Crain's Cleveland Business

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$2.00/SEPTEMBER 26 - OCTOBER 2, 2011

Poster child for wind likely to be sold Stalking horse bidder emerges with $3.9M offer for Cardinal Fastener By DAN SHINGLER dshingler@crain.com

ERIC MULL

Independence-based Quasar Energy Group and Forest City Enterprises Inc. have formed a joint venture to build digesters on properties the real estate giant owns, manages and develops, including this site in Collinwood.

ENERGY BUILDS AROUND DIGESTERS Forest City Enterprises, Quasar partner on construction of waste conversion technology to generate electricity By CHUCK SODER csoder@crain.com

39

See CARDINAL Page 24

Banks sue to foreclose on real estate investor By STAN BULLARD sbullard@crain.com

I

n its effort to make natural gas from America’s organic waste, Quasar Energy Group has a big ally. Forest City Enterprises Inc. and Quasar are in the process of building what Jon Ratner says will be the first of many anaerobic digesters on properties that the Cleveland-based real estate giant owns, manages or develops. The digester technology — which can convert materials such as sewage, crop waste and grease into methane — blew away other renewable energy technologies

It’s likely there soon won’t be a Cardinal Fastener & Specialty Co. anymore, though workers at the company that was hailed as a symbol of wind energy’s potential to benefit area manufacturers apparently will continue to make bolts at its plant in Bedford — at least if Germany’s Wurth Group has its way. Wurth Group North America Inc. has agreed to buy Cardinal’s assets, including its equipment, for $3.9 million, according to documents that are part of Cardinal’s bankruptcy filing in Cleveland. Other bidders will be able to outbid Wurth, which is a stalking-horse bidder that emerged from Cardinal’s efforts to sell itself, at an auction set for Oct. 26, pending Bankruptcy Court approval. Wurth also would have an opportunity to increase its own bid, if other buyers emerge at the auction, lawyers

In a multifaceted business career as part of one of Lake County’s bestknown families, Richard Osborne Sr. has made life tough for bankers by being an activist shareholder. Mr. Osborne even has sued to foreclose on a mortgage he held on a property

Osborne

See OSBORNE Page 26

INSIDE Forest City has considered implementing on its properties, said Mr. Ratner, its vice president of sustainability initiatives. That’s one reason why Forest City decided

Sponsors look for home runs Sponsorship partners of the Cavaliers, Indians and Browns want to directly tie more traffic to their doors and have bolstered their marketing programs in response. Read Joel Hammond’s story on Page 6.

See QUASAR Page 25

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NEWSPAPER

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SPECIAL SECTION

FINANCE Businesses and organizations employ more creative financing to initiate deals ■ Page 13 PLUS: WORKPLACE BANKING ■ ACCOUNTING NICHES ■ & MORE

Entire contents © 2011 by Crain Communications Inc. Vol. 32, No. 39

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COMING NEXT WEEK Social media on trial We’ll take a look at the effects that Facebook, Twitter and other social media sites have had on jury selection and jury trials. We’ll explore some of the challenges they present, plus much more, in our Legal Affairs section.

REGULAR FEATURES Big Issue ...........10 Classified ..........26 Editorial ............10 Going Places .....12

List: Business insurance ........22 Tax Liens ............9 The Week ..........27

SEPTEMBER 26 - OCTOBER 2, 2011

WRONG DIRECTION SAT scores across the board are falling, and in the writing and critical reading categories, they’re the worst on record. The declines recorded by the College Board aren’t huge, but there’s a steady pattern of weakening for the last several years. Here are the scores since 2006, when writing was added as a separate element on the SATs. The test, in case you’ve forgotten, uses a 200- to 800point scale. Total group mean SAT scores College-bound seniors, 2006-2011

Year

Critical reading Mathematics Writing Male Female Total Male Female Total Male Female Total

2011

500

495

497

531

500

514

482

496

489

2010

502

498

500

533

499

515

485

497

491

2009

502

497

499

533

498

514

485

498

492

2008

502

499

500

532

499

514

486

499

493

2007

503

500

501

532

499

514

487

499

493

2006

505

502

503

536

502

518

491

502

497

SOURCE: THE COLLEGE BOARD; HTTP://PROFESSIONALS.COLLEGEBOARD.COM

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editors: Joel Hammond (jmhammond@crain.com) Sports Kathy Carr (kcarr@crain.com) Marketing and food Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Manufacturing Tim Magaw (tmagaw@crain.com) Health care & education Michelle Park (mpark@crain.com) Finance Research editor: Deborah W. Hillyer (dhillyer@crain.com)

July 2011

July 2011

July 2011

July 2011

July 2011

$350 Million

$195 Million

$189 Million

$168 Million

$99 Million

Common Stock Convertible Offering

Common Stock Initial Public Offering

Common Stock Initial Public Offering

Common Stock Follow-on Offering

Common Stock Follow-on Offering

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Pickwick & Frolic runs into IRS trouble By STAN BULLARD sbullard@crain.com

E. Fourth St. club owner says he has addressed tax problems

Behind the scenes at Pickwick & Frolic Restaurant and Club on East Fourth Street in downtown Cleveland, things have been glum, but owner Nick Kostis said the business has shaken off a bout of fiscal illness, gotten healthy and is going on with the show. The problems hit center stage Aug. 19 when the Internal Revenue Service filed a tax lien against the company for a total of $148,193 in unpaid federal taxes, penalties and

fees. That filing came after the state of Ohio sued Hilarities Comedy Club, in the lower level of Pickwick & Frolic, for a total of $170,000 in unpaid state income taxes in five Cuyahoga County Court of Common Pleas cases between Kostis Oct. 19 and Dec. 6 of last year. Mr. Kostis said last week he is negotiating payment plans with the IRS and has paid the past-due state

taxes, but the liens have not been released so far. “I’ve been in business a long time. I’m not proud of this and I’m taking care of it,” Mr. Kostis said. “My business did the best it could, but it’s a responsibility I have.” Mr. Kostis said he plans to keep the business going and talks about renewing his options to lease the space at 2031-2039 E. Fourth for

as many of the next three, five-year periods as he can with MRN Inc., developer of the East Fourth Street Neighborhood. The venue has made adjustments to adapt to the weak economy. “We cut marginal and weak hours from our operation and pushed it into the hours when we are most productive,” Mr. Kostis said. The changes were tough, but necessary, to keep quality intact at the 900-seat venue that houses a

THE WEEK IN QUOTES

New owner of Agilysys division eyes growth here Toronto firm OnX sees opportunity to diversify By CHUCK SODER csoder@crain.com

— Cleveland bankruptcy attorney Jean Robertson. Page One

— Dave Frengel, vice president of government relations, Penn United Technologies. Page 8

“Today, money is available, but it’s only available under certain circumstances or conditions. … So we’re having to find creative ways to free that money up.” — Randy Markey, managing partner for Capital Acceleration Partners. Page 13

“I think there’s going to be a greater emphasis on CPAs gaining more credentials. … We’re a credential-crazy society.” — Clarke Price, president and CEO of The Ohio Society of CPAs. Page 18

See PICKWICK Page 23

INSIGHT

“A lot of companies like Cardinal invest a lot of capital and invest a lot of time and money on various alternative energy sources, like wind and solar. They need a faster turnaround on their investments and they’re not getting it right now.”

“We buy more than we sell, and whenever you do that, you’re losing wealth. The trade deficit is real money and it must be repaid.”

comedy club, a nightclub-style restaurant, a martini bar and a 150seat sit-down restaurant. Specifically, the showplace shut Mondays, dropped indoor lunch hours in 2010, dropped lunch at the outdoor patio this past summer, eliminated a Tuesday show and Sunday brunch, and added a mystery dinner theater to its offerings. By trimming days and shifts, Hilarities cut staff to a total of 100 full- and part-time employees from a high of 147 in 2008. The changes have made the

RUGGERO FATICA PHOTOS

Four Progressive Corp. employees — from left, Dave Krew (keyboards), Mitch Gluhank (guitar), Steve Wieclaw (lead singer) and Mark Malysa (bass) — make up The Messengers. Drummer Jeffrey Briglia was not at this practice.

READYTOROCK Progressive fivesome set to take on global corporate titans in Rock Hall’s annual charitable battle of bands By TIMOTHY MAGAW tmagaw@crain.com

W

ith axes held high, Progressive Corp. will battle corporate juggernauts such as Starbucks and Mattel in the coming days. Not with the values of their stock, but rather with how hard their employees can rock. A group of employees from the auto insurance giant in Mayfield Village has made it to the finals of the Fortune Battle of the Corporate Bands — an event held at the Rock and Roll Hall of Fame and Museum for the last 10 years to benefit the Cleveland museum’s educational activities. See ROCK Page 25

Mr. Krew, a Progressive controller, at practice last week.

Agilysys Inc. may be moving to Georgia, but the division that accounts for most of its sales is sticking around. A few things are changing, though. For one, the division now operates under the name of its new owner, OnX Enterprise Solutions Ltd., a Toronto company that on Aug. 1 closed a deal to buy Agilysys’ Technology Solutions Group for $64 million. OnX also plans to move the main office of the former TSG division to Mayfield Heights from Solon by the end of the year, said OnX chairman Bart Foster. Plus, OnX plans to put more emphasis on getting the former TSG division to sell services in addition to the computer hardware and software that makes up the bulk of its revenue, and OnX aims to increase collaboration between TSG teams that sell different brands of technology, Mr. Foster said. That new strategy should help the division become more than the transactional, low-margin business it was under Agilysys, he said. “If you do that, lots of good things happen,” Mr. Foster said. OnX and TSG — which both provide hardware, software and services for large data centers — will have combined revenue of about $750 million. The company aims to boost that figure to $1 billion over the next few years, through acquisition and growth of its current business, Mr. Foster said. First, though, the company will expand TSG’s presence in Northeast Ohio. OnX plans to add 20 to 25 people to TSG’s local staff over the next three or four months, Mr. Foster said. They will provide the administrative services the division will lose when Agilysys moves to Alpharetta, Ga., which is scheduled to happen See ONX Page 23

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IRS proposal benefits employers Initiative could simplify company management of health care plans By JERRY GEISEL Business Insurance

WASHINGTON — A new Internal Revenue Service proposal would make it easier for employers to determine if their health care plans are “affordable” and exempt from a stiff financial penalty mandated by the health care reform law. Under the law, starting in 2014, employers are liable for an annual

$3,000-per-employee penalty for employees whose required health insurance premium contribution for single coverage exceeds 9.5% of family income and the employees are eligible for federal premium subsidies to buy coverage through state insurance exchanges. Following up on a promise made in August, the IRS on Tuesday, Sept. 13, asked for public comment on a proposed safe harbor in which coverage would be considered affordable as long as the premium contribution for single coverage did not exceed 9.5% of an employee’s W-2 wages. “By allowing employers to base their affordability calculations on each employee’s W-2 wages (which

employers know) instead of each employee’s household income (which employers generally would not know), the safe harbor could provide a more workable and practical method for measuring the affordability of an employer’s coverage,” the IRS said. Rich Stover, a principal with Buck Consultants in Secaucus, N.J., said the IRS proposal “is a real positive for employers.” Anne Waidmann, a director with PricewaterhouseCoopers in Washington, agreed. “Employers welcome a safe harbor that will enable them to determine, based on information they have, whether their plans are ‘affordable’ under the law,” Ms. Waidmann said. “They should not have to face significant penalties simply because they have no access to their employees’ household income.” To qualify for the safe harbor, an employer would need to meet certain requirements, including offering full-time employees the opportunity to enroll in a qualified employersponsored plan and that the required employee premium contribution for individual coverage in an employer’s lowest-cost plan available to the employee not exceed 9.5% of the employee’s W-2 wages. Application of the safe harbor would be determined at the end of a calendar year and on an employeeby-employee basis. “The employer would determine whether it met the proposed affordability safe harbor for 2014 for an employee by looking at that employee’s W-2 wages for 2014 and comparing 9.5% of that amount to the employee’s 2014 premium contribution,” the IRS said. ■ Jerry Geisel is editor-at-large at Business Insurance, a sister publication of Crain’s Cleveland Business.

ON THE WEB

Story from www.CrainsCleveland.com.

PSC Metals bolsters regional market share Scrap company PSC Metals Inc., which is based in Mayfield Heights, said it has expanded operations in three states with the purchase of Shapiro Brothers Inc. in Festus, Mo. Terms of the deal were not disclosed. Shapiro Brothers, founded in 1946, buys, sells and processes ferrous and non-ferrous scrap, including industrial and obsolete grades of scrap. It operates two sites in Missouri, one in Illinois and another in Arkansas. The company, owned by Greg and David Shapiro, has 63 employees, all of whom will remain with PSC Metals.

Volume 32, Number 39 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of May and fifth week of May, the fourth week of June and first week of July, the third week of December and fourth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2011 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136

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SEPTEMBER 26 - OCTOBER 2, 2011

In sponsorship shift, sports teams must drive traffic Corporate partners now look for more to deals than simple signage

“Sponsors are requesting more engagement ... in a more concerted effort to measure return on investment.”

By JOEL HAMMOND jmhammond@crain.com

– John Penhollow, vice president of corporate sales and service, Cleveland Browns

Sponsorship partners of the Cleveland Browns, Indians and Cavaliers are asking for more than the traditional advertising give-andtake these days. In the past, the sponsor relationship amounted to nothing more than, say, Medina-based Discount Drug Mart paying any or all of those teams for signage at the venues where they play, or perhaps to be designated their “official” drugstore. A shift in that relationship is forcing the teams to bring more to the table, and it’s resulting in new marketing programs, with the goal of driving more traffic to the sponsors’ doors. The latest is an extension of Discount Drug Mart’s “Pro Points” program, a frequentshopper deal where customers can buy certain products and earn points toward merchandise or unique experiences. The Browns on Sept. 16 announced they joined the program, which Discount Drug Mart began three

years ago with the Cavaliers at the height of LeBron James’ popularity. It later added the American Hockey League’s Lake Erie Monsters, the Cleveland Gladiators of the Arena Football League and the Cleveland Indians. Rewards — full details are available at http://discount-drugmart .com/ProPoints.asp — range from team hats to on-field, -court or -ice experiences, such as a Cavs fantasy basketball game, a Zamboni ride or the opportunity to “steal second base” when the Indians switch bags in the middle of games. “It’s part of a shift in what we do for a living,” said John Penhollow, the Browns’ vice president of corporate sales and service. “Gone are the days when we’re going to sell you a sign. We have to drive traffic to their stores. We have to reward consumers for their support of us and the retailer.” The Browns also are working on a similar partnership with Giant Eagle, in which customers who buy a still-to-be-determined number of products from a certain pool will receive a buy-one, get-one-free

ticket coupon. That’s an offshoot of the Pittsburgh-based grocer’s partnership with the Steelers, in which Steeler fans could buy seven products and receive a $7 coupon for the team’s merchandise shops. “We want to blow that one out of the water,” Mr. Penhollow said.

