Thomas F. and Therese Grojean - Page 6

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          participation interest in the Schanno note.1  As pertinent, the              
          participation agreement provided:                                            
                    American hereby sells and Participant hereby                       
               purchases a participation in the *** [Schanno note], a                  
               copy of which is attached hereto and made a part hereof                 
               as Exhibit “A”.  The purchase price is $1,200,000 and                   
               shall be paid to American upon the execution of this                    
               Agreement by Participant and American.                                  
          To cover the purchase price, American debited petitioner’s                   
          checking account for $1.2 million.                                           
               The Schanno note and the Grojean note each had identical                
          interest rates and were both 6-year notes with a due date of                 
          September 1, 1995.  The Schanno note called for monthly payments             
          of principal, whereas the Grojean note did not require payment of            
          principal until the September 1, 1995, due date.  Both notes                 
          called for monthly interest payments.                                        
               The participation agreement provided that American’s                    
          interest in the Schanno note was superior to petitioner’s                    
          participation interest.  Petitioner became entitled to monthly               
          interest payments only upon payment of the interest by Schanno to            
          American under the Schanno note.  When American received a                   
          monthly payment on the Schanno note, American credited                       
          petitioner’s participating share to petitioner’s checking account            

               1Petitioner’s offered rationale for this structure was that             
          he believed this would enable him to attain the same secured                 
          status as American, whose security interest was superior to                  

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