August V. and Mary E. Klaue - Page 5




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               The collapse of the gold-dredging venture and the transfer             
          of the Theratech stock to petitioner in 1982 placed Estes in                
          financial trouble.  Expecting Estes to repay his debt to                    
          petitioner by selling the Theratech stock, petitioner placed the            
          stock in a joint account that he opened with Estes at a local               
          securities brokerage.  Petitioner and Estes sold the shares in              
          small amounts to maximize its sale value.                                   
               Although petitioner knew that Estes was experiencing                   
          financial difficulty, petitioner believed that once the Theratech           
          device became a financial success, Estes would be able to repay             
          the amount petitioner had lent him.  Accordingly, rather than               
          attempting to collect the outstanding loan amounts, petitioner              
          advanced Estes additional sums, for which Estes signed promissory           
          notes.  Estes signed promissory notes for $52,381 on December 8,            
          1982; $12,534 on August 10, 1983; $5,000 on July 13, 1984; $4,000           
          on August 2, 1984; $2,000 on October 18, 1984; $3,135 on April 2,           
          1985; $300 on April 26, 1985; and $3,000 on June 28, 1985.                  
          Whenever petitioner advanced sums to Estes, petitioner or his               
          secretary made a photocopy of the check for his records.                    
          Petitioner provided these additional amounts because he thought             
          he needed Estes to promote the Theratech device.  Estes used the            
          money for living expenses.                                                  
               Although these additional advances were evidenced by                   
          promissory notes signed by Estes and were payable on demand, only           





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