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Close up: Judith Seil

Title: Director, Monroe County Department of Planning and Development

Age: 49

Home: Brighton

Education: B.S. in management science, Nazareth College of Rochester, 1981

Family: Husband, Joseph; sons, Tim, 19, and Andy, 16

Hobbies: Working out, golf, baseball

Quote: “When I first started with the county, somebody said to me that when you’re there a long time you’re going to get that label of being a government worker. I kind of laughed because I’m the same worker here as I was when I was at the bank. Because I’m working for the government doesn’t change my work ethic.”

04/11/08 (C) Rochester Business Journal

Onetime banker is point person for development

Judith Seil’s job description is simple in its complexity.
“I try to take alphabet soup and make it understandable to the business community,” she says.
Seil, 49, is director of Monroe County’s Department of Planning and Development. She manages a staff of 26 in a department of three components: economic development, planning and community development. She oversees a departmental budget of $2.7 million.
As director, she also serves as executive director of the County of Monroe Industrial Development Agency.
“She’s just a wonderful person,” says Anne McKenna, director of development and community relations for non-profit health agency East House Corp. and Seil’s best friend. “She’s always been, in our groups of friends, the leader. She’s a natural leader. She’s always the tiniest person in the room and yet she’s probably the strongest.”
A resident of Brighton, Seil was hired by Monroe County in 1991 as an economic development specialist. She was named economic development manager in 2004 when Maggie Brooks took office as county executive, and was named acting director when Terrence Slaybaugh left in 2006 for a job in the private sector.
Seil was appointed full-time director in January. She has, however, been the backbone of the county’s economic development operations for years, colleagues say.
“I’ve been there a long time,” Seil says, downplaying her expertise. “I know a lot of people. I know who I can call to get answers very quickly. I’ve had great leaders. Maggie’s been great to work with. She gets economic development.”
A native of Massena in northern New York, Seil joined the county after working in the banking industry for 10 years, first on the retail side at Central Trust Co. and then in commercial lending at KeyCorp and Marine Midland Bank.
“Every day is different,” she says of her county responsibilities. “Every business is different. Every project you work on is different. Every day you start out thinking about what you’re going to get done, and then different things come through the door or on the phone and in e-mail.”
Seil empathizes with the business community.
“People talk about our programs being corporate welfare, but I think it’s just so difficult to own a business,” she says. “For anybody that does it, I give them a ton of credit.
“They have to worry every day about keeping their doors open, taking care of the employees, keeping up with technology, being competitive in the marketplace. The programs we offer assist them to get to the next level.”
COMIDA incentive plans include property tax abatements for companies that expand and add jobs, and sales tax breaks on the purchase of equipment and materials.
“It’s tough to do business in New York,” Seil said. “You wouldn’t need incentives if the playing field were level in New York State. We wouldn’t need IDAs and we wouldn’t need any of these incentives if the tax situation were the same as it is in other states.
“But I do think the work force is what keeps people here. Maggie always says, and I agree with her, the glass is half-full. When we visit businesses and she asks what keeps you here, it’s the work force, it’s the community
itself, the school districts and the great place to raise kids.”

Start in banking

Seil came to Rochester from Massena to attend Nazareth College of Rochester. After graduating, she was hired by Central Trust, whose president was Carlos Carballada, now economic development commissioner for the city of Rochester.
“When I started in banking in 1981, it was probably the worst time to even start,” Seil says. “The recession was on. The prime rate was 20.5 percent-it’s 5.5 percent now.”
Two years later, she married and moved to Syracuse, taking a job in consumer lending at KeyBank. A year later, she and her husband, Joseph, moved back to Rochester.
“We missed Rochester,” she said. “We like Rochester. To the people that have all the negative things to say about it, I think it’s a great place to live. Coming from Massena, N.Y., which is so rural, coming down here was the big city to me.”
Seil transferred within KeyBank to Rochester and moved into commercial lending.
“That’s kind of the background into economic development,” she said. “I think you have to have a strong understanding of business, and that’s what I had when I entered
economic development.”
Two years later, she took a job in commercial lending at Marine Midland.
In 1989, she interviewed with Monroe County for the job of economic development specialist but did not get it. Two years later, weeks before the birth of her second child, the county called to see if she was still interested in a job.
“I said, ‘I’m nine months pregnant; I don’t know how interested you are in me,'” she recalls. “They said come on in for an interview anyway. So I went in, and while I was on maternity leave I got the job.”
Seil started work for the county in October 1991.
“I learned all the programs,” she says. “It’s so confusing when you go out with our brochure and you’re talking about all these different programs. It’s important to make it understandable for people who are trying to grow their business, invest capital, invest in people, and try to keep it simple.”
She was promoted to a senior economic development position in 2000, then to manager in 2004 when Brooks took office.
“She gives government a very good name,” said Theresa Mazzullo, CEO of venture capital firm Excell Partners Inc. and COMIDA chairwoman.
Mazzullo leaned heavily on Seil after joining COMIDA as its chairwoman in 2005.
“If I call her for any information or question, she is so quick to get right back to me with a comprehensive answer,” Mazzullo says. “When I came on board, she was willing to share her knowledge base with me, and be patient to help me come up to speed on the products, abatements and tax incentives we offer. She never seems exasperated or impatient.”
Even with her administrative duties, Seil continues to call on county businesses to discuss economic development initiatives.
“When I became the director, I didn’t want to lose sight of rolling up your sleeves and meeting with companies,” she says. “If we’re going to be assisting a company, I need to know who the owner is, know who the president is, and be involved in it, even though I have a dedicated staff that works for me. I want them to feel comfortable being able to call me.
“The highest compliment I ever got from the companies we work with was you’re the same as you were when you were an economic development specialist. You know what’s going on with the deal.”


COMIDA has its critics. Seil routinely hears from residents who say COMIDA tax breaks result in higher taxes for the rest of Monroe County, and that many companies receiving those abatements do not meet job creation goals or requirements that local labor be contracted for construction projects.
“Some of the frustrations are that our programs aren’t necessary or we’re just giving things away,” she says. “My answer to that is, companies are investing and creating jobs, and we’re just trying to level the playing field for them.
“Companies that have used our programs will say that without these programs-not in every instance, but in a lot of cases-they wouldn’t have done their expansion here.”
Seil does not take the criticisms of COMIDA personally, she says.
“What makes the world go around is that everybody has different opinions,” she says. “But I feel good at the end of the day about what we do through the IDA, and all our other programs.
“People just focus on the IDA, but we’re a creature of the state. We follow the rules set by the state,” she says. “I feel proud of what we’ve done.”
COMIDA approved 165 projects in 2007, retaining or creating 13,505 jobs. The total investment of private and public funds was nearly $471,000. The approved projects in 2007 marked an increase of 139 percent from 69 projects approved in 2003.
COMIDA approved 115 projects, with a total investment of $188,000, in 2004. It approved 138 projects in 2005, with $515,000 in investments; and approved 132 projects in 2006, with investments of $374,000.
“The last four years have been incredible, with the amount of projects we’ve worked on and the amount of investment that’s been made in the community,” Seil says.
COMIDA has tried to make its information more accessible to public inspection, Seil says.
“The rules have been the same with COMIDA since I started,” she says. “You have to have a 30-day notice for public hearings. You have to publish when your meetings are. And it’s a public meeting. We have public forums.
“But I think now things are more transparent. All our minutes and agenda are on our Web site.”
In terms of COMIDA success stories, Seil says, Rochester Precision Optics LLC is at the top of the list. Owner William Hurley in 2005 was thinking of moving the company to his home state of New Hampshire.
“We met with the gentleman who owned the company in July,” Seil recalls. “By March of the following year (2006) they were in a new building and put an addition on it. That kept 70 jobs here. I see every job as being important to the community. I thought that was a great success.”
Seil declines to talk about projects that have been the most disappointing to her.
“I don’t like to talk about failures,” she says.
The local work force and the quality of life are primary drawing cards for business growth here, Seil says.
“If you’re trying to have somebody come in from outside New York State, the person who makes that decision is usually the CEO,” she says. “They want to come to a community that has a wealth of cultural opportunities, great educational opportunities if they have a family, a manageable commute, affordable housing.
“We have a plethora of water here that is going to become more important as the droughts hit out West. That’s something we’re going to be talking about more and more.”

