Beyond the Cure for the Common Cold R. Steven Davidson’s Zengen has leveraged a profitable over-the-counter cold remedy into even more ambitious research projects By SHELLY GARCIA Senior Reporter You’d think a cold remedy supported by a block of clinical evidence showing it actually works might be something to hold onto. But for Zengen Inc., a cure for the common cold is a means to a different end. Last year, Woodland Hills-based Zengen sold off its interest in Zicam, an over-the-counter cold remedy its founders developed, foregoing the promise of future revenues and profits to buy a luxury few biotech companies have time and the ability to diversify. The sale, for the tidy sum of $17 million, buys Zengen time to develop other, potentially more profitable pharmaceuticals and biotech products. Just as important, in an industry where years of research can lead to a dead end if a product does not successfully meet regulatory approval, keeping many products in the pipeline can be key to a company’s survival. Zengen is using the proceeds of its sale to finance research and development of a proprietary peptide molecule for use in different anti-bacterial and anti-microbial applications and a new nasal drug delivery system with potential for use in different therapies, for the biopharmaceutical and biotech markets. The company, which employs 14 workers in the U.S. and abroad, also used the proceeds of the sale to finance the $750,000 construction of a just completed new laboratory. Compared to the revenue the company generated from the sale of Zicam, the drugs targeted for its proprietary delivery system already comprise an $11.7 billion market and the target markets for its peptide work netted $3.5 billion in 2000. Through its over-the-counter subsidiary Zensano, Zengen hopes to launch other OTC products that can finance still more R & D; work in the biotech area. Question: As part of Zengen’s business strategy, you’ve set up three units, one for OTC products, one to develop your peptide molecule and one to develop new drug delivery systems. What is the advantage of working in these three areas simultaneously? Answer: It diversifies our opportunities as well as our risk. Zengen got involved in Zicam, and what that allowed us to do was to sell Zicam a year later for quite a bit of profit, which helped generate revenue for additional research in the peptide area without having to dilute the company and dilute the shareholders by an additional fundraising round. Q: Would you consider hooking up with a large pharmaceutical company to further your R & D; efforts? A: We plan on driving the (peptide) molecule further down the path, and then probably licensing it for the different indications that we’re working on. Our goal is not to ever market the product ourselves. Our goal is to form strategic relationships at a more rewarding point for us, obviously further down the channel, with large pharmaceutical companies. Q: Why is it better to wait before approaching the big pharmaceuticals? A: Your value increases the longer you wait. And you also do want to maintain some control over your own development. That’s important. We feel it much more beneficial to our molecule to hold onto it until a later phase because we have the expert in the field in our company. Dr. (James M.) Lipton (chief scientific officer) is the expert. Why would we give it to a company that doesn’t have the expert? Q: What will you use your new laboratory for? A: The laboratory helps us in doing research that is more sensitive as far as not allowing other companies to know about the new research, novel products that have not been protected by patents yet because they’re new. It’s much more beneficial to keep it in house if you’re going to develop new ideas and new molecules and advance in new areas until you have that protection. Q: You’ve established a partnership with Lee’s Pharmaceuticals Ltd. in Hong Kong, which is conducting research on your peptide technology. Why go to Asia? A: First of all, we’re very excited about that company. The CEO of that company is affiliated with the Hong Kong Biotech Institute, which we want to be affiliated with. (Also,) we feel they can do clinical studies that can be utilized here in the U.S. for less cost. Labor is cheaper, I guess. A lot of the studies will be done in mainland China, through hospitals in mainland China. The other reason is we want to be a global company. Science is global. Coming up with medication that helps people is a global field, and we want to establish those ties in these global regions. We will have the ability to exchange technologies, exchange research with scientists all over the world, and we believe this gives us the upper hand. The more resources you have for your company the better. We can do research in Hong Kong and find out if a novel product that we designed works, and we can do that rather quickly without diluting our time and energy. Q: Do you have other relationships like the one in Hong Kong? A: We have a collaboration with a pharmaceutical company in Italy. We give them license rights to two indications for our peptide and in exchange they will be running studies on the indications. We still have the rights to those indications in the U.S., so we receive an enormous amount of information and research that we can utilize here in the U.S. for our filings. We also get a royalty from sales, so that helps us. We gain many different things on this one deal. We get automatic distribution in certain parts of Europe. We gain research that we needed to do ourselves anyway that we would have ended up doing ourselves out of pocket. What a great deal. Those are the kinds of deals we’re looking at doing. Q: Your background includes both science and business management. How did you develop that combination? A: In my younger years, I was studying pre-med and decided I like business better. And then in business, I wanted to still be in the health field, so I went into project management in the biomedical industry. I’m not really a scientist. Q: How important is it to have someone with your background on the management team of a biotech company? A: A lot of companies that have scientists running the company make a lot more mistakes and tend to fail more often. I think you need great scientists in the company, you also need great project management and management people, including fundraising. Working with angel investors, working with venture