Dudley B. and La Donna K. Merkel - Page 4

                                         -4-                                          
               On May 31, 1991, SLC, the bank, and petitioners, as                    
          guarantors, entered into an agreement (the agreement) containing            
          the terms and conditions of a structured workout concerning the             
          repayment of the indebtedness to the bank.  The agreement, in               
          part, provides as follows:                                                  
               (1) SLC is to pay to the bank $1,100,000 (the payoff) on or            
          before August 2, 1991 (the settlement date);                                
               (2) the bank will release its security interest in the                 
          remaining collateral upon payment of the payoff by the settlement           
          date; and                                                                   
               (3) after the payoff by the settlement date, the bank will             
          refrain from exercising any remedies under the SLC note or                  
          petitioners’ guarantees if bankruptcy is not filed by or for SLC            
          or petitioners, among others, voluntarily or involuntarily,                 
          within 400 days after the settlement date.                                  
               SLC made the payoff by the settlement date, and the bank               
          released its security interests in the remaining collateral of              
          SLC.  The other conditions of the agreement were met, and the               
          bank, at the expiration of the 400-day period, released SLC from            
          its liability as maker of the SLC note and petitioners from                 
          petitioners’ guarantees.                                                    
               At no time did the bank make any formal written request or             
          formal written demand for payment from petitioners pursuant to              
          petitioners’ guarantees.                                                    






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