Early starter

Seil on most days is out the door by 5 a.m. to work out.
“Keeping your body healthy keeps your mind healthy,” she says. “I’m usually at the gym every morning. I’ve been doing that for 10 or 12 years now. I feel better now than I did in my 20s. It’s never easy to get out of bed and go, but once I get there I feel great the whole day. If I don’t work out, I feel very sluggish.”
McKenna is very familiar with Seil’s regimen.
“That’s where we were opposites when we were roommates,” says McKenna, a friend for 30 years, since they were freshmen at Nazareth. “She was the early riser, and I would always sleep in.”
Seil runs four miles every other day and enjoys playing golf.
“I love to watch my kids play sports,” Seil says. “I’m a huge baseball fan, but I live in a house with three Mets fans and I’m the lone Yankees fan. I take a lot of grief.”
She served as president and commissioner of Brighton Baseball Inc. when her teenage sons, Tim and Andy, were in Little League. She was involved with the Brighton Central School District football booster club until recently and now heads the school’s baseball boosters.
She is treasurer of the Rochester International Film Festival and on the boards of the U.S. Small Business Administration and the Monroe County Sports Development Corp.
“I don’t know how she has time to do everything she does,” McKenna says. “She seems to have more energy than most people.
“Just (last) week, my mother’s in the hospital. When she heard about that, she brought a dinner over that my family enjoyed last (Thursday) night. She’s a friend that goes the extra mile to help people out, to let people know she’s thinking of them.”

Work ethic

Seil inherits her work ethic from her parents, she says, particularly her father, who came to this country from Scotland at 7 years old.
“His mother had died, his father was here,” Seil says. “His mother died just before they were about to get on the boat to come over. He came over and was raised by aunts and his father.”
Her father grew up in the New York City area, Seil says.
“I didn’t know any of this growing up because my father never complained about anything. He learned a trade. He worked in the shipyards during World War II. He worked around asbestos in the shipyards, then became a welder, moved to Upstate New York, married my mother, raised four kids.”
Her father had to drop out of high school in the 10th grade and go to work because his family needed money, Seil says.
“He went from the shipyards and worked as a cook in the state hospital. I joke that my parents met in the state hospital,” she says.
Seil’s mother was a nursing assistant at the state facility, she says. They were married and moved to Massena, where her father got a job as a welder at Alcoa Inc.
“We never had a lot, but you didn’t know the difference,” Seil says. “He was a great influence. You have a job to do. You work hard every day. That’s how you’re judged at the end of the day.”
Seil learned about her father’s personal hardships when the two went to Scotland in 1996.
“It was the most incredible 10 days of my life,” Seil says. “We got to Scotland and drove to where he was born. He remembered the coal fields because his father was a miner. He told me some of this stuff as we were walking around Scotland. I didn’t know the difficulties he had faced as a child.”
Her dad was 70 then. He died a few years later from lung cancer caused by asbestos, Seil says.
Her work-in economic development, in site-plan reviews and brownfields issues within the planning division, and in community development with $2 million in Community Development Block Grants-is a reflection of her father, Seil says.
“I love what I do,” she says. “I have a great boss. I feel good about what I do every day, what we do in the community, what my staff does. The bulk of my time has been devoted to economic development, but our department does a lot of things. They’re kind of under the radar but I’m very proud of what they do too.”
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

A tangled case

After jousting with Constellation Brands Inc. for some eight years over an allegation that Constellation’s Arbor Mist wine cooler’s name infringes on their tiny regional winery’s Arbor Hill label, John and Katherine Brahm last month won a judge’s OK to have their complaint aired in a trial.
Not likely to make history in the annals of trademark law, the Brahms dispute might long be remembered in the local legal community for the yield-no-quarter battle it has sparked between two local legal titans.
Handed down Feb. 26 by U.S. District Judge Charles Siragusa, the 43-page decision came after a hard-fought court campaign of pre-trial maneuvers in a case whose twists and turns could be fodder for a daytime drama.
In a 2003 order, Magistrate Judge Jonathan Feldman, who heard arguments in the trademark dispute for more than two years before Siragusa took it over, described the relatively straightforward trademark dispute as “giving birth to a plethora of additional claims” involving “a tangled web of accusations and counter accusations sadly involving two of Rochester’s finest law firms.”
Feldman refers to Nixon Peabody LLP and Harter Secrest & Emery LLP, the area’s largest and second-largest law firms.
Nixon Peabody initially represented Constellation, but pulled out as the company’s lawyer in 2004. The law firm remains in the case as a defendant, however, facing malpractice and breach of fiduciary duty accusations leveled by the Brahms in a third-party sub-complaint. It is also the plaintiff in another sub-complaint seeking to disqualify Harter Secrest.
Harter Secrest attorneys remain involved as the Brahms’ lawyers and in defense of their own firm.
Attorneys representing Nixon Peabody, Harter Secrest, Constellation and the Brahms declined to comment on the cases.
In 2005, after more than two years of unsuccessfully urging the parties to sever the additional claims from the federal trademark case and argue them instead as a separate matter in a state court, Feldman lamented in another order that “disputes between the lawyers and the law firms have become even more acrimonious, while the merits of the underlying trademark case remain in their litigation infancy.”
Behind the trademark flap lies a skein of role reversals and shifting allegiances among the Brahms, their winery, Constellation and the law firms that arguably fueled the case’s wider-ranging disputes.

Wine industry

Longtime partners in marriage and in Arbor Hill Associates Inc., John and Katherine Brahm have owned and run their winery and gourmet foods firm in Naples since the late 1980s. It is a boutique operation. John Brahm states in an affidavit that they had hoped to grow the operation to national scope. But that ambition is far from realized.
Arbor Hill has reached beyond its tiny roadside store on a country road in Naples by building an Internet business, and its products are sold regionally in restaurants and liquor stores as far away as Saratoga Springs. But though its wines have won prizes, they have never come close to approaching the hundreds of millions of bottles in sales Constellation claims for Arbor Mist.
In one court pleading, the Brahms characterized the dispute as a battle pitting “one of the world’s smallest wineries against the world’s largest.”
Before starting Arbor Hill, John Brahm in the 1980s partly owned and ran Widmer Wine Cellars, a Yates County winery that Constellation-then known as Canandaigua Wine Co.-acquired. Six months after it bought Widmer, Constellation fired Brahm, who with his wife decided to start a new winery, Arbor Hill. Helping to organize their new business was the couple’s longtime law firm, Nixon Peabody.
Constellation at that time was a client of Harter Secrest. In 1995, however, the Harter Secrest partner who had long handled the Constellation account, James Locke III, jumped to Nixon Peabody. A member of Constellation’s board since 1983, Locke took the Constellation account with him.
When the Brahms first decided to press an infringement claim against Constellation, they did not broach the idea with their own law firm, which by that time was also Constellation’s firm, but instead started with a Rochester trademark and patent boutique, Cumpston & Shaw. By the time talks with Constellation started, Cumpston & Shaw had been acquired by Harter Secrest.
Court papers detail talks between Harter Secrest partner Kenneth Payment and Constellation’s original lawyer in the case, Nixon Peabody litigator Richard Rochford, first taking place in spring 2001. By fall 2002, the talks stalled. Payment by then had warned Rochford that a lawsuit could be likely, court papers state, but had agreed to give Constellation three-day’s warning before it lodged a court complaint.
But before the Brahms could act, Constellation sued first, filing an action in the U.S. Western District of New York’s Rochester division in October 2002. That complaint is the case in which Siragusa’s recent decision came. It asks the court to declare that Constellation’s Arbor Mist brand does not infringe on Arbor Hill’s trademark but also accuses Arbor Hill of infringement.
Preemptive strikes by potential defendants looking for an edge in court-known as declaratory judgment actions-are common in patent and trademark cases. Often, having served the purpose of signaling the filer’s willingness to fight in court, they die quiet, unnoticed deaths. This one touched off a firestorm neither side seems to have sought or anticipated.
Constellation’s case against Arbor Hill partly relies on the two brands’ relative size and coverage area. Arbor Mist’s far-larger coverage area should trump Arbor Hill’s claim on the Arbor name, Constellation maintains in its court complaint. But the brief also argues that if either name infringes, it is Arbor Hill’s, whose first wines went on the market after Constellation started distributing a Batavia-bottled wine called Arbor Valley. For that alleged infringement, Constellation seeks treble whatever damages a court might award.
Arbor Hill countered with motions stating its own case for Constellation’s alleged infringement and disputing Constellation’s claims.
Both sides filed summary judgment motions-Constellation seeking to have Arbor Hill’s trademark infringement claim declared null and Arbor Hill seeking to have its beef aired in court. Those motions were only the start of the action.

