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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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