"I'M BASICALLY A COMPROMISER," BILL Rodgers was saying, sitting on the patio outside his Phoenix condominium. "If a bad situation came up, I always preferred going around it to colliding with it. And the last thing I ever wanted to do was collide with a $30-billion bank."
It was a balmy day in January, and Rodgers was enjoying his annual mid-winter desert sabbatical, far from the snows of New England and the aftershocks of a corporate disaster. In eight weeks' time he would be back home in Boston, tuning up for this month's 92nd running of the Boston Marathon, the oldest and most hallowed of American road races, one that the man dubbed "Boston Billy" had won four times in his prime. This year, having turned 40, Rodgers would be competing for the first time in the marathon's masters division, and he was clearly relishing the challenge: enough to be putting in 115-mile training weeks, despite an aggravating case of tendinitis and some dark storm clouds hanging over his financial future.
While returning to Boston was not in doubt, he could not be so sure it would feel like home this time around. In many ways, "home" had become a tenuous concept for him, thanks largely to the collision he alluded to, a collision that was both fierce and final. Indeed, when the clothing company that bore his name staggered across the finish line a year ago, drained of cash and oxygen and wobbling on its last legs, it looked less like a veteran marathoner than the victim of a street mugging. On April 7, two weeks before the 1987 Boston Marathon, the Bank of Boston had laid a billy club to the head of Bill Rodgers & Co. (BRC) by calling its loan, padlocking its doors, and selling off its inventory at fire-sale prices.
After shutting down the ailing business, the bank subsequently opened even deeper wounds for Rodgers and company president Rob Yahn. To guarantee the company's loans, both had pledged personal assets as collateral, including second mortgages on their houses. Now, the two were being held accountable for an estimated $700,000 shortfall, and Rodgers's 17-room house in Dover, Mass., was under imminent threat of foreclosure. For Rodgers, who had neither a business background nor, he admitted, a meaningful role in the management of the company, the sense of helplessness was acute. There was pain in his eyes and strain in his voice as he recounted the sequence of events leading up to and through the liquidation of his company. Doubts about Yahn's judgment mingled with an air of disbelief that the bank could have pushed them so hard to the wall -- and then just kept right on pushing.
"If I come off sounding overly emotional," Rodgers said, "you have to understand what we've been through. First there were the tough times with the business. Then there were tough times with Rob. Finally there were very tough times with the bank. I'm tired of the struggle. Tired of meetings with bankers and lawyers, hassles with creditors, the whole deal. That isn't me. I'm an athlete, not a businessman. My total goal was to be the best marathon runner on the planet."
As he spoke, Elise Rodgers, 2, sprinted through the doorway and crawled into her father's lap. "I've been to Japan several times," he continued, "and over there, you know, company managers make it a point of honor to take full responsibility for their failures. Maybe that's part of this story -- how nobody wanted to take responsibility. It's sad, really. I wish I knew where to place the blame, but I don't. See, it was never a black-and-white thing. It was always . . . shades of gray."
He shook his head. "The bank must realize that," he sighed. "Or am I still being an optimist?"
WHAT HE WAS, A DECADE OR SO AGO, WAS one of the stardust twins of American distance running: a fair-haired schoolteacher from Everett, Mass., who burst to the forefront of his sport with dramatic victories in the Boston (1975) and New York City (1976) marathons. Three times in five years Rodgers held the world's number-one ranking in the marathon. Together with Frank Shorter, winner of the 1972 Olympic Marathon in Munich, he helped spark the distance-running craze that swept America in the late 1970s.
The Shorter-Rodgers rivalry was a spirited one, both on and off the roadways. The two men did not particularly like each other and were not bashful about saying so in print. If a common purpose united them, however, it was their effort to lead road racing out of its economic Dark Ages and into the realm of free enterprise. This was not always easy to do. At the time, there were severe restrictions on appearance money, personal endorsements, and other for-profit arrangements that might "compromise" the standing of amateur athletes. To a runner like Rodgers, trying to make the 1976 Olympic team on a schoolteacher's $10,000 salary -- and schedule -- compromise was not the overriding issue. Survival was.
