful intent to cause harm to Hi-Lo or its Subsidiaries. Hi-Lo agrees to indemnify and hold harmless O'Reilly, its subsidiaries and their respective officers, directors and employees against any losses, claims, damages or liabilities to which they may become subject to third parties insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of any action or failure to act in connection with the operation of Hi-Lo or its Subsidiaries after the date of this Agreement and prior to the earlier of the Termination of this Agreement or the Closing Date hereunder taken or not taken as the case may be, at the request of O'Reilly; provided, however, that Hi-Lo shall not be liable in any such case to the extent such loss, claim, damage or liability arises out of requests by O'Reilly made with willful intent to cause harm to Hi-Lo or its Subsidiaries. 46 ARTICLE VII CONDITIONS TO THE MERGER Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) The holders of issued and outstanding shares of Hi-Lo Common Stock shall have duly approved the Merger in the manner and if required by applicable law; provided that O'Reilly and Sub shall vote all of their Shares in favor of the Merger. (b) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any court or other tribunal or governmental body or authority which prohibits the consummation of the transactions contemplated herein substantially on the terms contemplated hereby. In the event any order, decree or injunction shall have been issued, each party shall use its reasonable efforts to remove any such order, decree or injunction. (c) Any waiting periods applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (d) Sub shall have purchased Shares pursuant to the Offer. ARTICLE VIII TERMINATION, WAIVER, AMENDMENT AND CLOSING Section 8.1 Termination or Abandonment. Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and abandoned at any time prior to the Effective Time, whether before or after any approval of the matters presented in connection with the Merger by the stockholders of Hi-Lo: (a) by the mutual written consent of Hi-Lo and O'Reilly; 47 (b) (i) by either Hi-Lo or O'Reilly if Shares shall not have been purchased pursuant to the Offer on or before June 30, 1998 and (ii) by Hi-Lo if after 90 days following the commencement of the Offer, the conditions to the Offer have not been satisfied or waived and Sub shall not have elected to extend the Offer; provided, that the party seeking to terminate this Agreement pursuant to this Section 8.1(b) shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to purchase Shares pursuant to the Offer on or before such date; (c) by either Hi-Lo or O'Reilly if (i) a statute, rule, regulation or executive order shall have been enacted, entered or promulgated prohibiting the purchase of Shares pursuant to the Offer or the consummation of the Merger substantially on the terms contemplated hereby or (ii) an order, decree, ruling or injunction shall have been entered permanently restraining, enjoining or otherwise prohibiting the purchase of Shares pursuant to the Offer or consummation of the Merger substantially on the terms contemplated hereby and such order, decree, ruling or injunction shall have become final and non- appealable; provided, that the party seeking to terminate this Agreement pursuant to this Section 8.1(c)(ii) shall have used its reasonable best efforts to remove such injunction, order or decree; (d) by Hi-Lo prior to the purchase of Shares pursuant to the Offer if the Board of Directors of Hi-Lo determines in good faith based upon advice of its outside counsel (i) that a Takeover Proposal constitutes a Superior Proposal and (ii) that failure to accept such Superior Proposal will violate its obligations or duties to Hi-Lo and Hi-Lo's stockholders under applicable law, provided, that this Agreement shall not terminate pursuant to this Section 8.1(d) unless (A) Hi-Lo has provided O'Reilly with two business day's prior written notice of its intention to accept such Superior Proposal, together with a detailed description of the terms and conditions of such Superior Proposal and (B) simultaneously with such termination Hi-Lo enters into a definitive acquisition, merger or similar agreement to effect such Superior Proposal and pays the Termination Fee (as defined in Section 8.2(b)) required pursuant to Section 8.2(b); (e) by either Hi-Lo or O'Reilly prior to the purchase of any Shares pursuant to the Offer if the other shall have breached, or failed to comply with, in any material respect any of its obligations under this Agreement or any representation or warranty made by such other party shall have been untrue when made or as of the time of such termination as if made on and as of such time (except for representations and warranties made as of a specified date, which need be true 48 only as of the specified date), provided such breach, failure or misrepresentation is not cured within thirty days after notice thereof from the other party and with respect to any representation or warranty not qualified by "Material Adverse Effect," such breaches, failures or misrepresentations, individually or