Crises 4: The PGW Bankruptcy

by Richard Grossinger on March 14, 2010

Chapter Twenty

Crises 4: The PGW Bankrupcty

If you sell enough books through a distributor, you build up very large receivables and they are never entirely secure, not really.  Ours at PGW near the end were about $200,000 a month on the average—a very serious liability joining us at the hip.  This is what happens when thousand of separate transactions are all consolidated under one receivable, one collector, one company’s financial viability. It looks like real money, but then so did the money in public employees’ pensions.  Yet until it is paid and clears, it is just numbers in a database, and they could change or vanish in a moment if the reality underlying them shifted.

But there is no alternative in the book business for an independent press.  Unless you want to create your own sales and marketing teams; warehouse, ship, and invoice all your own titles; and try to collect your billings from large, often-antipathetic corporations, you need an agent and a middleman, and that middleman will demand an exclusive market in order to do it at all.  One step at a time, you walk toward the danger zone, and then you find that you crossed the line a long time ago and there is no turning back.

There is never total security: an asteroid could hit the Earth tomorrow or, higher up on the likelihood scale, there could be another terrorist attack or a run on the banks.  Money is merely a broad collusion of numbers in machines, a vast chimera requiring global cooperation to function.  You may have an illusion of solvency (or wealth or stability), but that it is all it is—an illusion—and it is dependent on a vast and fragile superstructure to keep from dissolving like a dream when you merely turn over in your bed from left to right one night.  You are relying on little more than the gestalt of all the other people keeping you and your illusion company because they all share some basis of the same illusion.

When I wrote the draft for this chapter a mere six or so months ago, that conceit would have seemed a bit more of an exaggeration than it does now, but we have seen huge brokerage houses, insurance companies, pension funds, and banks fail since then, and it has meant the obliteration of trillions of dollars of ostensible wealth and security overnight or faster.  We have seen Bernie Madoff.

There are no guarantees.  You can do everything right and earn honest money through good ideas and hard work and then have it evaporate because someone else is playing games with the system and rigging it.  Money is not a real thing.  All you ever earned for your time and activity were points within a system.  As Buddhists have long taught, there is no permanence; all is attachment and illusion, condemned (though not ultimately in a tragic way) to end in sorrow.  It’s just that no one, even Buddhists running their businesses and households in this bardo of waking life, expected the banking system to prove their precept so soon.

Our experience with PGW has since been replicated, to some degree or another, often even more drastically and dramatically, by hundreds of thousands of institutions and millions of people around the world, as their investments were tied imperceptibly or unknown to them, to the U.S. subprime mortgage market or a Bernie Madoff fund and have fallen to zero and cancelled out during a midsummer night’s dream.  Even remote villages in northern Norway and rural Africa have been devastated by this hurricane of reversing numbers.  Iceland itself, the whole country, went bankrupt.

Given the incipient economic climate in which we operated during eighties and nineties up to the PGW denouement, North Atlantic/Frog was relatively lucky with vendors.  We fortunately didn’t join Sebastian Orfali’s doomed Network; we had already transferred our Bookpeople account to PGW’s stewardship and fiscal responsibility by the time the poor old boy went belly up—that’s what “guaranteeing receivables” means.  Amd. most wondrous and wonderful of all, we ended up getting most of our money from the PGW bankruptcy in the end—and what we didn’t get was more than made up for by tax savings and other savings within our organization.

However, we still lost hundreds of thousands of dollars over the years prior to that in bad debts, bad decisions, and general vendor unscrupulousness.  Even recently we lost $100,000 in a company bond that Seymour Zises placed with Washington Mutual, money supposedly set aside for safekeeping and at no risk.  There is really no way to participate in this economy without running the gauntlet of its debt mentality and the over-reaching, greed, and outright stupidity that permeate the system, leaving invisible effects and distortions everywhere.

I have joked at North Atlantic and with our own worried vendors in somewhat perverse and macabre fashion that there is not even a guarantee that Random House won’t declare bankruptcy too someday, but then the barbarians will really be at the gates and we’ll have a lot more to worry about than just money.

The PGW bankruptcy, had we lost the entirety or lion’s share of the money, would have undermined decades of work, washing it away with the sweep of a pen (or computer key).  Loss of that money wouldn’t have put us out of business, but it would have wiped out our savings account, handicapped us indefinitely, and thrown the entire operation into daily drudgery rather than hope and excitement—all because other people didn’t run their business with even minimal good sense or basic ethics.

Today as I write, a little more than two years after the publishing world’s closest thing to Bernie Madoff, Frog no longer exists as a separate company, having been donated by its shareholders to North Atlantic during the height of the bankruptcy crisis.  They had to make a choice about whether to fund Frog from personal bank accounts going forward (it was out of cash and already owing NAB hundreds of thousand of dollars in overhead reimbursement) or end it.  They chose the latter.

Our association with Publishers Group West was long and substantial, twenty-five or twenty-six years.  PGW shaped our publishing and financial philosophy, gave us structure and revenue, and played a major role in converting North Atlantic into a business and birthing its sibling, Frog.

In the early days of the relationship, the dawn of the eighties, PGW seemed anything but a professional corporation with the potential for years of longevity, let alone a nascent industry powerhouse.  Its small offices with attached warehouse in Emeryville were like a neighborhood sundry and candy shop; stuff was lying everywhere, willy-nilly, much of it gathering grime and dust, some of it even caked as it was checked in.  All sorts of florid and unsavory books collected in stray cartons, around shelving and loosely strewn on the floor.  Drug manuals and pornography stood out—lots of soft-core literary erotica and nudes on covers.  By their own unabashed admissions the pilots of the mothership back then were looking for products to sell—any products; they weren’t particular.  Sex sells; drugs sell; hence their ubiquity was a no-brainer.

By comparison in those days Bookpeople was an elegant and shipshape barracks, clean as a whistle and carrying mostly books that mattered.  Sex and drugs hung out there too, but they had their own discrete places in the alphabetical order.

I was never part of the old PGW inner circle nor did I seek entry.  People characterized it, truly or mythically as a land of designer drugs and bongs in backrooms.  I came and went in the front rooms, doing my business, minding my business, playing possum, a see-no-evil tot.  I also didn’t take the organization very seriously either.  They were one more customer, a bit grungy and outlaw for my taste, but a customer to be cultivated nonetheless, so I went there often, and I gave the scene a respectful and nervously wide berth.

The metamorphoses of PGW from a funky peripheral book wholesaler into a respectable business and then into a full-service distributor and then into a giant merchandiser playing a role in the book trade equal to that of Doubleday or Harper was seamless and surprisingly rapid, elapsing as a caterpillar taking on huge orange and yellow wings through the eighties into the nineties.  At the time North Atlantic moved out of its house into its second set of offices in Berkeley, PGW became its neighbor on Fourth Street, bringing together most of the major Bay Area independent presses in a conglomerate sales unit that included an even larger number of independent presses from New York, the Midwest, and in fact the whole of the United States plus some from Canada and Europe.

This transmutation occurred in a little over ten years.  By then PGW had improved its facilities three times, moving to ever swisher digs and throwing ever fancier parties and bashes at each.  In the end they occupied corporate offices at the heart of perhaps the most upscale shopping district in the Bay Area, adjacent to a Cody’s Bookstore branch and a high-end bathshop.  From there they threw their catered holiday parties for the entire publishing community as well as their own sales force and staff, many of whom they flew in from around the country for the events.  They also sponsored signature bashes with current musicians at industry trade shows like BEA such that the phrase “PGW party” earned a ring of exclusivity, privilege, and mega-hipness (plus a loosely branded euphony as in “do you have tickets to…?” and  “I can get you into the….”).

Those who never laid eyes on the original sprawl at Beaudry Street might actually imagine that PGW was born spiffy, big-time, and corporate.  It wasn’t.  Underlying it were a bunch of good old boys from Stanford, about ten years younger than Lindy and me, who weren’t at all countercultural, at least in the sixties sense.  Two blood brothers and a fraternity brother, they would have preferred the film industry but didn’t have the start-up capital for that, so they settled on books for their media gambit.

The folks running PGW liked sports cars, speedboats, 49er tickets, big guitars, and just about all of the rest of the glitz put out in the Reagan-years disco-zone.  “Redneck hippies” is what I used to call them—though in retrospect that was inaccurate, a hasty and temporary placeholder for a far more powerful and lasting force of nature and culture than I had seen before and didn’t yet understand.  I had no terms to understand where they were coming from or where they were going.  They were at once soul-less in a way that the communal hippies of Bookpeople abhorred and decried, yet street-smart in corporate ways and means at a level that Bookpeople didn’t approximate and then looked foolish years later trying to emulate.

Sadly Bookpeople slowly degraded into a dysfunctional and outmoded book-community cooperative that tried to become another PGW too late.  After the founders as well as the first and second and third generations at their coop got too old and wise for the lifestyle, they moved on to other things or vegged on site.  They left their successors a business and a business model that had outlived their moment.

Maybe “soul-less” is too strong and a bit unfair, as PGW had spirit and heart and a lot of style and panache.  Despite initial appearances, it was actually formed around a sound business concept, one that was attractive to New York investors.  A forerunner of many of the dot-coms and software start-ups that were its near neighbors and associates in later years, PGW wasn’t so much soul-less as laissez faire, a forerunner of both amoral Reaganism and Clintonian Free Trade democracy.

From its well-conceived spore, it flowered until it became the Cadillac and Rolls-Royce of independent distributors.

The founding investors of PGW included not just the Winton brothers, their friend Randy Flemming, and veteran Berkeley bookmeister Bill Hurst, the local and visible moving parts, but hiphop venture capitalists and veteran book marketers in New York like Richard Gallen, the famous leverager who packaged often intentionally foul book products like oil wells and condos into ten times their value in tax-shelter write-offs.[1]

Lots of entrepreneurs bought the PGW model: they agreed with the Wintons that 1980 was an opportune moment for the premier independent presses to be banded together under one roof to assemble their own dynamic sales force and wield collective muscle in the market.

By ultimately requiring an exclusive contract from its presses, PGW bound a somewhat motley crew of old-fashioned book hustlers and rebels into a stable that included dopers, feminists, rockers, conspiracy theorists, New Age barkers, and self-anointed shamans as well as computer geeks, prominent literary players like Grove/Atlantic Monthly, Seven Stories, and New York Review of Books, and large companies as diverse as Taunton, Avery, Marvel Comics, and Times Books.

They even created their own successful house imprint, Avalon, and, whatever you think of the underlying methods and morality, Avalon grew by leaps and bounds as several of the independent presses that PGW distributed, one by one by one over the years, got into financial problems, borrowed ahead on their receivables from the PGW kitty, found themselves with PGW as an unintended partner, and then lost their independence altogether and were merged into Avalon, sometimes with their publisher becoming an executive employee at the firm.  I know that Charlie thought of this agglomeration as a benign process, almost a social service, and I tend to take that viewpoint too, as he rescued many nonviable yet important presses like Seal, Thunder’s Mouth, Marlowe and Company, and Four Walls Eight Windows.  At the same time, though, this was classically imperial and hegemonous and, while keeping a number of operators in business, built a lot of value at negligible cost into the Avalon portfolio, which was later sold to Perseus for a goodly sum.

PGW paid like clockwork on the first on every month; they were there, like your local grocer or the post office, on the first workday to hand you your statement and check, professionally packaged.  The money was always at the receptionist’s desk if you didn’t want to hold your breath waiting for the U.S. Mail, always, for more than two decades: the fuel to run your press, hundreds of thousands of gallons of it.

I knew from scuttlebutt and also my conversations with PGW executives over the years that the company relied a hefty line of credit at its friendly bank, guaranteed by their receivables with retail and wholesale accounts—a method of doing business that is common and ordinary in the Western world but was both unfamiliar and anathema to me.

I am unorthodox in this regard; I don’t like borrowing money, I am against it in principle.  All credit is usury.