A word from our sponsors … Discount Drug Mart rode the LeBron wave through the early part of its “Cavs Cash” and “Monsters Money” programs, the precursor to the now-broader “Pro Points.” The company, though, found a void once basketball season was over; the Indians then approached the chain and joined in, followed by the Browns. Dave Bergman, the company’s vice president of advertising, said customers clamored for inclusion of the Browns, who also will unveil a concession voucher program for Cleveland Browns Stadium available only at Drug Mart stores: Buy $10 vouchers for $8. Mr. Bergman said the company’s challenge to the teams was to develop opportunities for customers that

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money can’t buy, such as the experiences mentioned above. The products tied to the program all have experienced “nice little lifts” in sales, Mr. Bergman said, and vendors, too, have benefited, with the ability to use the teams’ brands at point-of-sale displays or in signage. “We’re really happy with where we are now with the program,” Mr. Bergman said. “When we first started, we lost excitement when the Cavs’ season ended; now we’re running 365 days a year.” The Indians, meanwhile, in June unveiled a similar rewards program with BP, wherein BP customers who buy more than 10 gallons of gas on five occasions earn two free tickets to an Indians game. Indians senior director of communications Curtis Danburg said that partnership — along with programs with Bank of America and United Airlines, among others — stemmed from sponsors’ desire for greater activation of their messages. “We’ve seen this grow over the last five years or so,” Mr. Danburg said. “For us, it’s an extension of our brand in the market and offers incremental revenue growth opportunities.”The Cavaliers, in addition to their Discount Drug Mart partic-

ipation, worked with Kia to offer two free tickets to customers who took new-car test drives; Giant Eagle on a deal in which shoppers could receive a free ticket with a $25 Stouffer’s purchase in one transaction; and Pepsi on a $10 ticket discount with certain purchases. The Browns, Mr. Penhollow said, also are working with banking partner PNC on a similar partnership, again in an effort to get customers to the company’s doorstep. Mr. Penhollow said PNC research has shown the company converts 70% of walk-ins to some sort of broader customer. Details still are being finalized, but an early front-runner would include some kind of Browns apparel giveaway for signing up for a new account. “Sponsors are requesting more engagement on our end in a more concerted effort to measure return on investment,” Mr. Penhollow said. “We also know that we’re bound by on-field performance; we build and plan like we’re not going to win any games, because we can’t control wins on the business side. “We can control going to market on innovative programs and doing deals we know have great potential,” he said. ■

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CRAIN’S CLEVELAND BUSINESS

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East Side commercial activity indicates optimism Investors snatch up Chagrin Blvd. sites By STAN BULLARD sbullard@crain.com

New investments in older office buildings on Chagrin Boulevard are an indicator of fresh strength in the street considered the heart of the commercial market in the eastern suburbs. An investor group led by Beachwood office building investor Mark Munsell last Wednesday, Sept. 21, paid $4 million to buy the vacancyriddled Commerce Park I, II and III office buildings from Renaissance Park LLC in a transaction that included lender Advantage Capital Management LLC of St. Paul, Minn., according to Cuyahoga County land records. The price paid was 36% below the original asking price of $6.25 million. The massive Commerce Park I, II and III complex at 23210 Chagrin Blvd. helped put the street on the map in the 1970s as a multitenant office market providing an alternative to downtown. In a nine-story office building and two five-story structures, Commerce Park has 181,000 square feet of office space atop a 500space underground parking garage. The buildings in the aggregate carry a 60% vacancy rate. Mr. Munsell, who heads the new ownership group Commerce Park Place Holdings LLC, said, “We are going to maintain the properties as office buildings. We are working on our renovation plans for the properties.” As the owner of the adjoining Commerce Park IV and V office buildings, Mr. Munsell long was seen as the natural buyer for the complex when the three older buildings went into receivership in 2008. “It’s in my backyard,” Mr. Munsell said of acquiring the buildings next to where his Munsell Realty Advisors is based. “I see this as an opportunity to renovate some 40-year-old buildings and bring them back to market because of their location.” Mr. Munsell said his team will manage the rejuvenation and leasing process. Real estate broker OstendorfMorris Co., where Mr. Munsell’s son, David Munsell, works as an assistant property manager, will handle day-today operations. The complex has a small amount of retail space, but it’s primarily office space. The new ownership’s work is cut out for it. Steve Egar, owner of the Egar Associates real estate brokerage, said the complex needs substantial reinvestment and repairs to the underground parking garage. Even so, Mr. Egar said Mr. Munsell is one of the few owners who have the “experience and contacts” to make a go of the project. It will take great effort, Mr. Egar said, to restore the complex to the status it enjoyed when it was seen as a gateway to the Beachwood office market from Shaker Heights. Mr. Munsell declined to identify his investors, but one that surfaced is intriguing. David Heller, a principal of the NRP Group in Garfield Heights, confirmed via email that he invested with Mr. Munsell in the office buildings as a personal investment. NRP is a nationally active developer and operator of low-income, senior citizen and market-rate apartments. NRP is not given to office investments outside its own headquarters. Commerce Park Square I, II and

III also had interest from buyers from throughout the United States and Canada, according to Mark Abood, a senior vice president at the Chartwell Group brokerage in Cleveland that managed and marketed the property for the lender. More than a dozen out-of-towners considered it, Mr. Abood said, but “in the end it was the local investors who took advantage of the opportunity.”

Down the road … Another vintage office building on Chagrin also traded recently, but it was in anything but challenging circumstances. WI-FI Pepper Pike LLC, an investment group connected with Weiss Properties of Skokie, Ill., on

Aug. 31 acquired the eastern building of the two-building Courtlands complex, 29125 Chagrin in Pepper Pike, for $3.5 million. The seller of the 35,000-squarefoot building was Courtland Hall LLC, an investor group led by developer Bart Simon, who built the structure in 1979. Mr. Simon, chairman of North Pointe Realty in Mayfield Heights, said his firm will continue to lease and manage the building, which has remained fully leased for 20 years. The property was debt-free, Mr. Simon said in an interview last week. He said he could not comment more because he signed a nondisclosure agreement. Officials at Weiss Properties did not return

three calls about the transaction. However, the sale price for the Georgian-styled Courtland building speaks for itself. The $3.5 million purchase price indicated by Cuyahoga County land records broke stride with other recent transactions that were below the value assigned by the county for property taxes purposes. The county assigns the building a tax value of $2.8 million. By contrast, the three Commerce Park buildings had a tax value of $4.6 million, which is 13% more than the new owner paid for them. The Courtlands building benefits from a significant improvement in its surroundings. It’s next door neighbor is Eton Chagrin Boulevard, a lifestyle center that opened

7

THE LATEST ACTIVITY Recent activity on Chagrin Boulevard, considered the center of the eastern suburbs commercial real estate market: ■ Veteran investor Mark Munsell buys Commerce Park I, II and III complex, which has a 60% vacancy rate ■ An Illinois investor group bought part of the Courtlands complex, which is debt-free and sold for more than the value assigned it by Cuyahoga County for tax purposes. in 2005 in Woodmere Village. The redo by developers Robert Stark and Jeffrey Friedman in 2005 expanded and updated the former Eton Collection, which Mr. Simon had developed and sold to Mr. Friedman and the Milstein family. ■

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*Ranked No. 1 U.S. bookrunner of asset-based loans by Thomson Reuters 1H 2011. “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured y May Lose Value y Are Not Bank Guaranteed. ©2011 Bank of America Corporation ARM1N4G5

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Manufacturing stakeholders address industry concerns By DAN SHINGLER dshingler@crain.com

If the United States wants to have a robust manufacturing sector, its government needs to take steps to ensure the nation’s key industries succeed — or at least that American companies have a chance to compete fairly against their counterparts overseas. That was the word from a slew of experts and affected parties from industry, government, labor and academic circles who met last Monday, Sept. 19, in Rootstown for what was billed as the Northeast Ohio Summit on the Revitalization of Manufacturing. The event was put together by the Coalition for a Prosperous America, a nonprofit group in Washington, D.C., that focuses on issues affecting U.S. trade. It was cochaired by U.S. Reps. Bill Johnson, R-Marietta, and Tim Ryan, D-Niles. Many attendees shared their frustration with the trade imbalance that exists between the United States and the rest of the world and its effect on the nation and its economy. “It’s the trade deficit, stupid,� proclaimed Dave Frengel, vice president of government relations for Penn United Technologies, a Pennsylvaniabased metal stamping and machining company that serves markets such as oil and gas exploration, medical device manufacturing and defense contracting. “We buy more than we sell, and whenever you do that, you’re losing wealth,� Mr. Frengel said. “The trade deficit is real money, and it must be repaid.� Mr. Frengel and others at the Rootstown meeting rattled off a long list of factors that they said make for an uphill battle for U.S. manufacturers at home and abroad. Those factors ranged from Chinese currency manipulation that artificially keeps the price of Chinese goods low in the United States to the subsidization by other countries of key industries until they become large enough to dominate globally.

Tax matters matter, too Sometimes, the advantages afforded to foreign companies are obvious, as when a foreign government subsidizes a company with cheap raw materials or protects its domestic market with tariffs. But sometimes the

TROUBLED SECTOR U.S. manufacturing interests relayed their industry concerns last Monday, Sept. 19, at a summit in Rootstown. Among their concerns: ■Trade deficit ■China’s alleged currency manipulation, which artificially keeps the cost of that nation’s goods low ■Burdensome taxes, which put the U.S. at a disadvantage with other nations with more favorable policies ■Lack of a national strategy

advantages come from unexpected sources, such as national sales taxes or value-added taxes, said Charles Blum, president of the International Advisory Services Group, a trade consulting firm in Washington, D.C. For instance, Mr. Blum said U.S. companies often are at a disadvantage because foreign nations have sales or value-added taxes, which are applied to all goods sold in a country, regardless of their origin. Many of those foreign nations use those taxes as trade tools, forgiving them among trading partners with similar taxes and thus allowing them to export to one another and avoid the impact of the tax on the cost of their goods. The United States has no similar tax to rebate, so U.S. goods are subjected to the full brunt of such taxes, which sometimes are as high as 10%, putting them at a price disadvantage. Other nations also have lowered or eliminated their corporate taxes in favor of such so-called “consumption taxes,� Mr. Blum said, putting U.S. companies at a double disadvantage because they must include in their prices taxes incurred both at home and abroad. Add up the combined effects of currency manipulation and tax disadvantages and U.S. companies face an almost impossible competitive environment — one where the cost of their goods overseas could be driven up by 25% or more, Mr. Blum said.

In search of a strategy The group stopped short of issuing a list of specific ways to fix the problem, but instead asked that the fed-

eral government adopt some sort of general manufacturing strategy. Already, most American manufacturers left standing are doing a good portion of their business overseas, often causing them to have mixed allegiances because they serve their stockholders first and their nation second, members of the group said. Many U.S. companies that make goods for American consumers have disappeared over the years, they said, but could return if trade polices were changed. “If we would have been here (holding a similar meeting) 10 years ago, we would have twice as many people in this room, that’s what’s happened to us already,â€? said Bob Baugh, executive director of the Industrial Union Council of the AFLCIO. “I can only think of two countries that don’t have a national manufacturing strategy — England and the U.S.,â€? Mr. Baugh said, noting that both of those nations have seen their industrial bases decline in recent years. One measure many in the group did endorse was an effort in the U.S. Congress to address Chinese currency manipulation. Known as the Currency Reform for Fair Trade Act, the measure was passed by the House of Representatives in the last Congress but failed to make it before the Senate. The bill is still active, though, and it has more than 200 sponsors in the House, which is expected to take it up again this year. It’s supported by, among others, U.S. Sen. Sherrod Brown, D-Avon, who sponsored it in the Senate last year, along with Sen. Olympia Snowe, a Republican from Maine. Ohio’s other U.S. senator, Rob Portman, a Republican, was not in attendance at the Rootstown meeting, where it was suggested he is opposed to such a measure. But Mr. Portman’s office said that’s not necessarily true. Even if he hasn’t signed on so far to support the legislation, he’s aware of the problem, his office said. “We’re looking at that legislation,â€? said Christine Mangi, a spokeswoman for Sen. Portman. She added, “Sen. Portman believes China is not playing by the rules and does believe that they are manipulating their currency.â€? â–

PolyOne’s scorecard program earns high marks

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By FRANK ESPOSITO Plastics News

Polymer compounder PolyOne Corp. is making progress on the performance scorecard program it launched last year with its top suppliers. PolyOne now has its 20 largest materials suppliers based on dollar amount enrolled in the program, according to Tom Kedrowski, senior vice president of supply chain and operations of the company based in Avon Lake. Mr. Kedrowski said PolyOne hopes to expand the program to include its 50 largest suppliers by the end of 2012. PolyOne also wants to make the program more electronic and inter-

active. Suppliers’ reaction to the program — which measures their performance in several categories — has been “mostly positive,� Mr. Kedrowski said. “A lot of our suppliers have come to the table with ideas on how they can meet their goals and perform at the number they’re expected to do,� he said. PolyOne also has made adjustments on its side of the business. “In the past few years we’ve idled some obsolete capacity, added some new lines and also invested in some (existing) lines,� Mr. Kedrowski said. “We’ve reconfigured some plants and are cross-sharing between businesses like performance prod-

ucts and specialty products.� Through the ups and downs of recent years, PolyOne has continued to emphasize the importance of collaboration, Mr. Kedrowski said. “Some suppliers have grown their business with us because of longtime activity,� Mr. Kedrowski said. “That’s more important with a specialty company like us. “You need a solid supply chain, and some customers have grown tremendously with us because of that,� he said. ■Frank Esposito is a senior reporter with Plastics News, a sister publication of Crain’s Cleveland Business.

