PRIVILEGED AND CONFIDENTIAL
November 6, 1995
Board of Directors
First Interstate Bancorp
633 West Fifth Street
Los Angeles, California 90071
Gentlemen and Madame:
You have requested that we confirm our oral opinion as of November 5, 1995 as
to the fairness to the holders of the outstanding shares of Common Stock, par
value $2.00 per share (the "Shares"), of First Interstate Bancorp (the
"Company") of the exchange ratio of 2.6 shares of Common Stock, par value
$1.25 per share, of First Bank System, Inc. ("FBS") to be received for each
Share (the "Exchange Ratio") pursuant to the merger (the "Merger")
contemplated by the Agreement and Plan of Merger dated as of Novem- ber 5,
1995 among FBS, Eleven Acquisition Corp., a whol- ly-owned subsidiary of FBS,
and the Company (the "Agreement").
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company having performed
investment banking services for the Company from time to time and having acted
as its financial advisor in connection with the Agreement. We also have
provided certain investment banking services to FBS from time to time and may
provide investment banking services to the combined company in the future. In
addition, Goldman Sachs is a full service securities firm and in the course of
its trading activities it may from time to time effect transactions, for its
own account or the account of
Board of Directors
November 6, 1995
Page 2
customers, and hold positions in securities or options on
securities of the Company and FBS.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company and FBS for the five years ended December 31, 1994; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and FBS; certain other communications from the Company and FBS to
their respective stockholders; and certain internal financial analyses and
forecasts for the Company and FBS prepared by their respective managements,
including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies (collectively, the "Syn-
ergies") expected by the Company and FBS to be achieved as a result of the
Merger. We have also reviewed, and considered in our analysis, information
prepared by senior managements of the Company and FBS relating to the relative
contributions of the Company and FBS to the combined company and the estimated
pro forma impact of the Merger on earnings per share, consolidated
capitalization and certain other financial ratios for the combined company as
compared to the Company and FBS. We also have held discussions with members of
the senior management of the Company and FBS regarding the past and current
business operations, regulatory relationships, financial condition and future
prospects of their respective companies, each senior managements' assessment
of the strategic fit and implications of the Merger, and the Synergies. We
also have reviewed with members of the senior management of the Company the
results of the Company's due diligence examination of FBS. In addition, we
have reviewed the reported price and trading activity for the Shares and FBS
Common Stock, compared certain financial and stock market information for the
Company and FBS with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the commercial banking industry
specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us or
conveyed to us in discussions with senior managements of the Company and FBS
for purposes of this opinion. In that regard, we have assumed, with your
consent, that the financial
Board of Directors
November 6, 1995
Page 3
forecasts, including, without limitation, the Synergies and projections
regarding under-performing and non-per- forming assets and net charge-offs
have been reasonably prepared on a basis reflecting the best currently
available judgments and estimates of the Company and FBS and that such
forecasts will be realized in the amounts and at the times contemplated
thereby. We are not experts in the evaluation of loan and lease portfolios for
purposes of assessing the adequacy of the allowances for losses with respect
thereto and have assumed, with your consent, that such allowances for each of
the Company and FBS are in the aggregate adequate to cover all such losses.
Similarly, we have assumed, with your consent and without independent
analysis, that the obligations of the Company and FBS pursuant to derivatives,
swaps, foreign exchange, financial instruments and off-balance sheet lending-
related financial instruments will not have an adverse effect which would be
relevant to our analysis. In addition, we have not reviewed individual credit
files nor have we made an independent evaluation or appraisal of the assets
and liabilities of the Company or FBS or any of their respective subsidiaries
and we have not been furnished with any such evaluation or appraisal. You have
informed us, and we have assumed, that the Merger is of long-term strategic
importance to the Company. We also have assumed, with your consent, that
obtaining any necessary regulatory approvals and third-party consents for the
Merger or otherwise will not have a materially adverse effect on the Company,
FBS or the combined company. Our opinion as to the fairness of the Exchange
Ratio addresses the ownership position in the combined company to be received
by the holders of Shares pursuant to the Exchange Ratio on the terms set forth
in the Agreement and does not address the future trading or acquisition value
for the stock of the combined company. In addition, our opinion does not
address the relative merits of the Merger and alternative potential
transactions. We also have assumed with your consent that the Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles.
Our opinion is directed to the Board of Directors of the
Company and does not constitute a recommendation to any
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November 6, 1995
Page 4
stockholder of the Company as to how such stockholder should vote at the
stockholders' meeting to be held in connection with the Merger.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, we hereby confirm our oral opinion as of November 5,
1995 that the Exchange Ratio pursuant to the Agreement is fair to the holders
of Shares.
Very truly yours,
GOLDMAN, SACHS & CO.