I don’t believe in paying vig to speed up reality.  The concept of operating mainly on loans, thus having, in essence, to make new money at a greater rate than its cost in interest to use, seems both bullying and crazy-making.  Such a situation would probably lead me to make terrible decisions in an attempt not to have to pay more interest, and it would consume a great deal of attention needed for acquisitions and book development.

I work best slowly, gestating ideas and projects at my own pace.  Not so PGW.  They had to be constantly racing against past years’ revenue streams whether there was a legitimate reason to be rushing or not.  Every season’s books had to be better and more commercial than the ones before, not because there was a scintilla of reality to it but because the bank liked it and the Wintons lived on bank time.  The attitude was always that the best books ever were now, and even better ones were coming next season, so everything was hyped accordingly.

PGW couldn’t run without a line of credit and, though not borrowing money ourselves, we were borrowing it by proxy as we were inextricably a part of them, having been cannibalized maybe not to the degree of the presses glommed into Avalon but insofar as they transacted, under their exclusive guaranteed by my signature on their contract, about 70% of our total business.

Thus, that check on the first was our lifeblood and we were as dependent on PGW as the junkie is on the crack dealer.  Of course, everyone in the world is tied to the same credit system, whether they actually borrow money from it or not.

I remember when the Adi Da religious organization sold its commercial distributorship known as The Great Tradition to the publisher of Aslan Books in the late nineties.  We were just then transitioning to a full exclusive at PGW and still used The Great Tradition (renamed Atrium at that juncture) as a wholesaler—they were part of the other 30% of our revenue, not a huge part but a few thousand dollars a month, approaching but never quite reaching $10,000.

I trusted the Daist Fellowship.  I did not trust Aslan, so I began gradually pulling our books out.

I remember at the time overhearing Charlie, admittedly with his own axe to grind, arguing heatedly with another publisher in our same shoes, one whom he was trying to win over to a full exclusive.  He concluded the conversation with the tour de force jibe: “Do you really want Dawson Church [Aslan’s flakey CEO] guaranteeing your receivables?”

Well, we had Charlie Winton guaranteeing ours.  PGW ran a thriving business and, despite their aggressive line of credit, I trusted them, nervously but implicitly each time.  And anyway, there was no other choice, as it was our association with the Winton Boys and their friends that transmogrified us into a commercial press.

There were always longstanding rumors, but then I tend to be susceptible to tales of apocalypse anyway and have to summon up courage in order not to be paralyzed.  Mad Max is always waiting on the horizon.  Plus, slots at PGW were also much sought after and often envied by publishers who had to settle for one of their lesser rivals like National Book Network (NBN), Consortium, or Independent Publishers Group (IPG).

At times when I confided my concern about bank loans to Charlie, he reassured me with words like, “If anything happened to us, we would be picked up in an instant by some larger organization in the publishing field.  We’re too big and have too much value to fail.  You don’t have to worry.  It’s either us or the guy who buys us, but you’ll get your money.”

In 2002 Charlies and the investors behind PGW finally cashed out, selling their company to Advanced Marketing Systems (AMS) for around $38 million.  AMS’s previous claim to whatever was selling huge volumes of books to price clubs at paper-thin margins, their sole raison d’etre. Now they announced to the publishing world that they were the largest distribution entity in the known universe.

At several gala events, member PGW presses were indoctrinated by AMS executives in the sense of being told that their arrival in town was a great thing, a vast improvement and should be celebrated—these Southern California hicks ogling Berkeley society.  Charlie would stay on in charge for a while, lending his Clintonian stewardship.

It was supposedly the best of times: PGW now not only had a lot more capital to work with but access to a huge international buffet of AMS services that would ostensibly lead (eventually) to global distribution and group rates with Asian printers, freight lines, digital services, rights services, Print on Demand technologies, etc.  PGW would become the first full-service publishing entity for the twenty-first century.

I never liked AMS because I considered the price clubs even more down-market than PGW, and PGW was pretty hoi polloi and down-market for us.  Will Glennon, the publisher of Conari, our partner in the joint warehouse, once remarked to me, “We’re odd ducks at PGW; we’re not really with the program there; we’re way up-market from their norm.  I can’t even imagine where you are.  You’re not even on the map.  I don’t think that they understand that, though.”

Meetings with AMS personnel over the next few years were reassuring financially if not aesthetically.  Although the San Diego corporation housed some unexpected book lovers, the rest seemed mainly gadflies who wanted to make money, a bunch of aging college graduates, a few wise-ass high-school dropouts, and a smattering of failed venture capitalists too, who all ultimately went into sales and then found themselves, by misfortune or misstep, in publishing where sales are few, margins low, and returns infinite.  They didn’t want to fall short in their lives nonetheless, so got huge salaries for paltry ideas, fractionally above common sense, with a dash of overwrought tautological hoopla now and then.[2] As mentioned in Chapter Four, these were all the dudes (and their co-ed counterparts) whom I scrupulously avoided during my high-school and college years.  They were running the show now, and our livelihood depended on them.

At the same time, it was not hard to get with the program because we now sold more books and felt more confident about the deep pockets and reserve of the big guy guaranteeing our payables.  But it sure felt like either selling out or being even stranger a stranger in a strange land.  We were the super odd ducks at AMS.  To begin with, we were inheritors of our own Io tradition and then the Black Mountain/Geographical Foundation of the North Atlantic roots of North Atlantic Books.  Following that, we were refugees from the ancient and mythological Bookpeople of yore, and we started not with PGW of Fourth Street but the old, old PGW of Beaudry.

I used to joke that AMS didn’t sell books but marketing concepts, and it didn’t matter if a book was good or not or even actual, as long as the marketing concept behind it was glittery enough to go fishing with.

Once at a PGW marketing meeting years earlier, Charlie Winton forgot who I was, e.g. that I was an author and hence the author was in the room, and he commented on a new book, not mine, that we were putting out as hopeless, then added, “Well, at least it’s not as bad as that other piece of shit.”  “That other piece of shit” was a book that I had written and cared about, Waiting for the Martian Express.

I doubt that he knew he was insulting me.  After all, everyone not only lost their bearings of aesthetics and value under these regimes, they lost even the conception that there was something to lose or that books had actual content.  It was all units and margins and cashflow.

I am reminded too of when we launched our first craniosacral-therapy books.  The marketers at PGW wanted us to change the name to something more user-friendly and New Age, like Super Massage or “a radical new bodywork technique,” replacing our title and subtitle.

We stuck to our guns and, a few years later, they were trying to get us to put the word “craniosacral” into titles in which it didn’t belong (for instance, a Continuum book and an orthobionomy book, names to which they took a similar initial dislike).  “Craniosacral” was suddenly successfully branded, not by their sort of p.r. people of course; it branded itself because it was real and meant something.  But many in the PGW crew thought we had enacted some brilliant act of marketing.  Because so many of the publishers there tried tricks and knock-offs to sell dumb books, the general mood was to assume that’s what everyone was doing.  It was all just clever schemes and concepts.

AMS added their superficiality to an already deep-seated emphasis on novelty items and glitz over substance, as gradually became evident at publishing meetings.  They weren’t even selling novelty and hype after a while; they were just purchasing floor time—kickbacks and payola (e.g. co-op)—at big accounts in exchange for fifteen minutes of certainly nothing as lasting as fame.

This is why, when given the chance, we signed a contract with Random House.  At least they had the self-confidence and intellectual integrity to stand behind the content of their books—and that’s what we needed by then, to be pulled out of the general PGW goulash in which we were drowning.

But, paradoxically, it was only in that stew that North Atlantic was forged into a business.  Initially we gained from an atmosphere of hype and mercantilism, and our books’ value was realized in a commercial environment because, once distributed, they sold through at a credible percentage.

Almost from the moment that PGW became part of AMS (and we by proxy were encompassed under the AMS banner), there was a looming shadow, a dark side that grew and grew.  It was not just the obvious mismatch between PGW and AMS.  That was noted as well, and there were a few who felt that Charlie and his co-investors, in getting the best price for themselves, had sold out the community.  Yet it could have been argued that AMS was also a great Daddy for all the presses, and now they had a stake in PGW’s success, for the purchase represented their own best chance for stature in the publishing world, their ascension into a real and respected book company rather than a peripheral price-club whore.

AMS was in legal trouble with the Government, never a good thing.  It didn’t look like much at first.  They were under investigation for a book-keeping indiscretion involving catalogue print-run figures—hardly cause for an ATF raid or subpoenas before Congress.  It was trivial, we heard, a mere technicality, something spun out of nothing by over-eager regulators.  Then came the ominous word that the FBI was ensconced there and AMS was under suspicion of a post-Enron scam of investors that could include criminal charges.

Everyone was jittery, everyone at PGW and everyone among the gossiping presses, but business remained good, the checks were still there on the first of each month, and reassuring words flowed from Charlie and his successor Rich Freese (a National Book Network refugee summoned from out of state to run the company under its new owners).  These were moderately convincing—e.g. the investigation had nothing to do with PGW and shouldn’t affect it and, even within AMS, it only involved a minor department and some incidental poor judgment.

To this day I don’t really understand the AMS demise.  It always seemed like a splinter bringing down an elephant.  They had the tiniest of wounds; yet the inflammation spread and wouldn’t go away.

The story, as I piece it together, with several dashes of rumor and hyperbole, is roughly this:

Someone in the AMS advertising department inflated print runs and distribution figures of their house publications so that AMS could charge higher rates for the ads that publishers purchased amid the trade fluff—not real magazines but glorified sales catalogues made to look like some sort of journalism.  It was apparently nothing more than that AMS clerks said they printed a certain number, and it was maybe half that or a quarter of that.

But in a post-Enron environment, nothing was innocent or minor.  The SEC got involved; AMS’s share price plummeted on the New York exchange.  Each year, the situation got worse; AMS couldn’t file their annual financial statement because no accounting firm would take a chance on signing off on it and becoming Arthur Anderson.

Alternately the situation was said to be basically okay; the accountants were working through the backlog.  It would just take time.

Then some people at AMS went to jail, but it was still okay.  Regular guys and ladies in jackets and ties and business blouses and slacks went to the hoosegow for bamboozling numbers!

We were told PGW was insulated from all this, a separate company, and that the damage was, remember, confined to a certain peripheral unit within AMS.  Their cashflow and profit and monetary reserve were all incredible for a company their size.  AMS was basically very healthy, and this was a minor incident, blown up because of Enron-mania.

But Wells Fargo, the bank loaning AMS money, didn’t think so.   They got tired of waiting to AMS to file audited reports, so they pulled the plug even if the company was lucrative by ordinary standards.

After all, in America for companies like AMS, “lucrative” does not mean that the joint is able to open on its own register on cashflow without bank assistance.  It means that they have lots of assets but need the bank to grease and advance the payables.

AMS asked for protection under Chapter 11 on December 26, 2006.  Whether planned that way or not, it was the worst possible moment (except for the remaining five days of December when they were probably closed for business anyway).  Fall and Christmas sales had been logged.  A check for September was due January 1.  PGW had just completed a stock offer, meaning a strangley large discount for stores ordering from them in the fall, so large that no one really understood its logic, but it resulted in massive sales in the last third of the year.

If they had waited till January 3 or if they had declared bankruptcy earlier in the month, assuming the usual payments on the first working day, they would have owed presses for three months plus some weeks or days, but they owed for almost four full months.

In our case, North Atlantic and Frog combined, it was about $1.5 million.

In retrospect, the stock offer should have been as suspicious as the advertising print figures.  Had PGW known this bankruptcy was going to happen and thus tried to push more books out the door, potentially securing for the parent company more receivables at the presses’ expense?  That was never proven.  Needless to say, though, there would be no January check.

