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another distributor or from taking over a business that his
daughters could sell at his death. In short, we are persuaded
that the likelihood (and certainly the ability) of Mr. Langdon's
reentering the business should not be discounted.
Mr. Chouravong also applied an additional 24.2-percent
discount on the basis of various cumulative "risk" factors. We
cannot discern a risk factor in a covenant not to compete, other
than that the covenant will be violated. However, the covenant
provided for remedies in the case of breach, including injunctive
relief and money damages. The entire value of the covenant was
paid "up front". A covenant is not like an investment on which a
return is earned over time. The only return bargained for is the
grantor's forbearance. If Mr. Langdon died before the 5 years
expired, he would still be unable to compete. A discount for
risk thus also seems inappropriate.
It may be that Mr. Chouravong was attempting to derive the
present value of BDC's operating profits for the life of the
covenant as an outer limit to the value of the covenant. See
Buckley v. Commissioner, supra. If so, however, he has failed to
persuade us of an appropriate discount rate, and we decline to
invent one out of whole cloth.
On the other hand, we agree with respondent that (1) the
allocation of $1 million by the purchase agreement to the
covenant was not the result of arm's-length bargaining, and (2)
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