"I knew how the best runners in the world trained," he explains, "and I knew what it would take to compete with them. There came a point when I couldn't do that and keep my teaching job. At the same time, you had to be real careful how you set up any [business deals] or risk losing your amateur status."
Rodgers's first business venture was Bill Rodgers Running Center, a retail clothing-and-shoe store on Chestnut Hill Avenue, facing the Boston Marathon course near the 23-mile mark. Opened in 1977, the store was capitalized with $40,000 put up by Bill and his then-wife, Ellen, and managed by his brother, Charlie. In addition to becoming Bill's training headquarters and a hangout for serious runners, the store was a modest commercial success, spawning a second venue at Boston's Quincy Market and eventually grossing as much as $1 million yearly. As the financial strictures on amateur athletes were relaxed, Rodgers also retained a personal agent -- Drew Mearns of the International Management Group -- to represent him in licensing arrangements.
But it was Shorter's decision to jump into the wide-open marketplace for running apparel that inspired his old rival to consider doing the same. In 1976, he launched Frank Shorter Running Gear. To manage it, Shorter turned to Yale classmate and former miler Rob Yahn, a Harvard M.B.A. who'd worked in the small-business division of a large public accounting firm.
"We were the market when we opened," says Yahn. "I'd projected first-year sales of $250,000 or something, and in our first three months we booked $3.5 million in orders. It was crazy." And short-lived. Within months, there was a falling out. Yahn left and "started looking around for something else to do."
Rodgers had met Yahn at a trade show, where he was ordering Shorter's shorts for his Boston store. When Yahn later heard of Rodgers's interest in doing his own clothing line, he offered his services. Rodgers accepted. He valued Yahn's experience, and did not mind in the least that Yahn had recently defected from Frank's ranks.
And so, in 1978, Bill Rodgers & Co. was launched and began producing BR running gear. Under guidelines laid down by the amateur athletic establishment, Rodgers himself was required to hold a majority share in the enterprise. Accordingly, he and his wife kept 60% of the stock. The rest was spread among a handful of others, including Yahn, Charlie Rodgers, and Russell McCarter, Bill's personal accountant and business manager for the Bill Rodgers Running Center stores. With the exception of Yahn and McCarter, none of them knew a balance sheet from a balance beam, but that hardly seemed much of a handicap. They put up $60,000 in capital and retained a New York City-based factor to handle inventory and receivables financing. Suppliers were numerous, and the market primed to explode. When it did, so did Bill Rodgers & Co.
In 1981, Rodgers won more than 20 races, establishing himself as the premier distance-runner on the planet. That same year, BRC did $3 million in sales and established itself as the hottest company in the running-clothes industry. Seizing the opportunity, it grew at a breakneck pace, pushing revenues to $6.5 million at the end of fiscal '83, $8.4 million a year later. That growth rate would eventually land the company at #29 on the 1984 INC. 500, the highest-ranked apparel business on the list. In the meantime, however, growth was putting a strain on BRC's finances. Though the company was profitable, it was not generating nearly enough cash to keep up with production demands. So Yahn had begun looking for outside capital, approaching several Boston-area banks, none of which was eager to back a narrow-niche clothing company with few fixed assets.
But one banker was receptive -- Ann Hartman, then as assistant vice-president at the Bank of Boston. Hartman, who had worked on the Running Centers' accounts, liked Yahn personally and thought highly of his business plan. Two capital needs were identified: a term loan of $350,000 to finance office improvements and new equipment; and a $200,000 line of credit to cover the more seasonal requirements of fabric ordering, finished-goods production, and marketing and selling costs.
It was not an easy sell. "The first time I pitched the loan to my department," Hartman recalls, "they turned it down." But on the second pass, in September 1980, she was able to push the package through by cementing it with a Small Business Administration guarantee. In addition, she secured a lien on inventory. "That was a concession on the company's part, true," she admits. "But when you're in a no-asset, fast-growth situation like Bill Rodgers & Co., it's hard to get credit unless the lender feels secure." For that same reason, Rodgers and Yahn also had to sign "unlimited" personal guarantees. At the time, this seemed a minor detail. Given the amount of the loan and the market value of company inventory, where was the risk?