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TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. The IRS files a tax lien to protect the interests of the federal government. The lien is a public notice to creditors that the government has a claim against a company’s property. Liens reported here are $5,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.

LIENS FILED Action Staffing Personnel 6100 Rockside Woods Blvd., Suite 350, Independence ID: 34-1573403 Date filed: Aug. 4, 2011 Type: Employer’s withholding Amount: $1,266,034

CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

Date filed: Aug. 4, 2011 Type: Employer’s withholding Amount: $39,516 Loving Cup Solutions & Health Care 16360 Broadway Ave., B-201, Maple Heights ID: 41-2226815 Date filed: Aug. 16, 2011 Type: Employer’s withholding, unemployment Amount: $37,248 Petroleum Maintenance Electronics Inc. 1210 E. 286th St., Euclid ID: 34-1432857 Date filed: Aug. 9, 2022 Type: Employer’s withholding Amount: $33,057 Gray Container LLC

Date filed: Aug. 30, 2011 Type: Employer’s withholding, unemployment Amount: $23,316

2800 E. 90th St., Cleveland ID: 20-3598415 Date filed: Aug. 23, 2011 Type: Employer’s withholding Amount: $31,427 Allied Debt Recovery Services Inc. 2000 Warrensville Center Road, South Euclid ID: 20-0682871 Date filed: Aug. 2, 2011 Type: Employer’s withholding Amount: $29,244

Michelle Lunn Inc. 24989 Tricia Drive, Westlake ID: 06-1680826 Date filed: Aug. 25, 2011 Type: Employer’s withholding, unemployment Amount: $22,459

SJT Enterprises Inc. 28045 Ranney Parkway, Suite L, Westlake ID: 34-1638133 Date filed: Aug. 25, 2011 Type: Employer’s withholding Amount: $25,034

Philomenas Restaurant Entertainment Group 7503 Granger Road, Valley View ID: 27-2529749 Date filed: Aug. 16, 2011 Type: Employer’s withholding, unemployment Amount: $21,153

Sharks Seafood & Deli Inc. 3826 Lee Road, Cleveland ID: 20-4732572

Steven A. Woyat, D.D.S., Inc. 2255 Columbia Road, Westlake ID: 34-1731629

Date filed: Aug. 2, 2011 Type: Employer’s withholding Amount: $19,956 IQC Corp of Ohio LLC P.O. Box 43502, Cleveland ID: 35-2351782 Date filed: Aug. 2, 2011 Type: Employer’s withholding Amount: $19,468 M.E. Pfahler Construction Inc. 100 Pelret Parkway, Suite A, Berea ID: 34-1720576 Date filed: Aug. 30, 2011 Type: Employer’s withholding Amount: $19,333 Fishermans Wharf Pier 2 Inc. 25021 Rockside Road, Bedford Heights ID: 34-1179906 Date filed: Aug. 4, 2011 Type: Employer’s withholding, unemployment Amount: $18,316

Hilarities Comedy Club Ltd. 2035 E. Fourth St., Cleveland ID: 34-1877231 Date filed: Aug, 30, 2011 Type: Employer’s withholding Amount: $148,193 Konstanzer Masonry Inc. 514 Dover Center Road, Bay Village ID: 34-0967162 Date filed: Aug. 2, 2011 Type: Employer’s withholding, unemployment Amount: $112,288 Brickman & Sons Inc. 21900 Euclid Ave., Euclid ID: 34-1034740 Date filed: Aug. 23, 2011 Type: Corporate income Amount: $98,817 TJRB Corp. 5160 W. 164th St., Brook Park ID: 20-0249775 Date filed: Aug. 23, 2011 Type: Employer’s withholding Amount: $70,266 NIA Childcare Enterprise Inc. All His Children 4020 Verona Road, Cleveland ID: 16-1749820 Date filed: Aug. 25, 2011 Type: Employer’s withholding Amount: $48,825 Rainbow Child Day Care Center No. 2 Inc. 24349 Lorain Road, North Olmsted ID: 34-1932457 Date filed: Aug. 18, 2011 Type: Employer’s withholding Amount: $43,990 Apple Child Care Inc. 6827 Bunker Road, North Royalton ID: 34-1489009

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SEPTEMBER 26 - OCTOBER 2, 2011

PUBLISHER/EDITORIAL DIRECTOR:

Brian D. Tucker (btucker@crain.com) EDITOR:

Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:

Scott Suttell (ssuttell@crain.com)

OPINION

Rigged vote

P

oliticians should not pick their own voters; voters should pick their politicians. That 12-word sentence written by State Sen. Tom Sawyer in a commentary that appeared in last Tuesday’s Akron Beacon Journal states simply and precisely why the congressional redistricting map devised by Ohio’s Republican leadership is an abomination. As Sen. Sawyer, an Akron Democrat, wrote in his commentary, voters “should have a fighting chance of choosing their own representatives in fair elections held in districts that are on the up-and-up.” This map fails to achieve that standard. Rather, the map creates contrived congressional districts and essentially sets up rigged elections, with a dozen of the 16 districts loaded with voters who favor Republicans. It is a joke, though considering that representative governance is at stake, the redistricting plan is anything but laughable. Most Cleveland-area residents already have heard of the thin, oddly shaped congressional district hugging the lakeshore from Toledo to Cleveland that likely would pit two popular Democratic incumbents — U.S. Reps. Marcy Kaptur and Dennis Kucinich — against each other. However, the sinister nature of the map doesn’t end there. Residents of the city of Toledo no longer would be represented by a single member of Congress, as they are now by Rep. Kaptur. Rather, the map splits Toledo among three districts that currently are represented by Rep. Kaptur and two Republicans, Jim Jordan and Bob Latta. The people of Toledo would be right to question whether their interests would be represented well by Reps. Jordan and Latta, given that the two men’s districts largely encompass rural communities. And Toledoans aren’t the only Ohioans who must be scratching their heads wondering how carving their town or county into two districts, and in some cases more, will provide them with proper representation in the House. It’s impossible to depoliticize entirely the redistricting process that takes place after every 10-year census. The party in power always will try to press its advantage. However, this episode and past redistricting abuses illustrate the wisdom behind a constitutional amendment proposed two years ago by then-state senator (now Ohio Secretary of State) Jon Husted that would have improved the process by which congressional boundaries are drawn. Under the Husted plan, an Apportionment Board consisting of seven members (the governor, secretary of state, auditor, House speaker, Senate president, and minority leaders in the House and Senate) would not have been able to move a redistricting plan forward without the approval of a supermajority of five members. And of those members voting in favor, at least two votes would have needed to come from members aligned with the minority party. Shortsighted Democrats short-circuited that proposal. Now that the worm has turned, they would be wise to resurrect the idea — and if they do, Republicans would be wise to remember they may not be in power in 2021.

FROM THE PUBLISHER

Ohio needs an A-to-Z energy policy

I

electric utilities, coal mining companies t’s hard not to appreciate the fact and alternative/renewable energy industhat Gov. John Kasich decided to tries such as wind, water and solar. hold a two-day energy summit last The governor can be — and usually is week in Columbus, nor to ignore the — very blunt, which most Ohioans probestimated 1,000 people who attended ably see as both a blessing and a curse, the gathering. depending on what he says. But I think Sure, many of them were lobbyists we all should agree with (and be concerned from special interests, or executives from about) this classic “Kasichism” companies (or those hoping to regarding the conference and its be) in some sector of this bur- BRIAN importance: Ohio, he said, “has geoning industry. That’s fine, TUCKER no energy policy.” because we should want people That’s about as blunt as it at such a conference to be more gets, and the fact that it’s true than the academic types who help should concern us deeply. spot opportunities or advise of “This is not just about tax pitfalls. It was important that folks credits,” the governor was were there who want to make quoted as saying in his intromoney in energy, because that’s ductory remarks. “We’re lookhow we’ll attract fresh investing at everything. We’re looking ment dollars and create jobs. at generation. We’re looking at coal. And although the 800-pound gorilla in “Ohio is in a really good position to the ballroom probably was shale oil and create a model that might be useful for gas — given the massive deposits that the entire rest of the country.” have been forecast in the Marcellus and Conscious of the stir already created Utica shales deep beneath our state’s over new legislation that would lessen the lands — a comprehensive energy policy demands on electric utilities reaching also must include Ohio’s existing gas and

those renewable mandates, the governor said he didn’t want to end them, but was open to some modification. And cogeneration — the capture and reuse of waste heat from industrial sources — also must be considered as part of a comprehensive Ohio plan, he said. In its coverage of the conference’s opening day, The Columbus Dispatch published a photo of what appeared to be fewer than 20 environmental activists rallying outside. It’s a good reminder that there are many more people concerned with the state’s energy future and job creation, but doesn’t mean common-sense environmental protection shouldn’t be a prominent part of any comprehensive energy plan. Here’s hoping we get a good plan, and have the courage and wisdom to stick with it, regardless of what party controls state government. Success here promises success elsewhere. As the governor said, perhaps with the tiniest glimpse into his political aspirations, “and if we can do it in Ohio … why can’t we do it in America?” ■

THE BIG ISSUE Do you think organized labor helps protect wages and conditions for workers generally, or that its net effect is to drive up costs and make unionized companies unable to compete?

RYAN GULLATT

ALICIA LENHART

KEN KOCHEVAR

MIKE CERMAK

Willoughby

Cleveland

Broadview Heights

Cleveland

I believe they’re necessary. They’re supposed to protect people from losing their jobs, but it can be a catch-22. If you’re not doing your job, you might not get fired.

I think they protect the workers. My mom worked in a factory for 30 years and always thought (the union) had her best interest at hand.

(Unions) drive up costs and create problems, so I’m in support of Senate Bill 5.

In most cases it definitely protects workers. … It’s difficult to say. There can be issues with any organizational structure where the opportunity for abuse exists.

➤➤ Watch more of these responses by visiting the Multimedia section at www.CrainsCleveland.com.

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CRAIN’S CLEVELAND BUSINESS

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Aeros owner’s reversal on sale prompts layoffs in front office By JOEL HAMMOND jmhammond@crain.com

A change of heart by the owner of the Akron Aeros has resulted in front office layoffs at the Cleveland Indians’ Class AA affiliate. Team owner Mike Agganis, in preparations to sell the team to an unidentified ownership group after the 2011 season, authorized five new hires — new directors of media and marketing; merchandise; group sales; food and beverage; and stadium operations — heading into the season that recently concluded. According to Dan Foust, one of those affected by the layoffs, Mr. Agganis viewed the additions as a way to ease the transition to the new owner. The hires were among the recommendations made by Chuck Domino, a consultant hired by Mr. Agganis who was named the 2010 Eastern League Executive of the Year for his work in getting the expansion Richmond (Va.) Flying Squirrels up and running. Mr. Domino, according to Mr. Foust, said the Aeros’ staff was insufficient to run a Class AA team properly; his first move was to hire Jim Pfander as the club’s executive vice president and chief operating

officer. But, Mr. Foust said, Mr. Agganis changed his mind about the sale late in the season, and chose instead to lay off the key staff members hired before this season. The group includes Mr. Foust, who served as the team’s media and marketing chief. Mr. Domino, whom The Akron Beacon Journal speculated last month was a possible buyer, also will not return, Mr. Foust said. Mr. Domino still is listed as the “chief managing executive” of the Richmond team. Mr. Foust said the Aeros’ staff never knew the identity of the prospective buyer. Mr. Pfander said last week that Mr. Agganis’ son, Greg, will take on a bigger role in the club’s day-today operations, and the duo — real estate players in the Boston area who fly to Northeast Ohio on weekends during baseball season — sought a return to the team’s more traditional staffing level. Greg Agganis did not return a message left with the Aeros, and through Mr. Pfander said only that the Aeros are not for sale. Mr. Domino and other Flying Squirrels front office staff members were on a retreat, according to a customer

service representative in Richmond. Mr. Pfander said the team would continue to be as aggressive in promotions and new ideas as it was this year, when it grabbed nationwide attention for many features, perhaps most significantly its new food options. Those included a 19ounce hot dog/kielbasa/bratwurst combo; a 14-inch, half-pound hot dog; a one-pound customizable hot dog, with up to 40 toppings (including peanut butter and jelly); and a five-pound ice cream sundae with a one-pound brownie and four whole bananas. The team’s success with those promotions and others, plus improved ticket sales make the layoffs frustrating for Mr. Foust — though he said he harbors no ill will. “We met and exceeded many of our goals,” said Mr. Foust, who before joining the Aeros worked for the Indians in sales for 19 years. “There were great things going on at Canal Park, with ticket sales and promotions. We were making inroads into Canton, as well. “I’m sure they’ll continue to have success.” The Aeros drew 266,265 fans in 2011, a 1.8% increase from 2010. ■

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Site selector tool aids businesses, cities By JAY MILLER jmiller@crain.com

Charles Bowman thinks he’s building a better mousetrap — make that web tool — for communities trying to attract businesses. His Business Assistance Recruitment Calculator, or BARC, allows businesses and their site selectors to surf quickly and anonymously for key, location-specific financial information on the websites of cities that buy the online service when they’re looking for the best location for a new plant, warehouse or office. The online data services most communities, real estate brokers and economic development groups offer businesses and their site selectors focus on basic demographic information and real estate listings. Typical is the website for Columbus 2020, the nonprofit that works to attract business to central Ohio. It helps site selectors collect facts and figures about the size and educational attainment of the region’s work force, as well as data about space and land available for sale or lease. BARC is different, Mr. Bowman said. It can help “if you’re looking at the bottom-line issues: What am I going to pay every month in electric bills? How much tax am I going to pay from one community to another?,”

Mr. Bowman said in a telephone interview from the office of his CDJ Consulting in Kent. “Sometimes, those can be the defining bottom-line issues,” said Mr. Bowman, a former city manager in Geneva and Xenia. Site selectors prefer the anonymity of the web because companies begin casting about for new locations before they’re ready to announce their plans to employees or home communities. The information BARC provides usually is only available with a phone call or visit. At the moment, Mr. Bowman is working on BARC calculators for four cities, all in Ohio. The city of Canal Fulton went live in the middle of August. “Even though the city of Canal Fulton is a small town, we have many businesses that compete and interact on a global scale,” said city manager Mark Cozy. “Having BARC on our website opens the doors of our local economy to global opportunities.” Canal Fulton’s calculator can be found at http://www.cityofcanal fulton-oh.gov/Residents/Default.aspx. Calculators for Painesville, Oak Harbor and Sebring should be up in the next few months. Mr. Bowman said he plans to market a product that will include tax and utility data

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for about 400 Ohio municipalities that maintain economic development programs and then take BARC beyond the state’s borders. ■

Kent State Welcomes

Goodyear Executive Professor, Leo Plante. Kent State University’s College of Business Administration is proud to welcome Leo Plante as its new Goodyear Executive Professor. Plante is a self-employed investment banker and venture capitalist who has worked in the investment banking divisions of Goldman Sachs Group, Inc. and Citibank. He also has taught finance and economics at several colleges and universities.