Our own publishing company had changed dramatically in our relation to PGW in the two years preceding the bankruptcy. The makeover was triggered by our hiring PGW executive Mark Ouimet. One of the key issues Mark took on right from the beginning of his stint with us was the future of our distribution.  As one of PGW’s main contract negotiators, from the other side of the negotiation firing line, he knew upon coming aboard that we had one of the least publisher-friendly contracts among the PGW presses, as we had never understood that terms were negotiable and that we had leverage to renegotiate every three years as our contract came due.  In a throwback to my Goddard naiveté, Lindy and I assumed we had the single deal that PGW was offering, and one of us just routinely signed the contract mailed to us each term.

Luckily our contract was due for renewal not long after Mark’s arrival, so he contacted Rich Freese and began a negotiation that Rich, a close friend and former colleague of his, confessed to me with a wry smile knew would be tough.

The extra percentage points that Mark got us out the gate more than paid his salary, and he also shortened our term to two years because he wanted to shop the open market and see what else was available—not necessarily that we should go with another distributor but so as to know what we could hold out for if we re-signed with PGW.

Over the next eight months Lindy, Mark, and I were audience to a number of spiels, most of them long-distance, from eagerly prospective suitors across the distribution spectrum, players large and small, near and far.  Yet we were “wined and dined” by only one, Phil Ollila, a former Borders guy who was now director of distribution at Ingram Book Company.  A sweet and likable man with an interesting personal narrative and informed interest in our companies, he was accompanied by his assistant, a veteran PGW employee whom I will call Mary.

Since the wholesale giant was launching its own publishers’ services division, we assumed that they would be the most attractive suitor and very competitive.  On the surface, they offered a juicy bundle of distribution points in exchange merely for us taking over selling ourselves to large accounts like Barnes, Borders, and Amazon—transactions for which we now had our own house pro who had done the same while at PGW.  So it looked as though they were giving us exactly what we wanted anyway, something PGW would never even consider, a customized deal, and they were paying us in hard points to take it as well.

Yet there were problems, a host of nickel-and-dime expenses, including that Ingram charged a regressive fee for the movement of books from Ingram the distributor to Ingram the wholesaler, essentially an in-company transfer.  Phil watched us figure that out and then jumped in proactively: “If you are gonna ask whether we’re double-dipping, I’ll tell you right now, the answer is yes, but we think our service is strong enough to be worth it.”

After that meeting Mark and we agreed: it was a morass of ungaugeable depth and we should avoid it like the plague.  He more or less concluded that our best option was to stay with PGW another two years and continue to monitor the situation.

Just as he was about to formalize that conclusion in a request to Rich for a new contract offer, he came down the hall to my office one morning with exciting news: we had received an unexpected distribution offer from Random House that, to all his inspection and scrutiny, was fantastic.  He could find nothing wrong with it.  “In fact, it blows the competition out of the water.  It is a sweetheart deal of a whole different order than anything Ingram or PGW would make.”

The three of us probed and interrogated it for weeks and, though we did find some costs and other downsides that were not immediately evident, it remained very attractive.  Plus, it was Random House, the Show.

Around then, Random House was rethinking the entire distribution model; they were not putting together a traditional 175-press distribution service like PGW or NBN or even Ingram; they were assembling only about twenty presses.  While offering a broader range of services at a better price, they were concomitantly transferring a good deal of the work, responsibility, and secondary expenses (as noted earlier) to the publisher (remember, for instance, that we had to make our own catalogues and do our own data loads onto the Random House portal—see Chapters Twelve and Thirteen).

In any case, the offer something that, to cite the cliché, you had to run the numbers on, and Mark was spectacular at that.  After he did, he decided it was a “go,” at least to the next phase.

At a meeting at Random House in New York in May 2006, the three of us got to hear the entire sales pitch.  At one point our own questions were solicited, so I asked, “Why us?”

One of their people explained that Bertelsmann, Random House’s German parent company, had figured out that distribution had become a more lucrative business per investment dollar than publishing.  Whereas the old mainstream model of publishing favored by Random House’s many famous imprints, Knopf, Doubleday, Bantam, Pantheon, Random itself, etc., involved large competitive advances and big outlays of promotional money in the battle for bestsellers, it was not ultimately a profitable model because the game cost too much to play and the hits were too unpredictable and getting fewer all the time.  In other words, the finances and demographics were bad and getting worse.

Mainstream publishing had come down to mostly a few large houses that had swallowed up the majority of the smaller ones and were now competing against one another with killer advances for the supposed top books and then competing again in the retail market for shelf space with ridiculous amounts of promotional money.  The law of averages said that there was no way, long-term, for any of them to win.

On the other hand, from a simple nuts-and-bolts standpoint, Random House had far and away the best and most efficient distribution mechanism in the business.  To oversimplify, Bertelsmann apparently figured that they needed to get more products into that well-run network and, with distribution, they could do that at whatever scale they chose, without Random House shouldering any of the product cost, e.g. any of the risk.

“We like your list,” the Random guy added.  “Your books are professionally done, so you’re not going to embarrass us.  And you’re publishing in areas that we’d like to expand into—health, martial arts—

“And,” he continued at the adjoining urinal when we took a break soon thereafter, “that guy you’ve got working for you, Mark Ouimet, isn’t an asshole.  There are plenty enough assholes in the business so that we don’t need another one around here.”

Outside on the street I commented to Mark that I felt as though we had been in North Korea all these years, hearing that PGW was the best there was or could ever be, and now we had gotten a presentation from the West, and so…goodbye Lenin.

“PGW doesn’t have the resources to compete,” he offered, “but Random just got into the business; they’re new and learning.  There are going to be plenty of rough patches.  I’m not sure that they completely want to be a distributor or understand what it means.  Maybe they do; I’m just not sure that they’re willing to offer all the services and amenities that are required these days.  They’re very corporate and close-to-the-vest for that.  But they’ll sell a lot more of our books, especially with their special-sales and academic departments.  PGW has nothing like those.”

We accepted the offer a few weeks later, and Mark worked extra hours for weeks getting the contract right.

Lindy and I signed in August from Maine and gave notice to PGW.  Our contract with them ran through mid April, but Rich Freese agreed to make April 1 our termination date so that calculations could be confined to even months.

There was no joy, I am sure, in the halls of PGW, especially since our departure heralded not only a press leaving after a quarter century but an obvious betrayal by Mark, the local legend.

Yet most of staff were gracious.  Rich Freese said, “Change even just for change’s sake is good.  I would have made the same decision myself.”  However, one of Mark’s and my favorite marketing managers warned, “You’re not going to do any better with Random House.  Don’t expect to sell more books just because they’re Random House.  You’re still North Atlantic Books.  There are no secrets in this business.”

It was a revealing comment as to how we were viewed locally.  Our own reps dissed us.  We had more status at Random House than PGW because of the serious kind of publishing we did.

We were confident that we would, at worst, do a little better at Random than at PGW.  In fact, Charlie gave Mark just those sentiments at a party later on.  “You’ll sell the same books that you did at PGW, and then you’ll sell a few more books.”

Later in the year Mark began negotiating with Rich Freese regarding the charge for moving out our inventory and, more important, the amount of money that PGW would withhold after April 1 for potential returns and most important, at what rate they would release it back to us in ensuing months.

Mark wanted to move the inventory according to the fulfillment terms in our PGW contract, but Rich was insisting on a surcharge that would more than triple the exit cost, and he was offering carrots and sticks both.  If we would pay the higher fee, he would turn over all our sales data to Random House.  Otherwise, the same service would cost us $35,000.

At the closing curtain, PGW was going to try to get its pound of flesh too and also maybe ding us a bit for our apostasy.  They didn’t exactly cheer us on.

When prompted by Mark for an opinion on all this, I had a single comment: “I don’t care about the numbers.  Just get us out of there before they go bankrupt.”

I wasn’t prescient.  I just never had a good feeling about the place, going all the way back to the coke in the backroom.  Charlie’s high-flying style never appealed to me.  It temperamentally wasn’t a match, though it worked incredibly well for a long, long time.  And now AMS was, essentially, Charlie without the grace, ingenuity, or charm; sort of like W. Bush and his henchmen replacing Bill Clinton and his blowjobs.

But Mark laughed.  “I can guarantee you,” he said, “that that’s not going to happen.”

Three days later, when AMS ran Chapter 11 up the flagpole, he could only laugh grimly at my uncanny remark.

It was initially difficult to know what the declaration of bankruptcy meant, as rumors and counter-rumors ran wild.  We heard that it would not affect us at all, that we would still get paid because PGW’s cashflow was strong, and we also heard that we would likely never see more than a few pennies on the dollar.

North Atlantic had a cumulative savings account for back-up as Lindy and I put any extra money into the bank for years—so we were not immediately impacted, at least in terms of day-to-day operations.  But many publishers lived off their cashflow, and the idea that they might not get their January 1 check was akin to the mood when the banks didn’t open during the Depression.

A few days after the bankruptcy announcement, presses in the Bay Area were invited to an emergency meeting at PGW.  People congregated beforehand with an ominous buzz, and a couple of publishers commented to Mark that we were lucky that we had gotten out.  “Not in time,” he moaned.

And had we?  I felt like Pooh Bear stuck in the hole, too far in to get out and not far enough out to hightail it.

The notion that we were fortunate would turn out to be both true and untrue many times over before the roulette wheel finally stopped at lucky seven.  But, in any case, our contract with Random didn’t immediately put us in a different category from anyone else, especially as regarded the status of our inventory, sales going forward, and the money owed on books that we sold in the last four months of 2006.  All the presses were in the same boat, dollars-wise and legally.  At least so we thought.

The scene in the PGW conference room set back the clock: “Legends Day at the Old Corral.”  Charlie presided again de facto, though Rich Freese sat at the titular head of the table a few chairs away.  Likewise Mark was called upon so often for commentary and analysis that it morphed into a familiar script as though he had never really left PGW.  In the hearts and minds of publishing people he hadn’t, and everyone was desperate for his cheerful sane voice.  It even felt to me as though we were back at the old PGW and Mark was still working for them.

On our way down Fourth Street toward his old shop he had made a prediction: “Today everyone’s going to be all together and we’ll talk unity.  Tomorrow people will start lawyering up and it’ll be every man for himself.”  He was prescient too.

At the meeting that morning we learned what there was to know; it wasn’t a lot.  Rich Freese reassured us in the kind of speech that said all the right things but wasn’t particularly impressive or comforting:  The court was aware of the risk to the PGW presses’ livelihoods, and they didn’t want to set off a chain reaction of bankruptcies, so everyone would be paid on a weekly basis going forward.

At first I thought that that meant the money we were owed from the proximal four months, but it actually meant a premature payment of new sales going forward, money that was not contractually due for ninety days—a weekly replacement, as it were, of what we were owed by low-level January money, not booming pre-Christmas sales.

Nothing could be done about the pre-petition money, as it was to be called henceforth; that would have to go through the entire bankruptcy proceedings.  Fresh (post-petition) money would be paid to the presses simply to keep them going—and that was the law anyway under Chapter 11, with the sole additional concession being the accelerated schedule.  The first check would be very soon; they were printing up “bankrupt vendor” blanks already.

Charlie took the stage next and he stayed there for a long time, in fact the rest of the meeting except for Q&A.  He informed everyone about a company called Perseus, a publisher that had already bought up a number of other book distributors.  It turned out that they were in the market for purchasing more distribution, hence a candidate for rescuing PGW.  He tooted their horn while pretending to low-key, as though making off-the-cuff observations only.

Earlier that day I had phoned my old friend David Wilk, who had been in and out of the distribution business for over thirty years and had presided over two bankruptcies of his own (Inland Book Company in East Haven, Connecticut, in which we lost money, and Login Brothers in Chicago in which we did not), and he had already predicted: “Keep an eye on Perseus.  If anyone will overpay for PGW, it’s them.”  He hazarded a guess that they might take over the full PGW payables in exchange for an extension of the presses’ distribution contracts.

Charlie said exactly the same thing at the meeting, but I don’t think its meaning fully registered at once.  There was a lot of fog and confusion.