in the aggregate, results or is reasonably likely to result in a Material Adverse Effect on Hi-Lo or O'Reilly, as the case may be; (f) by O'Reilly (i) if the Board of Directors of Hi-Lo or any committee of the Board of Directors of Hi-Lo, (A) shall withdraw, modify or change in any adverse manner (including by amendment of the Schedule 14D-9) to O'Reilly or Sub its approval or recommendation of this Agreement, the Offer or the Merger, (B) shall approve or recommend any Takeover Proposal in each case, other than by O'Reilly or an affiliate of O'Reilly, or (C) shall resolve to take any of the actions specified in clauses (A) or (B) above; (g) by Hi-Lo if Sub fails to commence the Offer on or prior to five business days following the date of initial public announcement of the Offer, provided that Hi-Lo may not terminate this Agreement pursuant to this Section 8.1(g) if Hi-Lo is at such time in breach in any material respect of its obligations under this Agreement; or (h) by either of Hi-Lo or O'Reilly if the Offer shall have been terminated, or the Offer has expired without any Shares being purchased therein; provided, however that the right to terminate this Agreement under this Section 8.1(g) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the termination of the Offer or the failure of O'Reilly or Sub, as the case may be, to purchase Shares pursuant to the Offer on or prior to such date; provided, however, that no termination by Hi-Lo shall be effective pursuant to Section 8.1(d) under circumstances in which a Termination Fee would be payable by Hi-Lo under Section 8.2 unless concurrently with such termination, such Termination Fee is paid in full by Hi-Lo in accordance with the provisions of Section 8.2. Section 8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1 hereof, and subject to the provisions of Section 9.1 hereof, this Agreement (except for the Hi-Lo Confidentiality Agreement referred to in Section 6.2) shall forthwith become void and there shall be no liability on the part of any of the Parties, except (i) as set forth in this Section 8.2 and in 49 Sections 4.11, 5.4, 6.16, 9.2 and 9.12 hereof, and (ii) nothing herein shall relieve any party from liability for any willful breach hereof. (a) In the event that (i) prior to the termination of this Agreement, any person shall have commenced, publicly proposed or communicated to Hi-Lo a Takeover Proposal and (w) the Offer shall have remained open for at least 20 business days, (x) the Minimum Condition shall not have been satisfied, (y) this Agreement shall have been terminated pursuant to Section 8.1(b)(c)(e) or (g) and (z) prior to the first anniversary of such termination Hi-Lo shall consummate such Takeover Proposal; or (ii) If this Agreement is terminated by Hi-Lo or O'Reilly pursuant to Section 8.1(d) or Section 8.1(f), respectively; then in such event, Hi-Lo shall pay to O'Reilly a termination fee of $4,750,000 (the "Termination Fee"), which amount shall be paid by wire transfer of immediately available funds to an account designated by O'Reilly. (b) (i) The Termination Fee payable to O'Reilly under Section 8.2(b)(i) shall be paid promptly but in no event later than one business day after the specified event shall have occurred; and (ii) the Termination Fee payable to O'Reilly under Section 8.2(b) (ii) above (A) in the case of a termination by O'Reilly pursuant to 8.1(f) shall be paid within three business days after notice of termination, and (B) in the case of a termination by Hi-Lo pursuant to Sections 8.1(d) shall be paid concurrently with such termination. (c) Hi-Lo and O'Reilly agree that the agreements contained in Section 8.2(b) above are an integral part of the transactions contemplated by this Agreement. If Hi-Lo fails to promptly pay to O'Reilly or Sub, respectively any fee due under such Section 8.2(b), Hi-Lo shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of NationsBank of Texas, N.A. from the date such fee was required to be paid. In the event O'Reilly receives any fee pursuant to Section 8.2(b), O'Reilly shall not assert or pursue in any manner, directly or indirectly, any claim or cause of action against Hi-Lo or any of its affiliates, officers or directors based in whole or in part upon a breach of this 50 Agreement by them (except for breaches of Section 6.16) or their receipt, consideration, negotiation, recommendation, or approval of a Takeover Proposal or the exercise by Hi-Lo of its right of termination under Section 8.1(d). Section 8.3 Amendment or Supplement. Subject to applicable law, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of Hi-Lo and prior to the Effective Time, this Agreement may be amended or supplemented in writing by Hi-Lo and O'Reilly with respect to any of the terms contained in this Agreement, except that following approval by the stockholders of Hi-Lo, no such amendment or supplement shall reduce the amount or change the form of the Merger Consideration, without further approval by the stockholders of Hi-Lo. Section 8.4 Extension of Time, Waiver, Etc. At any time prior to the Effective Time, Hi-Lo and O'Reilly may to the extent legally