The Goodyear Executive Professorship was established in 1973 by The Goodyear Tire and Rubber Company to provide a bridge between the academic and business communities. This is accomplished by bringing an experienced corporate executive to the Kent State campus, as the Goodyear Executive Professor, to instruct students and to participate in and direct university programs designed to enhance the preparedness of future managers and executives through the examination and mastery of “real world” aspects of business.

Kent State University, Kent State and KSU are registered trademarks and may not be used without permission. Kent State University is committed to attaining excellence through the recruitment and retention of a diverse student body and workforce. 11-2246

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TRISTATE CAPITAL BANK: John Barrett to regional president, Ohio.

GOING PLACES JOB CHANGES

to athletic director.

CUYAHOGA COMMUNITY COLLEGE: Paul Gasparro to president, Eastern Campus.

NOTRE DAME-CATHEDRAL LATIN SCHOOL: Vincent Bonacci to assistant principal, student life; Kara Simone to communications coordinator.

CONSTRUCTION

ENTERTAINMENT

CHESLER CONSTRUCTION LLC: Chika Aizu to senior vice president.

GREATER CLEVELAND AQUARIUM: Tamera Lash Brown to general manager.

EDUCATION

DISTRIBUTION CHAS. E. PHIPPS CO.: Ben Brown to branch operations manager.

EDUCATION HATHAWAY BROWN SCHOOL: Torrey McMillan to director, Center for Sustainability; Paul Maes

WWW.CRAINSCLEVELAND.COM

FINANCE CHASE: Christine A. Kelly to senior vice president, market manager. KEYBANK: Peter D. Wheeler to senior vice president, health care segment team leader, Global Treasury Management Group.

FINANCIAL SERVICE BROWN GIBBONS LANG & CO.: Matthew Beesley to senior analyst; David Jusseaume to analyst. GRANT THORNTON LLP: Jason Mayausky, Aimee Scullin and Wendy Wadsworth to managers. HILLYER GROUP: Robert Nagy to senior workout specialist.

HEALTH CARE METROHEALTH SYSTEM: Mavis Bechtle to chief nursing officer; Dr. Joshua Friedman to Department of Pediatrics.

INSURANCE BRUNSWICK COS.: Jeff McQuate

SEPTEMBER 26 - OCTOBER 2, 2011

to surety bonds account executive; Stacey Gleason to professional liability specialist; Jodi Morris to personal lines client specialist. KAISER PERMANENTE: Lisa Flanagan to manager, client services; June Sladek to manager, business development; Kerry Dease to clinical risk manager, Ohio region.

Aizu

Kelly

Wheeler

Barrett

Stein

Sumser

Swank

Cogan

Mehok

MEDICAL MUTUAL OF OHIO: Matt Stein to director, enterprise technology development and innovation.

LEGAL BUCKINGHAM, DOOLITTLE & BURROUGHS: Paul Christopher Filon to attorney, Intellectual Property Practice Group.

MANUFACTURING ATHENS FOODS: Scott Sumser to president.

MARKETING STERN: Mike Rini to vice president, interactive services; Danielle Fisher to traffic manager; Christina Sochacky to account executive; Lauren Yusko to public relations account executive. TRIAD COMMUNICATIONS/NEXT LEVEL INTERACTIVE: Jason Swank to manager, integrated client strategies and business development.

NONPROFIT LIFEBANC: Cynthia Rosa to chief administrative officer; Dan Martinelli to director of preservation services. NEAR WEST THEATRE: Hans Holznagel to chief operating officer.

REAL ESTATE REISENFELD & CO: S. Colin Petry to retail sales specialist.

SERVICE SAFEGUARD PROPERTIES: Kathy Cogan to assistant vice president, account management; George Mehok to chief information officer.

TECHNOLOGY DATACORE CONSULTING: Carley Rigby to executive assistant/marketing manager. MCPC INC.: Lynee Bixler to assistant marketing manager; Matt Previts and Rosanna Del Rio to account managers; Tim Alspach to product specialist, Smartnet; Erik Hinderer and Dave Jessup to network engineers. SPARK BASE: Ted Frank to chief operating officer.

BOARDS ELIZA JENNINGS SENIOR CARE NETWORK: Katie Ramella to chair; Rick J. Weigle Jr. to vice chair; Susan O. Scheutzow to secretary; Patricia Scanlon to treasurer; Barrie B. Spang to assistant secretary and assistant treasurer.

AWARDS ASSOCIATION OF FUNDRAISING PROFESSIONALS, GREATER CLEVELAND CHAPTER: Pat Egan (Beyond Fundraising) received the 2011 Outstanding Fundraising Executive Award.

Send information for Going Places to dhillyer@crain.com.

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CRAIN’S CLEVELAND BUSINESS

SEPTEMBER 26 - OCTOBER 2, 2011

INSIDE

13

FINANCE

18 ACCOUNTING FIRMS MOVE TO SPECIALIZED SKILL SETS.

More banks reimagine workplace programs They offer outreach to new client base

PATCHING TOGETHER A PLAN Creativity rules as organizations seek new ways to fund projects By MICHELLE PARK mpark@crain.com

T

he parking lot project under construction at The Union Club of Cleveland wasn’t made possible by a bank loan. Instead, the club employed a less common form of financing: It sent a letter last November to its 950 members, soliciting their interest in zero-coupon notes, and within weeks, club members had committed to funding 100% of the lot’s purchase price. Per the arrangement, the members will be paid interest, INSIDE: Adviser: but not for five years. Alternative financing Other businesses and organican raise securities zations also are turning to forms concerns. Page 16 of financing one might call creative or uncommon to free up cash and to embark on projects and expansions. Some have borrowed from family and friends. Others have found ways to turn their working capital into cash so they don’t need money from outside sources. Their reasons for using creative financing vary, but probably the most common is the unavailability of bank financing. Many business owners complain that the only businesses that can get bank loans are those that don’t need it. See PATCHWORK Page 21

By MICHELLE PARK mpark@crain.com

A

number of banks are injecting themselves into company lunchrooms and offices to reach the live audiences that have become hard to access in today’s increasingly mobile and online banking world. In what some are calling a resurgence, several institutions have introduced or revamped workplace banking programs, offering employees of participating businesses discounted products and on-site seminars to attract potential customers. In a rarer move, U.S. Bank last March actually opened a branch inside Summa Akron City Hospital. It is the bank’s first workplace branch in this geography, but it’s part of a network of 70 such locations across the country. From Daniel Hoke’s perspective, U.S. Bank’s efforts are one example of how more banks are returning to the workplace to meet potential customers. “As banks continue to adjust to the new norm of the economy and regulations, it appears (to be) a cost-effective way to get out of the branch and get in front of customers,” said Mr. Hoke, U.S. Bank’s senior vice president and division manager who oversees the bank’s nontraditional locations group. Rodney Drake, who oversees KeyBank’s Key@Work program for the Cleveland district, also has observed more competition in the space. “(Workplace banking) is a great acquisition tool to be able to get our message and our story … to a client base that we don’t have,” Mr. Drake explained. “Banks are taking every opportunity that they can get to get in front of a large audience. “With the use of online and mobile banking, you don’t have traffic in the branches sometimes as much as you had, so where are you going to get that traffic from?” he added. “This is an avenue that we can use to get that, by linking arms with an employer.”

Reinvestments paying off Though not new, Key@Work has been marketed more consistently in the past year after a period of rebranding, Mr. Drake said. The number of employers in Ohio participating in Key@Work grew See WORKPLACE Page 17

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Supporting the economy of Greater

Carbide Industries LLC Central Carbide LLC Manufacturer of calcium carbide and acetylene

Participation in a multi-bank credit facility January 2011

Raven Lining Systems, Inc. Manufacture and sales of high performance coatings for wastewater treatment and water infrastructure

L&M Auto Specialty LLC Complete Auto Care Provider

Building contractor and construction manager for the commercial, industrial and institutional markets

Term Loan Financing January 2011

Real Estate Financing January 2011

Working Capital Line of Credit January 2011

Stoddard NLA LLC

Branam Fastening Systems, Inc.

Manufacturer and distributor of collector Porsche car parts

OEM distributor of fasteners, hardware and stud welding products

Working Capital and Term Financing March 2011

Line of Credit and Equipment Financing March 2011

Vintage Development Group LLC Chagrin River Walk LLC

National Threaded Fasteners Ltd.

Real estate developers and property managers

Flange bolt importer and distributor

Real Estate Financing February 2011

Working Capital Financing March 2011

MPDS Memphis Ltd. Emerald Overlook

MPDS West Park Ltd. Canterbury Court

Panzica Construction Company

Playhouse Square Foundation

Consolidated Investment Corporation

Performing arts center Multi-Unit Apartment Community Managers

Real Estate Financing May 2011

Participation in multi-bank revolving credit and Allen Theatre renovation loan May 2011

Real estate investment, management and development company

SpringCo Metal Coatings, Inc. Versatile metal coating job shop with multiple coating and plating capabilities

Real Estate Financing May 2011

Working Capital, Equipment and Commercial Real Estate Financing May 2011

Pearne & Gordon LLP

Davco Fastener Co.

WXZ Residential Group / Hazel LLC

Intellectual property law ďŹ rm providing patent and trademark services

Industrial Fastener Distribution

Commercial Real Estate Developer

Working Capital and Real Estate Financing June 2011

Multi Family Construction Financing July 2011

Monclova One LLC Redwood Management specializes in the development and management of apartment communities

Multi Family Construction Financing June 2011

Working Capital Financing June 2011

We believe in Greater Cleveland and we’re lending to the businesses that make it great. Let us show you why these local companies chose FirstMerit in 2011. For more information call Sean Richardson, Northcoast Region CEO, at 216.802.6565

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r Cleveland, one partnership at a time. Shale Construction Services LLC Duke Graphics, Inc.

KR Northwest LLC

Full service print, direct mail and fulfillment provider

Redwood Management specializes in the development and management of apartment communities

Working Capital, Equipment and Real Estate Financing January 2011

Multi Family Construction Financing January 2011

Choice Child Care and Preschool, Inc. Provider of quality childcare and educational programs

Construction Financing April 2011

GPD Development LLC

Ciro’s Property Management, Inc. Real Estate Owner and Manager

Commercial Owner-Occupied and Investment Real Estate Financing April 2011

D&S Custom Van, Inc.

Harbor Communications LLC

Equipment rental, inspection and engineering services related to storm water, erosion and sediment control

Business media company with magazines, websites and events for industries served

Equipment Financing February 2011

Line of Credit February 2011

Sheoga Hardwood Flooring & Paneling, Inc.

Presrite Corporation

Manufacturer of solid, high quality hardwood flooring and paneling

High-tech metal forging for a variety of industrial applications

Working Capital Financing April 2011

Participation in a multi-bank credit facility May 2011

Continental Enterprises Ltd.

Moving Solutions, Inc.

M.C. Mobility Systems, Inc.

Customized moving services for local and long distance

Commercial Real Estate Developer

Full service collision and restyling center and mobility products dealer

Luxury Apartment Community

Real Estate Financing June 2011

Working Capital Financing June 2011

Real Estate Refinancing June 2011

Real Estate, Equipment and Working Capital Financing June 2011

Hodell-Natco Industries, Inc.

Sea-Land Chemical Co.