capitalists, scientists just do not know how to do that. I think it’s also more difficult for a scientist to run a company around their own technology because it’s very natural for the person who developed that product or that molecule or that technology to really run a path with blinders on. Sometimes they won’t see the other opportunities out there. Q: Why are biotech companies, especially young ones, increasingly employing both scientists and management experts? A: If you have a company that has, let’s say, two scientists running the company and they come to, let’s say, a venture capitalist group with great technology and they somehow are able to sell it to this venture capitalist, a lot of time this venture capitalist group will say, “We’ll give you $10 million, but you’re moving the company to San Diego and you’re hiring this guy as CEO because he’s got a management background,” and that’s what generally happens. Venture capitalists will force the hand of these people to make that happen. SNAPSHOT: R. Steven Davidson Title: President and CEO, Zengen Inc. Age: 35 Education: MBA in international finance and Ph.D. in biopharmaceutical project management from American University of Astorias in Spain Career turning point: “The development of Zicam. When you can manage that process and bring a technology so great it helps millions of people, who wouldn’t want to do that?” Most admired person: My wife Joann Personal: Married, 10-year-old son

In Secession Election, Who’ll Show Us the Money? If and when the Local Agency Formation Commission (LAFCO) agrees to put a secession initiative on the ballot in November, the floodgates for financial contributions to Valley city council and mayoral races are certain to bust wide open. LAFCO is scheduled to release its decision on a ballot initiative on secession by late April and, even though names of potential candidates for office have surfaced, subsided and resurfaced over the past few months, the official filing period won’t begin until July 15. It’s expected that there will be hundreds of candidates vying for mayor and the 14 council seats. So, expect a barrage of billboards and political placards by late summer and start making room in the recycling bin for all those pesky mailers. Most analysts agree big contributions to Valley races will come from a small group of individuals but, even then, a huge chunk of that money is likely to be spent on solidifying support for the initiative. Why spend money on a candidate for a new city unless there’s a clear indication voters even want their own city? “Candidates are going to have a lot of trouble getting funding unless polls show that the secession initiative is going to pass,” said Harvey Englander, senior vice president and general manager of the MWW Group. State, not city, law will apply to the likely election. Consequently, financial contributions will not be limited to current Los Angeles city restrictions, which cap contributions at $500 per individual. Some say the unlimited contributions rule is certain to create an uneven playing field, particularly for wealthier candidates and those with ties to special interests or individuals with deep pockets and an interest in shaping a new government. Nonetheless, the Valley is home to several key business leaders with the capital to back either one candidate or a slate of candidates who may suit their vision of a new Valley city. Jacqueline Fox, politics reporter for the Business Journal, polled local political strategists to get a sense of who is likely to be whipping out their checkbooks to further a Valley secession effort. Burt Boeckmann Owner/president, Galpin Motors Inc. A heavy contributor to Valley VOTE; owns the largest Ford dealership in the country and, although he keeps a low public profile on the issue, behind the scenes he’s been a key player in building consensus on secession in the business community and even offers up his company headquarters for Valley VOTE board meetings. Rick Caruso President, Caruso Affiliated Holdings Retail developers will be clamoring for the ear of Valley lawmakers to get their projects off the ground and Caruso certainly has cash and the clout to throw around; he’s considered one of the most influential commercial real estate developers in town. David Fleming Attorney, Latham & Watkins; Chairman, Economic Alliance of the San Fernando Valley He’s contributed a total of $55,000 to Valley VOTE, however, his recent appointment to the Los Angeles Ethics Commission may bar him from contributing to the group in the future, although he said he doesn’t think that will be the case; “I haven’t gotten involved in it yet, because it’s premature,” Fleming said, “but I don’t believe I would be barred from contributing because these will be like state races for a city the Ethics Commission wouldn’t be a part of.” Rickie Gelb General partner, Gelb Enterprises; Valley VOTE board member If he doesn’t run for office himself, Gelb is likely to be on the list of top campaign contributors for folks who have backed his real estate projects in the past; he’s known for spreading the wealth far and wide in the Valley, but also for keeping a low profile about it in the process; donated $2,350 to now-state Sen. Richard Alarcon’s campaign against Richard Katz in 1998. Clay Lacy Owner, Clay Lacy Aviation One of the wealthiest aviators at Van Nuys Airport and not exactly best buddies with some members of the Los Angeles City Council, which, in his and other aviators’ views, has done little to push for a land use plan for the airport; Lacy and others have waited years to get approval for expansion projects to accommodate business growth; LAFCO attorneys recently included the airport on the list of Valley-based assets that would go to the new city, contrary to the city’s own legal opinion which said the airport would remain the property of the city of Los Angeles. Alfred E. Mann Chairman and CEO, Advanced Bionics He’s the Valley’s billion-dollar man and, some strategists say, likely to be motivated by past tiffs with City Hall over development plans in the northeastern portions of the Valley; but getting his support won’t be easy: he recently said he was not a fan of a Valley breakup; “Frankly, I’m opposed to secession. I don’t think it’s the answer to our problems,” Mann said. Walt Mosher President, Precision Dynamics Corp. Supported previous campaigns for former Assemblyman Richard Katz, a likely contender for a new Valley city mayoral