Frontier Chevrolet Co. - Page 4




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          petitioner.  Prior to August 1, 1994, Roundtree owned 75 percent            
          of the stock in petitioner, and Mr. Menholt owned the remaining             
          25 percent.                                                                 
               Petitioner entered into a “Stock Sale Agreement” with                  
          Roundtree.  Effective August 1, 1994, petitioner redeemed all its           
          stock owned by Roundtree for $3.5 million.  The funds to redeem             
          the stock were borrowed from General Motors Acceptance                      
          Corporation (GMAC), with liens placed on all tangible assets of             
          petitioner.  After the stock sale agreement, Mr. Menholt was the            
          sole remaining shareholder of petitioner.                                   
               Petitioner also entered into a “Non-Competition Agreement”             
          (noncompetition agreement) with Mr. Stinson and Roundtree,                  
          effective August 1, 1994.  The noncompetition agreement stated:             
                    To induce * * * [petitioner] to enter into and                    
               consummate the Stock Sale Agreement and to protect the                 
               value of the shares of stock being purchased, Roundtree                
               and [Mr.] Stinson covenant, to the extent provided in                  
               Section 1 hereof, that Roundtree and [Mr.] Stinson                     
               shall not compete with * * * [petitioner’s] automobile                 
               dealership, stock of which was sold to * * *                           
               [petitioner] pursuant to the Stock Sale Agreement.                     
          Section 1, entitled “Covenant Not to Compete”, provided that                
          Roundtree and Mr. Stinson would not compete with petitioner in              
          the car dealership business within Yellowstone County for a                 
          period of 5 years.  The agreement stated that the competition               
          restrictions against Mr. Stinson and Roundtree “are reasonable              
          and necessary to protect the business and interest which * * *              
          [petitioner] under the Stock Sale Agreement is acquiring pursuant           





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