Commercial Real Estate Developer

Nationwide, solution-focused wholesale distributor of fasteners and chain

100% employee owned specialty chemical distribution company

Finance of Commercial Out Lots July 2011

ABL Financing August 2011

ABL Financing August, 2011

Hemingway at Boston Heights LLC Construction and mini-perm financing of a 25,000 sf office building July 2011

State Road Associates

Member FDIC

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16 CRAIN’S CLEVELAND BUSINESS

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SEPTEMBER 26 - OCTOBER 2, 2011

FINANCE

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When using alternative financing outlets, beware possible securities issues

C

redit tightening — indeed the virtual freeze in bank lending that resulted from the subprime mortgage financial crisis — has caused businesses of all sizes to consider financing their operations from nontraditional lending sources. As banks reduce or decline to renew lines of credit or impose unduly restrictive loan covenants, more businesses are looking beyond the primary lending markets. Some consider borrowing funds from family, friends and even people unknown to them who are introduced through business brokers or “finders.” In return for the loaned funds, the business provides these private lenders with short- or medium-term promissory notes, usually with above-market interest rates. It seems a “win-win” scenario — the lenders typically receive interest at a rate much higher than today’s nominal fixed interest rates, and the business obtains the funds that it needs free of bank restrictions, burdensome loan documents and expensive legal bills from the bank’s lawyers for providing what appear to be form (and non-negotiable) documents. If your business is not eligible for bank financing, there may be few other choices. And the legal cost of financing with notes appears to be virtually nonexistent. Fill-in-theblank forms of promissory notes are available on the Internet and from legal-form suppliers. You might think that you do not even have to retain a lawyer. Right? Well, maybe not when you raise the money. But you will need a lawyer — and an expensive one at that — if, after you issue the notes, you find that you are being investigated by the Securities and Exchange Commission, the Ohio Division of Securities or other state securities regulator (if any of your note holders are out of state). These agencies might be interested in whether you were selling securities without registration or an exemption from registration under federal and state securities laws, or committing securities fraud because you did not provide your investors with full disclosure regarding your business. Yes, your note holders are investors, and the notes you sold are securities under federal and state law. It has been more than 20 years since the United States Supreme Court, in Reeves v. Ernst & Young, held that promissory notes issued to finance a business and sold as investments (as opposed to notes given to commercial banks), are securities, and are therefore subject to federal and state regulations. The consequences of issuing promissory notes in such circumstances can be horrific. It actually can be a criminal offense to sell unregistered securities or to sell securities without full disclosure — even if you did not realize you were breaking the law. Moreover, the SEC could seek an injunction that would essentially shut down your business, and require “disgorgement” of all the proceeds

KARLMAY

ADVISER of the illegal sales. It may also seek to impose catastrophic civil penalties for as much as $725,000 for each sale deemed illegal. The Ohio Division of Securities can, among other things, issue a cease-and-desist order, and both the SEC and the Division of Securities have broad powers to obtain documents and compel testimony — the costs of which can quickly exhaust the target’s resource. There’s more. Investors themselves can bring civil suits for rescission of their investments — even if the notes are not yet due. The securities laws do not respect the legal distinction between the business and business owner. Individuals who sell securities in violation of the securities laws do not have the protection of their corporate or limited liability company entity. Scare tactics, one might say. Even sophisticated business people might inquire how the regulators will know that money was raised from private investors using promissory notes. There are a number of ways note sales come to regulators’ attention. A potential investor might consult with an attorney before investing. If the business should default on a note, or even seek an extension, the note holder might hire an attorney regarding available remedies. In either case, the attorney would likely realize there were securities laws issues, and could contact federal or state regulatory authorities. Investors themselves might also file a complaint with the SEC or the state. The Ohio Division of Securities website lists sales of promissory notes as “one of the top five investment scams” and provides an online form for filing a complaint. Fortunately, there are ways for businesses to legally issue promissory notes for financing purposes. This requires structuring the sales to be exempt from federal and state securities registration, generally through the nonpublic offering (better known as the private placement) exemption. The intrastate offering exemption, which requires, among other things, that the business and all of the investors be residents of the same state, may be an option. The exemption process is complicated, can be expensive, and will likely result in a notice or other filing with the SEC and applicable state or states. But it is much less expensive, and the outcome infinitely better, than an SEC or Ohio Division of Securities investigation. ■ Mr. May is a securities lawyer and partner in the Cleveland office of Weston Hurd LLP.

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SEPTEMBER 26 - OCTOBER 2, 2011

CRAIN’S CLEVELAND BUSINESS 17

WWW.CRAINSCLEVELAND.COM

FINANCE

Workplace: Employees benefit from perk continued from PAGE 13

220% from the second quarter of 2010 to the second quarter of this year, he said. The program offers certain discounts and waives certain requirements for employees of participating companies. It also is one of many workplace banking programs centered on educating people about budgeting, credit scores, saving and more through lunch-and-learn sessions and seminars. These are lessons, bankers say, that are in particular demand by employers and consumers today. “It really speaks to what’s happened in the world economy over the past couple of years,” said Ken Marblestone, president for Charter One, Ohio, which relaunched its workplace banking program in July. “It’s become just so abundantly clear over the last few years that people need more education around financial literacy.” Charter One over the summer finished the rollout of YourPlace Banking across the bank’s 12-state footprint, which involved the addition of eight regional managers. The bank previously offered only discounted products for employees, but gone are the days when institutions can attract customers by offering one-time freebies or discounts, Mr. Marblestone said. So this time, the bank is coupling discounted products with financial education. The effort appears to be paying off: About 10% of the new checking accounts Charter One has opened in Ohio this year were opened through YourPlace Banking, Mr. Marblestone said. “That’s powerful,” he said. When workplace banking provides financial education, it tends to lead to fuller relationships through which consumers use multiple products, said Greg Mulach, senior vice president and head of retail banking for Northeast Ohio for Fifth Third Bank. “The relationships tend to stay with us longer,” Mr. Mulach said. “We’re not just a branch that they go to visit. We’re now part of offering solutions to their life.” Fifth Third Bank is another that recently reinvigorated its workplace banking. In the past year, it has hired a team of four and focused on marketing its program as a “financial wellness package” to human resources departments.

Profit margins It tends to be cheaper for a bank to open a branch inside an existing facility — like U.S. Bank did at Summa Akron City Hospital — than it is to build a standalone branch, Mr. Hoke said. For employers, workplace banking programs serve as a no-cost enhancement to employee benefits. And at a time when many a business is scrutinizing expenses, adding a bank tenant is one way to generate additional revenue, Mr. Hoke noted. U.S. Bank is a tenant of all of the companies in which it operates, and the bank is receiving a steady stream of requests from companies interested in its nontraditional branching, he said. Summa Health System pursued an in-house branch after it received a flier in the mail, said Don Smith, system director of food, nutrition

and retail services. “Over the past several years, we’ve gone from a traditional type of service environment to more of a mall concept,” Mr. Smith explained. “We now have an on-site pharmacy, we have on-site restaurants and we have this bank.” The biggest advantage, he added, is creating a full-service environment for Summa’s employees. Though he’s not sure how much of a draw the U.S. Bank branch is for employees, Mr. Smith said he’s heard employees say they’ve received loans since it opened and also have enjoyed the convenience

of not needing to make another stop to withdraw money. Patrick Retko, human resources manager for U.S. Cotton LLC, believes having a bank more available to his employees has made the work force happier. Charter One bankers began last fall participating in new employee orientations and offering “lunch-andlearns” about once a quarter. “They are now understanding things,” he said of employees. “They’re less stressed out about financial situations that they might come into. I’ve had employees in pretty difficult situations that have

U.S. Bank last March opened a branch inside Summa Akron City Hospital. gone to Charter One and gotten them resolved.” U.S. Cotton, which is headquartered in Gastonia, N.C., but houses its largest manufacturing facility in Cleveland, also has seen an

increase in its 401(k) enrollments. And more than 10 of the company’s employees who previously were blacklisted from banks now have depository relationships with Charter One, Mr. Retko said. ■

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18 CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

SEPTEMBER 26 - OCTOBER 2, 2011

FINANCE

In accounting, it pays to be special As generalists become scarce, more firms shift to focusing on defined areas of expertise By AMY ANN STOESSEL astoessel@crain.com

D

ave Brockman, co-founder and managing director of BCG & Co. in Akron, said client needs initially drove his 25-year-old firm to first create a specialty practice in 1989. And it must have been a good move. Today, one-third of Mr. Brockman’s 100-employee firm still is involved with that same specialty — technology. “That’s an area that’s been a real differentiator for us,� Mr. Brockman said. “It’s been a way to really stick out from the crowd.� While specializations are nothing new, industry insiders say that to an ever-increasing degree today’s accounting firms are striving to implement the same strategy that Mr. Brockman used more than two decades ago. They’re staking their claims to specific areas of expertise, and in the process many are finding new avenues of opportunity both in terms of expanding client bases and service lines. “You don’t try to be all things to all people,� Mr. Brockman said. “Everything has gotten so complex these days, it’s difficult to know everything about everything.� Greg Skoda, chairman and one of the founders of Mayfield Villagebased Skoda Minotti, said that the business climate is such that accounting firms have to continue

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to find more ways to add value for clients. Mr. Skoda’s firm specializes in a range of services and industries, from information technology, marketing and business valuation to nonprofits, biotechnology and insurance. “As you learn the nuances in any of these industries ‌ you really can provide a different service,â€? he said. And while Mr. Skoda said there always will be a place for the small generalist firm, there’s a chance that a client’s needs eventually may outgrow such a firm’s capabilities. “If you’re going to try to survive as just a generalist, someone is probably going to come and take your client away,â€? he said. “It’s not just a Cleveland, Ohio, trend; it’s a national trend.â€?

Taking it national For some Northeast Ohio firms, having a defined area of expertise and a reputation in a certain specialty has helped in reaching a client base outside the region. Cohen Fund Audit Services, for one, is 100% focused on the investment industry. Led by president Peggy McCaffrey, it has become a national practice since it was spun off as a separate entity from Cohen & Co. in 2003. Just this month, Cohen Fund Audit Services opened a Milwaukee office, which is the first outside Ohio for the 35-person practice. There are three people in the Wisconsin office. “We’ve experienced a wonderful growth rate,� said Ms. McCaffrey, who helped with the creation of the practice. “This niche has allowed us opportunities.� Indeed, Ms. McCaffrey estimates that the practice has logged an average of 15% growth in revenue each year since its beginning. Less than 20% of the practice’s clients are in Northeast Ohio. Richard C. Fedorovich, CEO and managing partner of Bober, Markey, Fedorovich & Co., said his Akron-based firm’s reputation in middle-market mergers and acquisitions work has served it well in attracting clients from outside the region. “We end up getting business from all different corners of the United States,� said Mr. Fedorovich, whose firm covers a range of industries from manufacturing and construction to family owned businesses and nonprofits. He said one downfall of having a specialization in a particular industry can be a business’ reluctance to work with an accounting firm that has a competitor as a client. Others, meanwhile, say that specialties can lead to referrals of work between firms — oftentimes outside the market — when a client’s needs fall out of a firm’s areas of expertise. Even so, Mr. Fedorovich believes having specialties and dedicated teams is a benefit both to the firm and the client. “It allows us to recognize opportunities that others might not be

WHAT’S HOT According to the region’s accounting professionals, there are a number specialty areas that are receiving extra attention these days. They are: ■Forensic accounting ■Wealth management ■Globalization/international services ■Business valuation ■Estate planning ■Succession planning ■Nonprofits ■Mergers and acquisition

able to ferret out,â€? he said. “It really is a more well-rounded service offering to our clients.â€? It’s also why Mr. Fedorovich regularly keeps tabs on what other firms are doing in terms of specialties. In particular, he takes note of annual benchmarking reports that track the activity of the tops firms in the country. “What I do annually ‌ I take a look at our subspecialties and overlay it to make sure we’re not missing anything,â€? he said.

Staking out specialties At Mr. Brockman’s BCG & Co., business and demographic developments have continued to motivate segmentation beyond technology. Forensic accounting, wealth management and globalization, all are receiving increasing levels of attention, Mr. Brockman said. For example, earlier this year BCG began actively marketing and making available as a service to other CPA firms a fraud reporting hotline — Red Flag Reporting — a program through which employees can report unethical behavior. The venture to date has two dozen clients and nine affiliated accounting firms. Of course, developing a specialty practice can require a significant investment of time, so it’s not surprising that Clarke Price, president and CEO of The Ohio Society of CPAs, said he has seen an uptick in the number of firms being bought for their expertise. “It’s a jump-start, if you will, in the process,â€? Mr. Price said. When a firm is purchased, not only does the book of business change hands but professionals possessing specialized knowledge typically are acquired as well. Skoda Minotti, for one, this summer acquired Cleveland marketing firm Hilty Moore & Associates Inc. along with the company’s visual marketing division, BrandEyeD, as a way to enhance the expertise and depth of the firm’s marketing capabilities. Mr. Price said unique specialties are becoming harder to find as more professionals claim areas of expertise. And that’s where firms might have to start proving they are more than just competent in a certain area. “I think there’s going to be a greater emphasis on CPAs gaining more credentials. ‌ I think that is a trend that’s going to continue,â€? he said. “We’re a credential-crazy society.â€? â–

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20 CRAIN’S CLEVELAND BUSINESS

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North Canton bank eyeing a bigger piece of pie in Stark, Summit counties With regulatory order lifted, it plans to grow commercial lending By MICHELLE PARK mpark@crain.com

A

North Canton bank is positioning itself to grow at a level it previously couldn’t, now that a regulatory order against it has been lifted. Premier Bank & Trust, formerly Ohio Legacy Bank, recently filed with its regulator, the U.S. Comptroller of the Currency, to open a branch. It also aims to increase its commercial lending following the removal on Sept. 9 of a February 2009 consent order, which imposed strict capital requirements that limited what growth could occur, said Rick L. Hull, president and CEO. The four-branch institution had been critically undercapitalized, primarily as a result of losses related to commercial real estate. Premier Bank intends to open a branch by the first of the year in St. Clairsville, in Belmont County, because clients of its trust operations there have requested a branch presence, Mr. Hull said. Prior to the termination of the consent order, the bank’s regulator would not have

“What I see out of my fellow community bankers is they’re just not doing anything. I think that’s crazy.” – Rick L. Hull president and CEO, Premier Bank & Trust allowed a branch to open, he said. However, Premier Bank plans to concentrate most of its efforts to grow market share in Summit and Stark counties. It’s selling two branches in Wooster, where its predecessor bank was founded but where it has not commanded impressive market share. The deal with The Commercial & Savings Bank in Millersburg is to close in mid-October. The sale of those offices’ deposits will result in an infusion of $3.75 million in capital, bolstering the bank’s already well-capitalized status. The institution is exploring whether it will open other branches, as well as loan production offices, in new locations, Mr. Hull said. Already, Premier Bank has

improved its book of commercial loan business: Through June, it had grown commercial loans by almost $20 million year-to-date, and the growth continues “to be really robust and growing at a greater rate,” Mr. Hull said. “Our intent is to move quickly,” he said. “What I see out of my fellow community bankers is they’re just not doing anything. I think that’s crazy. I think you’ve got an opportunity now that you can go ahead and pick up community business … now that bigger banks have pulled back.” Bob Belden, who has been on the bank’s board since Ohio Legacy was formed in 2000, is pleased with new management’s success in capitalizing the bank and getting its assets “under control.” The removal of the consent order comes 18 months after a group of investors led by Mr. Hull recapitalized the bank and introduced new management. Mr. Belden said he and other Premier Bank leaders would like to see the bank return to profitability. The bank last made a profit in the first quarter of 2009, Mr. Hull said. ■

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SEPTEMBER 26 - OCTOBER 2, 2011

CRAIN’S CLEVELAND BUSINESS 21

WWW.CRAINSCLEVELAND.COM

FINANCE

Patchwork: Low rates draw alternative lenders continued from PAGE 13

The way Randy Markey sees it, creative financing is being sought after more today than in years past. And it will continue to be sought after, he believes, as long as instability and uncertainty reign. “In ’06, ’07, if you could breathe, you pretty much could get access to capital,” said Mr. Markey, managing partner for Capital Acceleration Partners, a Cleveland private equity firm. Banks are not looking at assets and providing the same advance rates they used to, and receivables, inventory valuations and real estate collateral values are more suspect, Mr. Markey explained. “Today, money is available, but it’s only available under certain circumstances or conditions,” he said. “So we’re having to find creative ways to free that money up.”