Issues over firms

The Brahms began by asking the court to disqualify Nixon Peabody for an alleged conflict of interest but later expanded their complaint to add breach of fiduciary duty and malpractice charges.
In their court filings, the Brahms paint themselves as loyal clients unjustly spurned by an ungrateful Nixon Peabody.
“In an economically driven decision,” the couple’s brief states, Nixon Peabody threw them over for a chance to serve a newer and far wealthier client.
In court papers, the Brahms detail a 40-year history as Nixon Peabody clients. Katherine Brahm’s deceased uncle, George Hawks, had been a partner in Nixon Peabody’s trusts and estates department. And partly because of the family connection, the couple’s brief states, the Brahms had used Nixon Peabody to do estate planning since the 1960s.
In 1982, they hired Nixon Peabody to help John Brahm arrange a leveraged buyout of Widmer and to set up Arbor Hill Partners, which Brahm first formed to acquire Widmer. Later, the partnership-in which John and Katherine Brahm are each 50 percent partners-kept Nixon Peabody on retainer for the next 15 years, the couple’s court complaint states.
Documents filed in the case show that only a few days after offering to update Arbor Hill trademark work for the Brahms in spring 2001, Nixon Peabody fired the Naples winery as a client, stating in a written communication that “given the firm’s current relationship with Constellation Brands, we respectfully must decline to accept any engagement from Arbor Hill.”
Also detailed in court papers is an exchange between Brahm and Nixon Peabody partner John Witmeyer, who had long done the couple’s trust and estate work, in which Witmeyer urged Brahm not to pull their estate-planning work from Nixon Peabody.
Witmeyer’s and Brahm’s conversation, a telephone exchange that took place shortly before the firm dismissed Arbor Hill, is detailed in an e-mail from Witmeyer to Rochford and in a declaration by Witmeyer. Both were filed as evidence by Nixon Peabody.
“Having become aware that Nixon Peabody was representing Constellation in a dispute with Arbor Hill early in May 2001,” Witmeyer states in the declaration, “I called (John Brahm) to discuss the situation on May 24, 2001. In that conversation, Mr. Brahm raised no concerns.”
A memo from Witmeyer to Rochford describes the conversation as “a nice, cordial call.”

Expert’s view

Roger Cramton, an expert witness hired by the Brahms’ legal team to analyze Nixon Peabody’s conduct in the case, took a darker view.
Cramton is a former Cornell University Law School dean and current Cornell Law emeritus professor and the co-author of texts on legal ethics and conflict-of-interest rules. In a 23-page declaration, examining the Brahms’ history with Nixon Peabody from a number of angles, Cramton finds little to commend Nixon Peabody’s conduct.
In Cramton’s view, Witmeyer’s contact with John Brahm was itself an ethical breach. In cases where conflicts of interest are an issue, the declaration states, disciplinary rules forbid contacts between a non-lawyer client unaccompanied by his own lawyer and an attorney with an opposing firm.
The Brahms’ would have been well within their rights to drop Nixon Peabody, but the law firm violated disciplinary rules when it fired Arbor Hill, Cramton adds. Even if the relationship between Arbor Hill and the law firm had been properly terminated, the legal expert states, Nixon Peabody still would have been open to conflict-of-interest charges for representing Constellation against its former client. Nixon Peabody’s continued handling of the Brahms’ estate planning further compounds the breach.
In deciding to take Constellation’s side in the trademark case, Cramton concludes, Nixon Peabody created a situation in which it would be virtually impossible for the firm to act without committing a serious ethical breach: As advisers to Arbor Hill in the precise area in which it was now suing the Naples Winery on behalf of a rival, Nixon Peabody could not possibly avoid using privileged information against its own client. And if it were to win the case for Constellation, Cramton added, the Brahms would be in line for damages for the bad legal work Nixon did in the 1980s, when it researched and registered the Arbor Hill trademark for them.
“If Arbor Hill’s trademark is in fact invalid,” Cramton states in the declaration, “Nixon’s prior work for Arbor Hill was incompetent. On the other hand, if that work was competent, Nixon’s current attack on (the Arbor Hill trademark) is frivolous, harassing and prejudicial to Arbor Hill.”
For its alleged breaches, Cramton asserts, Nixon Peabody should not only be liable for damages owed to the Brahms but also should be ordered to disgorge “the substantial fees it has earned in its improper representation of Constellation.”
Cramton’s declaration also takes Nixon Peabody to task for stalling for more than a year on a request from John Brahm to turn over any Arbor Hill files in its possession. Though it agreed to comply with Brahm’s initial request and with several later requests for the files Payment sub-mitted, Cramton states, Nixon Peabody failed on a number of occasions to deliv-er the files, only acceding to the requests after Payment asked the court to compel a turnover.
Discovered among the files and submitted by Harter Secrest as evidence in the trademark case was a brief but colorful evaluation of Katherine Brahm’s personal wealth. Included as a parenthetical aside in a handwritten memo on the tax consequences of organizing Arbor Hill as an S corporation, it reads, “She’s loaded.”
In an answering brief to the Brahms’ malpractice complaint, Michael Wolford of the Wolford Law Firm LLP in Rochester, one of several lawyers representing Nixon Peabody in the trademark case’s third- and fourth-party actions, denies Nixon Peabody had any liability to the Brahms or Arbor Hill. To the contrary, he asserts, Harter Secrest erred in not uncovering and advising the Brahms of Constellation’s pre-existing Arbor Valley label. Insofar as Arbor Hill took Harter Secrest’s advice in persisting with the case, the Wolford brief argues, Harter Secrest, not Nixon Peabody, is guilty of “malpractice, negligence or other improper conduct.”
Siragusa’s Feb. 28 ruling, which deals exclusively with the trademark case, does not specifically comment on the legal malpractice claims and counterclaims. A single paragraph in the decision addresses Constellation’s Arbor Valley claim.
“(Arbor Hill) never observed any Arbor Valley wine being sold in Western New York,” the ruling states. “Moreover, although (Arbor Hill’s) attorneys (at Nixon Peabody) conducted a trademark search in 1987 in connection with the federal registration of the Arbor Hill mark for food products, the search did not reveal Constellation’s use of the name Arbor Valley.”
In giving Arbor Hill a go-ahead to pursue its trademark complaint, Siragusa evaluated the Naples winery’s case according to how well it met the standards of six Polaroid factors, so-called after Polaroid Corp. v. Polarad Electric Corp., the 1960 case that set the current standard in trademark law. Siragusa gave Arbor Hill an edge in four of the six Polaroid factors.
In March, Constellation attorney Allen Baden, an intellectual property lawyer in Kenyon & Kenyon LLP’s Silicon Valley office, filed an 11-page motion calling on Siragusa to reconsider his February 28 ruling. Dispensing with the customary wait for Arbor Hill’s lawyers to file a countermotion, Siragusa fired back on March 14 with an eight-page response unequivocally affirming his earlier ruling.
No trial date is set.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Klein tops tally of pay for insurers

