Investment Research Associates - Page 176




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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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