case3_05 - Fit Trainer Company 69 OPTIMAL OPERATING AND...

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Unformatted text preview: Fit Trainer Company 69 OPTIMAL OPERATING AND FINANCIAL LEVERAGE Directed George Pinkers had been interested in fitness all of his life. He worked his way through school at the college weight room. His first professional position was as a technical and market representative for a privately held physical therapy equipment manufacturer in Omaha, Nebraska. His involvement in all aspects of production and sales helped the company expand and provided him key insight and experience within the industry. The owners of the company were pleased with his enthusiasm and knowledge and gave him the opportunity to open and manage a new facility in California. The operation thrived during George’s fifteen years of management, and he realized he wanted to develop his own business. The company, however, did not provide ownership opportunities. While attending a fund-raiser for the Special Olympics, George talked to the head of an exercise equipment manufacturing company who was interested in retiring. George felt that this facility might provide a good business opportunity. A fitness equipment company would blend his expertise in physical therapy equipment with his interest in physical fitness. He also believed that the numerous contacts he had developed in both the physical therapy and fitness industries would assist in this type of venture. George knew that there was strong market demand for properly designed exercise equipment that would provide a strong aerobic workout with limited stress on the joints. The elliptical exer- cise machine was a fairly new design that provided these benefits. He thought that a high quality machine could be designed and produced at a price that would be attractive to the beginning exercise enthusiast. Pinkers teamed up with Mary Schultz, a college friend who was a production engineer in the exercise industry, and Frank Collins, a financial spet. This threesome was interested in deter- mining the feasibility of organizing a new company called the Fit Trainer Company, which would build elliptical exercise equipment using the production facilities of the available manufacturing plant. Each of the founding team agreed to invest both time and money into the new business in exchange for a significant ownership interest. Although the initial monetary outlay would be sub- stantial, they realized that they would need additional capital. Preliminary discussions with regional banks indicated an interest in providing debt capital. Local venture capitalists also expressed an interest in supplying some of the equity capital if the team could develop a viable business plan. A local corporate attorney specializing in new business startups advised Fit Trainer to incor- porate immediately in order to obtain outside capital through an initial public offering. She suggested that a corporate charter authorize 2.5 million shares of no-par stock, and the founders were advised Copyright © 1999. The Dryden Press. All rights reserved. that they could reasonably expect to issue stock to outsiders at $12.35 per share. However, before thethat they could reasonably expect to issue stock to outsiders at $12....
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This note was uploaded on 11/16/2009 for the course F 3033 taught by Professor Hh during the Spring '09 term at Maastricht.

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case3_05 - Fit Trainer Company 69 OPTIMAL OPERATING AND...

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