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On May 6, 1982, the management of Warner-Lambert Corp.
(Warner-Lambert) approached the officers and directors of IMED to
propose a transaction whereby Warner-Lambert would acquire all
the outstanding stock of IMED and its subsidiaries. Initially,
Warner-Lambert offered $480 million, subject to a due diligence
investigation.
As part of the negotiations, Cramer, Monaghan, Boynton, and
Henry, as IMED's executive officers, went to Warner-Lambert's
corporate offices in New Jersey. As IMED's CFO, Henry was
required to supply financial analyses, as well as discuss the
projected market and product forecasts. At some point during the
sale negotiations, Henry told Cramer that he thought that the
stock options should be long-term capital gains.
In the IMED sale negotiations, the executives from both
companies recognized that there would be a problem with IMED's
employee stock options. Warner-Lambert realized that if the
options were not exercised, then IMED would not have $30 million
to $40 million in its treasury at the time of sale.
Consequently, in New Jersey, Cramer met with Ward Hagen, the
chief executive officer of Warner-Lambert. When the meeting
ended, Cramer told Monaghan, Boynton, and Henry that the option
holders would obtain long-term capital gain treatment and
instructed Monaghan to structure the transaction to achieve such
long-term capital gain. Warner-Lambert was persuaded to purchase
the employee stock options and to forgo a deduction in its 1982
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