Kenneth served for ten years as an officer and director for Wilsons Widgets (WW), the largest distributor of widgets in Southern California. WW sold its widgets to industrial customers in Los Angeles, Ventura and Orange Counties. Two months prior to leaving WW, Kenneth entered into a handshake agreement with Stanley, the President of one of WWs largest customers (located in Orange County) whereby once he could set up his own company, Kenneth would supply Stanley with all the widgets his company needed at a price 10% lower than he was charged by WW. The agreement between Kenneth and Stanley was not disclosed to WW.

Upon exiting the company, WW agreed to fully vest all of Kenneths unvested stock options and to purchase those shares from Kenneth for $250,000 in exchange for Kenneth agreeing to sign an agreement not to compete with WW for a period of three years. Ten months after leaving WW, Kenneth founded KGB Enterprises, Inc., a company organized for the purposes of selling industrial equipment, and other lawful purposes. Kenneth served as President and CEO and his wife, Mildred, served as corporate secretary of KGB. Kenneth owned 95% of the shares of KGB and Mildred owned the remaining 5%. Once KGB commenced its operations, Stanleys company stopped doing business with WW and purchased all of its widgets from KGB. KGB had no other customers. 100% of its business came from Stanley.

The first year, KGB made $500,000 in profits from its sales to Stanley. At the same time, Kenneth and Mildred purchased a vacation home for $490,000. They paid cash for the home, using all but $10,000 of KGBs assets to do so.

For purposes of answering this question, you may assume that the non-competition agreement between WW and Kenneth is valid and enforceable.

Discuss.