Edward E. and Constance M. Thorpe - Page 6

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               On October 13, 1989, Mr. and Mrs. Thorpe executed an                   
          agreement to purchase an office condominium in Kensington,                  
          Maryland, for $165,000.  The closing took place on April 18,                
          1990, and on the same day, Mr. and Mrs. Thorpe executed a                   
          promissory note in the amount of $132,000, which note is                    
          guaranteed by ETCO.  The office condominium space consisted of              
          900 square feet, inclusive of storage space.  The monthly payment           
          on the note was $1,341.75.  Also, on April 18, 1990, Mr. and Mrs.           
          Thorpe and ETCO executed an agreement for the lease of the                  
          Kensington office condominium from Mr. and Mrs. Thorpe to ETCO              
          requiring a monthly lease payment of $2,500 from ETCO to Mr. and            
          Mrs. Thorpe.                                                                
               ETCO reported its taxable income and kept its books using              
          the cash method of accounting for the fiscal years in issue.                
          During the years 1988 through 1990, ETCO presented pension plan             
          contribution checks to Union Central Life Insurance Co. through             
          Mr. William Sloan, its insurance agent.  When the checks were               
          presented to Mr. Sloan, he would compile data and send the                  
          corresponding checks and data to the pension plan company.  In              
          his capacity as a broker, Mr. Sloan was able to place business              
          with several different companies without specific attachment to             
          any one company.                                                            
               In 1990, ETCO decided not to use Union Central Life                    
          Insurance Co. as the insurance provider for its pension plan.  In           
          an effort to find another insurer, ETCO contacted Mr. Sloan, who            

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Last modified: May 25, 2011