Then, as the information gradually sank in, I went from thinking, ‘Wow, someone might actually bail us out’ to realizing: ‘We are screwed!’

The moment Mark, Lindy, and I got to talk privately on the way back down the street, he whispered just those words, “We’re screwed!”

We had already signed a contract with Random House, so we were in no position to be rescued, to be bailed out; that is, to accept an offer from another distributor.  And, if signing a contract with Perseus was the only way we were going to get our money, we weren’t going to get it.  It was a curve we had never considered when bailing from PGW: what if they go bankrupt during our lame-duck period and we need our free-agent status as a bargaining tool?  We had already signed with Random, for free.

This hindsight analysis is far clearer and more definitive than anything felt with certainty at the time, and even Mark, despite declaring us up shit’s creek, wasn’t so sure a few minutes later.  Back at our office, upon reflection, he took the modified position that we could not legally be excluded from a buyout such that Perseus could bail out 174 or so presses and leave us hanging.  He felt that we should have the legal power to block a settlement that excluded only us—but this was all speculation.  None of us understood bankruptcy law.

In the days that followed, there were a number of attempts at collective activity prior to separate lawyering up.  Lindy, Mark, and I were party to a conference call that must have had a hundred or more participants because the echoes from various backgrounds—a pencil dropping, a car braking, a dog barking, combined and calqued to produce a collective spooky series of thunks behind the conversation, less as though AMS or the FBI were listening and more as though the Martians were.

The conference call was actually set up by a law firm that wanted our business; they were auditioning to represent the collective publishers—something we weren’t told ahead of time.  But they did not inspire confidence, as their representative bumbled and sounded neither astute nor up to date on the issues.  Publishers got totally bogged down in technical questions; for instance, the status of our inventories and whether a lien could be placed against it on behalf of Wells Fargo; the possible illegality of the late-fall PGW stock offer; and in general whether AMS and/or PGW knew about the bankruptcy ahead of time and rigged the deck with the announcement date.

After it became an aimless grousing session, filled with complaints, impulsive stupidities, and solicitations by different attorneys who were also on the line, we elected not to pay dues and join the collective, which turned out to be a good decision because there was really no collective, only a fragmentation of interests and viewpoints, and nothing was ever done.  Also our situation with Random House was unique, and no one seemed to want to take time to address it.

Instead I called David back and then took his advice to contact his own lawyer, James Berman, who practiced in Bridgeport, Connecticut.

Berman had seen David through his two distributor bankruptcies.  This was an important selling point that distinguished him from every attorney on the conference call: he knew the ropes of publishing-distribution bankruptcies, especially those around the tricky matter of how returns were to be calculated vis a vis pre- or post-petition (see later).

At the end of 2006 I knew absolutely zero about bankruptcy, but three months later, you could have hired me as your bankruptcy attorney, and I would have done a credible job.  The PGW bankruptcy graduated me in a little over two months from someone without a clue as to how bankruptcy in America works to someone whom you could probably hire for a few hours of plausible consultation if you happened to be a publisher and your distributor happened to declare bankruptcy.  I know that I would make a lot more sense than the attorneys who were trying to sell their services to the PGW presses on the phone or many of the heads of individual publishing companies who spoke with legal and financial authority to the rest of us at various meetings as they contradicted each other and even themselves.

Thank you, James Berman, for the education and sage guidance.

Right from my first phone call to him he began training me.  He spelled out the differences between pre- and post-, secured and non-secured creditors (the bank turned out to be the only secured creditor, but at the time I didn’t know whether we were secured or not—secured by what?, our inventory, the fact that we were a small helpless press and nice people?).  He also filled in some nuances: books sold by PGW ninety days before petition were in their own category and were semi-preferred because companies were not allowed to do what PGW apparently did—sell extra stock with foreknowledge of bankruptcy.  He said that, yes, Perseus could single us out for exclusion at the end of the day but that there were many steps and creditor committees and court decisions and book-keepings of available funds and vyings for position by different creditors before that matter would be settled definitively one way or the other.

He also mentioned something else that seemed trivially mechanical at the time but was ultimately the key to the whole filing: AMS and PGW would be treated as two separate, linked bankruptcies.  It meant that we would not have to stand in line, competing for our money with all the large creditors of AMS, which included most of the major New York publishers.

If one company drags another into bankruptcy, the second company is not always responsible to the creditors of the first.  AMS owed a lot more money than PGW did.  They owed in the hundreds of millions to various publishers and other creditors, with the largest debt to Random House itself.  PGW, by contrast, had a small debt, and we were only to be bunched with the PGW presses and a few other creditors in terms of splitting the PGW pie.

But, as I said, this important tidbit was lost in the initial haze.  Obscure and out of any context at the outset, it became crucial only as the bankruptcy progressed and the smoke cleared.

Both companies, AMS and PGW, were collecting money on an ongoing basis from their September through December sales, even if they were not passing it on to their own vendors (the whole meaning of bankruptcy: we were not first in line for “our own” supposed money any longer; Wells Fargo was; it was more their money now than it was ours).  The court required that the bills of PGW’s vendors to PGW be paid and if, for instance, someone at Amazon or Barnes thought for a second, “Wow, we don’t have to pay because AMS is dead meat,” they wouldn’t have thought that for long; they would have joined the AMS advertising people in the hoosegow.  They and everyone else were under more pressure, not less, to pay their bills than they had been when it was just AMS and PGW.  Now the accounts receivable were held under the court.  It was not the collections department at AMS; it was a judge in a U.S. District Court in Delaware.

Usually bankruptcies are triggered by a hemorrhaging of debt that becomes fatal.  This bankruptcy was triggered not by over-reaching business tactics or poor commercial decisions or even debt owed to companies for whom AMS and PGW sold books.  Both distribution companies were healthy if low-margin businesses, having just completed an excellent year in 2006.  The bankruptcy was triggered solely by Wells Fargo withdrawing AMS’s line of credit.  No matter how well AMS was doing, it could not operate, as noted, without a line of credit.  Their entire business was based on borrowing money, using their receivables to secure the loan, so the presses were in effect paid by the bank, not from the cashflow of their own sales.  Wells-Fargo simply knocked out the four-month float and accordioned time, and AMS could not recover from that left hook.  It was like the collapse of a Ponzi scheme.

If, hypothetically, the book business stopped at a given point, everything would collapse (this is true, of course, of more than the book business; the global economy and America as a whole would collapse) because current economic activity is always run on borrowed money, money borrowed on the premise that there is a future and, more than that, a future roughly congruent to the present in its space-time lineaments and of course its potential profitability.  In fact, presumed economic growth makes the future always more profitable (the supposedly ever-rising GNP of nations, as if any thermodynamic action were possible forever).

Wells Fargo intentionally triggered the AMS bankruptcy, putting thousands of people in danger and sending waves throughout a segment of the economy, not because anything had changed in AMS’s financial viability or prognosis but apparently because the bank executives got tired of waiting for auditors to approve their past years’ financials, or maybe because they didn’t like doing business with a greasy firm like AMS in the first place.  Even though it was generally agreed that AMS’s business was sound and its financials were legit, the bank decided to flex their muscle and say, “Enough is enough.  If you guys can’t get out of trouble, we’re pulling the plug.  (And by the way we always thought you were low lifes.)

David Wilk said that this is exactly what happened to him at Login, if for different reasons.  The bank wasn’t at risk at all, but it preferred to force the bankruptcy to get what it could from what shook out of the tree at that point in time rather than to keep the business running and earn along the way while waiting for a more definitive resolution.  Wells Fargo, operating in another land, another dimension in fact, had determined the fates of all of us.

I’m not sure if putting AMS out of business when it had been a basically successful company and investment for them was the best strategic move for Wells Fargo.  In all likelihood the bank would have been paid off—and then some—if they waited, just as they always had done (and been).  But they stood on ceremony and invoked a technicality.  I guess if I knew more about the business world, I would understand why.

To review the whole PGW/AMS bankruptcy and its vagaries and ins and outs would be tedious and beyond the scope of this account.  It was very, very complicated with more twists and turns than Dickens’ Bleak House.  I will review it partially in the following separate contexts—first, a bit about how bankruptcy works; second, how it uniquely affected us in this case and how that drama played out; and third, the outcome.

Bankruptcy land has all its own rules and playing cards.  The bankruptcy court and its laws are straight out of Alice in Wonderland, metaphorically much like what Alice found through the rabbit hole­—Cheshire cats, mad hatters, and a queen shouting, “Off with their heads!”

There is the debtor, and there are the creditors.  Each has its own rights.  The unpaid bills that the debtor has incurred at the time of the bankruptcy belong to no one (and everyone), since the debtor possesses by definition more bills than assets and, if that is not true by some weird chance, it needs to be found out through the court system during a period when all activity is frozen for dissection.  In any case, that money is temporarily out of play—for North Atlantic/Frog in this case, $1.5 million.

It cannot be paid, to state it differently, because it would be like a bunch of crows fighting over a sprinkling of food not enough to satisfy all of them.  The court is there to protect all parties from such a free-for-all in which the biggest and most aggressive crows would make off with all they could and then come back for more.  Once there isn’t enough money to satisfy all the creditors, it becomes completely muddy as to what assets of the bankrupt company belong to which creditor.

Although it didn’t seem like it for much of the time, the court’s mission was to protect sparrows like us.  But, let’s not get too carried away about that—they were there mainly to protect the bank.

Not all creditors are considered equal.  The secured creditors have absolute claim on the assets unless and until their debt is assuaged; then the rest divide up the spoils, in principle equally, if there are any. A secured creditor has in effect secured the debtor’s obligation to him by its assets; thus they are first.  As noted, the secured creditor is usually the bank, so the bank is the king of bankruptcy court, a suspicious capitalist pun.

In this case the bank was a Wells Fargo branch in San Diego, the headquarters of AMS.  One of the questions continually raised by the collective presses on the phone (and a surprise to me because I had never considered the matter) was—remember—whether our huge amount of inventory (millions of dollars worth) still at PGW, technically on consignment and still owned by us (since it had never been paid for or bought and was merely warehoused by PGW for us), was now at risk.  I assumed that we owned it by contract and law, but many aspects of contractual law vanish in bankruptcy court.  People and their lawyers can make whatever claims they want (with an emphasis on “what” and “ever”).  As Berman affirmed, Wells Fargo could indeed claim our inventory and though, at the end of the day, they probably wouldn’t get it, wouldn’t be able to auction or stow it somewhere for a rainy day, they could exert a lot of power by merely making the claim with its underlying threat because no presses could operate without said inventory (especially on top of just losing four months of sales).  They could control the direction of the bankruptcy merely by posing a threat to the inventory, and that was a crucial thing to watch for.

Our primarily identity going into the bankruptcy, like that of the other presses, was only secondarily how much we ourselves were owed, thus what obligation the court had to protect our interests; it was first and foremost how much value we might be to the secured creditor, Wells Fargo, in getting as much as possible of their secured loan paid off.  We were cannon fodder, and thus we seemed to have no rights, at least not until the bank’s claims were fully assuaged.  That’s why our inventory, even though we technically owned it, was at risk.  Everything that the bank’s attorneys could make an argument for, even a bad argument, was technically tied up in the bankruptcy, nutrient for their debt.  They could put you out of business and not lose a wink of sleep over it; after all, they were protecting their own shareholders, the mythical widows, orphans, and pensioners.

So Wells Fargo’s and the court’s position vis a vis the inventory of the presses would be crucial—whether they were to claim that it had been used, even indirectly, to secure AMS’s and thereby PGW’s loan or not (we assumed that it hadn’t).  Yet, as noted, even if it hadn’t been used as collateral, it still could be claimed by the bank as part of the assets set aside under the bankruptcy, assets on which they had first claim.  And everything would be in limbo and used for leverage until that matter was resolved in the court.  We were all waiting on the king.