or council seat; he’s also heavily involved in local politics and said he would “support anyone he thought would be a good candidate;” besides providing financial help, he said he would invite candidates to visit his company headquarters to introduce themselves to Precision employees. Sanford Paris Owner, Paris Industrial Parks A significant contributor to previous political campaigns and one of the biggest players in the Valley industrial property scene; “I have given to political campaigns in the past and when the time comes, I’m sure I will participate in a way that reflects the democratic process,” Paris said; as co-chair of the Valley Industry & Commerce Association’s ad hoc committee on secession, he will play a key role in setting up candidate forums. Irwin Rosenberg Vice president, governmental relations and business development, Laidlaw Transit Services Holds down the Valley office of Laidlaw Transit and a well-known political player, particularly in the Northeast Valley; he was a key supporter of Antonio Villaraigosa’s unsuccessful bid for mayor against James Hahn in 2001. Scott Schaffer President, City Cab He successfully took over taxicab rights to the San Fernando Valley from Valley Cab in 2000, becoming one of the two primary taxi providers; he’s got the San Gabriel Valley locked in tight and predictions are that he would push for a Valley city monopoly. Dan Selleck President, Selleck Development Group In partnership with Voit Cos., built “The Plant” in Panorama City; no stranger to politics, he’s currently embroiled in a battle in Agoura Hills over plans to construct a 255,000-square-foot shopping center with Home Depot as anchor tenant; voters will decide this week whether to pass a law curtailing the size and scope of development projects in the city. Ron Tutor President, Tutor-Saliba Corp. Handled (some have said mishandled) the Los Angeles Metro Rail subway contract; would likely be first in line to build a Valley subway, something many connected to the secession movement have pushed for decades and failed to get; the company reportedly contributed $5,000 to Alarcon’s campaign against Richard Katz in 1998. Robert Voit President, Voit Cos. He’s been called the Valley’s “commercial real estate king” and runs one of the city’s most prominent property management companies; partnered with Selleck Development Group on construction of “The Plant” in Van Nuys; he and other Voit executives reportedly gave to Alarcon’s campaign against Katz.

Analysts Down on United Online After Comcast Deal Corporate Focus By CARLOS MARTINEZ Staff Reporter Despite some encouraging December quarter numbers, Westlake Village-based Internet service provider United Online Inc., formerly NetZero Inc., is having a hard time convincing analysts that the acquisition of troubled Juno Online Services last September was worth it. The company, formed in September when NetZero acquired Juno, is still trying to demonstrate that its business model will be successful, said David Kathman, an equities analyst with Morningstar Inc. “There’s a lot of skepticism about the chances that they can turn things around,” Kathman said, referring to the long string of losses that have dogged the company since it began operating as NetZero in 1998. United’s struggles to get paying customers likely received a boost last week when it agreed to provide high-speed Internet service on Comcast Corp.’s cable television system. “It’ll be a challenge for them to get into the high-speed Internet business, but cable is a good place for them to start,” said Mark Kersey, an analyst with technology consulting firm ARS Inc. The Feb. 26 deal with Comcast came about after bankrupt At Home Inc. agreed to continue its high-speed Internet service through Feb. 28, allowing United Online to snap up the contract to serve Comcast’s 8.4 million subscribers. Although terms of the deal were not disclosed, United CEO Mark R. Goldston told reporters last week that the pact will allow United to earn $4.20 to $4.40 per high-speed customer, or about the same as it collects from its dial-up subscribers. For the quarter ending Dec. 31, 2001, the company reported a net loss of $15.7 million on revenues of $48 million, compared to a net loss of $43.4 million on $16 million in combined revenues of the two companies prior to the September 2001 merger. Company officials were unavailable for comment, but Goldston said in a statement that the company’s efforts were paying off in increased subscribers during the quarter. “As we grew our pay subscriber base by 17 percent sequentially, billable services revenues expanded to 85 percent of total revenues,” he said. The company, which is slowly abandoning its free Internet service, is adding more pay subscribers to its premium service, Goldston said. During the December quarter, the company added 214,000 new subscribers to its base of 1.46 million paid subscribers, which is still only a small segment of its 5.6 million total subscribers, the bulk of which use the free service. The subscriber base has shrunk by 6 percent since September as the company continues to move away from the free service. United’s strategy has been to market the NetZero brand as a free service, while pushing Juno as a pay service. But Morningstar’s Kathman said the strategy has been slow to take hold. “It’s very difficult to give away a service, then ask people to pay for it,” he said. The slow pace of attracting new subscribers while losing scores of old ones used to a free service was expected, Kathman said, but the company appears to be making progress. “They’ve eliminated a lot of expenses and streamlined things, so there is room for optimism,” he said, noting that the company finished the year with $132.4 million in cash, enough to sustain its efforts to become a full-fledged pay service through next year. Despite flaccid advertising sales, the company plans to continue to market its pay service as “no frills.” The premium service allows users to pay a monthly $9.95 fee without the free service’s floating banner ads. United said it expects to add between 80,000 and 100,000 new subscribers in the current quarter, with projected revenues rising by about 2 to 3 percent from the December quarter. For the current quarter, United projects a pro forma loss, before charges and other items, of $4.8 million to $6 million. The stock closed at $6.87, after jumping from $5.81 to $6.51 on Feb. 26, the day the Comcast deal was announced.

