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such damages exceeded $5 million. In its answer to the lawsuit,
Xerox asserted a counterclaim that Wehr wrongfully withheld
payments to Xerox and demanded damages in the amount not yet paid.
Sometime in 1986 while discovery proceeded, a newly appointed
Xerox division president visited petitioner in Milwaukee and
proposed to settle Wehr's claim for $1.2 million, although he
indicated he could go as high as $2 million. This offer was
rejected by petitioner.
Throughout the course of the litigation, petitioner, in his
capacity as chief executive officer at Wehr, kept the board of
directors and Mr. Manegold (who was chairman of the board) informed
about the lawsuit as well as the proposed settlement and its
rejection. Petitioner also informed Mr. Manegold that he believed
Wehr could recover as much as $10 million from Xerox.
Petitioner's Acquisition of Wehr
During the fall of 1986, Mr. Manegold contacted petitioner and
inquired whether he was interested in purchasing Wehr's assets.
(Apparently, Mr. Manegold anticipated forthcoming changes in the
tax laws that made it advantageous for him and his family to sell
Wehr prior to the end of 1986.) Mr. Manegold's asking price was in
excess of $100 million, which required petitioner to seek
financing.
Petitioner spoke with investment banks about assisting in the
purchase of Wehr. The investment banks offered to finance the
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