Top local executives of MVP Health Care Preferred Care saw their pay drop substantially in 2007. The drop, however, did not represent a pay cut but a reflection of extra rewards they received in 2006, the company said.
In 2007, the HMO’s three highest-paid local officers-Lisa Brubaker, executive vice president; Thomas Combs, chief financial officer; and Carl Cameron M.D., medical director-saw drops in compensation of 21 percent, 24 percent and 14 percent respectively, documents filed April 1 with the state Department of Insurance show.
Brubaker, who is in charge of Preferred Care’s day-to-day operations, made $450,224 last year, down from $572,515. Combs’ 2007 compensation of $488,615 fell from $641,545 in 2006. Cameron’s 2007 pay of $405,854 was down from $474,182 a year earlier, the state filings show.
The trio’s five- or six-figure reductions in dollars last year reflected retention bonuses the HMO’s board voted to give top officers to keep them from jumping ship in Preferred Care’s 2006 acquisition by the Schenectady-based MVP, Preferred Care spokesman Michael Traphagan said. He declined to state the retention awards’ amounts. The bonuses accounted for most but not all of the difference between 2006 and 2007 compensation totals.
In dollars and the numbers of executives among the 25 highest-paid local health insurance officials, the larger Excellus Blue Cross Blue Shield, Rochester Region-this area’s largest health insurance carrier and the state’s second-largest-dominates Preferred Care. In 2007, its top officials saw healthy compensation upswings.
President and CEO David Klein’s $2.6 million 2007 compensation was up 43 percent from $1.8 million in 2006. CFO Emil Duda’s $1.8 million in compensation took a 23 percentage point leap over his $1.5 million 2006 compensation.
In addition to its Rochester home base, Excellus runs Blues plans in the Finger Lakes, Syracuse, Watertown, Utica and Rome and runs the Univera Health Care HMO in Western New York. The Rochester Blues decline to say how many of Excellus’ 2 million enrollees are in the nine-county Rochester region.
Preferred Care is the region’s second-largest private health insurance carrier. It writes policies for some 30 percent of the roughly 1 million covered lives in the nine-county Rochester region’s private health insurance market. Its 310,000 subscribers account for more than half of MVP Preferred Care’s 700,000 enrollees.
When announced several weeks ago, the jumps in the Excellus executives’ pay and Klein’s raise in particular raised local eyebrows and drew some criticism.
Determining the fairness of executive pay “is a really thorny question,” said Kent Gardner, president and chief economist of the Center for Governmental Research Inc. “There are two ways of looking at it, vertically and horizontally.”
In a horizontal analysis, Gardner said, one would give more weight to factors such as what executives’ peers at other organizations in their industry make. In a vertical analysis, one would give more weight to factors such as what value the executives produced for the organization and, in the case of non-profits such as Excellus and Preferred Care, how well they fulfilled or advanced their organizations’ missions.
Representatives of MVP Preferred Care and Excellus described similar processes for determining how they pay top managers: Pay ranges and specific compensation packages are set and reviewed by board compensation committees consisting of independent directors whose deliberations are kept at arm’s length from the officers whose rewards they are deciding.
MVP Preferred Care’s directors use a base and bonus methodology, said Gary Hughes, a company spokesman. The method sets a base portion of executives’ compensation at a predetermined amount and awards any bonus according to how well the executive met preset targets. Hughes declined to discuss specific goals or targets used, or how compensation was split between salary and bonus amounts. Targets the board might set could include reaching certain enrollment figures, increasing cash reserves by a given amount and meeting care and service quality goals, he said.
Asked to describe criteria Excellus’ board compensation committee used, officials supplied a prepared statement from Excellus chairman John Doyle and charts comparing Klein’s compensation to pay packages of Blues CEOs of other non-profit and for-profit health insurers.
Doyle, CEO of Doyle Security Systems Inc., describes a process dating to 2003 when the Excellus board compensation committee “acknowledged findings from consultants that total compensation for the CEO was below the market median among comparable sized health plans in the U.S.”
At that time, Doyle added, the committee created long-term performance incentives that would reward executives with above-average pay for above-average performance. If executives’ performance was below average, however, the committee would “likely (set their pay) at or below the median.” Klein’s and Duda’s 2007 compensation included long-term incentive for performance goals met or exceeded from 2004 to 2006.
A chart, supplied by James Redmond, Rochester Blues vice president of communications, comparing Klein’s 2006 compensation with compensation drawn by CEOs of non-profit Blues plans in other states shows Klein’s $1.6 million in total compensation to have fallen slightly under the $1.9 million average pay drawn by 19 non-profit Blues CEOs. Klein’s pay lagged several of his peers.
Blue Cross Blue Shield of Florida CEO Robert Lufrano M.D. drew $5.7 million. The Florida Blues at that time had 1.7 million members and premium revenues of $4.9 billion to Excellus’1.9 million members and $4.8 billion in revenues.
That chart shows Klein’s base pay in 2006 was $800,000, while his bonus came to $754,794. Other compensation of $64,312 paid for unstated reasons rounded out his pay package. Redmond said he was not able to supply a similar breakdown for 2007 and was not sure where the newsletter that compiled the chart, the AIS Report, got its figures.
Peer-to-peer comparisons such as those used by the Excellus compensation committee to set pay for Klein and other top executives are ostensibly fair but in some ways potentially troublesome, CGR’s Gardner said. Public company and non-profit compensation committees and the consultants they hire often cite the possibility of executives being wooed away by better-paying rivals as reasons for rewarding them with comparable or higher pay but do not give adequate consideration to how top managers’ pay levels line up with average workers’ rewards.
Public company and non-profit compensation committee members are often CEOs and high-level managers themselves, he added. Though they might scrupulously keep their compensation committee decisions at arm’s length, as potential beneficiaries of similar decisions made by their own company’s boards, they could be inadvertently influenced by a system that has come to over-reward top managers. A growing gap in wealth between a relatively tiny group of very high-income Americans and the mass of less wealthy citizens whose real incomes are falling is seen as a matter of increasing concern by a number of economists, Gardner said.
Still, he added, if that system is seriously out of whack, correcting it would be “a hard nut to crack.”
[email protected] / 585-546-8303

The top five

Excellus officials dominate the list of the top 25 highest-paid local health insurance officials.

1. David Klein,
president and CEO $2,563,731

2. Emil Duda,
senior EVP and CFO $1,816,707

3. Morris Levene,
senior VP $1,492,796

4. Christopher Booth,
executive VP and corporate
general counsel $1,214,881

5. Paul Von Ebers,
executive VP and COO $808,321

What they earned in 2007

Excellus’ top executive enjoyed a 43 percent jump in pay last year. Preferred Care’s three highest local executives, meanwhile, saw their compensation drop-but only because they received “retention” bonuses in the HMO’s 2006 acquisition by the Schenectady-based MVP.
% change Executive 2007 pay since 2006
1. David Klein, president and CEO $2,563,731 43
2. Emil Duda, senior executive vice president
and chief financial officer $1,816,707 23
3. Morris Levene, senior VP, business development
and management consulting1 $1,492,796 217
4. Christopher Booth, executive VP, chief administrative
officer and corporate general counsel $1,214,881 7
5. Paul Von Ebers, executive VP and chief operating officer2 $808,321 95
6. Martin Hickey M.D., senior VP, health care affairs $570,873 4
7. Virginia Parysek, senior VP, human resources $570,515 6
8. Thomas Combs, Preferred Care/MVP Health Care CFO $488,615 -24
9. Stephen Sloan, senior VP and general counsel3 $470,339 62
10. William Simmons, senior VP, finance $461,188 8
11. Lisa Brubaker, Preferred Care/MVP executive VP,
Rochester and government affairs $450,224 -21
12. Karen Smith, senior VP, operations $449,127 5
13. Martin Lustik M.D., senior VP and
corporate medical director $437,009 27
14. David McDowell, senior VP, information technology
and chief information officer4 $427,854 24
15. David Mack, senior VP, corporate relations $421,164 4
16. Scott Ellsworth, Rochester region president $416,389 2
17. Carl Cameron M.D., Preferred Care/MVP medical director $405,854 -14
18. Mark Ruszczyk, senior VP, marketing and sales $370,909 37
19. Geoffrey Taylor, senior VP, corporate communications $337,633 6
20. Robert Toczynski, chief corporate actuary $319,764 6
21. Keith Volkmar, senior VP, corporate administration $303,005 5
22. Anthony Tardugno, senior VP, IT and CIO4 $286,366 27
23. Anne Ruflin, VP, Medicare strategy $278,480 21
24. Margaret Clark, VP, government program compliance $277,605 31
25. Joel Owerbach, chief pharmacy officer $276,026 14

1 Levene retired in 2007 and received a onetime payment of a long-term performance award earned as head of MedAmerica Inc, a for-profit subsidiary of Excellus’ parent company, Lifetime Health Care Cos. Inc., which he headed from 1996 to 1999.
2 In 2007, Von Ebers was promoted from senior VP, marketing and sales, to COO.
3 Sloan joined Excellus in 2006 and worked part of the year.
4 McDowell left Excellus in 2007; Tardugno was promoted to CIO in 2007.
Unless otherwise noted, all are Excellus executives.