Under Chapter 11 unlike some other, more absolute states of bankruptcy, PGW and AMS could continue to operate, as long as they paid as they went.  So they could sell books, but they couldn’t accumulate any more unpaid debt; they could only sell as long as they collected what they were owed and unfailingly paid the people whose books they were selling.  We were only on the fully protected side of the bankruptcy in regard to post-petition sales.

Rich Freese had added no great promises to the law beyond increased speed of payment; he merely stated what was already required.  And for all I know, the celerity came from a judge in Wilmington.

So PGW now operated under Chapter 11—a bankruptcy vendor.  They continued to sell books and they paid all the presses at the end of the first and then the second week of January, so people may not have gotten their September dough on January 1, but they were at least getting their spotty January dough early as the month went along.

What was a faint rumor at the first meeting of aggrieved and worried PGW presses in early January 2007 became a focal problem for us within a few weeks.

Perseus made an offer for the PGW press contracts, and most of the presses were eager to accept it.  The offer comprised, as David had predicted, an extension of press’s PGW contracts under Perseus, though they did not overpay as much as he thought they would, offering a still-hefty 70 cents on the dollar in lieu of all 100 cents.

We were unable to entertain the proposition one way or the other, as we were already betrothed to Random House for free.

After we got our first prompt payment for our current January sales, a little fuel for the tank, we did not receive a second or third like the other presses (despite post-petition rules) and, upon inquiry, Rich Freese informed us that we would not be receiving any further payments on advice of counsel.  Questioning by Mark uncovered that we alone were to be excluded.  All of the other PGW presses would continue to be paid weekly for current sales.

AMS had decided that they were keeping our post-petition money.  Even I knew by then that that was a boldly aggressive move directed against us for some strategic purpose.

Berman swiftly wrote:

“We represent North Atlantic Books (‘NAB’) a publisher/creditor, in connection with the above noted case.  By way of background, NAB’s agreement with PGW expires as of March 31, 2007.  NAB holds a pre -petition claim of approximately $1,500,000.00. NAB’s agreement is not being assumed and assigned to Perseus; and, for obvious reasons, the Debtor will not and can not otherwise assume it (though we would be happy to be corrected in that regard).

“The Debtor continues to sell NAB’s books.  The problem is that, except for the first week, the Debtor has withheld 100% of the proceeds of post-petition sales apparently to protect against the possibility of future returns. This notwithstanding, among other things, that the Debtor already reserved pre-petition sufficient amounts to cover any returns. Regardless of whether one views the status of the agreement as 1) a rejected agreement or 2) a pre-petition agreement which will ultimately be rejected, we do not believe that holding the post-petition sale proceeds is appropriate. In fact, it is our understanding that every other publisher is receiving 100% of their post-petition sales proceeds.

“We request that the Debtor immediately move to reject the agreement on an expedited basis and release the post-petition sale proceeds.  The Debtor’s singling out of NAB for withholding of post-petition proceeds has caused a severe hardship. Accordingly, I ask that you contact me as soon as possible to discuss this matter.  I have emailed you at the suggestion of your assistant. If there is someone else that can help with this, please let me know. My client mentioned I might contact the Debtor’s in-house counsel, but I did not want to do that without your authorization.”

He was saying, in essence: you can’t do that; it’s counter to logic and counter to bankruptcy law.

But the AMS counsel clearly thought otherwise, though he would not return Berman’s calls to explain why.  Finally he answered (stet):

“sorry — up to my eyeballs in alligators.  we’re working on a solution here but haven’t reached one yet.”

For the next several weeks I engaged in an intense email exchange with Rich Freese, monitored closely and coached by Mr. Berman and Mr. Ouimet.  In it I argued the merits of our case and the unfairness and illegality of what they were doing.  Rich responded with roughly the following:

He was very sympathetic to our situation.  He lay in bed at night on the point of tears, thinking about his friend Mark and the people at North Atlantic as well as North Atlantic’s fine history and good works.  But he was acting in accordance with what the AMS attorneys told him he had to do.  He was informed in no uncertain terms that if we were paid anything more, he could go to jail, and, he concluded, “Folks, I’m not going to jail for you or anyone.”

A little further down the road, because dialogue kept going on and the same words can’t get repeated forever, at least not by amateurs like all of us, Rich let slip that we weren’t being paid because we were at risk for bankruptcy ourselves (hence, leaving the AMS estate fully responsible for our returns in the coming months) and also our contract was only a liability to the estate, containing no meaningful potential for additional earnings (i.e., beyond March 31, 2007).

But in truth we were no different from the other presses in that regard.  The real difference was that we were headed to Random House, and one could believe whatever they wanted about how that worked its way into the liability equation—more AMS jeopardy for returns or, the reverse: everyone will return our books to Random House as the biggest target and easiest way to get their equity (which is what Mark thought).

There was also, on the business level, no love lost between AMS and Random House, as Random was the largest creditor after Wells Fargo, and they were not secured and thus not doing AMS any favors regarding a continued pipeline of books in the present.

In theory AMS declared Chapter 11 bankruptcy in order to survive, the idea being that its vendors should continue to supply it with product because they would get paid through the court.  But Random was less enthusiastic about whether AMS survived or not and more concerned with not losing any more money. Someone at Random had said, “Enough is enough.”

So it could have been simple revenge, from AMS or its attorneys.  No one would put that past them; people are people, even under corporate garments.

Yet that, at most, could be a secondary motive.  The real motive, it turned out later, was to squeeze us to a crisis point and, at the same time, entice us to break our contract with Random House.  If we could be bankrupted, then also we would have an excuse to offer Random for breaking the contract, and we would, ironically, have value to AMS and the bank.

Are you following?  If AMS didn’t pay us, they might yet be able to squeeze some equity out of North Atlantic and Frog.  By making our situation worse, they would make their own marginally better.

The joke was that the AMS attorneys never bothered to look online at our tax returns in Sacramento, where, as required for nonprofits, it was public information.  It would have told them at a glance that we had enough money to survive their action.  Perhaps they forgot we were a nonprofit.  In their mindset, they probably never even considered that possibility or, if they did, what it meant.  Their goal was to crush us and then take it from there.

PGW and AMS were mainly involved in preparing their deal with Perseus whereby Perseus would assume a majority (70%) of the debt to the presses in exchange for gaining them as distribution clients.  A substantial extension of each existing contract was, of course, required of the presses by Perseus as incentive for them to assume PGW’s debt.  In order to get the numbers to work, AMS and Perseus needed as many presses as possible to enlist, especially since other distributors such as NBN were also interested in crafting a deal with PGW clients.

That is, the PGW presses were attractive to many distributors, attractive enough for rivals like Perseus and NBN to be willing to assume the debt in exchange for goodies, much as Charlie had predicated years earlier.  The presses wouldn’t be left hanging because their future business still had real value.

Here things get even murkier.  Remember, Perseus offered not the whole amount of pre-petition money but 70% of it, which by then looked like nirvana to the desperate presses.  But, despite the desire of AMS, PGW, and Perseus to swiftly conclude their deal, everything was suddenly on hold because NBN had stepped in and made their own offer, 105%.  Actually NBN first proposed to offer 90 cents on the dollar; then, when they didn’t elicit enough of a response, 100 cents; and finally a startling 105 cents—a profit on the collectibles, if the presses would sign with them.

NBN’s survival was also at stake in this free-for-all.  Perseus had already poached many of their best clients, and they wanted to smash their rival with a dynamic offer that couldn’t be refused.  It was their way back into the game

Now companies were actually bidding for the PGW presses and offering them more than they were owed by PGW!

On the surface it would seem that NBN would win, but there was more beneath the surface than on it.  The trouble was that it wasn’t a straight vote.  It was a cash-value vote, with each press’s disproportionate share determined by how many books it sold.  And the presses at PGW that controlled most of the dollars, hence the largest voting bloc, wanted no part of NBN.

Charlie had already sold Avalon to Perseus, and he was pushing hard for the extant PGW presses to join him, either because he wanted to or because Perseus wanted him to and perhaps it had some effect on his deal and the fate of Avalon and his own investment.

Morgan Entrekin, the CEO of Grove/Atlantic Monthly, was Charlie’s Stanford cohort, and he was going where Charlie went.  Furthermore, as a radical left-wing literary publisher, he wanted no part of an association with NBN, known for not only association with right-wing presses but a high quotient of unmitigated kitsch and vanity literature.  Even if most of the smaller presses salivated at a possible dollar-five on each dollar of PGW debt, they would never get a majority by the prorated rules to vote for joining NBN, not without Avalon and Grove/Atlantic Monthly.  So it was hopeless.  There wasn’t enough innate backing for the NBN offer,  and cumulatively it would have brought in less money, even at 105% to the AMS kitty, hence to the secured creditor Wells Fargo and all other creditors, than the significantly smaller Perseus offer.

To fully understand this, you have to realize also that it was a matter of all or none.  Perseus wasn’t going to pay seventy cents on the dollar to anyone unless they got a majority of the PGW presses (defined by an actual number, like 75% of the PGW volume by cash dollars). Likewise, NBN wasn’t simply going to pay a few presses a dollar and five cents on the dollar, the ones that voted to go with them.  They were only going to pay anyone if they got a majority of the vote and the PGW brand too.  Both distributors were after the whole enchilada or nothing.

What was at stake was the PGW identity and enough of the PGW overall list to make such an investment worthwhile.  A successor couldn’t just cherry-pick; they needed the branding in order even to pay the top presses that they coveted.

So the presses collectively had to choose one or the other (or some third, dark-horse option), and then that would become the only choice for all of them, unless individual ones chose to bolt out of the bloc completely and put their pre-petition collectibles at risk for whatever might happen down the road—something we had already, in effect, done by signing with Random House.

Once these various factors were understood in the publishing community, a stampede of PGW presses to Perseus became the order of the day, with many of the large presses, led by Avalon (which had jumped the gun in its insider deal) and Grove/Atlantic Monthly (which was almost an insider deal, with the publisher Morgan Entrekin being Charlie’s long-time partner-in-crime).

Nonetheless, despite all this recruiting success, we were perhaps one more press to throw into the Perseus pie if only we would relent and leave Random House.

It seemed then as though AMS and everyone else with influence or power wanted our inclusion in the Perseus package.  The head of Perseus was phoning Mark regularly, leaving voicemails, but Mark’s buddies at PGW said that there was no point talking to him because all he wanted to do was sell Perseus to us, so Mark didn’t return his calls.

Our position was untenable.  We had already given away our leverage by signing a future contract with no bonuses or extra promises or covering of our receivables.  Random House wasn’t going to assume our PGW debt because they already had a contract with us without such a concession.  We had given them for free, prior to the bankruptcy, what now had unique value to get us some portion of our $1.5 mill back after the bankruptcy.   By signing with Random, we had forfeited our chance to auction off our contract in exchange for a white knight assuming our debt.  We had made exactly the wrong decision by terminating when we did, but then there is no way we could have seen what was about to happen gauged the precise perfect timing.  It was bad luck.  We had been with PGW about 300 months and yet we picked a tiny window of about five months during which our particular blunder could be made: August through December 2006.

In a sense, Rich Freese came to argue without explicitly saying (because he couldn’t legally, but he came damn close and finally did), ‘We have given you a perfect excuse to break your contract with Random House by withholding your money and threatening your continuance [the stick] but we are also offering a carrot [the opportunity to sell your contract in a bidding for the highest amount of the debt we can collectively receive on your behalf’].

What he finally said was blatant enough; that, if we broke our contract with Random House and accepted the Perseus offer, we would be paid our post-petition money immediately.

“He can’t do that,” Berman rejoined in near stupefaction.  “That’s known as tortuous interference.  We can take AMS to court over that.”

