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a separate covenant not to compete despite this awareness of the
terms of a purchase agreement which contemplated allocation of
price to the stock and to any covenant. Moreover, they signed
their covenant at the closing where statements explicitly
allocating $300,000 to a covenant not to compete were executed,
so if they did not in fact read these closing documents, they
certainly had the opportunity to do so.
In addition, petitioners were aware at the time they signed
that it was their agreement, not the trust’s, upon which the
Shahs placed importance. Petitioners’ own witness testified that
the Shahs’ concerns about competition from petitioners and
reasons for the separate covenant were discussed at the closing.
Hence, petitioners had reason to realize that any significant
value the Shahs paid for a covenant not to compete would be
attributable to their promise, not to that given by the trust.
In that context, they executed a covenant document. In these
circumstances, knowledge of a purchase contract which
contemplated an allocation of price to a covenant not to compete,
combined with knowledge that their agreement was the only such
covenant of substantial importance to the buyer, adds up to the
type of objective contractual intent to allocate necessary for an
allocation to be given effect.
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