04/11/08 (C) Rochester Business Journal

Plans eye facility fit for a king

Carlton DeWolff and his wife got the royal treatment last week-literally, at a lavish ceremony near Amman, Jordan, to honor the late King Hussein.
DeWolff’s firm has designed an 800,000-square-foot hospital for a mountaintop roughly 15 miles southwest of Amman and overlooking the Dead Sea.
On April 1, DeWolff and his wife, Jean, were there to watch King Abdullah lay the foundation stone for the $250 million complex.
The King Hussein Institute for Biotechnology and Cancer groundbreaking was a milestone for DeWolff Partnership Architects LLP, but the design process is ongoing.
“As things change, you go through schematic design, which is a rough design of it, and then design development is where you really squeeze nuts to bolts. The final design comes out of that. That’s about where we are right now,” said James Newton, business development manager at De-Wolff Partnership.
“We’re about a third of the way through design development,” he added.
Despite the local firm’s history of designing health care facilities, little could be done to prepare it for the scope of this project, Newton said.
“A few weeks ago, I remember Bud said, ‘You have to remember, we’re not dealing with a client. We’re dealing with a country.’ Right there, that’s the difference,” Newton said.
DeWolff said the king did not want the typical hospital. He wanted a city on top of a mountain-but not a modern city, more of a village square, DeWolff explained. The king thought DeWolff’s initial 2005 renderings captured that.
“And the project had to be secret,” DeWolff added. “I couldn’t talk to anyone about it because the rule is until his majesty has approved everything it is not to be published. We were working under a cloak of secrecy.”
The Institute is the largest project in the firm’s history-close to 20 consultants, including medical programmers, research laboratory consultants and equipment consultants to determine how the hospital rooms and departments should be organized.
To coordinate the different parties, the firm holds regular conferences and records them to verify details and keep people on the same page. In addition, the firm has set up an office in Jordan where the consultants and designers meet.
In addition to the hospital, design plans include amenities for patients’ families and visiting medical professionals, such as a hotel, conference center, shopping areas and dining areas.
The complex is slated to include entertainment facilities for patients and housing for elderly cancer patients.
The project is ambitious but extremely exciting, Newton said.
The groundbreaking itself was mind-blowing, DeWolff said.
“In 45 years I have never been involved in a groundbreaking like this,” DeWolff said.
The pomp and circumstance was extraordinary and exceeded only by King Hussein’s funeral nine years ago, De-Wolff was told.
“It was like a movie,” DeWolff said.
Dignitaries mingled at the reception where tall billowing drapes of sheer white cascaded over white carpeting laid over the rocky landscape, Jean DeWolff said.
“It was phenomenal, done in a Bedouin-style tent. It just kept going and going,” she said.
DeWolff Partnership ranked fourth among architecture firms in Rochester on the most recent Rochester Business Journal list, ranked by the number of local registered architects. Health care is one of the firm’s specialties. Local examples include Geneva General Hospital, Monroe Community Hospital Wellness and Fitness Center, Park Ridge Hospital and the Sands Cancer Center.
But it was the firm’s work out of state that attracted the king’s attention, Newton said.
The firm was mentioned when a former client heard the King of Jordan was looking to build a research facility.
Samir Khlief M.D., who will head the institute, originally spoke to James Black M.D. about the project when it was but an idea.
“That connection comes back to us because we had done major work at Johns Hopkins University when Dr. Black was the CEO there and also the University Hospitals at Cleveland when he was CEO there,” Newton said.
Both men are collaborators on the project.
Among them is associate architect Khaled Azzam. The Egyptian, with offices in England and Egypt, has helped the firm understand the myriad design considerations for the project-cultural and religious. Azzam has previous experience working with the king on the design of his palace.
“He’s been an amazing help,” DeWolff said.
“I designed the footprint and the concept, and I had an entry, which in the United States usually is a very large statement. (Azzam) pointed out that in the villages there are no big statement entries,” De-Wolff explained. “What you do is create a very dignified entry that’s not overwhelming, and then you decorate it with Jordanian details, geometrics and things like that.”
Unlike the consultants, who are mainly Americans, contractors for the project will be Jordanians.
“The construction value there is a lot cheaper than here, obviously,” Newton said.
DeWolff said if the project were to be built with U.S. contractors the total cost would not be $250 million but closer to $500 million.
“I cannot even describe this project, it’s so special,” DeWolff said. It will combine the most modern equipment near what will look like an ancient town square, complete with kiosks for vendors selling fruits and vegetables.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Portfolio: TRANSCAT

A weekly report compiled from the proxy statement and annual report of a publicly
held company with local headquarters or a company with a major division in the area

Based in Rochester, Transcat Inc. is a global distributor of professional-grade test, measurement and calibration instruments and a provider of calibration and repair services primarily throughout the process, life science and manufacturing industries. The company has two business segments: distribution products and calibration services. Through its distribution products segment, Transcat markets and distributes national and proprietary brand instruments to approximately 11,000 global customers. Through its calibration services segment, Transcat offers calibration services through 11 calibration centers located across the United States, Puerto Rico and Canada to approximately 8,000 customers. The company uses a proprietary documentation and asset management system, CalTrak, to manage workflow at its calibration centers. Some of Transcat?s major clients include Wyeth, Johnson & Johnson, DuPont and Co., Exxon Mobil Corp., Dow Chemical Co. and Duke Energy Corp. The company has approximately 228 employees and some 100 local employees.
The company reported net sales of $66.5 million in fiscal 2007, up 10 percent from the prior year. Transcat?s net income was $2.1 million during 2007, down 42.4 percent compared with 2006?s net income of $3.6 million. Net income per share was 28 cents, down 22 cents compared to net income of 50 cents a share in 2006. Net cash from operating activities was $2.6 million; net cash used in investing activities was $1.2 million; and net cash used in financing activities was $1.2 million.
The company?s most recent fiscal year ended on March 21, 2007.

Common shares outstanding as of April 4 7,166,000
Price per share of common stock on April 4 $5.50
Total market value on April 4 $39,413,000
Controlled by all directors and officers as a group 1,255,8221
(17.5 percent)

Performance Record
(Dollars in thousands except per-share data)
2007 2006 2005 2004 2003
Net sales $66,473 $60,471 $55,307 $53,317 $57,172
Net income (loss) 2,059 3,577 256 353 (4,715)
Net income (loss)
per share 0.28 0.50 0.04 0.06 0.29
Total assets 22,422 21,488 20,207 18,385 16,758
Long-term debt 2,900 353 56 134 668
Stockholders? equity 11,229 8,647 4,314 3,428 2,698
Operating cash flow (loss) 2,645 4,435 (6) 208 937
Investing cash flow (loss) (1,194) (1,777) (866) (459) (291)
Financing cash flow (loss) (1,210) (2,654) 268 516 (1,131)

Directors Number of common shares1
Carl Sassano, 57, executive chairman and former CEO 304,772
Lee Garelick, 72 263,706
Charles Hadeed, 57, president, CEO and chief operating officer 126,802
Harvey Palmer, 61, professor and dean, Kate Gleason College of Engineering at
Rochester Institute of Technology 80,393
Cornelius Murphy, 76 57,608
Paul Moore, 56, senior vice president, M&T Bank Corp. 42,278
Nancy Hessler, 61, vice president, Integrated People Solutions 41,979
Francis Bradley, 61, executive associate, Sullivan Engineering Co. 32,818
John Smith, 59, chairman and CEO, Brite Computers Inc. 29,096
Richard Harrison, 62, senior vice president, retail loan administration,
Five Star Bank 19,480
Alan Resnick, 63, president, Janal Capital Management LLC 11,480

Executive Compensation
Officer 2007 cash compensation2
Carl Sassano, executive chairman and former CEO $950,335
Charles Hadeed, president, CEO and chief operating officer 510,324
John Zimmer, vice president of finance and chief financial officer 198,464
Jay Woychick, vice president of marketing 255,765
Alan De Voldre, vice president of human resources 190,657
Above executive officers as a group $2,105,545

1Includes shares earned under the company?s directors? stock plan but deferred, shares that may be acquired by
exercising stock options and warrants, shares owned jointly with a spouse and shares held by family members
2Includes salaries, bonuses, value realized from stock options exercised and all other compensation

Reaserched by Julia Dickinson

04/11/08 (C) Rochester Business Journal

Snap Poll: Nearly half say state of city is better than a year ago

Economic development seen as top priority for Duffy

Forty-six percent of RBJ Daily Report Snap Poll respondents say that compared with a year ago, the overall state of the city of Rochester is better.
Rochester Mayor Robert Duffy Monday evening delivered his 2008 State of the City address. He gave a progress report on areas such as public safety, economic development and education, and outlined a reorganization of city services in response to a more than $17 million budget shortfall.
In this week’s poll, 30 percent of respondents said that compared with a year ago, the state of the city is unchanged, and 24 percent thought the overall state of the city is worse. When the same questions were asked in March 2007, 40 percent thought the state of the city was better, 17 percent said worse and 43 percent answered unchanged.
In terms of priorities, respondents’ answers were very similar to a year ago. Half the poll participants said economic development should be Duffy’s No. 1 priority this year. Twenty-six percent said public safety should be the priority, while 14 percent answered more state aid, and 11 percent selected education.
In March 2007, 54 percent chose economic development as Duffy’s No. 1 priority; 26 percent answered public safety, 12 percent said fiscal management/obtaining more state aid, and 8 percent said education.
Roughly 540 took part in the new poll, conducted April 7 and 8.