What astonishes me to this day, but doesn’t astonish me really, given the moral and business climate in the corporate world since Reagan, is that, all of these shenanigans around North Atlantic were over probably less than 1% of the total PGW business.  They were willing to destroy a company that Lindy and I spent thirty-three years of our lives building (and ten more before that as Io). They didn’t even really need our .7%  or whatever it was to enact the Perseus deal, but they were going after it nonetheless.  If we were wiped out in the process, well that’s business.  It’s like when a mugger kills someone on the street for what’s in his wallet and pocket change or a petty crook steals a catalytic converter off a car to sell for $10 when it will cost the owner $500 to replace it.

What they are taking is worth so much more than the pittance they are getting for it but, to them, the point is that they are getting anything at all— something of value, no matter how negligible, no matter the collateral damage.  It is the basis of street crime, but then isn’t it all street crime?  Isn’t the corporate world where street crime, in principle, originates?

And nobody spoke up for us, as Mark repeatedly pointed out, none of the other presses and not Charlie Winton, who was singlehandedly orchestrating the Perseus deal, because he was on the inside of it, selling them Avalon to get out from under its debt.  We had to go it alone.

There were ulterior motives within ulterior motives, or maybe they weren’t so ulterior and maybe everyone knew it would come out okay for us in the end.

At that point, Berman pointed out, we had a number of options to consider and decisions to make.  Our contract with PGW was still in effect but now enforced by the court.  For that reason he suggested that we not print any more books.  He did not want us to ship books to PGW because of the ramifications of the post-petition bankruptcy situation, and we had no other place to ship them, as it was too early for them to go to Random House, either logistically or legally.  In fact, Berman felt that, if we printed them, we might be legally obligated to send them to PGW under the still-operative contract (up to April 1) despite the fact we weren’t getting paid on post-petition sales, as these were two separate issues.

Meanwhile Berman had a very different arena of play in mind.  He felt that our biggest risk was not the loss of post-petition funds, which we could always go after later, and not even the danger of losing the $1.5 million pre-petition, because that was in the legally circumscribed hands of the court.  He thought that the real danger was having our $5 million worth of inventory at PGW tied up in court or having a lien put against it.  Even if we won in the end, we would lose precious months, even years, and it would cost a lot of money.  He felt we had to put the emphasis on moving our inventory out of PGW into Random House because it was the lifeblood of our operation and survival as a press.

We were already working on this huge project through Mark making communication directly with PGW warehouse people, drawing on former friendships and good will.  Jim did not want to be raising other red flags while this was going on, especially in the bankruptcy court in Delaware.  So he did not press the issue of us being the only unpaid press.  Instead he had Mark continue to exhort his old friends in PGW operations to keep the stock getting sorted, packed, and moving out of the AMS Indianapolis facility.  It meant organizing hundreds of pallets of our books and collaborating with Random House to get the pallets headed to their Maryland facility as fast as they were ready.

It was not something that could be done sneakily.  We might as well try to smuggle a chainsaw onto a domestic flight, so, at the same time as Mark’s buddies were packing up our books, AMS’s attorneys had to make a very public decision as to whether to allow this transportation.  At any point in the process they could have halted it and left the fate of our inventory to the court.

They never did.  We kept up the semi-fiction that we were doing it sub rosa, and they kept up the semi-fiction that they were approving every full truckload of twenty-four pallets.  I need never know whether our insider pressure or their acquiescence got our books out of there (or both), but it certainly set a precedent for the other presses vis a vis stock in general, and maybe that was AMS’s intent—they wanted to let everyone know that their inventory was not under threat and we were the messenger.  Everyone was certainly watching closely.

Only when our books were substantially gone to Random House did Berman begin to address the post-petition money which, by extension, meant addressing the pre-petition money too because they were both wrapped around how PGW/AMS viewed the relationship between their debt and unbooked and potential future returns.  It is worth a divergence here (and a bit of repetition), to show just how complicated this kind of analysis and resolution can be:

When a company declares bankruptcy, it is more or less saying that it has more debt than it can afford to pay with its assets.  You get that by now.  It has asked for protection in part to allow an independent arbiter to decide who gets paid what and when.  Under Chapter 11 it is allowed to continue to operate while reorganizing and trying to get its feet back on the ground and even regroup for the long haul.

Many smart people, for instance, thought that AMS would reorganize and continue as a viable company by paying off a portion of what they owed but not every penny.  Theoretically half a loaf or a quarter of a loaf or even a tenth of a loaf is better than no loaf.  Thus, AMS could reduce their obligations and then rise like a phoenix from the ashes.  That’s the beauty of bankruptcy from the debtor’s side.

In order to begin to apportion AMS’s assets and debts, however, it was necessary to know what was locked in for creditors under bankruptcy law and what wasn’t, meaning locked into the general pie for all creditors, secured and unsecured.  Clearly books sold after December 27, 2006, under the court’s oversight, were not part of the pie.  These had to be paid for, with the usual percentage of sales price going to the publishers as per each distribution agreement (except, the AMS lawyers claimed, for us).  Additionally some categories of books sold between September 1 and December 27, 2006 did not enter the common pot.  These included books transferred to PGW in the months immediately prior to September 1 from the presumption that, in general, not only in the particular case of this one bankruptcy, companies knowing they were going to declare bankruptcy could unethically (and illegally) purchase goods, knowing that they would never have to pay for them.  This category was to prevent such nefarious activity by providing a way to transfer such products to the effective status of secured claims.

In publishing, returns are the kicker, the fly in the ointment.  Books can be (and are) returned at any time, as long as they are still in print.  It doesn’t matter if they were bought by the proximal retailer or wholesaler a year ago, five years ago, ten years ago, or, for that matter, fifty years ago—as long as they still have the same ISBN.  Of course, functionally fifty years ago there was an entirely different system, but in principle returns are as timeless as the universe.  If you don’t do a new edition and change the bar code, the books can be returned millennia from now, if they don’t decay first.

On a disturbingly regular basis we have gotten back, through the wholesale/retail feeding chain: books that we haven’t sold a copy of for thirty years, underlined books from readers, books with library-card pouches and stamped checkout cards in them, review copies of books with the press release still in them, books striped for remaindering, crushed and torn books, and even books that are not ours but have a similar title or appearance to ones of ours—all for full and non-negotiable credit from the thousand-pound gorillas in the business like Borders and Barnes.

There are, as discussed in Chapter Sixteen, many unprincipled operators in the chain who simply put anything in the pipeline that might go through and generate a full credit for them based on the cover price.  Load returns boxes up with all the junk in your store and hope some of it sticks.  It is up to the publisher or distributor to reject those that are not appropriate, but that is a labor-intensive process, and some companies are more perspicacious than others.  The bookstores count on the less aggressive processors.  PGW was abysmal at it, and in every gaylord we received a motley complement of garbage that they took back for full credit in our name and charged against our account.  It was galling, but there was nothing that we could do.

In the circumstance of bankruptcy, with both employees and accounts having less incentive to avoid returns scams, PGW and AMS were a sitting duck.  Even if they had been historically scrupulous in their policing of legitimate returns, they would have gotten more bogus returns than normal after declaring Chapter 11.  Stores would also worry about how long they had with PGW still in business to return books and whether the entity replacing PGW ultimately, if any, would be a company from which a credit memo for returns would be useful, e.g. have worthwhile merchandise to apply it against.

Even without a bankruptcy, of course there is a steady stream of returns, as the book business kicks back around thirty percent of the product shipped—a sort of indulgent book-industry tiddlywinks whereby thousand of pallets go back and forth, sometimes with the shrinkwrap never even removed, while the world cooks under greenhouse gases.

But, given that a book is a book is a book, how should returns be evaluated in a bankruptcy situation?  How, among the floods of stuff coming back, can you separate returns applied against pre-petition earnings from returns applied against post-petition earnings?

Of course you can’t.  PGW had mountains of unprocessed returns arriving after December 26, and these were indistinguishable from one another as to their applicability.  In addition, the machinery there had ground to a halt and PGW was no longer even deducting ordinary returns at all—nada—from the initial weekly January payments, so all returns had to be deemed by default to fall into the same category: pre-petition.  That is clearly not what the estate or the bank wanted, since pre-petition dollars (theirs) might not be worth a dollar each, but post-petition dollars (going in full to the presses) certainly were.  They would have preferred returns to go against post-petition dollars, as many as possible.

Later PGW did deduct some returns from various press’s post-petition payments, but that did not appreciably diminish the huge amount of potential red ink to go against the pre-petition amounts owed the presses, thus having to be book-kept against the estate’s assets without their being able to deduct them from fresh money, even if the books were shipped after December 26.  In fact, books not even printed before December 26 could slip into pre-petition accounting if returned and not posted in a timely fashion against post-petition earnings.

The argument of AMS, as I loosely understood it, was that NAB and Frog were an especially high risk because, if we went bankrupt or transitioned to Random House, AMS could not recoup their losses from our returns.  In all other cases they were willing to accept the collateral of the press’s pre-petition debt as protection against returns, but not in our case.  Plus, they had the additional incentive of trying to force our bankruptcy and get us to break the Random House contract.

Previous to the bankruptcy, Mark had negotiated a figure of $300,000 to be withheld for returns and paid to us in installments through the ensuing six months, the final payment hence not coming until after Random House was fully established in the trade as our vendor of record and PGW was out of the cycle of vulnerability for any more of our returns.  Of course, that meant $300,000 minus ongoing returns.

But we were owed $1.5 million pre-petition plus another $350,000 (and climbing) of post-petition money.  This should have been more than adequate as a reserve for at least some of our post-petition money to be paid, as was required by law.  Our historic return rate at PGW was around 20%, which was the basis that generated the $300,000 figure (it was not pulled out of a hat but calculated and then negotiated by prorating from real numbers by Mark and Rich Freese going back and forth)—and, even in the worst of circumstances, one could assume that most of the books that had been purchased from us had been sold to final customers (and final customers who would not, one by one, try to return them for credit as new).  Thus, over $1.5 million should have been more than enough reserve for our returns, at least three times more than enough.

AMS was probably insincere in their argument on this issue.  Their real target was not our returns liability, as they claimed; it was our overall status, separate of any cash evaluation.  They wanted us as a negotiating chip—and for a little more—as I will get to.  So they held firm to the position of keeping our post-petition money but promising to pay it if we broke our contract with Random House and went with Perseus.  That was our value to them, as a possible Perseus chip, but a Random House contract was in the way.

Seeing the situation, Berman continued his series of emails and phone calls to the AMS attorneys until someone finally answered him.  He argued our case with the guy.  We had lots of ammunition, as well as the law, on our side.  Jim wanted to pressure them into making the right move, or at least coming clean.

But the situation had also gotten more complicated along a whole other parameter.  Now that the Perseus deal was going through, it became clear who was and who wasn’t on board, and for the first time we were not the only press in a unique category.  A handful of other publishers, some of them major PGW clients, were not accepting the Perseus offer but instead were breaking away and morphing into our category—not a huge number but at least a dozen.  They were willing to forfeit the guaranteed 70% and take their chances rather than go with Perseus.

These decisions were for a variety of different individual reasons, among them: refusal by their own banks to countenance Perseus; better deals offered by other distributors, the kind that Random House might have offered to us if they didn’t already have our signature; a bad last quarter of the year so that they had more returns than sales at PGW, hence gained nothing from Perseus and actually lost money; etc.  To repeat in different words, some presses did not go to Perseus because they got better offers from elsewhere, while other presses weren’t owed any money or they owed PGW money.  Yet these dozen or so presses were all still getting their post-petition payments, even after they opted out of the Perseus deal.  In fact, one of them was the Amber Allen, the company that Rich Freese’s wife worked for, which had accepted an offer from Hay House as their distributor.

Armed with this information, Jim presented his position to the AMS attorney anew.  He told me that there was dead silence on the other end of the phone—he was literally speechless but finally still insisted that we were different and held his ground.  “He went to Princeton, and he works for a much bigger firm than me,” Berman said, “but sorry, he doesn’t know the law.”