Countrywide Wants to Save on Fees With New Bank By CARLOS MARTINEZ Staff Reporter Countrywide Credit Industries is going into the banking business. The newest division of the Calabasas-based financial services giant has opened four branches in the San Fernando Valley and, if successful, will follow up with more throughout the United States. Branches of what is now called Countrywide Bank opened in February inside Countrywide mortgage lending offices in Thousand Oaks, Woodland Hills, Northridge and Glendale. Twelve more will open throughout the state this year, said James S. Furash, president of the bank. The new bank is a subsidiary of Treasury Bank of Alexandria, Va., which Countrywide acquired last year, allowing the company to avoid the long regulatory process, or the cost, of a startup. Countrywide Bank offers traditional consumer banking services and products such as access to ATMs, interest-bearing checking accounts, savings accounts, certificates of deposit and retirement and money market accounts. But perhaps more significantly, Countrywide now handles about $6 billion in impound fees for taxes and insurance from mortgage holders that it sends to other banks for processing, said Robert Napoli, an equities analyst with ABN AMRO in New York. “Before, they were paying fees at other banks,” he said. “Now they can collect those fees themselves.” Analysts welcome the diversification effort as a means to buffer the company from fluctuating interest rates that could adversely impact revenue in its core mortgage lending operations. Napoli said Countrywide’s move into the banking business was long overdue. “They really should have done this five years ago,” he said. “It’s a wise move on their part and it’s very complementary to their mortgage lending business.” Angelo Mozilo, Countrywide CEO, said the bank is part of the company’s effort to diversify and move into other segments of the financial services industry. “This is an excellent time to get started,” Furash said. “There are a lot of dissatisfied bank customers out there that want a bank that caters to their needs.” Furash said Countrywide has invested about $100 million in the new bank venture, but would not reveal any revenue projections it has for it. Countrywide, which operates more than 550 offices in nearly all 50 states, writes, sells and services mortgages mostly for single-family homes. The company has recently begun diversifying by offering other products such as home equity lines, lines of credit, mortgage refinancing and insurance.

Companies Cautious About Meetings in Post-Enron Era By SHELLY GARCIA Senior Reporter The ongoing investigation into improper accounting practices at Enron and other high-profile corporations is driving even the most unimpeachable businesses to revise their reporting procedures and their investor relations programs. Auditors report that companies are opting for greater disclosure and adopting more stringent accounting practices. Investor relations counselors say their clients are prepping to answer many more shareholder questions than they are typically asked to field at annual meetings. And even small businesses plan to devote more time to analyzing the company’s performance in upcoming discussions. “We intend to beef up our discussion of our financial results in our 10K in the management discussion and analysis area,” said Kurt Johnson, CFO at ValueClick Inc., a Westlake-Village based online advertising service. “We’ll probably be providing more information to give readers a better sense of our activities.” Current practices at firms like ValueClick would likely pass any regulatory or shareholder scrutiny, but that isn’t the point, corporate officials say. Companies like Enron or, closer to home, Homestore.com have eroded the trust and confidence of the investing public and hurt stock market valuations almost across the board, not just for those who may have something to hide. “We’re in a very skittish market right now in part because of Enron and Tyco and Global Crossing,” said Bill Powell, director of investor relations for Syncor International Corp. “This is a company that’s highly ethical and balanced, and believes in doing things the right way. Whatever we can do to provide more information and clarity, we think that’s the right way to go.” The fallout from Enron has focused attention on a heap of accounting issues from the way companies book revenues and compute earnings to the way they account for losses and the information they provide shareholders and sent many companies scrambling to remove any possible doubts, real or imagined, about their own practices. In recent weeks, General Electric Co. said that it would begin breaking out operating results for its individual operating businesses for the first time. Intel Corp. said it will phase out pro forma reporting next year. American International Group Inc., the parent company of 21st Century Insurance Group, told analysts it plans to disclose more information about its finances. Homestore.com is restating its last two years of financial results. A recent, informal poll of CBS.Marketwatch.com readers elicited a large number of responses to the question of what companies can do to win back investor trust. The responses ranged from requiring companies to report finances to shareholders as they do to the IRS to eliminating the puff in press releases and doing away with pro forma statements altogether. Some companies are bracing for a grilling when the annual shareholder meeting season begins this spring, or at least a greater level of participation from shareholders. “Shareholder meetings are historically fairly structured and scripted affairs,” said Bob Pearlman, a partner in the technology practice group at accounting and management consulting firm Grant Thornton LLP. “And you kind of know going in what’s going to happen. I think going forward there will be some additional questions, there will be some heightened curiosity and directors will be better prepared to answer questions.” Large companies, with their high profiles and complex business structures, may feel most vulnerable to the heightened scrutiny of shareholders, but even small cap firms, concerned about being tainted with the air of distrust that has spread through the investment community, are making certain they dot all the Is and cross all the Ts. “I have had some clients that have come to us and said, ‘With everything going on with Enron, do you think we should do something?'” Pearlman said. “Everybody is more concerned now about doing it by the book.” For those who have been doing it by the book, however, there is still the