Compared with one year ago, how would you describe the overall state of the city of Rochester?

March 2007
Better: 40%
Unchanged: 43%
Worse: 17%

April 2008
Better: 46%
Unchanged: 30%
Worse: 24%

What should Mayor Duffy make his No. 1 priority this year?

Economic development: 50%

Public safety: 26%

Fiscal management/obtaining more state aid: 14%

Education: 11%


The city should look at a comprehensive plan that will address the poverty, crime, and high school dropout rate, as it is plain to see that they are all connected.
-John Stevens, ICM

Mayor Duffy needs to make Rochester safer. If he doesn’t, Paetec and ESL may face the same fate as Midtown Plaza and the fast ferry. A safer city will catch the imagination driving the new city schools plan and the recent surge in downtown development. Better safe than sorry goes for cities, too.
-Clifford Jacobson, WebHomeUSA

(Downtown has) some good pockets, but far too many abandoned and boarded-up buildings! A Dollar Store? It could be so much different! What is the draw to go downtown? And we have a river and waterfall right in the center of downtown. It has to change from ugly to cool. More high-end restaurants, big-name stores and unique shops. Not just bars for the college kids!
-Steve Mizzoni, Netsville Inc.

The city has been and will continue to get worse until Mayor Duffy quits talking and starts acting. It takes a dummy to talk, but a real leader to actually do it. It makes me that much happier that I moved out of the city and into Chili last year.
-John Waudby, Chili

Public safety is key, and education is inextricably linked to this. We must give our kids something to say yes to, so they can say no to dangerous distractions.
-Kate Bennett, Rochester Museum & Science Center

Public safety is a very broad term and has to be addressed first. The city needs to be a desirable place to live, work, invest. People will not be drawn to downtown if they think they’re going to get shot! At this point, I would not buy another piece of property in the city.
-Timothy M. Culver, president, Hawver Display

04/11/08 (C) Rochester Business Journal

Marking progress

A year ago, Rochester Mayor Robert Duffy used the word “results” 46 times in his State of the City address. On Monday, he used it only three times.
But that does not mean Rochester’s mayor is any less focused on accomplishing his goals. As he noted, “Last year at this time I promised results. I said that our administration will be accountable for making measurable progress.”
This year’s speech contained a long list of milestones marking progress. At the same time, Mr. Duffy repeated his running metaphor, saying that “we’re running a marathon, and this stretch of the course is going to be painful. But we cannot take an easier course.”
The reference, of course, was to the daunting budget gap-more than $17 million-that the city must close. While the details are yet to come, the mayor’s plan to cut spending by reorganizing the delivery of city services and raise taxes only as a last resort is the right one.
“Raising taxes sends the wrong message to people and businesses looking to locate here,” he said. “We are all taxed enough.”
The city’s fiscal woes-and the public’s safety concerns-will not be easy to fix. Nor can things be turned around overnight.
But the mayor’s optimism about Rochester’s future is not misplaced. Consider just a few of the things that have gone right over the past 12 months:
–The city successfully completed the sale of the fast ferry.
–Plans for Paetec Holding Corp.’s new headquarters on the Midtown Plaza site were unveiled-and this week former Gov. Eliot Spitzer’s $65 million commitment to make the site shovel-ready was secured with passage of the new state budget.
–ESL Federal Credit Union committed to building its new headquarters downtown on Chestnut Street, opposite the Strong National Museum of Play.
The city has a long road ahead, but it is clearly moving forward in some important ways.

04/11/08 (C) Rochester Business Journal

New budget has $700M for upstate fund

Gov. David Paterson Wednesday announced the 2008-09 enacted budget includes a $700 million Upstate Revitalization Fund that will promote economic growth and opportunity throughout Upstate New York.
The fund was proposed at $1 billion but was reduced to $700 million. Included in the fund are $55 million for Midtown Plaza and $50 million for the University of Rochester’s Clinical and Translational Science Institute in Rochester.
Though the overall dollar amount originally proposed for the Upstate Revitalization Fund was reduced due to fiscal pressures, the major strategic components were left intact, state officials said.
“Of greatest significance is the included funding for the Regional Blueprint Fund, which will guarantee that upstate communities will be actively engaged in identifying those local projects that will have the biggest economic development impact-particularly in job creation-and therefore deserve state and local support to move forward,” said Sandra Parker, president and CEO of the Rochester Business Alliance Inc., in a statement. The RBA assisted in gathering 1,000 signatures from across the region in support of the fund.
The Upstate Revitalization Fund includes:
–Regional Blueprint Fund, $120 million: This fund will be administered by the Empire State Development Corp. and is designed to build on Regional Blueprint sessions held last fall to identify projects that will enhance each specific upstate area’s economic advantages.
–City-by-city investments, $180 million: Of this, $150 million will support the commitment announced last year to move forward several critical economic development projects throughout upstate cities. These include Midtown Plaza ($55 million) and UR’s Clinical and Translational Science Institute ($50 million). In addition, another $30 million will fund new city-by-city projects, which will be awarded competitively.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Deal gives Baltimore firm a footprint in region

A Baltimore-based private company made the second-largest local commercial real estate deal of 2007.
For $48.7 million last July, Phillips Edison & Co. made its foray into the Rochester market by buying 444,500 square feet of retail space from Developers Diversified Realty Corp. in Ohio.
The $55 million purchase of Rochester Technology Park was the top deal last year. In that deal, Brooklyn-based Tryad Group purchased 5 million square feet of industrial space from a company in California.
Phillips Edison doubled in size last summer with the full DDR deal, worth $603 million, which included close to 6 million square feet of shopping centers in 16 states.
In Monroe County, the company bought Henrietta Plaza, Hen-Jef Plaza in Henrietta and Ridgeview Plaza in Irondequoit.
In Ontario County, Phillips Edison also bought the Tops Plaza.
DDR had purchased properties here in 2004. The company bought 1.5 million square feet of retail space as part of a larger deal with Benderson Development Co. Inc.
DDR sold a portion of those properties to Phillips Edison last year. The company still owns a half-dozen Rochester properties:
–Culver Ridge Plaza in Irondequoit
–Jo-ann/PetSmart Plaza in Greece
–Kmart Plaza in Chili
–Panorama Plaza in Penfield
–Victor Square in Victor
–Westgate Plaza in Gates
In general, DDR and Phillips Edison look for slightly different property types. DDR looks for new property; Phillips Edison looks mainly for grocery-anchored properties with redevelopment potential.
“It usually takes an average of 18 to 36 months to work a redevelopment plan for a project. These plans focus on complimentary merchandising, cost-containment, and creating and fostering a clean, safe shopping environment,” said Mark Addy, chief operating officer at Phillips Edison.
“We have been very pleased so far with the initial successes, especially in light of challenging economic times. Our focus over 17 years has not changed in our belief in the success of necessity-based retail shopping, regardless of the economy,” he added.
The company became familiar with Rochester when, years before, it purchased three properties in Syracuse, Addy said.
Aside from new challenges the snow here represents, Addy said demand for and occupancy at the Rochester properties has been consistent.
“We have areas that receive heavy snow, but not to the degree of Western New York,” he said.
As for DDR’s local properties, demand for them continues to be strong, said Scott Schroeder, vice president of marketing and corporate communications at DDR.
“Our portfolio of shopping centers in Rochester continues to perform well and occupancy rates have remained steady,” he added.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

