1. Problem 4-A: Owners’ Objectives
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Problem 4-A: Owners’ Objectives
Roger (40%):
Assure mechanism for additional capital
Not carry others with his credit
Enhanced equity position if his deep pockets required
Luke (25%):
No obligation to feed loser
Protect position if things going strong
Joyce (25%):
Maximize natural leverage
No pressure for more equity
David (10%, CEO, Guru):
Not put up another dime
Retain 10% interest (no dilution)
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

2. Problem 4-A: Four Point Solution
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Problem 4-A: Four Point Solution
Agree on acceptable debt level (no serious owner exposure). Example:
Debt equity never exceed 3-to-1
Debt on inventory yachts never exceed 50% construction costs
Debt on pre-sold yachts not exceed 75% of balance due from customer
Debt exceeds acceptable level only if:
All owners agree
All owners provide proportional personal guarantees
Additional equity if owners with 60% agree:
No owner obligated but each have preemptive right to participate pro rata
Additional equity for those who pony up more than pro rata share
David’s 10% interest preserved with no additional equity
Owners (x David) owning 50% must approve
David issued restrictive stock to preserve equity, contingent on his ongoing service
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

3. Problem 4-A: Owners’ Objectives Met?
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Problem 4-A: Owners’ Objectives Met?
Roger (40%):
Additional equity if he and Luke or Joyce consent
No debt beyond safe level unless he consents
Enhanced equity position if his deep pockets required for more equity
Luke (25%):
No obligation to feed loser unless he consents and agrees
Has right to protect position if things going strong
Joyce (25%):
Agreed safe leverage limit
No obligation to fund additional equity unless she agrees
David (10%, CEO, Guru):
Not obligation to provide any additional funding
May retain 10% interest (no dilution) through restricted stock if two of the other three agree he is doing job
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com