Good Loans! - George Snively
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From:

I’ve Never Been Bored

Favorite Reminiscences of

George E. Snively

 

 

Good Loan Isn’t It!!

 


            “Hold on a minute”, I said.   “We’ll have to scratch the progress payment provision until we learn more about this ‘Data Products Corp.’”

            It was March 1962(?) and we had gotten to the last page in negotiating the contract when Frank Juttras, CEO of Midwest Instruments/TELEX said, “There is a change on the signature line.   We’re spinning this product off to a new company called Data Products and they will be signing the agreement.”

            I would not normally have been in a procurement meeting but the agreement called for GE to provide TELEX with $300,000 in progress payments and I had been assigned to write the contract provision and defend it in negotiations.

            The General Electric mainframe computer business had arranged with TELEX and Midwest Instruments for a “Juke-box” type magnetic memory system for the NCR 304 computer system that GE was building for the National Cash Register Company to market.

            The meeting fell silent until Frank said, “I understand your concern but they need the progress payments, I’ll call Minneapolis right away and have them send you the Pro-forma financials.”  

            When, several days later the financials arrived (this was before FAX machines, FEDEX or email), they showed a “start-up” company with no operating history and a NEGATIVE net worth of $250,000!!   I called our buyer, Jim Barford and Bob Wooley, the engineering project manager; to tell them that there was no way we’d advance $300,000 to this new company.

            Wooley was very upset.   “We need this equipment and there is no other place to get it.”   I suggested that with $300,000 he could design it himself.   He replied that we didn’t have the time to develop it ourselves and he had great faith in Irv Tomash – who was listed as President of Data Products.   I responded that if they didn’t perform he would have lost not only the design funds but also even more time.

            At Wooley’s insistence, I went to Culver City, California to meet with Data Products.   It was counterproductive.   They were housed in a small, old warehouse where I saw few signs of the memory system we were to procure and Irv Tomash was much more interested in showing me the printer hammers he was developing.   I held firm on my position about advancing funds to them.

            Wooley called me several days later to tell me that Data Products was getting a loan from the B of A.   “I’ll believe it when I see it.” I responded.   I suppressed a chuckle when, as I anticipated, Jim Barford also called me to tell me, “They say they have a $500,000 unsecured line of credit from the B of A.”

            Jim Barford called me again the following day to tell me that Data Products’ VP of Marketing, Russ DuBois, was in his office and wanted to come up and see me.   “Send him up”, I said.

            DuBois reiterated that Data Products did indeed have a $500,000 unsecured line of credit from the B of A.   I said,”All right, Russ: I’ll check it out.   If it’s so and without too many strings attached to it, we’ll reconsider.”

 

            I figured that if anybody at B of A knew anything about Data Products it would be Tom Clausen.   Tom, who later rose to Chairman, was the Manager of National Accounts for the Southern Region with headquarters in Los Angeles.   Tom had a Small Business Investment Company (SBIC) under his control and Tom would occasionally call me to check out a potential start-up company, a number of whom forecast that they were going to do lots of business with the GE Computer business.  (I later got Tom to finance Tom O’Rourke’s TYMSHARE. through the SBIC)

            I placed a call to Tom and asked, “Hey, Tom, have you heard of a startup company called Data Products?”   “GOOD LOAN ISN’T IT!” he replied.  

            “You mean to tell me that you’re in there with a half million unsecured?”   “We’ve banked Irv Tomash, Graham Tyson and Bill Mozena through two other ventures and they’ve always come through.   Besides, you’re going to buy from them aren’t you?”  

 

            I guess so, I replied.

 

***

            In view of the precarious financial position of Data Products, I rewrote the progress payments provision to provide GE with shop drawings, tooling, etc. and to grant us manufacturing rights if they failed to perform on time.   They missed the schedule and we were forced to take over the manufacturing.   However, we needed them as a backup source and for emergencies.   I was assigned the responsibility of seeing that we subcontracted enough to them to keep them alive and I made monthly trips to Culver City and later to the Warner Ranch in Woodland Hills to negotiate production schedules with them.   I thought that I was quite generous with them, a view that Graham Tyson and Russ DuBois dispute to this day.

 


 


B of A’s Huge Return from the Small Loan


 

            Tom really did not put the bank at great risk with the loan as he controlled a Small Business Investment Company (SBIC) (later managed by George Quist and spun off as the nucleus of the investment banking firm of Hambrecht & Quist) which could, and did, make an investment in Data Products to retire the bank’s loan.

 

            Data Products had a software networking operation headed by Dr. Walter Bauer called Informatics.   After the SBIC made their investment, this operation was spun off into a separate company that went public.   The B of A’s share of the $27,000,000 public offering was $8,000,000.   Not a bad return on a $500,000 investment – and they still had their position in Data Products.   I have no idea how much additional they realized when Data Products went public – but it had to be very substantial.

 

 

 

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