HTR’s president accepts post in North Carolina

High Tech Rochester Inc. is losing its leader, Paul Wetenhall, next month to a business incubator in Charlotte, at the University of North Carolina.
Wetenhall has been at HTR since its inception. He has helped bring together entrepreneurs and engineers, as well as business and university leaders, for the benefit of Rochester, his colleagues say.
He also has helped more than 100 early-stage technology companies develop.
Wetenhall’s last day as president here is May 9; he starts five days later as president and executive director of the Ben Craig Center Business Incubator, part of the Research Institute at UNC Charlotte.
The Ben Craig Center has been operating for more than two decades and has helped raise more than $149 million in venture capital for new companies. To date, 98 companies have graduated from the program.
“I was not looking to leave town, but the recruiter from Charlotte found me,” Wetenhall said.
The people in Charlotte looked at HTR and viewed it as a national model they would like to replicate, he explained. HTR became a subsidiary of the University of Rochester last year.
Peter Robinson, chief operating officer at the UR’s medical center and chairman of HTR, said Wetenhall has done a magnificent job.
“(The organization) is such a better place as a result of his leadership, and I think the community has really benefited from the contributions that he has made at HTR,” he said.
The board has not found a replacement but within the next two weeks will appoint an interim president and begin a search for a permanent replacement, Robinson said.
“Whoever goes into (the job) has very big shoes to fill. Paul has been a very special leader. His background, his expertise have been a perfect fit for HTR and the community. I think the people in North Carolina are very lucky,” Robinson said.
Wetenhall, who became HTR president five years ago after serving as venture coach and leading its Lennox Tech Enterprise Center incubator since 1997, said Rochester has come a long way in the last decade.
In that time, more than 80 companies have passed through the Lennox Tech Center.
“We were able, and it wasn’t me but a whole group of people in town, to raise up entrepreneurship and innovation as a really important theme for the Rochester region,” Wetenhall said.
“To go from 1997, when we were still very much dominated by the big companies-Kodak, Xerox and B&L-to using Lennox Tech as a focal point for brining attention to how important it is that this region nurtures its entrepreneurial talent, provide the financing that’s necessary and get better at taking technology out of the academic research labs and bringing it to market.”
Duncan Moore, vice provost for entrepreneurship at UR and director of the Center for Entrepreneurship, said Wetenhall’s background in business and technology was what people here needed to learn.
Moore and Wetenhall co-taught a course in technical entrepreneurship at the UR’s Simon Graduate School of Business that brought MBAs and technologists together to write business plans.
“He was instrumental in getting the Simon School students engaged in this course, because like a lot of courses, it’s outside of their comfort zone,” Moore said. “He was able to get the business school students engaged, and I got the engineers, which makes for a really great social interaction.”
Wetenhall said bridging business and technology is fundamental to Rochester’s future.
“The real opportunity for my successor is to continue to find ways to bring what we call human capital to bear on research and bring entrepreneurial savvy people in partnership with the technically savvy people,” Wetenhall said. “We’ve just scratched the surface so far.”
Wetenhall came to Rochester in 1975 to work for Xerox Corp. until he co-founded a venture-backed software firm, Microlytics Inc., and later a business process software business, QSoft Solutions Corp.
A graduate of Georgia Institute of Technology with a bachelor’s degree in industrial engineering, Wetenhall earned an MBA from UNC at Chapel Hill.
At the time, he said, Charlotte was behind Rochester in development and population. Today, that city has a population almost twice that of Rochester. The main reason, he said, is because a lot of initiatives there are privately driven and funded.
“I love Rochester, and New York State drives me crazy,” Wetenhall said. “Rochester has so many assets, but we have such a tremendous drag from our state government. The term often used is dysfunctional, and I would agree completely with that assessment.”
The process is long and frustrating, but Wetenhall’s secret to getting things done is quiet, gentlemanly persistence, Moore said.
Wetenhall explained, “Not everybody wants to be cooperative, and you have to work hard at it because there are people even today who will act in a pretty unilateral fashion, and it’s easy to get frustrated and give up, but we’ve been persistent.”
He also would like to see a different approach to philanthropy in Rochester. A dramatic impact on the future can be had, he said, if people can change their focus as they did in 1997 by stepping up efforts to diversify the economy with new technology and viable businesses.
“If you think of the philanthropy of Rochester, it all comes from people who created value in business and generated tremendous wealth,” Wetenhall said. “What I would love to see are wealthy individuals here look at investing in early-stage companies as something every bit as important, if not more important than giving to their favorite charity.”
He added, “The most important thing Rochester can do in its future is to help create that next generation of wealthy entrepreneurs, because that’s where the philanthropy of the future will come from.”
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Former executive sues IRS for refund from ’99

As the current tax season draws to a close, few can have higher refund hopes than Olafur Gudmundsson.
He recently sued the Internal Revenue Service in hopes of getting the agency to cut him a refund check for more than $300,000. A complaint he filed last month in the U.S. District Court in Rochester seeks to reverse a 2006 IRS ruling turning Gudmundsson’s refund request down.
In the court complaint, Gudmundsson, a Chili resident, blames reporting errors and accounting chicanery by his former bosses at the St. Louis-based Aurora Foods Inc. for an allegedly six-figure overpayment on his 1999 federal tax bill.
Speaking through an attorney, Gudmundsson declined to comment.
The court action does not target Aurora or Pinnacle Food Group LLC, which acquired Aurora in 2003 and still owns it, said Gudmundsson’s lawyer, Rochester tax attorney Arnold Petralia of Petralia, Webb & O’Connell P.C. Though accounting missteps by former Aurora officials “are a matter of public record,” Petralia said, Aurora did not deal improperly with Gudmundsson, whose only dispute is with the IRS.
Aurora’s alleged misstatement of his income on his 1999 W-2 was due partly to its using the wrong price to value a stock award paid to him as a bonus, Gudmundsson’s court complaint states. But the March 21 complaint also alleges that the firm’s overvaluing of the bonus resulted from a scheme to illegally pump up Aurora’s stock price.
Several of Gudmundsson’s former bosses and colleagues at Aurora, including the former CEO and chief financial officer, were charged with fraud by the Securities and Exchange Commission and were convicted.
A vice president of the Van de Kamp’s Inc. frozen fish company, Gudmundsson became an Aurora employee in 1999 when Aurora acquired Van de Kamp’s. Also owned by Aurora were brands such as Mrs. Butterworth and Log Cabin syrups, Lender’s Bagels, Celeste frozen pizza, Mrs. Paul’s frozen seafood and Duncan Hines baking mixes.
In 1999, Aurora elected to pay performance bonuses due to Gudmundsson under Van de Kamp’s incentive plan with restricted shares of Aurora stock. A June 4, 1999, letter from former Aurora chairman and CEO Ian Wilson to Gudmundsson details Gudmundsson’s bonus as amounting to 73,105 restricted shares. The shares’ value would be taxable as ordinary income in 1999, Wilson stated.
Later that year, when the company reported Gudmundsson’s 1999 income to the IRS, it valued his bonus at Aurora common stock’s market price, $17.685 a share. Copies of a federal tax form-submitted as evidence by Gudmundsson in the March lawsuit-show the Van de Kamp’s bonus payments to have made up some $1.3 million of the more than $2 million he reported for 1999.
In 2000, after admitting to overstating its earnings and understating its liabilities in annual and quarterly financial reports in 1999 and 1998, Aurora restated earnings for those years. Wilson and Aurora’s chief financial officer, vice chairman and a vice president handed in their resignations.
Aurora’s stock price began to slide soon after the company revealed the accounting irregularities. And in succeeding months its price continued to fall. Gudmundsson, whose first opportunity to unload his restricted shares came on July 1, 2000, does not say in the complaint whether he ever sold his restricted stock. If he hung on hoping for a rebound, he could have seen its value drop from the $4 a share it was worth on July 1, 2000, to less than a dollar in later months and finally to zero.
In his court action, Gudmundsson asks for a refund amounting to the difference between the $731,299 he paid in 1999 income taxes and the lower amount he would have owed had his restricted shares been valued at the price they would have fetched on July 1, 2000. The filing does not state a specific refund amount Gudmundsson believes to be due him. In an amended 1999 tax return-submitted as evidence in the court case-he claimed a $301,834 refund based on a $7.5625 a share value for the restricted stock.
In 2003, Aurora filed a Chapter 11 bankruptcy petition and subsequently was acquired in a court-supervised merger by the New Jersey-based and privately held Pinnacle. Proceeds went to pay off Aurora’s lenders. At the acquisition’s closing, Aurora shares ceased trading publicly and became worthless. Shareholders got nothing. Last year, Pinnacle was acquired by the Blackstone Group private equity firm for $2.16 billion in cash.
In 2006, the IRS rejected Gudmundsson’s administrative appeal of the tax agency’s turndown of his amended return. In an April 2006 letter informing Gudmundsson it had “fully disallowed” his refund claim, the IRS cited the restricted share award’s exemption from a securities law provision dealing with insider trading as its sole reason for the final turndown.
Gudmundsson’s court complaint asserts the IRS was wrong on several counts including:
–The value Aurora put on Gudmundsson’s W-2 was pumped up by his former bosses’ fraudulent accounting and should be disregarded;
–Because Gudmundsson could not sell his bonus-award shares when he got them, they should not have been valued at the current market price for fully tradable common shares, but by an alternate method; and
–The IRS’ interpretation of the tax code as requiring taxation of non-transferable shares amounts to an unconstitutional taking of property.
No trial date is scheduled.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Analysts expect strong first quarter from Xerox