perception in the investment community to deal with. Companies like Syncor, which operate several different businesses, all fairly technical in nature, want to be certain that their reporting is perceived as clear and complete. “Our annual report theme this year is entitled ‘Straight Talk,'” said Powell. “Our business is somewhat difficult to understand. First, you have to start with radiopharmaceuticals, which is not something that burns in the hearts of investors, so we have to work a little harder.” Financial accounting at ValueClick, a small cap company with a single operating division, is relatively simple and straightforward. ValueClick doesn’t accept barter payments, an e-commerce strategy that led in part to the recent charges that Homestore falsified its accounting. But the company has chosen greater disclosure anyway, aware that the current environment requires greater sensitivity. “When the news is good, there typically isn’t a cause for criticism or concern. Now the environment is much different, so it’s warranted that we open up communication lines,” Johnson said. The decision to reveal more information about the inner financial workings of a company can be a complicated one, investor relations counselors say. The more transparent the company’s financial practices, the more trust the business can instill. But detailed reporting, such as a shift in marketing strategy that adds to the cost of operations, can also provide intelligence to competitors or it can make the company a target of competitive sniping. “If a company knows it plans to raise capital, but they haven’t started the process, that’s a sensitive issue,” said Douglas M. Sherk, senior managing director at Morgen-Walke Associates, an investor relations firm in San Francisco that counts Guitar Center Inc. among its clients. “If I’m a competitor, I can latch onto that and say, ‘They need to raise money; they’re in trouble.’ Even something simple like major executives selling stock. A competitor can latch onto that information and, if they’re aggressive in their sales tactics, say, ‘How can they believe in the company if they’re selling stock?'” Still, companies are increasingly listening to the advice of investor relations consultants and auditors that they open their books, where they may have argued for a different interpretation before. “We had some very heated discussions with a client about the accounting treatment for some of their transactions in which we were very insistent they do it one way even though they wanted to do it another way,” said Pearlman. “In the heat of the discussion, they implied they could go find another auditor, but I ran into them at a conference recently and the CEO pulled me aside and thanked me for keeping their feet to the fire. They were grateful now that the Enron thing has come up that we were forcing the issue.”

Time Warner Battles Satellite TV With 400 Channels By CARLOS MARTINEZ Staff Reporter West Valley cable television viewers are the first in the United States to have a 402-channel lineup, say Time Warner Cable officials, who have tripled their channel choices in the last two months as part of an effort to compete with satellite television. “We’re now on a par with satellite companies and we hope to improve upon that,” said Max Herbas, director of new products for Time Warner Cable’s Los Angeles Division, which oversees the West Valley. Since Dec. 27, Time Warner has offered 402 channels as part of its conversion from an analog to a digital cable system, and touted it as the nation’s only cable system offering more than 400 channels to choose from. The changeover means residents can opt to keep their 80-channel analog cable service for $42.50 per month or upgrade it to the 402-channel digital system for about $70 a month (depending on the premium movie channels they choose), Herbas said. “Going digital is what brought us all these channels and different choices, but our non-digital customers can keep their service without penalty,” he said. Time Warner says it spent in excess of $60 million to upgrade to a digital system in the Los Angeles area. The digital channel lineup includes all 21 on-air channels in the Los Angeles metropolitan area, basic cable channels like CNN or MTV, 10 HBO channels, 10 Showtime channels, four channels of The Movie Channel, STARZ and Encore premium movie channels. Less-known channels available are the Style Channel, Ovation, the Inspirational Network and five versions of the Discovery Channel. Analysts say cable companies feel the pressure to upgrade to more expensive digital systems to reduce the continued migration of its customers to satellite television systems. “Cable television has become more expensive while offering fewer channels than satellite TV systems,” said Lara Warner, an analyst for Lehman Brothers. “They have to keep these customers and, in order to do that, they have to offer a wider variety of channels.” Even so, satellite companies have little to worry about, said Mark Lumpkin, a spokesman for Dish Network, owned by EchoStar Communications. “We have 6.5 million customers and we’re continuing to draw customers away from cable at a rapid pace,” Lumpkin said. “People just prefer satellite television to cable.” Federal law now requires all pay television providers to carry every on-air channel in markets where they provide local channels. Satellite TV providers have had to limit the number of markets they serve because they say they don’t have enough capacity to beam all local channels for every community they serve. That has given cable companies a strong selling point as they harp on the satellite companies’ inability to supply viewers with local channels. But analysts say satellite companies have the edge over cable companies as they continue to lose viewers to popular satellite services like EchoStar’s Dish Network and DirecTV, owned by General Motors’ Hughes Electronics. The two satellite companies are seeking regulatory approval of their planned merger first proposed last year. Regardless of whether the government signs off on the deal, viewers will continue to be attracted to the $30 to $40 monthly fee in exchange for nearly 500 channels, as opposed to nearly double that to watch digital cable, Lehman Brothers’ Warner said. Even though new satellite TV subscribers initially pay more than $200 for the dish and related equipment, Warner said, the deal is attractive to those fed up with escalating cable prices. “Cable companies are forced to spend hundreds of millions of dollars to upgrade to digital systems in order to compete with a more efficient satellite system,” Warner said.

