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- The existence of economic logic in splitting the consideration: Another indication as to the authenticity of the non-compete agreement concerns the question of whether there is economic logic in the manner in which the consideration was split so that the consideration reflects the economic value of each of the agreements, or whether it is an arbitrary division that lacks economic logic.
As may be recalled, the District Court ruled that no attempt was made on the part of the appellants to truly assess the economic value of each of the components of the consideration - the value of Eisenberg's activity and the value of non-competition on Kahane's part. The District Court added that Kahane's receipt was calculated on the basis of an arbitrary rate of 40% of the total payment paid by the acquiring company, so it is clear that there is no real economic logic behind it.
The appellants, for their part, argued that in doing so, the District Court fell into error, for several reasons: First, according to them, they presented calculations that establish the economic logic behind the distribution. Second, according to them, there is no relevance to the manner in which the consideration was calculated when it was determined in the negotiations between the parties. Third, in their view, the relevant question is not authenticity Splitting the consideration Because authenticity Splitting the Agreementsfrom which the question of consideration is derived, and not the other way around.
As to the question of whether calculations were presented that establish the logic of the distribution of the consideration, I am of the opinion that the appellants have not been able to persuade that there was any error in the District Court's determination that no calculations were presented that establish the economic logic behind the distribution of the consideration.
In addition, in my view, contrary to the position of the appellants, there is relevance not only to the question of splitting the agreements, but also to the authenticity of the splitting of the consideration. Admittedly, to the extent that it is determined that the splitting of the agreements was authentic, i.e. - that there was a real need for Kahane's engagement in the non-compete agreement (see below) - It is clear that there is economic logic in splitting the total consideration paid by the acquiring company to the two agreements. Notwithstanding the aforesaid, even when there is justification for splitting the consideration, it is clear that the manner in which it is split, i.e., - Distribution of the consideration between the two agreements - may shed light on the authenticity of the agreement.