allowed: (a) extend the time for the performance of any of the obligations or acts of the other party; (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto; or (c) waive compliance with any of the agreements or conditions of the other party contained herein. Notwithstanding the foregoing, no failure or delay by Hi-Lo or O'Reilly in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed each of the parties. ARTICLE IX MISCELLANEOUS Section 9.1 No Survival of Representations and Warranties. None of the representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger, except for the agreements set forth in Article I and Article II, the provisions of Sections 6.5, 6.7 and 6.10 and this Article IX. Section 9.2 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transac- 51 tions contemplated hereby and thereby shall be paid by the party incurring such expenses, except that the expenses incurred in connection with the printing and mailing of Schedule 14D-9, and the Offer Documents and the filing fee required in connection with the premerger notification under the HSR Act and pursuant to the Securities Act or the Exchange Act shall be shared equally by Hi-Lo and O'Reilly, provided, however, that in the event Hi-Lo is required to pay a Termination Fee pursuant to Section 8.2(b) then such expenses shall be borne by O'Reilly. Section 9.3 Counterparts; Effectiveness. This Agreement may be executed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by telecopy or otherwise) to the other parties. Section 9.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof. Section 9.5 Notices. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted and the appropriate telecopy confirmation is received if transmitted by telecopy or similar electronic transmission method; one working day after it is sent, if sent by recognized expedited delivery service; and five days after it is sent, if mailed, first class mail, certified mail, return receipt requested, with postage prepaid. In each case notice shall be sent to: To Hi-Lo: Hi-Lo Automotive, Inc. 2575 West Bellfort Houston, Texas 77054 Attention: K. Grant Hutchins Vice President and General Counsel Telecopy: (713) 663-9296 52 With a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Houston, TX 77002 Attention: Jeffery B. Floyd Telecopy: (713) 615-5660 To O'Reilly: Automotive, Inc. 233 South Patterson Springfield, Missouri 65802 Attention: David E. O'Reilly President and Chief Executive Officer Telecopy: (417) 862-2710 With a copy to: Skadden, Arps, Slate Meagher & Flom (Illinois) 333 West Wacker Drive, Suite 2100 Chicago, IL 60606 Attention: Peter C. Krupp Telecopy: (312) 407-0411 or to such other address as either party may have specified in writing to the other using the procedures specified above in this Section 9.5. Section 9.6 Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 9.7 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering 53 invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. Section 9.8 Enforcement of Agreement. The parties hereto agree that money damages or other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that in addition to all other remedies available to them, each of them shall be entitled to the fullest extent permitted by law to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance, without bond or other security being required. Section 9.9 Miscellaneous. This Agreement: (a) along with the Hi-Lo Confidentiality Agreement constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and thereof; and (b) except for the provisions of Sections 6.5(a) and 6.10 hereof, is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 9.10 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. Section 9.11 Subsidiaries; Affiliates. References in this Agreement to "Subsidiaries" of Hi-Lo or O'Reilly shall mean any corporation or other form of legal entity of which more than 50% of the outstanding voting securities or owner ship are on the date hereof directly or indirectly owned by Hi-Lo or O'Reilly, as the case may be. Hi-Lo's Disclosure Letter contains a full and complete list of Hi-Lo's Subsidiaries as of the date hereof. References in this Agreement (except as specifically otherwise defined) to "affiliates" shall mean, as to any person, any other person which, directly or indirectly, controls, or is controlled by, or is under common control with, such person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of 54 management or policies of a person, whether through the ownership of securities or partnership of other ownership interests, by contract or otherwise. References in the Agreement to "person" shall mean an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including, without limitation, a governmental body or authority. Section 9.12 Finders or Brokers. Except for SBC Warburg Dillon Read Inc. with respect to Hi-Lo and Donaldson Lufkin & Jenrette Securities Corporation with respect to O'Reilly, neither Hi-Lo nor O'Reilly nor any of their respective Subsidiaries has employed any investment banker, broker, finder or intermediary in connection with the transactions contemplated hereby who might be entitled to any fee or any commission in connection with or upon consummation of the Merger. 55 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. HI-LO AUTOMOTIVE, INC. By: /s/ T. Michael Young ------------------------ Name: T. Michael Young Title: President and CEO O'REILLY AUTOMOTIVE, INC. By: /s/ David O'Reilly ------------------------ Name: David O'Reilly Title: President and CEO SHAMROCK ACQUISITION, INC. By: /s/ Larry O'Reilly ------------------------ Name: Larry O'Reilly Title: Director 56 ANNEX A Certain Conditions of the Offer Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) Sub's rights to extend the Offer under certain circumstances (subject to the provisions of the Merger Agreement), Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Sub's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to other restrictions referred to above, the payment for, any tendered Shares, and may terminate the Offer and not accept for payment any Shares, if (i) any applicable waiting period under the HSR Act has not expired or terminated prior to the expirations of the Offer, (ii) the Minimum Condition has not been satisfied, or (iii) at any time on or after the date of the Merger Agreement and before the time of acceptance of Shares for payment pursuant to the Offer, any of the following events shall have occurred. (a) there shall be any statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated, or deemed applicable, pursuant to an authoritative interpretation by or on behalf of a Governmental Entity, to the Offer or the Merger that (i) prohibits or imposes any limitations on O'Reilly's or Sub's ownership or operation (or that of any of their respective Subsidiaries or affiliates) of all or a portion of their or Hi-Lo's businesses or assets, or to compel O'Reilly or Sub or their respective Subsidiaries and affiliates to dispose of or hold separate any portion of the business or assets of Hi-Lo or O'Reilly and their respective subsidiaries, which prohibition, limitation, disposition or hold separate obligation could reasonably be expected to have a Material Adverse Effect on O'Reilly and its Subsidiaries, (ii) restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by the Agreement, (iii) imposes material limitations on the ability of Sub, or render Sub unable, to accept for payment, pay for or purchase some or all of the Shares pursuant to the Offer and the Merger or (iv) imposes material limitations on the ability of Sub or O'Reilly effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to Hi-Lo's stockholders; 57 (b) (i) the Board of Directors of Hi-Lo (or any committee thereof) shall have withdrawn, modified or changed in any adverse manner to O'Reilly and Sub its approval or recommendation of the Offer or the Merger or the Agreement, or shall have endorsed, approved or recommended any other Takeover Proposal or (ii) Hi-Lo shall have entered into any agreement with respect to any Superior Proposal in accordance with Section 8.1(d) of the Agreement; (c) the representations and warranties of Hi-Lo set forth in the Agreement shall not be true and correct, in each case (i) as of the date referred to in any representation or warranty which addresses matters as of a particular date, or (ii) as to all other representations and warranties, as of the date of the Agreement and as of the scheduled expiration of the Offer, and with respect to any representations or warranties not qualified by "Material Adverse Effect," unless the inaccuracies under such representations and warranties, taking all the inaccuracies under all such representations and warranties together in their entirety, do not, individually or in the aggregate, result in a Material Adverse Effect on Hi-Lo; (d) Hi-Lo shall have failed to perform any obligation or to comply with any agreement or covenant to be performed or complied with by it under the Agreement other than any failure which would not have, either individually or in the aggregate, a Material Adverse Effect on Hi-Lo; or (e) the Agreement shall have been terminated by Hi-Lo or O'Reilly or Sub in accordance with its terms or O'Reilly or Sub shall have reached an agreement or understanding in writing with Hi-Lo providing for termination or amendment of the Offer or delay in payment for the Shares; which, in the reasonable judgment of O'Reilly and Sub, in any such case, and regardless of the circumstances giving rise to any such conditions, makes it inadvis able to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions (other than the Minimum Condition) are for the sole benefit of O'Reilly and Sub and, subject to the Merger Agreement, may be asserted by O'Reilly or Sub regardless of the circumstances giving rise to such condition or may be waived by O'Reilly or Sub in whole or in part at any time and from time to time in its sole discretion. The failure by O'Reilly or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 58 EX-99.(C)(2) 12 CONFIDENTIALITY AGREEMENT EXHIBIT (C)(2) [LETTERHEAD OF SBC WARBURG DILLON READ INC.] November 26, 1997 O'Reilly Automotive Inc. P.O. Box 1156 233 S. Patterson Springfield, MO 65801 Attention: Mr. David E. O'Reilly Gentlemen: In connection with your consideration of a possible negotiated transaction by you or one or more of your affiliates (as the term "affiliate" is defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act")), involving Hi-Lo Automotive, Inc. (the "Company") (a "Transaction"), the Company, Dillon, Read & Co. Inc. ("Dillon Read"), acting as the Company's exclusive financial advisor in connection with the proposed Transaction, and their respective advisors and agents are prepared to make available to you certain information which is non-public, confidential or proprietary in nature. By execution of this letter agreement (the "Agreement"), you agree to treat confidentially all such information whether written or oral (the "Evaluation Material"), and to observe the terms and conditions set forth herein. You also agree that, subject to the fourth paragraph of this Agreement, prior to giving any of your directors, officers, employees, partners, affiliates, agents, advisors or representatives (hereinafter, "Representatives") access to any of the Evaluation Material, you shall require each such Representative to be bound by the terms of this Agreement to the same extent as if they were parties hereto. You further agree to be responsible for any breach of this Agreement by any of your Representatives. For purposes of the Agreement, Evaluation Material shall include, without limitation, all information, data, reports, analyses, compilations, studies, interpretations, projections, forecasts, records, and other materials (whether prepared by the Company, Dillon Read or otherwise and in whatever form maintained, whether documentary, computerized or 1 [LOGO OF SBC WARBURG DILLON READ] otherwise), regardless of the form of communication, that contain or otherwise reflect information concerning the Company that you or your Representatives may be provided by or on behalf of the Company or Dillon Read in the course of your evaluation of a possible Transaction. The term "Evaluation Material" shall also include all information, data, reports, analyses, computations, studies, interpretations, projections, forecasts, records, notes, memoranda, summaries or other materials in whatever form maintained, whether documentary, computerized or otherwise, whether prepared by you or your Representative or others, that contain or otherwise reflect or are based upon, in whole or in part, any such Evaluation Material or that reflect your review of, or interest in, all or any portion of the Company (the "Notes"). This Agreement shall be inoperative as to those particular portions of the Evaluation Material (i) become generally available to the public other than as result of disclosure by you or any of your Representatives, (ii) were available to you on a non-confidential basis prior to the disclosure of such Evaluation Material to you pursuant to this Agreement, provided that the source of such information was not known by you or any of your Representatives, after reasonable investigation, to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any of its affiliates with respect to such material or (iii) becomes available to you on a non-confidential basis from a source other than the Company or its agents, advisors or representatives provided that the source of such information was not known by you or any of your Representatives, after reasonable investigation, to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any of its affiliates with respect to such material. You agree that you will not use the Evaluation Material for any purpose other than determining whether you wish to enter into or pursue a Transaction. You agree not to disclose or allow disclosure to others of any Evaluation Material; provided that, subject to the second paragraph of this Agreement. You may disclose Evaluation Material to your Representatives to the extent necessary to permit such Representatives to assist you in making the determination referred to in the prior sentence. You shall maintain a list of those of your Representatives to whom Evaluation Material has been disclosed (which list shall be presented to the Company upon request) and shall take all reasonable measures (including but not limited to court proceedings), at your sole expense, to restrain your Representatives from prohibited or unauthorized disclosure or use of the Evaluation Material. In furtherance of the foregoing, you agree that you will not use the Evaluation Material in any way directly or indirectly detrimental to the Company. In particular you agree that for a period of 12 months from the date of the signing of this Agreement you and your affiliates will not knowingly, as a result of knowledge or information obtained from the Evaluation Material or otherwise in connection with a possible Transaction; (i) divert or attempt to divert any business or customer of the Company or any of its affiliates; nor (ii) employ or attempt to employ or divert a managerial, professional or executive employee of the Company or any of its affiliates. 2 [LOGO OF SBC WARBURG DILLON READ] In addition, you agree that you will not make any disclosure (i) that you, Dillon Read or the Company are having or have had discussions, or that you have received Evaluation Material from the Company or Dillon Read concerning a Transaction, (ii) that you are considering a possible Transaction or (iii) concerning any discussions related to a possible Transaction, including the status thereof, any termination thereof, any decision on your part to no longer consider any such Transaction or any of the terms, conditions or other facts with respect thereto; provided that you may make such disclosure if you have received the written opinion of your counsel that such disclosure must be made by you in order that you not commit a violation of law and, prior to such disclosure, you promptly advise and consult with the Company and its legal counsel concerning the information you propose to disclose. Without limiting the generality of the foregoing, you further agree that, without the prior written consent of the Company, you will not, directly or indirectly, enter into any agreement, arrangement or understanding with any person regarding a possible Transaction. The term "person" as used in this letter shall be broadly interpreted to include, without limitation, the media and any corporation, partnership, group, individual or other entity. Although the Company and Dillon Read have endeavored to include in the Evaluation Material information known to them which they believe to be relevant for the purpose of your investigation, you understand and agree that none of the Company, Dillon Read or any of their affiliates, agents, advisors or representatives (i) have made or make any representation or warranty, expressed or implied, as to the accuracy or completeness of the Evaluation Material or (ii) shall have any liability whatsoever to you or your Representatives relating to or resulting from the use of the Evaluation Material or any errors therein or omissions therefrom. Without limiting the generality of the immediately preceding paragraph, the Evaluation Material may include certain statements, estimates and projections provided by the Company with respect to the anticipated future performance of the Company. Such statements, estimates and projections reflect various assumptions made by the Company concerning anticipated results, which assumptions may or may not prove to be correct. No representations are made as to accuracy of such assumptions, statements, estimates or projections, including the budget. The only information that will have any legal effect will be specifically represented in a definitive purchase agreement; in no event will such definitive agreement contain any representation as to any projections. In the event that you or anyone to whom you transmit any Evaluation Material in accordance with this Agreement are requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoenas, civil investigative demand or similar process), in connection with any proceeding, to disclose any Evaluation Material, you will give the Company prompt written notice of such request or requirement so that the Company may seek an appropriate protective order or other remedy and/or waive 3 [LOGO OF SBC WARBURG DILLON READ] compliance with the provisions of this Agreement, and you will cooperate with the Company to obtain such protective order. In the event that such protective order or other remedy is not obtained or the Company waives compliance with the relevant provisions of this Agreement, you (or such other persons to whom such request is directed) will furnish only that portion of the Evaluation Material which, in the written opinion of your counsel, is legally required to be disclosed. It is further agreed that, if in the absence of a protective order you (or such other persons to whom such request is directed) are nonetheless legally compelled to disclose such information, you may make such disclosure without liability hereunder, provided that you give the Company notice of the information to be disclosed as far in advance of its disclosure as is practicable and, upon the Company's request, use your best efforts to obtain assurances that confidential treatment will be accorded to such information and, provided further, that such disclosure was not caused by and did not result from a previous disclosure by you or any of your Representatives not permitted hereunder. If you decide that you do not wish to proceed with a Transaction, you will promptly notify Dillon Read of that decision. In that case, or if the Company shall elect at any time to terminate further access by you to the Evaluation Material for any reason, you will within five business days return to us all copies of the Evaluation Material in the possession of you or your affiliates or your Representatives, will destroy all Notes and will further deliver to Dillon Read and the Company a certificate executed by one of your duly authorized executive officers indicating that the requirements of this sentence have been satisfied in full. Notwithstanding the return or destruction of Evaluation Material and Notes, you and your Representatives will continue to be bound by your obligations of confidentiality and other obligations hereunder. You hereby acknowledge that you are aware that the securities laws of the United States prohibit any person who has material, non-public information concerning the Company or a possible Transaction involving the Company from purchasing or selling securities in reliance upon such information or from communicating such information to any other person or entity under circumstances in which it is reasonably foreseeable that such person or entity is likely to purchase or sell such securities in reliance upon such information. You understand that (i) the Company and Dillon Read shall conduct the process for a possible Transaction as they in their sole discretion shall determine (including, without limitation, negotiating with any prospective buyer and entering into definitive agreements without prior notice to you or any other person), (ii) any procedures relating to such a Transaction may be changed at any time without notice to you or any other person, (iii) the Company shall have the right to reject or accept any potential buyer, proposal or offer, for any reason whatsoever in its sole discretion, and (iv) neither you nor any of your Representatives shall have any claims whatsoever against the Company or Dillon Read or any of their respective directors, officer, stockholders, owners, affiliates or agents arising out or relating to 4 [LOGO OF SBC WARBURG DILLON READ] the Transaction (other than those against the parties to a definitive agreement with you in accordance with the terms thereof). It is further understood and agreed that Dillon Read will arrange for appropriate contacts for due diligence. It is also understood and agreed that all (i) communications regarding a possible Transaction, (ii) requests for additional information, (iii) requests for facility tours or management meetings and (iv) discussions or questions regarding procedures, will be submitted or directed exclusively to Dillon Read, and that none of you or your Representatives who are aware of the Evaluation Material and/or the possibility of a Transaction will initiate or cause to be initiated any communication with any director, officer or employee of the Company concerning the Evaluation Material or a Transaction. You agree that unless and until a definitive agreement between the Company and you with respect to any Transaction has been executed and delivered, neither the Company nor you will be under any legal obligation of any kind whatsoever with respect to any Transaction, other than as specifically set forth herein. You agree that money damages would not be a sufficient remedy for any breach of this Agreement by you or your Representatives, that in addition to all other remedies the Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach, and you further agree to waive, and to use your best efforts to cause your Representatives to waive, any requirement for the securing or posting of any bond in connection with such remedy. In the event of litigation relating to this Agreement, if a court of competent jurisdiction determines that you or any of your Representatives have breached this Agreement, you shall be liable and pay to the Company the reasonable legal fees incurred by the Company in connection with such litigation, including any appeal therefrom. The Company reserves the right to assign its rights, powers and privileges under this Agreement (including, without limitation, the right to enforce the terms of this letter agreement) to any person who enters into a Transaction. All modifications of, waivers of and amendments to this Agreement or any part hereof must be in writing signed on behalf of you and the Company or by you and Dillon Read, as agent for the Company. You acknowledge that the Company is intended to be benefited by this Agreement and that the Company shall be entitled, either alone or together with Dillon Read, to enforce this Agreement and to obtain for itself the benefit of any remedies that may be available for the breach hereof. It is further understood and agreed that no failure or delay by the Company in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof 5 [LOGO OF SBC WARBURG DILLON READ] nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege hereunder. In the event that any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to fullest extent permitted by applicable law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. If you are in agreement with the foregoing, please so indicate by signing, dating and returning one copy of this Agreement, which will constitute our agreement with respect to the matters set forth herein. Very truly yours, Hi-Lo Automotive, Inc. By: /s/ Jonathan Weintraub By: /s/ William P. Powell ----------------------------- --------------------------- Jonathan Weintraub William P. Powell Executive Director Managing Director SBC Warburg Dillon Read SBC Warburg Dillon Read Agreed and Accepted: By: /s/ David O'Reilly ----------------------------- Title: President -------------------------- Date: 11/28/97 -------------------------- 6 -----END PRIVACY-ENHANCED MESSAGE-----