The Briefing: THE BOSS’ MANAGEMENT STRATEGY Ben Reiling, president of Los Angeles-based Zelman Development Co., has built or developed a number of commercial and industrial buildings and complexes in the San Fernando Valley. But when it came time to turn the 103-acre site of the old Lockheed Aircraft plant in Burbank, once a Superfund site, into a retail and office complex, Reiling knew it wouldn’t be easy. He realized that conducting an environmental audit, determining whether the site would need to be cleaned up again and then selling the whole package to a skeptical public would be one of the biggest hurdles facing the project, dubbed the Burbank Empire Center. Reiling understood the results of that environmental audit could sink the project altogether. Recently, Reiling took time to speak to Business Journal reporter Carlos Martinez about those early days of the project. “In our business, one of the most difficult things is getting through the entitlement process, getting out of an adversarial position and trying to create a partnership with the cities and trying to work together to get a project done. “The city wanted to audit the environmental documents and we wanted to do it, but we didn’t want to run into this adversarial situation. I didn’t want to give up on the project because of the great potential it had. It was a huge piece of property. So we said, ‘Let’s both do the audit and see what we find.’ “We basically had to meet with the city council members and show that this was the way to go. They had concerns, but I felt that two audits was a way to get rid of any lingering questions about the site. They agreed. “We made sure we met with the citizens and got an array of feelings from the community. I wanted to make sure we heard from the members of the community and they supported us. “We knew it would take months to do it, but it was something we knew we had to do and, if our conclusion was the same as the city’s conclusion, then that would be fine. We didn’t want our analysis to be tainted by cross-pollination, so we worked separately and cooperatively. We examined every piece of paper and every test result and went through everything we could get our hands on for that audit. “We were able to take 100 acres of fallow soil that wasn’t producing anything and we were able to produce this great commercial and retail complex that serves a community.”

Interview: Behind the Wheel Superior Industries Executive Vice President Steven Borick finds doing business in Mexico saves money but is not free of restrictions By SHELLY GARCIA Senior Reporter When Superior Industries was founded in the 1950s as a supplier of aluminum wheels to the automotive aftermarket, its little-known products were bought mostly by car enthusiasts who wanted a high-style look impossible to achieve with steel. A half century later, aluminum accounts for nearly 60 percent of the wheels used on U.S. vehicles, and Superior is an international company with nearly $170 million in sales and a 35-percent to 40-percent share of the market. The Van Nuys-based company operates 12 manufacturing facilities in the U.S., Mexico and Hungary and employs some 6,000 workers. Although 2001 was a challenging year rising energy costs, the strong dollar and startup costs for its new factory and some new products, along with a reduction in interest income, contributed to a 30-percent decline in earnings to $55.3 million or $2.10 per share on a diluted basis Superior seems back on track. This year, the company has given guidance that it expects to post income of $2.35 to $2.40 per share on a 12-percent increase in revenues. Throughout much of the company’s recent growth, Superior executive vice president Steven J. Borick, son of the company’s 78-year-old founder, Louis Borick, made his home in Texas, forging his own career in the oil business. The younger Borick turned down his father’s request to join the family business-turned-public company when he graduated from college. But he returned to the fold in 1999 as the expansion of the company’s first manufacturing facility in Chihuahua, Mexico was nearing completion. A second Mexican facility came on line last year, setting the stage for product diversification and further globalization and creating the backdrop for the next generation of management. When the new plant becomes fully operational, Mexico will account for 30 percent of Superior’s aluminum wheel manufacturing capacity. Question: Why did Superior decide to set up manufacturing operations in Mexico? Answer: There were salary opportunities, there were opportunities with the Mexican government and some of the states in Mexico were courting corporations from all over the world. Q: How do you set wage scales in Mexico? A: Major U.S. corporations had been there for years. Across the street from us is Ford Motor Co., that has a huge operation, so we felt pretty confident that (wages) were not going to be an issue. And by the way, when you talk about disparity in wages compared to America, when you look at all the perks and benefits workers get (in Mexico), it’s not what people think. Q: What benefits do you offer employees in Mexico? A: All of Mexico has a federal union status, but it’s not like what we consider a union. There are requirements that, for instance, there are so many days a year of holidays, certain requirements where you have to supply a minimum of bus transportation. There is a requirement for profit sharing, and it is (that) 10 percent of your profits go back to employees in the form of a profit-sharing program. Some of the other perks are not required, but everybody does it and if you don’t, you just don’t hire employees. We have in our plants in Mexico beautiful cafeterias, beautiful bathrooms with showers, on-site medical and dental. Q: When you add up all these things, what is the disparity between the cost of labor in the U.S. and Mexico? A: It may be 30 percent to 40 percent less. Q: Now that you’ve been operating in Mexico for some time, what other advantages do you think you’ve gained from the move? A: I think there are always costs to look at, but I believe to have the stature that’s important for some people to continue to respect you, whether it be shareholders, investors, institutions, the OEMs (original equipment manufacturers), that it’s important to have global presence. The other thing is that a lot of these customers have plants in Mexico and part of what they need is Mexican (manufactured) content in their product. We’re not a free-trade world by any means, and Mexican content is a big issue for Mexico. Q: What were some of the challenges in setting up operations in Mexico? A: I think what we had to learn was how to deal with foreign builders and rules and regulations. Quite frankly, a lot of the rules and regulations on building and so forth are tougher there than they are here. The environmental rules are tougher in a lot of ways. The customs and duties issues were significant issues to overcome. Those were probably some of the toughest, particularly bringing $40 million, $50 million worth of equipment assets into the country and making sure that they crossed the border on a timely basis, and that you set them up in the manufacturing facilities. Q: What do you think is the most important thing you’ve learned about operating internationally? A: If you just follow the rules and go by the book and don’t take any shortcuts, you can get anything done anywhere in the world. But you have to have a team together and not think you can do it on your own. You must rely on local counsel and local accounting firms and people that are liaisons to the government. I think people who try to do it without that end up failing or end up taking a lot longer to establish themselves. Q: How did your company come to the aluminum wheel business? A: The company got into some after-market aluminum wheels in the late ’60s, and by the early ’70s we were into the first major energy crunch in America, and car makers were looking to lighten the weight of the automobile. So the company went to Ford Motor Co. and showed them that they could manufacture a lightweight wheel, 30 percent lighter than steel, and Ford became the first company we sold aluminum wheels to for the OEM market. At that time, the penetration for aluminum wheels on OEM vehicles was probably under 5 percent. The penetration rate today in America is approaching 60 percent of OEM vehicles. Q: How much of a problem was it when you told your dad you wouldn’t be joining the business? A: I’ll never forget when I came home from college on the seventh of July, the day before my birthday. That night at dinner my father said, ‘I have an interview set up for you with the HR department tomorrow.’ I said, ‘An interview for what?’ He said, ‘For a job at Superior Industries.’ I looked at him and told him I had no interest in working at Superior Industries, and his comment to me was, ‘You can’t have everything handed to you on a silver platter.’ I said I didn’t expect that to be the case, and I went off to do my own thing. I started out as a roughneck on drilling rigs working in North Dakota and learned the oil business from the ground up. Q: Why did you decide to give up the oil business? A: It appeared to me that with (my father’s) entrepreneurial spirit and, as he was getting a little bit older, that there was a need for a developed succession plan. He and I came to the conclusion that, with the family’s position still in this company, it made sense for quote, unquote an insider to be involved in the transition at some point in the future. Q: It must have been difficult to embark on a new career in your 40s. Do you wish you’d come back sooner? A: I quite frankly don’t believe I would have made it coming out of school because my father is challenging. I needed to be my own person, and I needed to be my own boss, and I’m happy for that. Steven J. Borick Title: Executive vice president, Superior Industries International Inc. Age: 49 Education: Bachelor’s degree in finance and economics from Western State College, Gunnison, Colo. Career turning point: “In 1991 when I decided to drill a 16,000-foot well in Texas without any partners, and it was a dry hole. It cost me $3 million of my own hard-earned money. It was very humbling.” Most admired person: (Former GE CEO) Jack Welch Personal: Single

Ahmanson’s ‘Boss’ Misses Leap of Support By JACQUELINE FOX Staff Reporter Washington Mutual Bank officials say a recent string of ads in the Los Angeles Times featuring a frog known as “The Boss” that may have cost as much as $400,000 was intended to dispel misconceptions that the proposed 3,050-home Ahmanson Ranch would threaten animal species or the environment. But advertising industry experts say the public, especially that part of it opposed to the Ahmanson Ranch project, is far too entrenched in its positions and sophisticated to be swayed by the ads, which incorporate an oft-used strategy that tries to show a softer, folksier side of corporate America to sell a controversial project or product. They also suggested that the ads point out the effectiveness of the opposition’s public relations campaign one fueled by a fervent group of environmentalists and a hefty dose of star power, including Hollywood heavy hitters like actor and producer Rob Reiner and “The West Wing’s” Martin Sheen. Ahmanson’s full-page ads pedestal the rare California red-legged frog whose habitat, biologists say, would be threatened by the project and tout Ahmanson Ranch as a “digital village” where “the automobile will take a back seat.” Washington Mutual spokesman Tim McGarry said the ads were a follow-up to a similar campaign launched by his company in September. He declined to say how much the ads cost or who is running the campaign. However, online rate cards for the L.A. Times put the price somewhere in the $65,000- to $80,000-a-day category. The ads ran for five days during the week of Feb. 10, the same week an environmental study was released that showed, with safeguards in place, threats to the frog and the endangered San Fernando Valley Spineflower could be mitigated. The study was ordered in 1999 after the two species were discovered on the property. The findings, said McGarry, indicate Ahmanson would possibly be able to break ground sometime in 2003. “I’m going to let the ads speak for themselves,” he said. “I believe that our project is outstanding for the kinds of environmental programs that it has to offer. Now you can assume that because we are a large company there is some insincerity there, but Ahmanson Ranch is going to be a community for 3,000 California families.” But Martin Cooper of Cooper Communications in Woodland Hills said the ads attempt to rely on an old strategy in the business that aims to present big corporations as responsible and compassionate corporate neighbors. California Federal Bank, for example, has enlisted “ordinary guy” Elvis Schmiedekamp as a company spokesman and State Farm Insurance uses the colloquial “Like