Ins and outs Mr. Markey, for one, is working with investors to create a group of guarantors to enable one of his firm’s portfolio companies to get the bank financing it needs for a real estate-based project. The business owner, he explained, doesn’t have the liquidity to satisfy the bank on a personal guarantee basis. “If he had that much money, he wouldn’t need to borrow it,” he said. So Capital Acceleration Partners effectively is fabricating that liquidity by assembling the group of guarantors. In exchange, the high-networth individuals will receive a guarantor fee and ownership in the entity, Mr. Markey explained. “This project won’t get done if we don’t do something to help him get creative,” he said. Mr. Markey anticipates the need to be creative will persist for the foreseeable future as banks continue to doubt borrowers’ capacity to repay. “It’s an interesting conundrum,” he said. “The actual cost of debt capital is lower than it’s been in a long time … but you can’t get it unless you don’t need it.” Some business owners are looking inward, not outward, to drum up money. Quality Synthetic Rubber in Twinsburg has freed up some $3 million to $4 million by scrutinizing cash tied up in its inventory, its receivables (money owed to it) and money it owes to its creditors. The manufacturer of silicone rubber parts a couple years ago hired the Pittsburgh company, WCP International LLC, to assist it in the process, said Mark Gamble, chief financial officer for QSR. WCP’s president, Graham Lloyd, provides a disciplined method that involves reducing excess inventories, making customers live by the company’s terms and convincing vendors to extend the company itself favorable terms. Quality Synthetic Rubber is using the freed-up cash to buy equipment and for physical expansion, Mr. Gamble said. “What it’s allowed us to do is to not have to finance where we might have had to,” he said. “This is something that we can control. It’s a cost-saver, too, from an interest standpoint.”

jacent parking lot property, explained Eric V. Bacon, past president of The Union Club, and the property had come up for sale and down in price. The club would need $1 million fast. Its bank offered to extend half of what it needed. In the end, thanks to members’ willingness to invest, The Union Club raised more than enough to buy the property. It had used zerocoupon notes in 2004 to help fund a $7 million refurbishment, and its repayment last summer of those notes ensured it success in selling the notes again, Mr. Bacon said. Plus, at a time when interest

rates remain historically low, the return it offered was highly attractive, he added. “You can’t get 5.5% from many places,” he said. “I think some people jumped right in and said, ‘I’ll lend you the money, heck yes.’” Considering today’s low interest rate spread, now is an opportune time for entities to employ this form of financing, Mr. Bacon said. But not everyone can or should do it, he said. “You need to start worrying about (repayment) the moment you get it,” Mr. Bacon said. “You don’t start worrying about it the moment before it’s due. “It’s personal,” he added. “I’m

not taking a loan from the bank. I’m taking a loan from people I know.” By the time repayment of these zero-coupon notes is due, the club will have paid down some bank debt and will borrow again from the bank to pay back the notes, he said. In the meantime, the club a few weeks ago started construction on the parking lot. The project should be complete by late October.

Relationship issues There are advantages and disadvantages to all forms of financing. Granting someone equity in one’s company is quite expensive. And when a business owner borrows money from family and friends — which they may find more available as people experience improved

liquidity — it’s friendly money that carries professional and personal risk, noted John Dearborn, president of JumpStart Inc., which assists and invests in high-tech startup companies in Northeast Ohio. “They (family) can provide great terms and lots of forgiveness if dates aren’t met,” he said. “The disadvantage is it can make for a strained relationship.” Vendors, too, seem to have more liquidity today, and so some businesses have benefitted from asking their vendors and professional service providers, such as lawyers, to extend payment terms. Problems can arise in instances where vendors ask in return to be a company’s exclusive vendor, but don’t prove to be competent. ■

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‘It’s personal’ For The Union Club, the decision to use creative financing was more a matter of timing. The club had long wanted the ad-

Featured attorneys (left-right): GREGG EISENBERG, CHRISTOPHER REUSCHER, ROSS J. KIRCHICK, MARK AVSEC, BRYAN SCHWARTZ, STEVE AUVIL, M. CASEY KUCHARSON, RICK TRACANNA, BRYAN JAKETIC and JOSEPH GROSS. © 2011 Benesch Friedlander Coplan & Aronoff LLP

20110926-NEWS--22-NAT-CCI-CL_--

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CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

SEPTEMBER 26 - OCTOBER 2, 2011

BUSINESS INSURANCE AGENCIES RANKED BY LICENSED EMPLOYEES

Name Address Rank Phone/Web site

Licensed Licensed employees employees property/ 7/1/2011 casualty

Full-time equivalent employees

Firm compensation From fees

From commissions

Number of underwriters represented

Major carriers

Year founded Top local executive

1

Oswald Cos. 1360 E. Ninth St., Cleveland 44114 (216) 367-8787/www.oswaldcompanies.com

165

85

223

NA

NA

NA

NA

1893

Marc S. Byrnes chairman, CEO

2

Dawson Cos. 1340 Depot St., Rocky River 44116 (440) 333-9000/www.dawsoncompanies.com

133

104

208

1%

99%

50

NA

1931

Kyp L. Ross president

3

The Fedeli Group 5005 Rockside Road, fifth floor, Independence 44131 (216) 328-8080/www.thefedeligroup.com

128

103

155

NA

NA

NA

NA

1988

Umberto Paul Fedeli president, CEO

4

Wells Fargo Insurance Services USA Inc. 1301 E. Ninth St., Suite 3800, Cleveland 44114 (216) 241-4344/wfis.wellsfargo.com

81

64

89

NA

NA

NA

NA

1989

John D. Meder managing director

5

Marsh & McLennan Cos. 200 Public Square, Suite 1000, Cleveland 44114 (216) 937-1700/www.marsh.com

67

67

194

NA

NA

NA

NA

1871

William M. Paul managing director

6

Aon Risk Services Inc. 1660 W. Second St., Suite 650, Cleveland 44113 (216) 621-8100/www.aon.com

61

41

89

NA

NA

NA

NA

NA

7

Hylant Group Inc. 6000 Freedom Square Dr., Suite 400, Cleveland 44131 (216) 447-1050/www.hylant.com

60

50

70

47%

53%

137

Travelers, Chartis, Zurich, Chubb, Hartford, CNA, Westfield

1935

John Chaney regional vice president

8

Britton-Gallagher & Associates Inc. 6240 SOM Center Road, Cleveland 44139 (440) 248-4711/www.britton-gallagher.com

59

42

63

15%

85%

NA

NA

1942

Lee M. Stacey CEO

9

Alpha Group Agency Inc. 25000 Center Ridge Road, Westlake 44145 (440) 835-8860/www.thealphaga.com

56

18

84

2%

98%

18

Cincinnati, Westfield, Selective, Hartford, Travelers, Motorist,

1988

Kevin O'Brien Kevin Mackay principals

10

Seibert Keck Insurance 2950 W. Market St., Akron 44333 (330) 867-3140/www.seibertkeck.com

55

53

59

5%

95%

22

Westfield, Cincinnati, Chubb, Travelers, Hartford, Great American, State Auto, Central

1910

Richard B. Hite chairman, CEO

11

United Agencies Inc. 1422 Euclid Ave., Suite 900, Cleveland 44115 (216) 696-8044/www.unitedagencies.net

51

50

52

3%

93%

120

State Auto, Westfield, Travelers, MedPro, Anthem, Grange

1972

James E. Cogan II, CEO John J. Boyle IV, CFO James J. McMahon, COO

12

Todd Associates Inc. 23825 Commerce Park, Suite A, Cleveland 44122 (440) 461-1101/www.toddassociates.com

50

41

52

4%

96%

61

Chubb, Cincinnati, Westfield, Travelers

1939

Edward J. Hyland Jr., president; Randy Cumley, Tim Fitzpatrick, executive vice presidents

13

Insurance Partners Agency Inc. 26865 Center Ridge Road, Westlake 44145 (440) 835-9600/www.inspartners.com

48

45

54

NA

NA

30

Chubb, Travelers, Westfield, Physicians Insurance Co.

1961

George S. Dadas president

14

Althans Insurance Agency Inc. 543 E. Washington St., Chagrin Falls 44022 (440) 247-6422/www.althansinsurance.com

46

40

51

NA

NA

75

NA

1925

James C. Althans president

15

Brunswick Cos. 2857 Riviera Drive, Fairlawn 44333 (800) 686-8080 /www.brunswickcompanies.com

42

36

47

NA

NA

NA

NA

1972

Todd A. Stein, president Michelle Hirsch vice president

16

The Hoffman Group 2 Berea Commons, Suite 10, Berea 44017 (440) 826-0700/www.thehoffmangrp.com

40

32

44

5%

95%

40

Travelers, Chubb, Cincinnati, Westfield, Chartis, Motorist Mutual, State Auto, Grange

1919

Brian M. Russell president

17

Willis 200 Public Square, Suite 3760, Cleveland 44114 (216) 861-9100/www.willis.com

33

17

36

NA

NA

NA

NA

1828

Frank McKain

17

Neace Lukens 5005 Rockside Road, Suite 1200, Independence 44131 (216) 643-7100/www.neacelukens.com

33

32

36

5%

95%

16

NA

1991

Dennis J. Vogelsberger partner

19

Zito Insurance Agency Inc. 8339 Tyler Blvd., Mentor 44060 (440) 205-7400/www.zitoinsurance.com

29

23

34

NA

NA

NA

Cincinnati, Grange, Travelers, State Auto

1964

Christopher M. Zito president

20

DRY Insurance Agency Inc. 320 Center St., Unit A, Chardon 44024 (440) 286-3344/www.dryins.com

28

28

29

1%

99%

19

State Auto, Motorist Mutual, Auto Owners, Western Reserve, Cincinnati

1968

Donald R. Yert president, CEO

21

Luce, Smith & Scott Inc. 6860 W. Snowville Road, Suite 110, Cleveland 44141 (440) 746-1700/www.lucesmithscott.com

25

25

27

NA

NA

NA

NA

1925

William M. Killea, chairman Daniel Skaljac president

22

Fitzgibbons Arnold & Co. Agency 25730 First St., Westlake 44145 (440) 892-3636/www.fitzarn.com

22

22

22

NA

NA

25

NA

1991

Richard Arnold Clark Fitzgibbons partners

23

Amer Insurance 3700 Embassy Parkway, Suite 160, Akron 44333 (330) 665-9966/www.amerinsurance.com

20

18

21

NA

NA

NA

NA

1916

Hamilton S. Amer, CEO Charles M. Tennent president

24

The Church Agency Inc. 600 E. Cuyahoga Falls Ave., Akron 44310 (330) 733-1800/www.churchagency.com

14

13

15

1%

99%

19

Acuity, Auto-Owners, Cincinnati, Grange, QBE, Travelers, Westfield

1950

John E. Mitchell president

24

Insurance Systems Group Inc. 4500 Rockside Road, Suite 400, Cleveland 44131 (216) 236-7760/www.insurancesystemsgroup.com

14

13

14

NA

NA

NA

NA

1935

Michael G. Herzak president

24

Jones & Wenner Insurance Agency Inc. 3030 W. Market St., Fairlawn 44333 (330) 867-4434/www.jones-wenner.com

14

14

15

NA

NA

NA

NA

1975

Robert M. Jones, chairman Gordon L. Wenner president, CEO

27

Hamilton Insurors Inc. 5255 Mayfield Road, Lyndhurst 44124 (440) 461-8010/www.hamiltoninsurors.com

12

10

12

NA

NA

10

Travelers, Westfield, Ohio Casualty, Safeco, Hartford, Encompass, Progressive

1936

Thomas E. Hamilton president

27

Pinkerton Insurance Agency Inc. 6133 Rockside Road, Suite 402, Cleveland 44131 (216) 520-8800/www.pinkerton-ins.com

12

12

16

1%

99%

32

Chubb, Cincinnati, Travelers, Fireman's Fund, Hartford, Westfield, Frankenmuth

1941

Paul Bonardi president

27

The O'Neill Group 111 High St., Wadsworth 44281 (330) 334-1561/www.oneillinsurance.com

12

11

14

5%

95%

NA

Westfield, Cincinnati, State Auto, Auto Owners, Hanover

1924

Patrick O'Neill president, CEO

Source: Information is supplied by the companies unless footnoted. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Individual lists and The Book of Lists are available to purchase at www.crainscleveland.com.

Jerry G. Kysela regional managing director; CEO, East Central Region

RESEARCHED BY Deborah W. Hillyer

20110926-NEWS--23-NAT-CCI-CL_--

9/23/2011

3:07 PM

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SEPTEMBER 26 - OCTOBER 2, 2011

WWW.CRAINSCLEVELAND.COM

St. Louis firm buys Paramount Distillers By SCOTT SUTTELL ssuttell@crain.com

Paramount Distillers Inc. of Cleveland, which was founded a month after the repeal of Prohibition in 1934, has been sold to a St. Louis-based producer and marketer of distilled alcoholic beverages and liqueurs. Luxco Inc. agreed to buy all the shares outstanding of Paramount and a Paramount subsidiary, Meier’s Wine Cellars in Cincinnati. Terms were not disclosed. Luxco said it expects the deal to be completed by the end of September. It plans to continue to operate Paramount’s production operations in Cleveland and Cincinnati. “The acquisition is a strategic move for Luxco which allows us to increase our presence in markets like Ohio and Iowa while also giving us the opportunity to grow our wine portfolio and expand our capabilities into other product lines suh as the non-alcohol products as pro-

duced by Meier’s,” said Donn Lux, chairman and CEO of Luxco, in a statement. Luxco has $220 million in sales and about 180 employees. Paramount CEO Robert Szabo did not respond to a phone call to discuss the sale. In a statement, Mr. Szabo said Luxco “has the resources and capabilities to expand our portfolio of great products into many markets across the United States.” The company’s website states that J.F. Moessmer founded Paramount on West 106th Street in Cleveland. By 1946, according to the website, “the company had grown and prospered enough to require more space and was moved to a larger headquarters a few blocks away on Berea Road.” Paramount’s headquarters at 3116 Berea Road “accommodates not only a production area, but laboratories, labelling and bottling assembly lines, larger warehousing facilities and an in-house print shop,” according to the website. ■

before March 31, 2012. Most of the 70 local TSG employees work in sales, and a few others work in its legal and marketing departments, Mr. Foster said. “We’ve got to build our own IT team and build our own accounting team,” he said.

