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rates. As was true with the primary argument, we are unpersuaded
by this alternative argument.
The noncompete agreement generally restricted Jerry from
disclosing information confidential to Conquest and prohibited
him from directly or indirectly competing with Conquest. An
exception to the general restrictions, subject to conditions, was
made to accommodate Jerry’s involvement with Mattel. The general
restriction applied to Jerry’s S corporation, TSI. It also
applied to Hawk Extrusions, Inc., provided that Hawk did not
compete with Conquest in the production of bulk continuous yarn.
Petitioners argue that the change of ownership in Mattel and
the release of Jerry’s covenant not to compete as to Mattel
constituted a new agreement. Although we agree that the terms of
the stock acquisition and noncompete agreements were modified in
1989, we disagree that those modifications changed the proper
characterization of the payments petitioners received pursuant to
the noncompete agreement. The express language of the agreement
under which Ralston acquired an ownership interest in Mattel
(purchase agreement) indicates that the parties intended the
Jerry noncompete agreement would remain in force except as
modified by the purchase agreement.7 The latter agreement stated
7 Jerry was aware of the terms of the purchase agreement.
The purchase agreement was signed by Ronald, Ralston, and Jerry
on behalf of Mattel.
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