THE FIRST SUITOR TO APPROACH BRC WAS CML Group Inc., an Acton, Mass.-based holding company with a variety of retail businesses catering to the aging baby-boom market. It made its offer in the fall of 1982. Looing back, the shareholders wish they had grabbed it, for it had long been their plan to grow the company to a respectable size and cash out via the acquisition route. But by then, there were a lot of oars in the water, and not all of them were pulling smartly in the same direction. For one thing, Bill and Ellen Rodgers had had a less-than-friendly divorce. Ellen controlled 30% of the stock, with a seat on the board. When the issue of selling the company arose, she had her own interests to assert, and assert them she did.
"CML was basically offering a five-year earnout with some cash up front," says Yahn, "but [Ellen's] attorneys were having problems with the concept. Bill's agent, meanwhile, was warning Bill about selling an outsider the rights to his name. So we started renegotiating his licensing deal, and that took a year. By the time we got [the licensing contract] resolved, CML was gone."
Yahn himself was in what Rodgers now characterizes as "an embattled position," pinned in the crossfire between the agent, Mearns; Ellen Rodgers; and Russell McCarter, who worried about growth pressures and Yahn's ability to manage them. "Rob refused to be concerned with problems," says McCarter. "He was off doing his own thing, not really accountable to anyone. I could never get answers from him. I'd worked in a lot of troubled businesses, and even though we were profitable those first few years, I knew we could have been twice as profitable. Rob just wash't keeping receivables or expenses under control, turning inventory fast enough, doing all the things the business really needed."
Indeed, through a combination of bad luck and bad management, the company was geting deeper and deeper into trouble, even as its revenues continued to grow. First there was an illconceived attempt to establish a British operation, which wound up costing BRC $400,000. Even more problematical was the increase in competition back home, as a number of large shoe manufacturers -- Nike, Adidas, New Balance, Saucony -- brought out clothing lines of their own. The timing couldn't have been worse, coming just as the market was nearing saturation. The combination of a softening market and steeper competition squeezed everybody's margins. And to make matters worse, BRC was having problems with a new subcontractor in Puerto Rico, where Yahn had begun to do some manufacturing in a cost-cutting move. Quality suffered, and flexibility disappeared.
Such troubles only intensified the shareholders' desire to sell, but internal dissension continued to be an obstacle. "I bumped into a guy from Levi Strauss," remembers Rodgers, "who knew the running world and was very interested in our business. He told me Levi was also looking at Frank Shorter's company, but that he'd rather deal with me. Unfortunately, there was a lot of disagreement [among the shareholders] over what the company was worth. Drew [Mearns] was telling me one thing, Ellen was insisting on a figure of her own, and Rob was probably worried about his own future with the company if we sold it. While all that was going on, the deal fell through. And then Levi Strauss turned around and bought Frank Shorter. I was really depressed."
This setback notwithstanding, the shareholders retained the investment banking firm of Bear, Stearns & Co. to value BRC and to help sell the company. At the time, Bill Rodgers & Co. (with '84 revenues of $8.5 million and pretax profits of $634,000) still looked like an attractive property; Bear, Stearns fixed the selling price at somewhere between $2.5 and $4 million.
Throughout 1985, Yahn concentrated his energies on finding a buyer. Several seemed interested, but none followed through. His efforts, he now agrees, were a form of managerial denial -- a way to avoid admitting how fast things were going downhill. "I'm sure I could have spent my time better managing the company," Yahn offers, "but I didn't. And every time somebody looked us over, we looked worse." On that score, anyway, he finds himself in unusual agreement with McCarter, who was appalled at the company's credit-control policies and incensed that BRC kept shipping to delinquent accounts.
"Rob's standard line was, 'We're working on it," says McCarter. "Maybe he was in over his head, and maybe he didn't want to let go. But the Bank of Boston was still enthusiastic about the company. And the bottom line was, we were still showing a profit at that point. By the end of '85, the consensus among the [shareholders] was, let's sell his sucker and get out."
By the end of '85, some of the players already had gotten out. One was Mearns, who left Bill Rodgers's employ to open his own sports agency. More unsettling was Ann Hartman's leavetaking from the Bank of Boston. Hartman had been the company's main contact there, a sympathetic insider who, according to Yahn, knew more about the company's financial position than anyone but himself. Well she might. BRC's debt to the bank was mushrooming. In addition to the original loan, the company now had an overadvance, or seasonal loan, which allowed it to borrow above its standard credit line during periods when sales were slow and production needs high. As a result, BRC was into the bank for more than $25 million.
So Yahn was shocked when he stopped by Hartman's office one morning and found it empty. "My first though," he says, "was that she'd been fired for loaning us too much money." When he finally tracked her down at home, Hartman told Yahn not to warry -- that her departure was voluntary and had nothing to do with the amount of money the bank had fronted to BRC. She did say, however, that she'd been admonished for promoting management's point of view and warned Yahn that the bank might start "clamping down pretty hard."
Shortly thereafter, Yahn got a call from his new loan officer. "Hi," she said cheerily. "When are you planning to sell the company?"
ODY CORMIER ATTENDED THE FEBRUARY '86 trade show in Dallas at which Bill Rodgers & Co. was showing its new fall line. His presence was indicative of his concern, and his concern was understandable. As founder and president of Cormier Corp., a Laconia, N.H.-based apparel manufacturer, he was one of BRC's principal suppliers of finished goods at a time when the company was having trouble paying its creditors. It owed its advertising agency and its main fabric supplier, W.L. Gore & Associates Inc., sums in the six-figure range, and Cormier himself had advanced BRC $500,000 in unsecured trade credit, allowing the company to continue manufacturing while it searched for a solution to its problems. The solution, everyone agreed, was to sell the business. Yahn pulled Cormier aside in Dallas and assured him that the sale of BRC to CB Sports Inc. was a couple of weeks away. "Rob was giving me just the highlights," says Cormier, "but he really believed the company was still viable in the marketplace, and I had faith in him."
The bank, on the other hand, was rapidly losing faith. At its insistence, the shareholders had anted up an additional $130,000 in working capital, but that was not enough to keep the BRC file from being kicked upstairs to the 12th floor, where "troubled loans" were handled. The bank also informed the company that it had no obligation to lend it further funds beyond July 1, 1986, and demanded that Yahn and Rodgers take out second mortgages on their houses to guarantee the overadvance, which had previously gone uncollateralized. At the time, Rodgers had just bought a new house in Dover, Mass. Believing the sale of the company to CB Sports was imminent, he gave the bank the guarantee it was seeking.
Then CB Vaughan stopped returing Yahn's phone calls. Yahn says he still doesn't understand what went wrong. Vaughan, president of CB Sports, says the deal was just too complex. In any case, the sale fell through, and with it went BRC's last chance to cash out with its hands clean.
Bill Rodgers & Co. was now running on empty. A vicious cycle had set in: as creditors' bills piled up, there were increasing delays in the shipment of fabric and finished goods. The longer stores had to wait to get their goods, the less inclined they were to pay their bills promptly. This, in turn, aggravated the situation with creditors and put the company in a desperate cash bind. It responded by laying off its sales and credit managers, thereby compounding its problems.
By the summer of '86, BRC was down to 10 employees, from a high of 21. It had even stopped paying Rodgers his licensing fee. Nevertheless, says Yahn, it was still receiving plenty of moral support from its four largest suppliers, with whom he managed to negotiate letters of forebearance, and from the bank, which was working hard to get its money back.
"Our third loan officer was Julie Bertinette," he remembers, "and she was very straightforward. We knew where we stood anyway -- you don't get to the 12th floor of the Bank of Boston as a 'valued customer.' Up there, you're not a customer at all -- you're a problem. But Julie said that since our creditors and shareholders were obviously willing to be supportive, the bank should be too."
With few options left, Yahn approached Ody Cormier. Would he consider putting up a new round of financing in exchange for equity in the company? Cormier was interested. He already had an intimate knowledge of the company's manufacturing operations, plus a large chunk of unsecured credit sitting on BRC's books. What he did not have was any real understanding of its debt profile to the Bank of Boston. So he met several times with Bertinette, finally asking the bank to produce a letter spelling out the terms of its lending arrangement with BRC. Meanwhile, he had his own lawyers and accountants evaluate the company's viability. But, all things being equal, Cormier was inclined to do a deal. "There was no question" that a market existed for BR clothes, he says. "BRC had always been first with new products, plus Bill had tremendous name recognition."
Yahn and Bertinette soon had a written agreement designed to accomplish two major objectives. The first was to protect the bank's exposure by reducing both the loan and the overadvance; the second was to provide sufficient cash flow for the company to stay in business while Cormier reorganized it. The bank would advance BRC money (up to a limit of $1.75 million) on the basis of 80% of new sales and 30% of inventory. "When the cash payment was received," noted Yahn in a later memo to the bank, "it was applied to the loan so the loan balance and receivables were reduced by the same amount. Recalculating the formula resulted in 20% of the cash received being available for new borrowing. In other words, we were advanced 80% when the sale was made and received the remaining 20% when the bill was paid. Under this system, we were always being advanced 80% of 60-day receivables."
For its part, the bank required BRC to pay down its overadvance in an orderly fashion, from its current level of $700,000 to zero by February 1988. To meet that requirement, BRC would either have to increase its profitability or decrease its asset base (principally inventory, since it had almost no fixed assets). BRC also had a $395,000 income-tax refund coming in November, $350,000 of which was pledged to the bank. Bertinette monitored the account closely. "Julie said that the plan looked fine," says Yahn, "and that she felt comfortable with it as long as they could check it every month."
Satisfied that a workable accommodation had been reached, Cormier and Yahn signed a purchase-and-sale agreement in late August. In exchange for approximately $300,000 in cash and another $400,000 in trade debt, plus some personal loans and promissory notes to the shareholders, Ody Cormier assumed control of the company. Most of the the cash went to suppliers, as per the letters of forebearance.
During the second half of 1986, everything went pretty much as planned. Although the company ran into delivery problems with its fall line, sales picked up, and by Christmas BRC was breaking even again. And then, one fateful December day, Yahn went up to Bertinette's office to drop off some papers. Her desk was empty.
"What happened to Julie?" Yahn asked one of her co-workers.
"Oh," came the reply, "she left to get married." Yahn's heart sank. "Sit tight," he was told. "We'll let you know who your new loan officer is."
CONFLICTS BETWEEN LENDING OFFICERS and "asset recovery" personnel are not uncommon at banks. Lenders, after all, are in the business of finding new customers and helping them meet their borrowing needs. Loan-review officers, on the other hand, have the often disagreeable task of resolving bad-debt situations.
"You hear a lot of gestapo stories from customers in [bad-loan] situations," says Ann Hartman, who did her own tour of duty in that department, "and some of them are true. Banks do get triggerhappy at times. Particularly when dealing with a clothing company, where the inventory is perceived to have a short shelf life. The mentality becomes, 'Let's sell this crap by the pound.' But it depends on the circumstance."
The circumstance Bill Rodgers & Co. now found itself in was awkward indeed, and the dialogue between management and the company's new loan officer, Jack Bradley, did not get off to a propitious start. At their first meeting in mid-January, Bradley brought up a $138,000 debt with the bank's London office, left over from the ill-fated British expansion; he said he wanted to fold it into the current repayment formula. Yahn replied that such a change would cripple BRC's cash flow and insisted the debts stay separate. Bradley demurred, but at their next meeting he fired a larger shot across their bow: as of February 1, a new repayment formula would take effect. The old advance rate of 80% of new sales would remain intact; in the future, however, the company would hand over the remaining 20% of all cash receipts, to be applied directly to the loan paydown. No longer would that money be available as working capital.
At first Yahn surmised that Bradley simply didn't understand the implications of what he was proposing. On February 18 he composed a memo to Bradley, spelling out those implications. "Obviously, very rapid debt reduction takes place [under the new formula]," he conceded, "but there is not enough cash to operate the business." He then essayed a compromise: cut the 20% of cash receipts down to 10% and administer the formula as before. To counter two of Bradley's concerns, he also pointed out that the bank would still be protected against declining cash receipts in that a) it was lending only on 60-day receivables, and b) there was a cap on the total advance available. Yahn concluded with a plea that BRC be allowed to make "an orderly withdrawal from the bank."
