[NIXON PEABODY LETTERHEAD]
January 31, 2000
Board of Directors
American Federal Savings Bank
1400 Prospect Avenue
Helena, Montana 59604-4999
Dear Board Members:
In accordance with your request, set forth herein below is the opinion
of this firm regarding certain federal income tax consequences of the proposed
reorganization of American Federal Savings Bank (the "Association") from
federally chartered mutual savings association into the mutual holding company
form, the formation of the Association as the stock savings association
successor to its mutual form (the "Reorganization") pursuant to the Plan of
Mutual Holding Company Reorganization and Stock Issuance adopted by the Board of
Directors of the Association (the "Plan of Reorganization"), and the proposed
sale of the Association's common stock pursuant to the Plan of Reorganization.
The Reorganization and its component and related transactions are described in
the Plan of Reorganization. We are rendering this opinion pursuant to Section 5
of the Plan of Reorganization. As used in this letter, "Mutual Association"
refers to the Association before the Reorganization and "Stock Association"
refers to the Association after the Reorganization. All other capitalized terms
used but not defined in this letter shall have the meanings assigned to them in
the Plan of Reorganization.
The Reorganization will be effected, pursuant to the Plan of
Reorganization, as follows: (i) Mutual Association will organize an interim
federal stock savings association as its wholly-owned subsidiary ("Interim
One"), (ii) Interim One will organize an interim federal stock association as
its wholly-owned subsidiary ("Interim Two"), and (iii) Interim One will also
organize a stock corporation as the wholly owned subsidiary ("Eagle"). The
following transactions will then occur simultaneously: (iv) Mutual Association
will exchange its charter for a federal stock savings association charter and
thereby become Stock Association (the "Conversion"); (v) Interim One will cancel
its outstanding stock and exchange its charter for a federal mutual holding
company charter and thereby become the "Mutual Holding Company;" (vi) Interim
Two will merge with and into Stock Association with Stock Association being the
surviving institution, (vii) Interim One will contribute all of the stock of
Stock Association to Eagle, and (viii) the initially issued shares of common
stock of Stock Association (which will be constructively received by former
Mutual Association members when Mutual Association becomes Stock Association
pursuant to step (iv)) will be issued to the Mutual Holding Company in exchange
for membership interests in the Mutual Holding Company (the "Exchange"). As a
result of these transactions, (a) Stock Association will be a wholly-owned
subsidiary Eagle, which in turn will be a majority-owned subsidiary of the
Mutual Holding Company, and (b) the former members of Mutual Association will
own membership interests in the Mutual Holding Company.
Simultaneously with the Reorganization, Eagle will offer to sell
additional shares of its common stock pursuant to the Plan of Reorganization,
with priority subscription rights granted in descending order to certain members
in Mutual Association, to certain employee stock benefit plans of Mutual
Association, to other members of Mutual Association, and to certain members of
the general public.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan of Reorganization, the Offering Circular, and of such
corporate records of the parties to the Reorganization as we have deemed
appropriate. We have also relied, without independent verification, upon the
representations of Mutual Association included in an Officer Affidavit dated
__________________, 2000. We have assumed that such representations are true and
that the parties to the Reorganization will act in accordance with the Plan of
Reorganization. In addition, we have made such investigations of law as we have
deemed appropriate to form a basis for the opinions expressed below.
Based on and subject to the foregoing, it is our opinion that for
federal income tax purposes, under current law
(a) With regarding to the Conversion:
(1) the Conversion will constitute a reorganization under section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Association (in either its status as Mutual Association or Stock
Association) will recognize no gain or loss as a result of the Conversion;
(2) the basis of each asset of Mutual Association held by Stock
Association immediately after the Conversion will be the same as Mutual
Association's basis for such asset immediately prior to the Conversion;
(3) the holding period of each asset of Mutual Association held by
Stock Association immediately after the Conversion will include the period
during which such asset was held by Mutual Association prior to the Conversion;
(4) for purposes of Code section 381(b), Stock Association will be
treated as if there had been no reorganization and, accordingly, the taxable
year of the Mutual Association will not end on the effective date of the
Conversion and the tax attributes of Mutual Association (subject to application
of Code sections 381, 382 and 384), including Mutual Association's bad debt
reserves and earnings and profits, will be taken into account by Stock
Association as if the Conversion had not occurred;
(5) Mutual Association's members will recognize no gain or loss upon
their constructive receipt of shares of Stock Association common stock, pursuant
to the Conversion, solely in exchange for their interest (i.e., liquidation and
voting rights) in Mutual Association; and
(6) no gain or loss will be recognized by members of Mutual Association
upon the issuance to them of deposits in Stock Association in the same dollar
amount and upon the same terms as their deposits in Mutual Association.
(b) With regard to the Exchange:
(7) the Exchange will qualify as an exchange of property for stock
under Code section 351;
(8) the initial shareholders of Stock Association (the former Mutual
Association members) will recognize no gain or loss upon the constructive
transfer to the Mutual Holding Company of the shares of Stock Association common
stock they constructively received in the Conversion in exchange for mutual
interests (i.e., liquidation and voting rights) in the Mutual Holding Company;
and
(9) the Mutual Holding Company will recognize no gain or loss upon its
receipt from the shareholders of Stock Association of shares of Stock
Association common stock in exchange for interests in the Mutual Holding
Company.
(c) With regard to the Mutual Holding Company's transfer of 100% of the
common stock of Stock Association to Stock Holding Company:
(10) the Stock Holding Company will recognize no gain or loss upon its
receipt of 100% of the common stock of Stock Association from the Mutual Holding
Company; and
(11) the Mutual Holding Company will recognize no gain or loss upon its
transfer of 100% of the common stock of Stock Association to the Stock Holding
Company.
This opinion is given solely for the benefit of the parties to the Plan
of Reorganization, the shareholders of Stock Association and Eligible Account
Holders, Supplemental Eligible Account Holders and other investors who purchase
pursuant to the Plan of Reorganization, and may not be relied upon by any other
party or entity or referred to in any document without our express written
consent. We consent to the filing of this opinion as an exhibit to the Form
MHC-1 to be filed with the Office of Thrift Supervision and to the references to
this firm in the Association's Offering Circular related to the common stock
offering described in the Plan of Reorganization.
Very truly yours,
/s/NIXON PEABODY LLP
NIXON PEABODY LLP