It was only after Jim wrote up a petition to go to court and sent it to his AMS counterpart, as a courtesy, that he got a response—curt, irritated, but concessionary.  He accused Berman of posturing and of not helping his client, and he pointed out that through his actions, we (the client) would get 100% of the pre-petition money due us.

It was our first inkling of the lucky roll.

We were first told we would be paid our post-petition funds at once.  We were also told (hurray!) that we were released from the PGW contract to join Random House a month early (March 1).  And then, in addition, we were being told, at least indirectly, that we would get 100% of our claim.

Berman called the AMS attorney to confirm the latter impression and the answer was, yes.  Here is why: Because so many presses chose the Perseus option, accepting 70% in the hand rather than holding out for 100% in the bush, and because PGW was (remember) basically solvent, operating in the black, and not responsible for any of the AMS debt, not only would those presses who didn’t go to Perseus get paid but they would get more than those that did go (100%), and—the guy boasted to Berman—there would still be something left over, not a lot but something, to contribute to AMS’s creditors.

It was a paradox: if the bulk of the presses hadn’t gone to Perseus, none of us would have gotten much at all but, once they accepted seventy cents on the dollar, those that didn’t go got their full amount owed, all one hundred cents per pre-petition dollar.  Even if the Perseus acceptors had understood this math and this consequence ahead of time, they could not have availed themselves of it without destroying the deal that provided it.  They were boxed in.  The only way that they could have gotten a better deal was by calling a meeting of all the presses and threatening not to go to Perseus unless the non-acceptors agreed to sweeten the pot.  They would have been cutting off their face to spite their nose (malaprop intended), but it would have been a bluff anyway.  It would have been impossible for them to know when to call it because Perseus could have then played the same Poker against them.

In other words, it couldn’t have happened, not in this bankruptcy and not in any other bankruptcy.  The chips had to fall where they did, honestly and where the heat of battle tumbled them.

Though it was fundamental to the lay of the land, this was the first time in the whole proceedings that I understood, fully and with actual appreciation of the lucky consequences, that the PGW and AMS bankruptcies were separate, though joined at the hip, and the creditors of AMS did not have to be paid off with PGW dollars in proportion to their claims along with PGW creditors.  They only got paid after all the PGW claims were paid in full or as negotiated (70% on the Perseus clients), with whatever was left over.

Berman pointed out that the snippy attitude of the AMS lawyer came from the fact that, because of Perseus, we were getting our full claim.  But it was even subtler than that, though never spoken in these forbidden words: not only were the attorneys for AMS trying to carrot-and-stick North Atlantic/Frog into the Perseus group, they were also using us, in effect, as a scarecrow to stampede the other presses.  When our fellow PGW publishers saw how badly Perseus truants were treated, e.g. their books sold with no payment coming, they were more likely to jump in line and take 70% than wait around with full exposure or vote to skip to NBN.  They bluffed and stampeded them into compliance by taking away our legally due post-petition share, at least temporarily, thereby getting us our full pre-petition claim!  This is what the AMS attorney meant by his snippy comment to Jim.

So our bad treatment was, in part, a performance, which had the effect, though this was obviously not its main goal, of getting us our full claim (its purpose obviously was to get more money for Wells Fargo and the AMS estate and, at a perhaps more unconscious level, win for the firm of Princeton and Harvard guys the game called Bankruptcy).  A series of ironies and misdirections landed it on the magic number for us.

But we didn’t have our $1.5 million yet, and Berman was concerned that Perseus would now present itself as a generous martyr to the court and try to exact a hefty administrative fee (as per somewhat-threatening documents they had already filed).  They were the hero of the day for taking on 70% of the PGW debt of so many presses.  If they now had to be paid off out the remaining cash flowing into PGW for 2006 sales, this could significantly eat into our money.

Two months later we learned the results.  Apparently whatever Perseus ended up taking was not enough to reduce the potential payment on our claim by even a penny.

Now this narrative can look forward to Random House rather than back to PGW.  We did not get the transition that we planned on, but the transition was coming after twenty-six years.

Moving to Random House a month early and hastily was no easy operations feat, and our business suffered for almost a year as a result.  The first victims were the dozen or so books mentioned in Chapter Fifteen, the so-called orphans that were scheduled to be released in the first three months of 2007 under the lame-duck portion of our contract with PGW.  We had not printed these, as we did not print or reprint any books during January and February.  These “orphans” got printed up quickly and then had to be resold from scratch by Random House.  The sales were less than half of what they would have been if released in proper fashion.

Then many customers were either slow to realize that we had gone to Random House rather than vacating in the mob to Perseus (or vanishing altogether).  Thus, some of our best markets lacked our most successful titles or, in fact, any North Atlantic/Frog titles.  Borders refused to transfer our account to Random House for months.  Mass merchandiser Levy wanted the same deal from Random House that they got from PGW to stock Walter in Target and similar stores, so they initially removed it from their planigram in rejection of RH terms.  Healing with Whole Foods disappeared from large sectors of Canada, as all its orders went to Perseus where they conveniently (wink, wink) died.

More seriously, even though, on Mark’s urging, Random House agreed to qualify all of our customers without their having to apply anew for a Random House account and credit line, many of the smaller customers did not like Random House’s terms, especially the discount schedule and the minimum-size order rule that required larger purchases than they wanted to make, so they declined the offer.  Some stopped carrying our titles, and most of them remained on the outside looking in for years, either dropping North Atlantic or finding other, less expedient and convenient sources for our books.

We also had to absorb the infrastructure costs of dealing with Random House immediately, and we were understaffed for that.  Over the next year alone we added five positions.

During the ensuing several months PGW took in about $300,000 of our returns, pretty much the estimated amount, reducing our claim to about $1.2 million.  The bankruptcy still had not settled six months later when we met Jim Berman in person for the first time at a funky feminist restaurant in Fairfield while en route from Mount Desert Island to New York City.

Over soup he advised us that these things could drag on for years and, the more money involved, the slower they went.  The slower they went, the more they ate up assets in legal costs.  The more they ate up, the more likely our hundred cents was to shrunk.  He still hadn’t settled one of David Wilk’s bankruptcies from three years prior.  He recommended that if any of the various debt brokers hovering over the court in Delaware offered us eighty cents on the PGW dollar, we should grab it.

A day later our office in Berkeley got an offer at ninety cents on the dollar from a broker called Amroc.  We bit immediately and hired Jim to negotiate and draw up a contract for their purchase of our debt.

Guess what: like everything else in the capitalist universe, one’s debt trades on an open market and has a changing value daily, not as volatile as a NYSE stock or more conventional commodity like orange juice or pork bellies but still shifting as perception of its future worth fluctuates.  Early on, the PGW debt was worth maybe thirty or forty cents on the dollar at best, but after the Perseus deal it shot up to par at seventy cents and, as time passed, those who watch such things and observed the court in Delaware concluded that 100% payment was now likely.  So a number of firms raised their price to around seventy-five cents on the dollar, e.g., to take over the claim for the creditor and with the expectation of clearing 25% soon with a quick settlement.  Around the time we met with Berman, it jumped to eighty cents, and then one aggressive firm, Amroc, was trying to buy up as much of this debt as possible, so they raised their offer the next day, beating everyone else to ninety cents.[3]

Yes, we were giving up $120,000 (10% of our claim), and the bankruptcy money could surprise everyone and come in a month or less, making it a silly move, but we were ridding ourselves of any additional risk, any surprises (new creditors of PGW appearing out of the blue or disruptors throwing a wrench or two into the process out of one mischief or another).  We were also ending the incessant worry among our staff and distracting focus on the missing money.  With the selling off of the debt, we would be able to process four months worth of sales and get royalties paid to authors, copublishers, etc.

Also, we would not be out a full $120,000.  By our contracts, which were based on actual cash received rather than invoiced sales, our authors, copublishers, and distributed publishers were responsible for around a third of the debt, as we paid them by pcentage only on what we collected.  Every author or copublisher to whom I talked, having heard that a dime on the dollar was high for a bankruptcy settlement, was astonished and pleased by ninety cents on the dollar and anxious for us to grab it while it was there for the taking.

I estimate that about a third of our losses, or around $40,000, were borne by a combination of authors, copublishers, and presses we distributed.  But it was fractional by vendor, so no one had a major burden.  (When we first contacted Berman, he told us that he was sorry to have to say that we were responsible for royalties on the bankruptcy money even though we weren’t being paid it.  We could not break chain of legal obligation even though it was broken en route to us.  After I faxed him several of our contracts, he changed his mind.  He had never seen cash-based royalties before.  Another side note on this: only one author claimed the legal right to force us to pay whether we were paid or not, one of the authors of Flashing Steel, and he was owed something like $150 of the pre-petition money, as opposed to people whom we owed in the five figures.)

There would also be interest on the money we got, which we would earn indefinitely and which of course we would not receive otherwise until the case settled.  It took over a year to settle, and I estimate that our earning came to another 6%, or $72,000.  Thus, we really lost more like $8000, or about half of a percent.

But we didn’t even lose that.  As an additional item separate of the timing of our payment (e.g. separate from what we gained by selling our debt right away instead of waiting fifteen months), we would receive the Frog money after Frog had been folded into North Atlantic and was a nonprofit instead of an S-Corp (see below), thus far more than $120,000 would be gained in saved taxes on Frog’s share of the PGW money.  Though not a factor in the choice (the Frog tax money would have been saved whenever we got paid, so in theory we could have held out for 100% if we were trying to max our share), it was a hint not to get greedy—we already were way ahead of the game.

There were a number of othert long-term consequences to the bankruptcy:

1. As noted in Chapter Fifteen, Mark, Lindy, and I reviewed our overall financial situation and expenses and elected to close our warehouse and move all our books to Random House.  Random House, which ideally wanted all our business, offered to cover the cost of the transport and integration.  This meant that they would not only do our distribution henceforth but fulfill the few orders that we still took (mainly, as noted in Chapter Fifteen, those from our own authors and copublishers and from the four overseas markets we kept for ourselves under our prior distribution arrangements at that time: Australia, New Zealand, England, and South Africa).  Random House would likewise manage our website and take a share of our direct-to-consumer-sales.  It might seem like an extra middleman, but it was actually a great deal.

The warehouse had cost us something like $250,000 to $300,000 a year to run from a combination of salaries, California Workman’s Comp, rent, equipment maintenance (mainly the forklift), and supplies.  Random House would charge us on a per-book, per-case, or per-pallet basis for fulfillment, but we didn’t expect the total cost to exceed $50,000 a year.  And this included the fact that we would have to order all the books we needed in our office—for editorial, foreign rights, publicity, anything—we would have to drop-ship them from Maryland.  It shows how expensive it is to operate a warehouse in California.

2. As noted, we decided to fold Frog.  The conditions that had spawned Frog no longer prevailed.  The IRS had since made clear what the rules for nonprofit educational publishing were and how they would be enforced going forward, and we fit well within their parameter and guidelines and would continue to fit, as long as we published under our mission statement.  So there was no foreseeable need to keep a safety valve in case of a change in nonprofit-publishing determination.  In fact, many test cases had come before the IRS in the last twenty-seven years, and solid precedents had been set.

Neither of our children was interested in inheriting or overseeing a publishing business; they had their own professions.

And neither Lindy nor I wanted to sell Frog and split up our publishing business in half.  Even aside from the fact that the press represented years of our labor and philosophy, the list was a coherent whole, and so many people were employed by the joint business who would be displaced by a sale.

Folding Frog into NAB was a way to honor our employees at our own ostensible expense (giving away shares worth over $800,000 according to a formal valuation done in 2006 pursuant at the time to granting Mark stock options)—but, more than that, it expressed that Lindy’s and my commitment to the business was greater than our interest in cashing out.