"During this entire time," he wrote, "Bill and I have been very cooperative. Subordinated debt was put in by the stockholders when required. We have both pledged a large majority of our assets to secure the overadvance, so that the Bank would not be taking an equity risk. . . . Ody has invested a considerable amount of money under the belief that we would have a reasonable amount of time to resolve our situation. I feel that the Bank should . . . allow us enough cash flow to operate while we seek replacement financing."
Yahn's plea fell on deaf ears. The question was, why? Why was the bank suddenly pressing for a new repayment formula (one that even Hartman later termed "draconian") when the old formula had apparently been working as it was supposed to? Had the bank lost faith in the company's ability to repay? Or was Bradley gambling, as some suspected, that Ody Cormier's deep pockets would keep BRC from going under? If so, then he badly misread the new owner. Informed by Bradley that the bank wanted him personally to guarantee the overadvances, Cormier refused. "bradley told me that I already had a sizable investment in the company," remembers Cormier, "and I'd better sign the agreement. There's no question he was putting a gun to my head. If he didn't know me then, it didn't take him long to find out."
Cormier came back with one more counterproposal, whereby the bank would handle BRC's receivables through its own in-house factoring division, in return for which the company would cease shipping to overdue accounts. In addition, the bank would let BRC take all the "good" (that is, current) inventory and flush it out through the system, at full value on the dollar.
Bradley wouldn't budge. He told Cormier and Yahn that he didn't want anyone "cherry-picking" the inventory and that the new formula was "cast in stone." Things went downhill from there.
Over the ensuing weeks, Yahn and Cormier debated a number of emergency alternatives. The most logical one was to take Bill Rodgers & Co. into bankruptcy court, liquidate its assets, set up a successor company, and buy the existing BR inventory from the bank, using the proceeds from its sale to pay off the loan. Ultimately, however, they rejected this course of action -- first, because it would mean blowing off their creditors, who had stuck by them during tough times; second, because they didn't want to risk losing credibility in the marketplace by stopping production. "Besides," adds Yahn, "bankruptcy didn't seem like a good career move."
On Friday, April 3, Yahn's lawyer called to say that he'd been sent a hand-delivered letter from Bradley demanding full repayment of the $1.3-million loan balance. When Yahn finally reached Bradley, the loan officer was gruff. "Negotiations have gone on long enough," he said ominously. "If you won't take action, we will."
Yahn spent the weekend discussing the situation with Rodgers and Cormier, and they decided to hold a board meeting in Boston on Tuesday afternoon. On Monday morning, Yahn called Bradley back and informed him of the board meeting. The two agreed to meet at the bank at 10:00 a.m. on Wednesday.
At 7 o'clock Tuesday morning, Jack Bradley turned up at one of Cormier's plants. With him was a driver and a moving van. Cormier was away. They told the plant manager, Carole Wallace, that they had come to pick up the BRC inventory. She blocked the door and ran back to call Cormier. He was not amused. For one thing, he did not believe the bank had any legal right to take so much as a drawstring out of his factory. For another, the goods on his shop floor belonged to other customers besides Bill Rodgers & Co., and Jack Bradley was hardly capable of identifying which was which. Cormier had Wallace tell them to get lost.
"Then they asked to use the telephone," she recalls, "and while they were on it, Ody called back on the other line and told me under no circumstance to let them make a call. There wasn't much I could do, so I pushed the button down on them." Vowing to return with a court order, Bradley left. Meanwhile, Ody Cormier made two more phone calls -- one to his attorney, and one to Rob Yahn.
THE SCENE THAT MORNING AT BILL Rodgers & Co.'s headquarters in Weymouth, Mass., resembled an outtake from an episode of "The Untouchables." Ten minutes after Cormier's warning call to Yahn, the Bank of Boston asset-recovery team pulled up. Company employees were just drifting into work. The atmosphere quickly went from frosty to confrontational. Yahn asked to see a court order and, assured one was not needed (in fact, it was not), was informed that his house might be seized as well. Christine Scanlon, BRC's customer-service manager, got into a shouting match with one bank representative when she tried to remove some personal effects from her desk. Security guards were posted and padlocks installed. Bank representatives then disappeared into the warehouse to count inventory.