a Good Neighbor” tagline in its ads. Just days after the Ahmanson ads ran, Hewlett-Packard Co.’s “Flip-Flop” ads appeared in several national papers, including the Times, which attempt to present H-P as a concerned corporate conglomerate despite widespread opposition, even among employees, to its acquisition of Houston-based Compaq Computer Corp. “This is certainly not a new trend,” said Cooper. “If you go back 20 or 30 years you will see that big business began early on to find ways to counteract negative publicity with an ‘it’s all of us plain folks together’ strategy. But my personal opinion is the public isn’t fooled and much more creativity and honesty is going to have to be involved.” Cooper suggested that Ahmanson would have done better to simply bullet-point the pros and cons of its project and let readers draw their own conclusions. “Look, Ahmanson Ranch isn’t just about us plain folks,” Cooper said. “If there are issues of concern, then why not go out and buy an ad saying here are the issues and address them in a serious way that gives me or the reader both information and a point of view?” But even that approach might not work after years of lawsuits and a well-organized opposition in place, said Julie Gertler, president of Los Angeles-based Consensus Planning Group. “This project has been so polarized for so long that it will be very hard to move opinion because it’s pretty hard to move people late in the game,” said Gertler. Her firm works to build community support for controversial projects, including the highly contested land use plan for Los Angeles Pierce College. “From time to time recently, development projects have been using these kinds of campaigns and they can reach people, but it’s pretty hard to believe that they could reach people who don’t already care one way or another,” Gertler said. “I think this is a really tough situation where the sides have hardened and it’s my experience that big paid ads rarely move public opinion around.” Rally to Save Ahmanson Ranch launched a series of radio spots in January opposing the project. It was the group’s first PR campaign since it formed late last year. According to Chad Griffin, the group’s campaign manager, the radio spots had two aims: increase awareness of the project and reveal Seattle-based Washington Mutual Bank, Ahmanson’s parent company, as the true power and financial base behind the project. “If you notice in our campaign, we never mention the Ahmanson Land Co.,” said Griffin. “We mention WAMU because we think they continue to hide behind Ahmanson to present their project to the public, and we see that as very misleading.” Not surprisingly, Griffin called the Ahmanson ads “ineffective.” Like McGarry, he too declined to say how much his group’s campaign cost, but indicated this could be the beginning of a long and costly public relations war between the two camps. Griffin said the recent environmental study fails to address the impact of increased traffic flow in the West Valley and Ahmanson’s ads were a transparent attempt to deflect criticism away from that particular issue. He said future ads by his group would push for a new environmental study that includes traffic mitigation plans. John Buse, senior staff attorney for the Ventura-based Environmental Defense Center, which also opposes the project, said he viewed the Ahmanson campaign as a sign of the company’s weakened position in the community. “I think the ads illustrate how effective the opposition’s campaign is,” said Buse. “When a developer starts speaking about how beneficial a project may be for the environment, I think people may start thinking that it may not be.” McGarry declined to say how effective the campaign was, only that it generated increased traffic on the company Web site. “I think we are conveying attributes of the project with accuracy and interest in a way that will garner reader interest,” McGarry said. “We are very pleased with the responses we’ve gotten.”

Valley Forum: What Is Your Own Vision 2020? “Vision 2020: The San Fernando Valley” is a project recently completed by the Economic Alliance of the San Fernando Valley with the intention of creating a unified and viable vision for the community over the next two decades. But everybody has their own ideas of what the Valley should be like in the future. So, the San Fernando Valley Business Journal asks: What change would you like to see in the San Fernando Valley over the next 20 years? Cathy Maguire Public Affairs Manager The Gas Company Chatsworth I would like to see the vision implemented in its entirety. You can’t institute and focus on one area to come up with the complete vision for the Valley without covering all areas. It’s like putting the pieces of a puzzle together to come up with the big picture. We need to continue for both the business community and residents to work together to obtain the objectives of the plan. Joe Hooven President Universal City-North Hollywood Chamber of Commerce North Hollywood The biggest problem facing the San Fernando Valley is the tremendous increase expected in the population. The population is expected to increase by 40 percent in the next 20 years. Transportation is key. Light rail and subway need to be fully explored. Also freeway use and access. More schools will be needed, and city services, especially police, fire, and parks, will need to be greatly expanded. An increase in affordable housing is extremely important. A healthy business climate is essential. Business is the economic engine that pays for so many of the services that we enjoy. A business climate that works for the entrepreneur is paramount. Richard Leyner Senior Vice President NAI Capital Commercial Real Estate Services Inc. Encino As I’m an advocate for Valley independence, believing in the separation from the city of Los Angeles, this will be the springboard for the implementation of the vision. With new ideas from new leaders implemented by the business community, we will attain this vision and not be stymied by the retrogressive ideas on government and its role. Bob Pearlman Partner, Technology Industry Practice Grant Thornton LLP Woodland Hills I envision a variety of things Vision 2020 calls for, including better public transportation, less congested freeways, clean and safe public parks, more efficient and effective public education and a higher level of safety than we have now. Implementing these changes will be challenging, but will create a more positive community in which to live and work.