In addition, the other investors in Frog had become problematic.  George Plimpton had recently passed, and his shares were in his estate, which wanted to get rid of them ASAP.  Seymour had given single shares from his parcel to a number of friends and clients, while he held the rest in trust for his children.  Although Lindy and I didn’t want to sell Frog for a big profit, others now involved in it had no such loyalty, and its shareholders were becoming a diverse and unpredictable group.  Plus, Frog was a for-profit and though, as an S-Corp, didn’t get directly taxed, its shareholders did, and we were ethically obligated to reimburse them their amount of annual taxes.  This included ourselves for 55% of the shares, so the sum was hefty.  It turned out to be a cost of $100,000-$200,000 a year, all money down the drain to no end if the business was never sold down the road.

In addition, double book-keeping was extremely expensive and bound to become more so under Random House.  The transition period under the bankruptcy was, in effect, a once-in-a-lifetime opportunity to get rid of the cost of running two legally incompatible companies from one office and allocating expenses between them.

So if our kids didn’t want our shares and we didn’t care about selling them for their market value, there was no point in either maintaining the illusion that the company would be sold (vis a vis the other shareholders) or paying annual taxes on its value.  Plus, operating out of a nonprofit office, Frog had become functionally nonprofit anyway.

Yes, Seymour was a family member and eager to help us in our crisis, but venture-capital people don’t like to concede money in any form.  They need a rationale to get over the hump.  The bankruptcy offered that fig leaf.

Hence, Frog, Ltd. became extinct as a company but survived as an imprint of NAB.

3. Mark left.  He informed us out of the blue one afternoon in April, soon after our move to Random House and two days after I met Avocado in Marin and invited him to visit our office on the next afternoon.  Mr. Ouimet gave us two weeks notice.  Ingram had been recruiting him from almost the moment he came to North Atlantic.

I had the silly illusion that Phil and Mary at Ingram respected us, and that’s why they were friendly to us even though we had turned down their offer and gone with rival Random House.  I thought, ‘They really do admire honorable and serious publishing,’ and so I admired them for their purity.

Silly me!  I had entirely missed that Mark was their target.

For three years he had laughed off their advances, assuring Lindy and me that this kind of thing happened all the time in the corporate world and that he had no interest whatsoever in that lifestyle; he was with us for the duration.  So I joined him in the laughing off.  Then suddenly he accepted their offer to become an executive vice president there.  Just like that: a balloon one minute, fully inflated—popped the next.

Mark summoned Lindy and me to my office.  I felt it in the air; in fact, I silently guessed it, like the PGW bankruptcy, but still I was shocked when a real friend spoke real words in the real theater of life.  He explained that just a few days earlier that he was a hundred percent committed to North Atlantic for the long haul and he wanted us to know that that was honest and the truth.  He had no idea why he changed.

All he could offer was that he suddenly saw it differently, and he said he was not one to question too deeply or look back once he made up his mind.  He emphasized that it wasn’t because of losing his stock options in Frog; in fact, he had been the main advocate for folding Frog, and I presume that was before that bolt of lightning struck him with the Ingram colors.

I think that, from the day he chose to come to North Atlantic, he was a ticking time bomb in that regard—a post-hypnotic command was overriding all our independent-press and metaphysical programming and summoning him back to his destiny.  This boy from the wrong side of the tracks in Holyoke valued being an Ingram VP and playing the big game again.  It was maybe a little like how Charlie and his brother, two boys from rural Modesto, formed PGW in order to get to be honorary New Yorkers, players in the Big Apple.  And maybe it wasn’t that at all.  Maybe Mark’s energy just needed a bigger arena.  Maybe Mark was still in process, working toward an unknown destiny.

At first I felt betrayed.  I gave him a very hard time during those last two weeks because, even as he worked overtime to close out his job, much would be left undone and in disarray, especially in the areas of inventory and low stock—and Lindy and I were headed soon for Maine.

The switch in loyalty was also evident; from the day before he made his announcement he simply wasn’t present in heart and mind, though I didn’t know why until he divulged his secret.  When the David Wolfe entourage visited our offices for the first time with their “best day ever” jive, I thought Mark would love the guy and regard him as a kindred spirit and our missing link.  I mean, Mark tended to be “up” and hyper and charismatic about everything like Avocado.  I assumed that they would charm each other.  Instead, our associate publisher paid no attention and seemed distracted or bored.  A day later I understood.

Mark said it wasn’t about money but Seymour later lectured me, “I work in New York.  They always say it’s not about money, and it always is.”

If so—and I’m not sure anyone really knows—I don’t begrudge that.  Mark has a young son and hopes for a second child and didn’t have that many earning years left—and schools these days are expensive from preschool on up.  Why should he commit his financial, professional, and even personal life to us for the duration?  He had a lot of irons in a lot of fires that he could play if set loose again and given his free agency.

After getting back from Maine that October, I began talking to Mark regularly again.  I found our friendship even more valuable and rich after the break.  We were no longer bound as employee and boss, an odd juxtaposition anyway since I looked up to him as the real businessman and felt like a neophyte, yet was older than him.  Now, with having worked closely together in our repertoire but clearly in the past, we could proceed with greater caring and depth than during the more remote PGW years.  We had a battle history together.

Everything did work out right.  My only lingering anger was toward Phil and Mary at Ingram who sweet-talked our guy for his entire employ with us, from day one, wearing their phony smiley masks.

They call it tampering in Major League Baseball. When Phil and Mary took Mark, Lindy, Sarah, and me out to dinner in Frankfurt in 2006 instead of one of their own clients, it was to woo him.  We were chumps, as Ehud would say.

We initially sought to hire Sean Shoemaker from PGW, now Perseus, the guy who provided Mark with the major help and heavy lifting beyond the call of duty in getting our pallets onto the Random House trucks as they arrived in Indianapolis.  His father Jack was the founder of North Point, and Sean had risen through the operations side of PGW.  He elected to stay put but recommended his close buddy and colleague from PGW, Douglas Reil, who had left a year earlier.

Doug turned out to be a perfect match.  Not only did he bring operations skills but, as a former street guy after college (New Haven) who once sported a Mohawk and who began his publishing career as David Wilk’s right-hand man at Inland, in fact the one who closed the doors there, he understood our books and our edgy, outsider topics.  He was an outsider himself, though a corporately oriented one, and he essentially got onto the very career track at NAB that we had laid out for Mark.

4. No longer needing a warehouse and with our lease about to end on Fourth Street, Lindy and I went out searching and found our new office.  As noted in Chapter Fifteen, taking a space at the corner of Martin Luther King, Jr. Way (formerly Grove Street[4]) and Blake, not far from our home office for most of the eighties, put us right in the center of Berkeley, two blocks from Berkeley High and walking distance to Cha Ya, Thai Delite, Omnivore, Sushi Ko, and Long Life Vegi Foods.

A little dicey a neighborhood—it has a bit of gangsta flowing out of Berkeley High—we found ourselves tagged and an occasional missive tossed at the windows, plus our parking lot was regularly visited by young adults on bikes too small for them with baggy pants and a diffident look.  These are the sort who, we learned, smash car windows and go for anything inside.

Being in the center of town changes the whole meaning of the publishing to me.  I soon took to walking everywhere, especially frequenting the nearby Berkeley Psychic Institute, Café Gratitude, and Empty Gate Zen Center, and developing an energetic connection to the town that I never had before.

5. The esoteric meaning of the bankruptcy was always 2012, Soul Shift, The Angel of Auschwitz, The Hierophant of 100th Street, Reunion on the Rainbow Bridge, Patricia Cori, David Wolfe, Michael Harner, John Friedlander, Qala Phoenix, raw, Thomas Myers, the second coming of The Reincarnation of Peter Proud.  All these new publishing pathways intersected at our door, and the lesson to me was obvious: publish what you have to because it could all vanish in an instant.  Just a blink of an eye by some marketing asshole at a place like AMS or a whim of a banker at Wells Fargo, and it’s over.  We are sustained primarily by spirit, not cash.  Everything is thin ice indeed.

Gradually, in the years after the PGW bankruptcy and the move to MLK and Blake, Lindy and I have worked on transition, transmission, and taking leave.  Lindy retired in July 2010 around her 66th birthday.  I have gradually dropped out of the day-to-day operations.  Doug Reil is the associate publisher and functional on-site manager and, with Janet Levin, Roslyn Bullas, Alla Specter, and the rest of the staff, he runs the business, negotiates most of the contracts, and interfaces with the copublishers, packagers, and imprints.  I am still doing the outreach for acquisitions, trying to read the tea leaves of the invisible guides and hear the voices that are calling us.

There is no way that the publishing company that Lindy and I founded and improvised could have been preserved indefinitely.  Changes in the worlds of economics, technology, ideas, and publishing itself preclude that.  We are of our time, and what we made was of its times.  But we have successfully handed it off to a group of people who support what it is and believe in its themes and mission.  It was never the issue whether they could have created it from scratch or would have created such a thing.  They will create their own thing out of what it has become.

At this point I have concluded that North Atlantic’s destiny is driven karmically.  Our success represents a force that is beyond my ken—beyond my capacity to create, certainly beyond my power to control.  It has a life of its own and, as much as North Atlantic is exoterically Lindy’s and my publishing company and casts a rough map of our evolving intellectual life, artistic adventures, and spiritual questing, it is really the publishing company of unknown spirit guides and intelligences that are far more enlightened and wise than we are.  It has invented itself around us, patiently tolerating our own limited capacity and slow learning curve over decades, and has initiated us into an order of both business and magic that we must have deserved and earned somewhere or somehow but hardly know why or how, given where and as who we began.

These higher intelligences are the ones that brought the key petitioners to North Atlantic, from Robert Kelly and Charles Olson to Ray Bradbury and Stephen King in the early years of Io, from Paula Morrison and Jess O’Brien to Mark Ouimet and Doug Reil.  They stage-managed the bankruptcy lesson even as they orchestrated the sullen transit of Sam and the disconcerting romp of Walter the Farting Dog.

I have learned to take the lessons that the universe is handing out and forget about feeling scammed or screwed by Ingram or Bill Kotzwinkle or Dobie or Sam or AMS or any of the rest.  It is all happening as it is supposed to happen, and everyone who crossed our threshold, with good will or devious design, every project that came to us, is as it was meant to be, as shadowed elsewhere in a realm of spirit.

We are the pale replica of a greater publishing company in a more luminous city and incarnation somewhere, somewhere else.

I must have performed the right ceremony initiating Io on that Halloween night in 1964 because I have felt the presence of spirits beyond my knowing ever since, and ever since it has been a temple.

Chapter 21: The Best Pranks at North Atlantic Books | Table of Contents

Footnotes

[1]
I remember one author of ours telling me that these tax-shelter guys, recommended by his literary agent after his project didn’t sell to an ordinary publisher during the eighties, produced his book on their dime but put a fifty-dollar price tag on it and, even at that, tried to prevent it from selling too many copies anyway because, he was told, the investors preferred and in fact needed a loss. He had been so pleased that anyone wanted to publish it—and it was a parapsychology classic that we would have contracted if his agent had come to us (he thought that this was a real big-time offer from a commercial press)—that he didn’t realize for a long time it was published only to disappear. It wasn’t accident or incompetence that no one could ever order or find it; it was design.
[2]
The real movers in this genre ended up places like Morgan Stanley, Merrill Lynch, Shearson, World Savings, Bank of America, etc. The AMS lot were mostly losers from the big game, yet their game was big enough to make them all wealthy, and at least they skimmed and parleyed what they could get into the fantasy of wealth. I mean, how much money do you really need to spend all that you have the time and imagination to purchase. A multiple of fifty separating AMS from Lehman Brothers was really incidental. The AMS people could buy whatever they wanted or could think of wanting and were not on any budgetary stringencies or short credit leashes.
[3]
In the normal course of things, the money would have moved three blocks along Fourth Street in Berkeley, from PGW to us. Instead it moved three blocks along Madison Avenue in Manhattan from Amroc to our account at Family Management.
[4]
Hence, our daughter’s friends called the January MLK holiday Old Grove Day in eighth grade.

Leave a Comment

Previous post:

Next post: