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that it would require both Forest and Wagner to execute covenants
not to compete in connection with the acquisition of petitioner.
Preliminary documents prepared for this transaction proposed a
noncompete period of 5 years. The contemplated purchase of
petitioner by Castex fell through when Castex was unable to
secure financing.
By 1990, Wagner had become weary of the rigors of managing
petitioner. He was anxious to sell out to Castex in mid-1990 and
was disappointed that the deal had fallen through. After the
negotiations with Castex ceased, Wagner approached Forest in late
1990 with a proposal that he, Wagner, be bought out. Wagner
offered to accept less for his one-half interest than Castex had
suggested it would pay, provided the purchase could be completed
by yearend. Wagner was anxious to complete the transaction
before the end of 1990 because he was aware that capital gains
tax rates would increase in 1991. Forest indicated that he
wanted to be sure that petitioner could carry the burden of
buying out Wagner, and that he would require Wagner to provide a
covenant not to compete as part of the buyout to insure
petitioner's continued viability. Forest also consulted with
petitioner's banker, Lawrence G. Fraser (Fraser), chairman of
Texas Capital Bank (Bank), regarding financing for petitioner's
purchase of Wagner's interest. Fraser told Forest that the Bank
would require a covenant not to compete from Wagner as a
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