-261-
Ballard introduced Eulich to Connolly as someone who would
assist Connolly with the support services he needed to properly
manage the Gateway Hilton. Eulich then organized Gateway Hotel
Management Co. (GHM) to make it appear as if Connolly was the
owner of a hotel management company. In early 1982, Connolly and
Essex Corp. executed the GHM option agreement, which they
purportedly agreed to on September 18, 1981, and which recited
that (1) Connolly owned 100 percent of GHM, (2) Connolly was
transferring to Essex Corp. an option to acquire 80 percent of
GHM (80 shares at $100 per share) for 10 years and, (3) in
exchange for the option, Essex Corp. would pay Connolly $1,000
per year for 10 years. The record also includes the Connolly
promissory note dated December 15, 1981, from Connolly to Essex
Corp., in the amount of $8,000, subject to 8 percent interest,
payable for 9 years with a final balloon payment due in 1991.
Because the payments under the Essex option offset the amounts
due from Connolly under the promissory note, we infer that these
transactions were nothing more than a sham to make it appear that
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