Analysts expect Xerox Corp. to post earnings per share at the high end of its guidance when the company reports its first-quarter results next Friday.
Eight analysts polled by Thomson Financial estimate Xerox will report earnings per share in the range of 26 to 28 cents, with an average of 27 cents a share. Xerox is forecasting earnings per share of 25 to 28 cents.
For the first quarter 2007, Xerox posted net income of $233 million, or 24 cents a share, on revenues of $3.8 billion.
Ulysses Yannas, a broker with Buckman, Buckman & Reid Inc. in New York City, expects nothing unusual from the quarter, including no surprises on earnings.
“They have it down pretty well on what they expect to get and there aren’t many surprises,” Yannas said. “That’s what Anne Mulcahy seems to be all about these days.”
Yannas is interested in the company’s equipment sales in the quarter, adding he would like to see a pickup there. Last quarter, Xerox reported a 10 percent increase in equipment sales, including a 5 percentage point benefit from currency, driven by the acquisition last year of Florida-based Global Imaging Systems Inc.
Shares of Xerox (NYSE: XRX) were trading midweek at $14.87, near the low end of its 52-week range of $12.30 to $20.18.
Matthew Troy, an analyst with the Smith Barney division of Citigroup Global Markets Inc. in New York City, is looking for Xerox to post quarterly earnings per share of 28 cents.
He expects Xerox to make several product announcements this year, most notably at Drupa 2008. Held every four years in Germany, Drupa is the largest printing equipment exhibition in the world. It runs from May 29 to June 11.
Troy wrote in a note to clients that Drupa will serve as a “platform for emphasizing Xerox’s leadership and breadth in high-end digital (products).”
The first quarter will include a $491 million after-tax charge to help cover costs of a multimillion-dollar lawsuit, as well as other settlements it might make in pending shareholder actions.
On March 27, Xerox announced it had received preliminary court approval to pay plaintiffs $670 million to settle an 8-year-old securities class action.
Settlement terms, which are subject to final court approval, call for Xerox’s former auditor and co-defendant KPMG LLP to pay another $80 million. The money is to go into a fund set up to pay claimants in Carlson v. Xerox Corp. The case-filed in August 2000-sought damages for purchasers of Xerox common stock and bonds during a period stretching from Feb. 17, 1998, to June 27, 2002.
Xerox plans to pay the $670 million in five installments over the next 12 months.
Citing $1.9 billion in operating cash flow the document company generated in 2007, Xerox chairman and CEO Anne Mulcahy credited the firm’s “strong financial position (for giving) us the flexibility to resolve this issue.”
Shannon Cross, an analyst with New Jersey-based Cross Research LLC, said in a research report that settlement reports are in line with expectations and easily absorbed by Xerox’s cash flow.
“We think this alleviates an overhang for the company, particularly on the rating for the bonds,” Cross wrote.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Tough first quarter staggers most local stocks

Most local stocks lost value during a difficult first quarter hampered by the country’s financial crisis and fears of a recession.
Of the 51 local stocks trading on the New York Stock Exchange, 40 lost ground during the quarter ended March 31. Of the 23 local stocks trading on the Nasdaq, American Stock Exchange and on the over-the-counter bulletin board, 17 declined.
Local NYSE stocks dropped by an average of 7 percent, deepening a 12-month decline to 10 percent. The other local stocks dipped 11 percent, and are off 31 percent over 12 months.
Nationally, the Dow Jones Industrial Average fell 7.6 percent during the quarter. The Standard & Poor’s 500-stock index dropped 9.9 percent. The Nasdaq Composite Index fell 14.1 percent. It was the worst quarterly performance for the three benchmarks since the third quarter of 2002.
“Two words define what happened in the first quarter: uncertainty and fear,” said George Conboy, president of Brighton Securities Corp. “There is uncertainty in the minds of investors, uncertainty about the value of complex debt securities and uncertainty about the stability of large banks.
“That uncertainty has morphed into fear on the part of investors. Fearful investors have been selling. But the reality is, the majority of mortgage holders will pay on their mortgages. The majority of banks and mortgage companies won’t go out of business. If we’re in a recession, we will ultimately come out of it.”
Locally, the brightest light in the first quarter came from Genesee & Wyoming Inc., whose stock rose 42 percent to $34.40 a share and is up 29 percent over the last 12 months.
The short-line and regional freight railroad operator, based in Connecticut and with major operations in Rochester, reported earnings per share of 38 cents for the fourth quarter, 4 cents better than analyst projections, although profits fell by 2.9 percent to $13.9 million.
Rochester-based Home Properties Inc. saw its stock rise 9 percent for the quarter, to $47.99.
“Given what the market’s been, and given what anything with real estate did, Home Properties’ performance was outstanding,” Conboy said. “Investors have been shying away from anything related to real estate. In the case of Home Properties, it is quite likely that the stable management, the vanilla aspect of their business-they own apartment complexes, they collect the rents, they pay dividends to their shareholders-caused investors to warm to something simple.”
Home Properties-a real estate investment trust that owns and manages rental properties in the northeast-is in position to benefit from the ongoing subprime mortgage crisis, Conboy said.
“With the concern that subprime borrowers may in many cases lose their homes, it’s reasonable to expect that those people will not be living in the street,” he said. “It is reasonable to expect that some of them will end up in apartments.”
Two locally based banks trading on the Nasdaq were among the quarterly gainers. Shares of First Niagara Financial Group Inc., parent of First Niagara Bank, increased 14 percent, to $13.59. Financial Institutions Inc., parent of Five Star Bank, jumped 7 percent, to $18.95.
The biggest loser on a percentage basis for the quarter was Delphi Corp., the Troy, Mich.-based automobile parts maker with operations in Rochester. Its shares dropped 71 percent over three months, and are down 99 percent over 12 months, to 4 cents.
The latest hit for Delphi stock came Friday when investors led by Appaloosa Management L.P. backed out on a $2.55 billion equity deal designed to help the company emerge from bankruptcy.
“It looked like Delphi’s situation was going to be resolved, and then right after the quarter ended, Delphi’s situation once again became very murky,” Conboy said. “It remains to be seen whether Delphi will even remain listed as a local stock by the end of the second quarter.”
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal

Zoo meets Riedman challenge grant

The Seneca Park Zoo Society has raised more than $500,000 to meet a challenge grant by the Riedman Foundation toward its Step Into Africa project, officials said.
The Riedman Foundation in October pledged up to $500,000 in matching funds raised by March 31 for the zoo’s lion exhibit as part of the multiphase project.
The Riedman pledge was the largest in Seneca Park Zoo history, officials said.
The zoo society said it had received widespread community support for the challenge, with 247 individuals and companies involved and a record number of new donors.
John Riedman said he was pleased to help raise the awareness of the project-and of the zoo itself.
“I am delighted that the foundation’s first ever challenge grant was such a resounding success,” he said. “The Seneca Park Zoo is a jewel in our community and deserves strong support.”
The funds, $1.3 million total, will be restricted to the last phase of the Step Into Africa-Ngorongoro Crater Exhibit project.
The zoo society now has secured 25 percent of the $4 million needed for the last phase of the project, which includes hands-on educational displays and programs, officials said. The aim is to create a world-class educational and recreational resource.
Groundbreaking for the lion habitat is planned for fall 2009.
[email protected] / 585-546-8303

04/11/08 (C) Rochester Business Journal