Even then, the principals tried hard not to panic. That they owed the Bank of Boston $1.3 million was indisputable. Still, as best they could calculate, finished-goods inventory totalled $660,000 at cost, and gross receivables came to $920,000. Furthermore, all of the current inventory (roughly 80% of the total) was on open order -- the retailers still wanted it. Yahn and Rodgers talked things over and could see "no way" that liquidation would leave them with a deficit for which they would be personally liable. "I knew things were complicated," says Rodgers, "but I did not think, 'Uh oh, there goes my house."
How complicated things really were soon became painfully apparent. Yahn summarized the chronology of events in a letter to the Bank of Boston dated January 20, 1988.
"First Bill, myself, and [Cormier] wanted to start a successor company, which would buy the current inventory items and arrange for the disposition of [other] items. We felt a successor company would also be very helpful in receivables collection. Jack refused to sell part of the inventory. He said he did not want it 'cherry-picked.' The bank then obtained bids from local merchants, with the high bid being 50%, or $330,000. Jack felt this amount was totally inadequate. Bill and I then offered to sell the inventory to a few selected customers. We informed Jack that if it had to be done quickly (within 2 weeks), $475,000 could be realized. Jack replied that much more could be realized with a plan he had worked out with MVP Sports [a sporting-goods chain] -- the inventory was to be sold to the public at the Northeast Trade Center.
"I told Jack this was not an economically viable plan because the quantities were too large. The amount was more than we had sold in all of New England in a year. It was not reasonable to sell it all in one location over 4 days. . . ."
Reasonable or not, the sale proceeded as Bradley had planned. Four days later, the gross profits came to $235,000, minus advertising costs and other fees totaling $110,000. The net was thus roughly $125,000 -- significantly below the firm outside bid for the inventory, and far off the $475,000 promised by Yahn and Cormier.
"Bill and I then asked if we could at least sell what was left over after the MVP sale," Yahn's letter continued. "When asked what I thought could be realized, [I replied] $120,000 to $200,000, depending on the condition. Only one problem -- I was repeatedly told that I could not see the goods in order to make a specific determination. Besides, [Bradley told me] if my maximum was $200,000, it didn't matter, because the bank expected more. [The remaining inventory] was still [worth] $450,000 at cost, and the bank throught that something close to the original bid (50? on the dollar) could be obtained at auction. I said I thought Jack was dreaming and would be lucky to get $50,000 for goods that had already been through a sale. The result was $47,000, less expenses, but that included fixed assets.
"So the final tally was $155,000 for all finished goods, and Bill and I are expected to make up the $320,000 difference. . . . We expect to pay for our mistakes. It is paying for the bank's mistakes that is brutal."
Yahn's list of complaints did not end there, either. "After the auction," he continued, "I asked Jack if he wanted me to remove the records from the company offices. He replied that he was only obligated to give up the payroll records and intended to put the rest in storage. Despite several calls from the landlord, the records were never picked up and were eventually thrown out. Obviously the bank did not want the records; they just did not want us to have them. [Those records] may have been helpful for future tax filings. . . .
"I don't know the total expenses at the moment, because I have not received a loan statement in over six months. The worst example, however, was being required to pay $2,400 per week for 24-hour-a-day security service -- this went on for about 12 weeks. For nine years we had just locked the door . . . and our insurance premiums were only about $250 a week. What was even worse, the first security company had to be fired because they stole two personal computers and who knows what else. The charges for the service were promptly made to our account, but I have never seen any credit for the computers.
"Obviously," Yahn concluded, "this course of events has left [Rodgers and me] very frustrated. . . . If we were allowed to cooperate with the bank in the liquidation of the assets, there would have been at least $400,000 less for us to pay. The whole matter would have been over by now. Instead, interest and expenses continue to pile on. It appears that the bank or Jack or both wanted more than their money. They wanted as much as possible to come from [us]."
ODY CORMIER GOT THE NEW BUSINESS, Bill Rodgers Sportswear, up and running last June. Cormier's company and his wife own 84% of the new venture, Bill Rodgers 9%, Rob Yahn the remaining 7%. The first five months' sales totaled $1 million, and sales for '88 are projected at $4 million. Moreover, the company is already profitable, thanks to tight production controls, more pricing diversity, and the ability to make quick design changes.
"We did have marketing problems," concedes Christine Scanlon, who joined the new company as a vice-president. "There was a lot of negative press over what happened to Bill, especially in the Boston area. People still say, 'Gee, we thought Bill Rodgers had gone out of business.' But my question is: if Bill Rodgers & Co. was so sick, why are we so healthy now?"
Seated next to her in the offices of their St. Johnsbury, Vt., factory, Ody Cormier bangs his hand on a metal table. "I've dealt with a lot of bankers over the years," he snorts, "and I've been in problem situations before. But I've never experienced anything like this in my life. This whole thing was a bad circumstance orchestrated by the bank, and everybody lost in the end -- especially the creditors. All Bradley seemed to care about was clearing the decks, and. . ." bang! again ". . . that's just what they did. If you need a doctor, you don't call in an undertaker."
For understandable reasons, the Bank of Boston remains tight-lipped about the whole matter, preferring to invoke the principal of client confidentiality. Jack Bradley himself has been unavailable for comment, but bank spokesperson Wayne Taylor does concede that the contretemps is a "no-win situation for everyone.
"I will say, though," Taylor commented recently, "that we find ourselves bridling at the characterization that the bank took precipitious action. Our business is one of nurturing entrepreneurial effort and helping small businesses grow. When we assume possession of collateral, it's the last thing we want to do -- a last resort. But it's also a necessary and accepted guarantee in order to protect the interests of the very businesses that we're trying to grow, as well as the interests of our depositors and the community at large."
As for Rob Yahn, he is now working for CML Group -- the very first company that wanted to buy Bill Rodgers & Co. His travails with the Bank of Boston are not over yet. Last fall, he reached an agreement on the sale of his house; the day before the closing, however, he discovered that the SBA had not come through with the necessary approval to release him from his obligations on the original loan. The deal collapsed. On Christmas Eve, Rodgers's attorney was told by the bank that foreclosure proceedings would be reinstated unless the two principals began making monthly payments of $7,000 on the outstanding interest.
"My wife kept telling me that Bradley really wanted to go after us," Yahn says today, "that the bank didn't just want its money back -- it wanted it from us. I never really believed that before, but I guess I believe it now."
Rodgers spent the winter in Arizona, training for the Boston Marathon and seeking corporate sponsorship for the masters' road-racing circuit he and old rival Frank Shorter are trying to put together. Beyond that, he plans to keep a hand in the promotional and marketing efforts of the new clothing company. What he won't do is get into another business venture with any element of personal risk. He says he wants only "small-scale, short-term, no-risk deals."
"One thing I realize now," says Boston Billy, "is that I do a better job of communicating than a lot of the lawyers and agents and businessmen who've represented me. Once you start bringing in all those layers, things deteriorate. I know that's what happened here. To this day, I have mixed feelings about Rob. To a certain extent I feel misled by him -- and it's cost me a lot of money."
For the money -- and because it is what he has always done best -- Rodgers will keep running. And no race brings out the warrior in him like the Boston Marathon. When the pack takes off from Hopkinton, 26 miles and change from the finish line, the biggest challenge facing it will be Heartbreak Hill. Rodgers should take it in stride. After all, he's a master.
After weeks of preliminary negotiations, Rodgers returned to Massachusetts for a meeting on February 19, at which he concluded a settlement with the Bank of Boston. Under the terms of the agreement, the bank purchased his house in Dover in exchange for the extinguishing of his remaining indebtedness. Rodgers also signed a personal-service contract that provides for him to represent the bank at a number of public functions. Describing the meeting as "businesslike but friendly," Rodgers said, "I've always been a compromiser, and in the end that's what we achieved, a compromise. My financial -- and athletic -- future is now secure." Asked how it felt to see Jack Bradley again, he said, "There was some tension in the air, but I think we were more relieved than anything. Business is business, and sometimes it gets tough. I'm just glad I don't have his job."
There are some business failures that involve more than the loss of a company. They involve homes, reputations, friendships. Seidom do we got a chance to see such a failure played out as dramatically as in the case of Bill Rodgers & Co. Granted, the story is not a pleasant one, raising (as it does) questions that nobody likes to think about. But the risk is real, and -- as Rodgers discovered -- those who don't acknowledge it only increase their chances of becoming its next victim.