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inventor and in 1980 held approximately 45 patents. Petitioner
believed that one of Estes' inventions, the Theratech
thermotherapy unit (Theratech device or the device), had
potential to be a financial success. The Theratech device
relieved the suffering caused by hemorrhoids without surgery.
Petitioner used the device many times and was impressed with its
efficacy, and he believed that with proper marketing it could be
a moneymaker. As the inventor of the device, Estes held many
shares of stock in the Theratech Co., which had the right to
manufacture and sell the device.
On December 11, 1980, petitioner entered into a partnership
agreement with Estes and created K & E Associates (the
partnership). The partnership was created to finance a gold-
dredging operation in the Columbia River. On January 16, 1981,
the partnership borrowed $175,000 from Old National Bank (the
bank), and petitioner and Estes as individuals and general
partners of the partnership executed a promissory note in favor
of the bank in that amount. Estes pledged 100,000 shares of
Theratech2 stock as collateral for the loan. Petitioner did not
pledge any collateral. Estes authorized the bank to deliver the
stock to petitioner if petitioner paid the balance of the loan.
2At the time Estes pledged this stock, the name of the
company was Bio-tronics.
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