Time to downsize The division will need a new headquarters, too, but not because it needs more space. It’s in the process of finalizing a lease on 23,000 square feet in Mayfield Heights, which would give it a smaller office than it had on Fountain Parkway in Solon, where its employees share space with former Agilysys colleagues. Agilysys, which has been struggling for several years, announced its planned move to Georgia shortly after saying it would sell TSG. Although TSG will grow in Northeast Ohio, OnX has eliminated 30 to 40 positions across TSG’s footprint because of operational redundancies, Mr. Foster said. The division still will employ about 300 people, though, as OnX is adding a similar

number of people in other positions, he said. Mr. Foster also is an operating partner at Marlin Equity Partners, a private equity firm in Segundo, Calif., that owns a majority stake in OnX.

Visions of more profits ahead Marlin in March bought the OnX shares owned by co-founder Phil DeLeon, who retired, and it bought some shares owned by Sheldon Pollack, who remains on OnX’s board. In addition to Marlin and Mr. Pollack, OnX CEO Ed Vos, who is based in Toronto, also owns shares and sits on the company’s board. About half of the company’s top executives are employed by the TSG division, which is bigger than OnX was before the acquisition. TSG employs about 300 people, while the rest of OnX employs about 200, and TSG had sales of $474 million in the fiscal year that ended March 31, while the rest of OnX has annual sales of about $220 million. Buying TSG gave OnX a fast way to expand beyond its core market in

sons restaurants fail, as this practice is a Band-Aid to a bigger problem. It’s a poor way to fund cash flow.” When Mr. Kostis opened the club in a former S.S. Kresge store in 2002, he was the first destination-oriented restaurant and entertainment operator — even before the House of Blues — in what is now the busy East Fourth area, with its nine restaurants and nightclubs. Mr. Kostis said he has suffered during the recession and the slow recovery from it. He also noted more than 1,000 restaurant seats have been added downtown since he set up shop. “Should we not have East Fourth? Or West Sixth? I won’t A poor Band-Aid say that,” Mr. Kostis said. “The “I have seen many restauproblem we have is there is not rants, when they have cash flow enough Monday-to-Thursday problem, do this,” Adam Berebitevening business.” STAN BULLARD sky, managing director at the Pickwick & Frolic Restaurant and Club on East This year was looking good SS&G Certified Public Accoun- Fourth Street is addressing its financial issues. until gas prices spiked. Mr. tants and Advisers firm, said. Kostis said, but he is looking for“They ‘borrow’ from their Berebitsky, who has a substantial ward to the holidays to perk things employees and the government by background working with restau- up. The addition of the new Medical not making tax and withholding rant owners but no business ties to Mart and Cleveland Convention payments for them,” said Mr. Mr. Kostis. “It’s one of the many rea- Center also should help, he said. ■ continued from PAGE 3

entertainment center and restaurant profitable again, even with 20% lower gross sales than in 2007, Mr. Kostis said, though he declined to disclose sales figures. He said he made partial payments — paying as much as he could swing — to the federal and state tax authorities for a time as a way to keep going but now is current on taxes and other bills.“I’m not a big corporation,” Mr. Kostis said. “I’m one guy, and I’m a hands-on owner who works in the club.” Mr. Kostis is not the first restaurateur to make such a choice.

Canada, Mr. Foster said. Though Agilysys considered TSG a low-margin business, he expects that, with help from Marlin Equity Partners, OnX can get the division to a point where profit margins hit 7% to 8% before interest, depreciation, taxation and amortization. “It can be a very profitable business,” he said. ■

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Pickwick: Glut of eateries affects operation

OnX: Business profitability a priority continued from PAGE 3

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Cardinal: Investments proved too costly continued from PAGE 1

working on the case said. “It’s a win-win for the Northeast Ohio region to have a good and important business like Cardinal Fastener be picked up by a company like Wurth Group that is so successful and has a strong performance history and financial backing,” said Wurth’s Cleveland-based attorney, Tom Wearsch, a partner with Baker & Hostetler. Cardinal, based in Bedford Heights, filed for Chapter 11 bankruptcy protection from creditors last June 30, unable to keep up with payments on its debt after investing heavily in equipment to make bolts for the wind energy business. Company president John Grabner did not respond

to email requests for comment on the Sept. 15 motion to sell the company to Wurth, though he previously said he hoped to bring Cardinal out of bankruptcy and maintain operations after a reorganization of the company. It now appears as though Cardinal’s assets will be sold and used by a buyer, possibly Wurth, but that Cardinal will not survive as a company. Mr. Wearsch said his client hopes to take over Cardinal’s operation via the sale of assets; that would include Cardinal’s wind energy business, which he said fits with Wurth’s global strategy to expand in the renewable energy sector. While Wurth is not committing legally to keep the plant where it is indefinitely — and the company

does have similar operations in the United States already — Mr. Wearsch said it intends to keep the plant open. He noted that one of the assets Wurth purposefully is buying is Cardinal’s existing lease, which extends through the year 2023, according to court documents. That outcome likely would mean continued employment for the 20 or so workers still at Cardinal, based on the post-bankruptcy headcount last provided by Mr. Grabner in July. Cardinal had about 50 employees before the bankruptcy filing and a peak of more than 60 in 2010, Mr. Grabner previously has said.

Ready for a ‘robust auction’ Creditors are just happy that

SEPTEMBER 26 - OCTOBER 2, 2011

someone apparently is going to step up and buy the company, said Cleveland bankruptcy attorney Jean Robertson, who represents a group of about 200 unsecured creditors that range from private investors to vendors. But the creditors she represents still are bracing for a loss, according to Ms. Robertson — “and it will be way more than 50%” of their debt outstanding, she said. Unsecured creditors are owed about $3 million, Ms. Robertson said. Cardinal’s primary bank, Wells Fargo, is in line ahead of them to be paid, she said. It’s owed $1.8 million. Another $851,396 is owed to the Grow America Fund, a lending arm of the nonprofit National Development Council that also will be paid before unsecured creditors. That leaves only about $1.3 million to pay unsecured creditors, but even that figure does not include the adminis-

trative costs of the bankruptcy, which have yet to be determined, said Ms. Roberston, who is chairwoman of the business restructuring and insolvency practice at Calfee, Halter and Griswold. At least coming up with the $3.9 million shouldn’t be a problem for Wurth. The company, which, like Cardinal, makes bolts and other fasteners, had 2010 revenue of about $11.6 billion at the current conversion rate of euros to dollars. Cardinal’s lawyer, Rocco Debitetto, said the company is continuing to market itself and hopes there will be more bidding when the actual auction takes place. “We’re teed up for a very robust auction,” said Mr. Debitetto, a partner with Hahn Loeser in Cleveland. The attorneys working on the case said they were pleased to see a strategic buyer emerge for the company, which they maintain is a bestcase scenario for Cardinal. Far worse, they said, would have been a simple liquidation of the company’s equipment, which most likely would have been crated up and shipped to a buyer elsewhere.

Unexpected outcome Cardinal’s bankruptcy was a surprise to many. The company was held out by a host of luminaries and renewable energy advocates as a shining example of how a U.S. manufacturer could capitalize on the growing wind energy market. President Barack Obama even visited the company in 2009 to highlight its success in the wind energy sector. Cardinal’s own bankruptcy filing is a paradox. While many bankruptcy filings lament the misfortunes of a company by talking about how a core industry collapsed or a key customer went belly up, Cardinal’s filing almost boasts of the company’s success. Its overall business was up by 38% in 2010 and its wind-related sales grew by more than 200% that year, Cardinal’s filing states. Nonetheless, it appears as though the company overreached when it came to investing in new equipment and other capital expenditures, and even those growing revenues weren’t enough to keep up with payments on its debt. “In Cardinal Fastener’s defense, a lot of companies like Cardinal invest a lot of capital and invest a lot of time and money on various alternative energy sources, like wind and solar,” Ms. Robertson said. “They need a faster turnaround on their investments, and they’re not getting it right now.” Cardinal might have been caught in the middle of a bad trading situation — one faced by many in the U.S. wind industry at the moment, said Ed Weston, president of the Cleveland-based Great Lakes Wind Network, which represents more than 1,000 suppliers to the wind energy sector. “In the face of falling wind turbine prices, many U.S. manufacturers are getting pinched,” Mr. Weston said. Companies in the wind energy sector in the United States also long have complained that on-again, offagain tax incentives don’t help; that’s because their business requires major, long-term capital investments to succeed. While other nations are fostering the growth of their wind energy industries, the United States largely lets the sector sink or swim on its own, even while subsidizing other, competing energy sources, wind advocates say. “And unlike other governments in Canada, Brazil and China, ours hasn’t yet chosen to provide incentives that would directly benefit to our manufacturing base,” Mr. Weston said. ■

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Rock: No Cleveland band has won continued from PAGE 3

RUGGERO FATICA

Messengers lead vocalist Steve Wieclaw at practice last week

On Saturday, Oct. 1, the fivemember band known as The Messengers will face seven other acts from around the world that play under various corporate umbrellas. They include Starbucks’ “Metallibuxx” from Seattle, Mattel’s “The Toys” from El Segundo, Calif., and Procter & Gamble’s “Kash is King” from Panama City, Panama. The winner will be named the “Best Corporate Band” in America by Fortune magazine. (Eat your heart out, 2012 Rock Hall nominees.) The Messengers’ appearance is the first by a Cleveland-area band in the finals since 2003, when a group from the former National City Corp., known as Yield to Maturity, made an appearance. A Cleveland group, however, has yet to take the top honor. Cracking the finals is a long time coming for The Messengers, who have made a stab at the competition for the last five years, said Dave Krew, Progressive’s controller and the band’s keyboardist. The band, members of which also play in other groups in the region, practices at least once a week, but Mr. Krew said The Messengers plan to

“It’s about putting together a unit of people who love to play. ... A lot of these people in a million years would never get a chance to play at the Rock Hall.” – Steve Dobo, director of sponsorship and promotions, Rock and Roll Hall of Fame and Museum amp up their practice schedule this week as the event approaches. “The competition is tough, but I think we feel we gave a pretty good effort this year,” Mr. Krew said. The band is named after Progressive’s other spokesperson — the mysterious mustached man dubbed “The Messenger” — and not the sassy sales lady, Flo. Vocalist Steve Wieclaw, a business analyst at Progressive, dons the same facial hair and camel-colored coat as The Messenger during performances. “Progressive has so many creative, intelligent people walking around. Just being able to work with these people and create things outside of work is fun,” said Mark Malysa, Progressive’s marketing process

manager and the band’s bassist. “We have a great time with it. We love music. All the guys in the band are great to work with.” Mr. Krew was hesitant to share details about this Saturday’s performance at the Rock Hall other than to say the band’s repertoire in the past has included songs from artists such as the Rolling Stones, Doobie Brothers, the Hollies and Stevie Wonder. However, Mr. Krew confirmed to the dismay of many that Flo, who was named advertising’s greatest character ever by Entertainment Weekly, would not make an appearance. Steve Dobo, director of sponsorship and promotions at the Rock Hall, said the event is about “breaking down barriers” in corporate America by bringing harmony to the workplace through music. Mr. Dobo didn’t have an exact number on hand, but said the event has raised “hundreds of thousands of dollars” for the Rock Hall’s education activities. “There’s no filter,” Mr. Dobo said. “It’s about putting together a unit of people who love to play. What’s great to see is a lot of these people in a million years would never get a chance to play at the Rock Hall.” ■

Quasar: Success stories wanted continued from PAGE 1

to form a joint venture with Independence-based Quasar to build a digester at the site of the former General Motors Fisher Body Plant in Cleveland’s Collinwood neighborhood. The two companies already are working on projects that could result in the construction of six more digesters on Forest City properties, Mr. Ratner said. Many more should follow over the next five years or so, he said. “We’d hope that we’re building hundreds across the U.S.,” he said. Since 2007, Quasar has built five digester plants, located in Akron, Columbus, Wooster and Zanesville in Ohio and in Rutland, Mass. The company is constructing or is scheduled to start building 14 more over the next few months, including the Collinwood digester and plants in Wooster (which would have two digesters), North Ridgeville and Barberton. Forty more are “in the pipeline,” said Quasar president Mel Kurtz. The Collinwood plant will use the natural gas it creates to generate electricity for Cleveland Public Power. The city-owned utility has agreed to buy power from the digester for 10 years, which will help it meet a state law that requires utilities to use more renewable energy. The Collinwood plant will be capable of generating 1 megawatt of electricity and 4.3 million British thermal units of heat per hour, but Mr. Kurtz said he’d like eventually to sell natural gas straight from the plant, perhaps to drivers of trucks powered by natural gas. The two companies combined will invest about $5 million in the project, which is owned through a joint venture. They’ll get some of that money back: The plant is one of eight Quasar projects that each was awarded $1 million in federal stimulus money through the Ohio Department of Development. All of Quasar’s projects so far have

received government subsidies, but Mr. Kurtz said that in time they won’t need them. The subsidies are necessary for now, however, because Quasar still is perfecting its technology and convincing customers that it works, he said. “It’s not until after there’s enough success stories that it is viable,” Mr. Kurtz said, noting that Quasar takes equity stakes in all its plants. A company representative declined to give revenue figures for Quasar or say whether it was profitable. The waste digestion process — which produces methane with the help of bacteria that digest the waste inside tanks void of oxygen — is cheaper than renewable technologies such as wind and solar because it can produce power constantly, Mr. Kurtz said, and because the company gets paid by the people who produce the waste because they want to get rid of it. Only one, two or three people are needed to run Quasar’s digesters. Still, the company’s efforts could lead to big-time job creation in Northeast Ohio, Mr. Kurtz said. For one, Quasar, which was formed in 2006, employs about 60 people. The company also hires local contractors where it builds digesters, and manufacturers in Northeast Ohio help it build parts for the plants, which can process between 550,000 and 1.3 million gallons of waste at a time. “It’s not the operation, it’s the preparation,” Mr. Kurtz said. Forest City hopes to use the Collinwood digester plant to attract more companies to that area, said John Neely, project manager for the company’s land group. That outcome would be a boon to Forest City, which owns 20 acres that have been empty since the GM plant was torn down. “You use this to kick-start industrial development,” said Mr. Neely, who contacted Quasar after seeing a presentation the company made at the Great Lakes Science Center. ■

