Investment Banking Division
PaineWebber Incorporated
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November 14, 1995
Board of Directors
Big O Tires, Inc.
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Gentlemen:
Big O Tires, Inc. (the "Company") has entered into an Agreement and Plan of
Merger, dated as of July 24, 1995 (the "Agreement"), with BOTI Holdings, Inc.
("Parent") and BOTI Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Parent. Pursuant to the Agreement, Purchaser will merge with and into the
Company (the "Merger") and, at the effective time of the Merger, each
outstanding share (other than Excluded Shares (as hereinafter defined)) of
common stock, par value $.10 per share, of the Company (the "Common Stock") will
be converted into the right to receive $16.50 in cash, without interest (the
"Merger Consideration"). "Excluded Shares" means shares of Common Stock that
are (i) held by certain members of the Company's senior management, (ii) held by
certain participants in the Company's Employee Stock Ownership Plan or (iii)
held by, or under contract to be acquired by: (A) the Company, Parent or
Purchaser, (B) their respective direct or indirect subsidiaries or (C) any
stockholder or affiliate of Parent or Purchaser.
You have asked us whether or not, in our opinion, the Merger Consideration
is fair, from a financial point of view, to the holders of Common Stock (other
than holders of Excluded Shares).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1994 and a draft of the Company's Form 10-Q and the related
unaudited financial information for the nine months ended September 30, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Common Stock and compared such price and trading history with that of certain
other publicly traded companies which we deemed relevant;
(5) Compared the financial position and operating results of the Company
with those of certain other publicly traded companies which we deemed relevant;
(6) Reviewed the proposed financial terms of the Merger and compared such
terms with the financial terms of certain other mergers and acquisitions which
we deemed relevant;
(7) Reviewed the Agreement and a draft of the proxy statement relating to
the Merger (the "Proxy Statement") as proposed to be filed with the Securities
and Exchange Commission; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
appropriate, including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information that was publicly available or supplied or otherwise
communicated to us by or on behalf of the Company, and we have not independently
verified such information. We have assumed that the financial forecasts examined
by us were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of the Company as to the
future performance of the Company. We have not undertaken, and have not been
provided with, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company and have assumed that all
material liabilities (contingent or otherwise, known or unknown) of the Company
are as set forth in the Company's consolidated financial statements. We have, at
the request of the Company, solicited third party indications of interest with
respect to the acquisition of the Company. Our opinion is based on the
regulatory, economic, monetary and market conditions existing on the date
hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote with respect to the Merger. This opinion does not
address the relative merits of the Merger and any other potential transactions
or business strategies discussed by the Board of Directors of the Company or the
Investment Committee thereof as alternatives to the Merger or the decision of
the Board of Directors of the Company to proceed with the Merger.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to, or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this letter
may be reproduced in full in the Proxy Statement.
PaineWebber Incorporated is currently acting as financial advisor to the
Investment Committee in connection with the Merger and will receive a fee upon
delivery of this opinion and upon consummation of the Merger. We may provide
financial advisory or other investment banking services to the Company in the
future.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration is fair, from a financial point
of view, to the holders of Common Stock (other than holders of Excluded Shares).
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
