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employee of another management company that managed Prudential's
Gateway Hotel. Connolly was employed as the in-house manager of
Prudential's Gateway Hotel. In 1981, Connolly threatened to quit
because he wanted an increase in his compensation. Prudential
began discussing giving the management contract to Connolly.
Ballard introduced Connolly to Eulich. Kanter, Eulich, and
Connolly then organized two corporations, a hotel management
company called Gateway Corp. and Essex Corp. (incorporated in
1981). Eulich provided $10,000 for the initial capitalization of
Gateway Corp. Connolly was issued all of the stock of Gateway
Corp., but granted Essex Corp. a 10-year option to purchase 80
percent of the stock.
By February 1, 1982, Gateway Corp. entered into management
contracts with Prudential to operate the Gateway Hotel and the
Midland Hotel (another hotel owned by Prudential). Gateway Corp.
was required by Prudential to provide financial reports on the
Gateway Hotel's operations. The full-time employment of
personnel to perform these and other required services would have
been uneconomical, since Gateway Corp. would be managing only one
or two hotels. Therefore, Eulich agreed that employees of
Eulich-Management would provide these services for Gateway Corp.
Eulich, Kanter, and Connolly also formed the Essex
partnership (organized effective January 1, 1982). Eulich-
Management held a 47.5-percent interest in Essex, Connolly a 5-
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