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Investment Banking Group
One Houston Center
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November 7, 1995
Board of Directors
National Convenience Stores Incorporated
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Gentlemen:
National Convenience Stores Incorporated (the "Company"), Diamond Shamrock,
Inc. (the "Acquiror") and Shamrock Acquisition Corporation, a wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), propose to enter into an
agreement (the "Agreement") pursuant to which the Acquiror and the Acquisition
Sub will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.01 per share (the "Shares"), at $27.00 per Share, net
to the seller in cash, and all outstanding warrants (the "Warrants" and,
together with the Shares, the "Securities") to purchase Shares issued pursuant
to the warrant agreement, dated as of March 9, 1993, between the Company and
Boatmen's Trust Company, as Warrant Agent (the "Warrant Agreement"), at $9.25
per Warrant, net to the seller in cash. The Agreement also provides that,
following consummation of the Offer, the Company will be merged with the
Acquisition Sub in a transaction (the "Merger") in which each remaining Share
will be converted into the right to receive $27.00 in cash. The Warrants will be
unaffected by the Merger and, upon their subsequent exercise, the holders
thereof will receive $27.00 per Warrant in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Securities in the Offer and the Merger is
fair to such security holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended June 30, 1995 and summary
financial information provided by the Company relating to the quarterly
period 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
Shares and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with those of certain
companies which we deemed to be reasonably similar to the Company;
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(6) Compared the proposed financial terms of the Offer and the Merger with
the financial terms of certain other mergers and acquisitions that we
deemed to be relevant;
(7) Reviewed the Warrant Agreement;
(8) Reviewed a draft dated November 7, 1995 of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, 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 supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and the Acquiror and have received fees for the rendering of such
services. In addition, in the ordinary course of business, we may actively trade
the securities of both the Company and the Acquiror for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in securities of the Company and the Acquiror.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Securities
pursuant to the Offer and the Merger is fair to such security holders from a
financial point of view.
Very truly yours,
XXXXXXX LYNCH, XXXXXX, XXXXXX &
XXXXX INCORPORATED