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Osborne: Activist shareholder perplexed by situation continued from PAGE 1

is current on the loan?,” Mr. Osborne said. As for the missed tax payments, he said simply, “These are tough times,” and skipping tax payments is a normal strategy for property owners in economic and real estate downturns. Mr. Osborne maintains the Home Savings’ lawsuits are a strategy to force him to put up more assets to guarantee a $6.5 million loan — with at least three missed payments — that he and Cleveland investor Steve Calabrese owe on a 100-acre parcel they own on the WilloughbyMentor border. Home Savings has not foreclosed on that loan. Mr. Osborne said the two have been unable to develop the site for multiple reasons despite a decade of trying; one obstacle is that it has undevelopable wetlands on it. He maintains Home Savings sued to foreclose on the other properties to force him to put up more collateral on the property because Patrick Bevack, CEO of Home Savings, is “a good friend” of Mr. Calabrese. Otherwise, Mr. Osborne asked, why didn’t the bank sue to foreclose over the land loan? Mr. Calabrese, a frequent stock investor and property investment partner with Mr. Osborne, did not

that he sold to another developer. Now, Mr. Osborne is receiving big-time grief from bankers, as three lenders have sued to foreclose on about 20% of his property portfolio. Home Savings and Loan Co. is Mr. Osborne’s biggest problem, as the Youngstown-based bank in the last month has sued to foreclose on six of his commercial and industrial properties in Lake County for a total of $15 million. The most prominent of the properties hit with judgments and foreclosure actions is Great Lakes Plaza, a 50,000-squarefoot shopping center in Mentor. Now the one-time owner of the former Great Lakes Bank who is known for investing in area savings and loans as far back as the 1970s is crying foul in his dispute with Home Savings. Mr. Osborne said he is current with payments on his Home Savings loans, but the bank has gone after him because of unpaid taxes on the properties. Mr. Osborne said as someone who has owned two banks, he only would sue because of missed payments, never over unpaid taxes. “Why foreclose on someone who

Contact: Phone: Fax: E-mail:

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“Why foreclose on someone who is current on the loan?” – Richard Osborne Sr., activist bank shareholder and real estate investor return three calls from Crain’s. Jude Nohra, Home Savings general counsel, said the bank does not comment on ongoing litigation.

A taxing matter Home Savings has reason to be tough on big borrowers. The bank is operating under stipulations and consent decrees dating to 2008 that it entered into after receiving cease-and-desist orders from the Federal Deposit Insurance Corp. and the Office of Thrift Supervision requiring it to raise capital, to reduce debt exposure and to take other fiscal fitness measures. In an Aug. 12 Securities and Exchange Commission filing, Home Savings said it has trimmed its portfolio of residential, commercial and construction loans by 9%, to $1.25 billion as of last June 30 from $1.3 billion on Dec. 31, 2010. Asked why Home Savings did not sue on the land loan, Mr. Nohra

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In a surprise, Mr. Osborne said he signed personally for the real estate loans. That puts his other assets — substantial in his case — at risk. Mr. Osborne’s assets include his Mentor-based Osair industrial gas business, stock in other public companies and his most recent investment darlings, oil and gas interests. Professional real estate developers typically steer clear of undertaking such mortgages, called recourse loans, because a bad deal could expose personal assets or profitable properties to lender actions. Why did Mr. Osborne sign personally? “I plan to pay my bills,” Mr. Osborne said. Asked if he might be forced to reorganize his assets under federal bankruptcy laws, Mr. Osborne said he does not think so. Mr. Osborne said the foreclosuresuits mean he likely will be unable to pay nearly $2 million he has promised to local charities, the largest among them a $1 million pledge to Lake Hospital Systems. He believes the dilemma he faces threatens entrepreneurs. “Why would you ever want to take a risk again after being treated like this?” he asked. ■

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said it does not discuss customer matters. Mr. Nohra said he does not know if Mr. Bevack or other Home Savings execs are on friendly terms with Mr. Calabrese outside the customer relationship. Mr. Osborne said the bank is “trying to steal my rents” with the foreclosures. Although Home Savings would not discuss the legal issues, the bank might hesitate to foreclose on the 100-acre land loan for a simple reason: Land does not produce cash flow like developed properties can. Fallow land generally eats cash for property taxes. A difficult-todevelop property or land site would be even less desirable to a lender than one with a development plan approved by all appropriate government agencies. David Browning, managing director of the Cleveland office of CB Richard Ellis who serves regularly as a court-appointed receiver for distressed properties, said banks consider non-payment of property taxes a technical default. Lenders take it seriously, he said, because unpaid taxes could cost them the ability to seize a property at sheriff sale or at a minimum reduce the amount they could recoup on a loan.

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THEINSIDER

THEWEEK

REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS

SEPTEMBER 19 - 25

A memorable role in 9/11 Memorial

The big story: The developer of the $275 mil-

■ If you get a chance to visit the new 9/11 Memorial, sensors will spot you on your way in and on your way out. A Youngstown company provided the sensor system that is used to count the number of people who enter the memorial park, which was built on the site where the twin towers once stood, and the nearby preview site, which includes information about the National September 11 Memorial & Museum. The company, SenSource Inc., sells and installs the sensors, which can be used to count people or vehicles and can tell whether they are coming or going. It also developed software that communicates with the sensors and helps users analyze trends related to the data. The 9-year-old company, which employs 17, got the job through a referral from another customer, the David Rubenstein Atrium, which is a public gathering place in New York City. SenSource didn’t make much money — if any — off the contract, which was relatively small, said company president Joseph Varacalli. The work might help boost SenSource’s reputation, but the company took the job because it wanted to do something

lion Flats East Bank project is butting heads with the Cleveland-Cuyahoga County Port Authority over the maritime agency’s plans for its property along the lakefront. Developer Scott Wolstein, in an exchange of emails with Port Authority president William Friedman, said the port’s new strategic plan “could not conceivably be more offensive to our vision for the development of this area of the city, and, frankly, it may well jeopardize the entire Phase 2 development (of the Flats East Bank) that is based on a significant residential component.” The strategic plan commits the Port Authority to keep its docks at the mouth of the Cuyahoga River.

A life of impact: Albert J. Weatherhead III, a longtime Case Western Reserve University benefactor and chairman and CEO of Weatherhead Industries in Twinsburg, died Sept. 20 at the age of 86. CWRU trustees renamed the college’s management school after the Weatherhead family in 1980 following a $3 million donation to the school. Among other gifts, Mr. Weatherhead also endowed three faculty positions at the university. He founded Weatherchem, a maker of dispensing closures, in 1971 when he bought Ankeny Co., a small tooling business in Twinsburg.

Nice greeting: Cleveland International Fund announced it expects to provide up to $65 million of financing to assist American Greetings Corp. in the construction of its new world headquarters in Westlake. The fund also will provide $10 million to Stark Enterprises for the accompanying expansion planned at Crocker Park in Westlake. The loan is scheduled to close by spring 2012.

WHAT’S NEW

What becomes a Legend most:

RPM International Inc. said its RPM2 business unit agreed to buy the Legend Brands family of companies, which provide equipment and services related to water and fire damage restoration, professional cleaning and environmental control. The Medina-based maker of coatings and sealants did not say how much it will pay for Legend Brands, which is based in Burlington, Wash., and has annual sales of more than $70 million.

This and that: Columnist Connie Schultz, whose work brought The Plain Dealer a Pulitzer Prize, resigned from her post, stating that “in recent weeks, it has become painfully clear that my independence, professionally and personally, is possible only if I’m no longer writing for the newspaper that covers my husband’s senate race on a daily basis.” Her husband is U.S. Sen. Sherrod Brown, D-Avon. … Northeast Ohio is one of 20 regions in the country that won a chunk of $37 million available in a White House competition to support high-growth industries. The region will receive a $2 million grant for a program led by JumpStart Inc., Lorain County Community College, Magnet and NorTech that is designed to accelerate the rate at which prototypes in the advanced energy and flexible electronics sectors go to market.

Helping doctors help themselves ■ With the heavy course load of medical school, physicians find little time to brush up on the intricacies of health care or personal finance, so the MetroHealth System is offering a slate of free courses to help fine-tune their employees’ business acumen. Launched by the county-subsidized health system’s new chair of medicine, Dr. NEWSCOM Michael Wolfe, the idea of the program is to help residents, fellows and faculty at MetroHealth learn about business topics, such as transitioning from a medical student to a practicing physician, budgeting and finance and maintaining a work-life balance. “We’re training physicians,” Dr. Wolfe said. “An informed trainee does a much better job in general. Medicine is tough enough as it is.” Dr. Wolfe said the program also is geared toward grooming future health care administrators as hospitals likely will be more frequently run by physicians with business training. About 70 individuals are signed up for the

D.C. will drink in the delights of Arabica

THE COMPANY: The Garland Co., Cleveland THE PRODUCT: Tuff-Coat wall coating Garland says this low-solvent, emulsified poly-resin architectural wall coating “dampproofs and beautifies all types of exterior and interior masonry wall surfaces,” including concrete, brick, stucco and exterior insulating finishing systems. The coating “provides heavy-bodied protection against moisture, UV, fumes, and fresh or salt water, while allowing water vapor to escape the structure through its breathable film,” according to Garland, a maker of roofing and building maintenance systems. Tuff-Coat wall coating hides stains and discolorations, according to the company. It also is alkali-resistant and provides a washable surface. Garland says Tuff-Coat is available in both a smooth and textured finish, and its low-odor formula meets VOC regulatory requirements in all 50 states. Garland product manager Tom Stuewe says most coating failures on concrete buildings “are caused by using the wrong coating material,” such as a coating that is not alkali-tolerant, or by using paint instead of a highperformance coating. For information about Tuff-Coat, visit www.GarlandCo.com.

program, which launched last week and runs once a month through next May. If the program is successful, Dr. Wolfe said he would like to open it to other physician trainees in the region and even across the country through video conferencing. “The fact is, medicine has become a big business,” he said. “Not only a big business in terms of how a hospital works, but we don’t learn anything about mortgages or investments in medical school.” — Timothy Magaw

Downstate law firm gains upstate presence ■ A Columbus law firm has expanded into Northeast Ohio with the opening this month of a Medina office led by an attorney who represented a national insurer for nearly two decades. Brian D. Kerns, at present the only attorney in the new office of Wiles, Boyle, Burkholder & Bringardner Co., also established the Cleveland office for his previous employer, State Automobile Insurance Cos. Wiles Boyle’s Medina office is the third for the firm, which also has an office in Cincinnati. The new location provides the firm the statewide presence it has been seeking, Mr. Kerns said. Mr. Kerns will handle both insurance defense and insurance coverage work. The firm’s other practice areas will expand into Northeast Ohio, too, and Mr. Kerns anticipates his office will hire a few lawyers within its first year in Northeast Ohio, depending on business volume and the economy. — Michelle Park

BEST OF THE BLOGS Excerpts from recent blog entries on CrainsCleveland.com

Cashing in: Amusement park operator Cedar Fair L.P. agreed to sell its California’s Great America amusement park in Santa Clara, Calif., to California-based real estate investment firm JMA Ventures LLC for $70 million in cash. Sandusky-based Cedar Fair bought the park in 2006 and expects to use proceeds from the sale to reduce its senior secured debt.

good for the country, Mr. Varacalli said. “We were just all proud to be selected for that,” he said. — Chuck Soder

■ You might be able to get a taste — or make that a sip — of Cleveland on your next trip to Washington, D.C. The Washington Business Journal reported that Arabica Café is poised to enter metro Washington. Initial plans call for seven stores in the region — one later this year, and six in 2012. Sam Saa of Metropolitan Restaurant Brokerage bought the development rights for Arabica in D.C., Virginia and Maryland, the newspaper reported. “There’s not a lot of competition in this segment around here,” Mr. Saa said. Arabica has about 40 stores, mostly in Ohio.

Clevelanders need to buff up on their reading ■ Clearly, Clevelanders need to spend more time reading Men’s Health magazine. If we did, maybe we wouldn’t rank 99th out of 100 in the magazine’s list of America’s most educated cities. Men’s Health says it “tabulated the Department of Education’s high-school graduation rates, along with U.S. Census figures on school enrollment (kindergarten through grad school) and education levels of people over 25 (less than high school, associate’s or bachelor’s degree, graduate or professional degree). We also tapped SimplyMap to find out how many households have student loans or take adult-education courses.” Cleveland earned an “F” grade and

topped only Miami. A total of 15 cities, including Toledo, also earned Fs. The best educated cities in America, according to Men’s Health, are Madison, Wis., and Plano, Texas. So, Clevelanders, here’s your brain-building homework: Go to the newsstand or library, get a copy of Men’s Health and do some reading. The September issue — it’s the one with Bill from “True Blood” on the cover — features coverlines that include the following: ■ Sexiest female athletes reveal all! ■ Lose your gut! ■ Amazing abs! ■ 15 sizzling sex secrets ■ 10 muscle foods At the very least, Men’s Health will teach you to use exclamation marks! A lot!

U.S. isn’t making quick work of its Internet infrastructure ■ When it comes to Internet speed, Ohio is a laggard — as is the entire country, in a global context. That’s the conclusion to be drawn from a New York Times story about a recent study from Pando Networks. Pando, which helps consumers accelerate downloads, found the United States as a whole ranks 25th in Internet speed, behind even Romania. South Korea has the fastest speeds in the world. Within U.S. borders, Idaho has the slowest average Internet connection, with what Pando called a “dismal” average of 318 kilobytes per second. Rhode Island sets the pace in America, at 894 kilobytes per second. What’s the difference? “In Idaho, it would take you 9.42 seconds to download a standard music file compared with 3.36 seconds in Rhode Island,” The Times noted. Ohio, unfortunately, is much closer to the Idaho side of the scale, with a mediocre speed of 451 kilobytes per second.

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