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local CEO with a new fat substitute, a black belt in judo and a history of courtroom bouts is taking on George Foreman.

Greg Halpern of Z-Trim Holdings Inc., a small company based in Mundelein, launched a court fight with George Foreman Enterprises Inc. after failing to reach a deal for the former heavyweight champ to promote Z-Trim, a fat substitute Mr. Halpern says will help solve America's obesity crisis.

Z-Trim sued Mr. Foreman's company last month, charging it violated a confidentiality agreement by revealing the aborted endorsement talks in a government filing in April. Foreman Enterprises denies the allegations.

Mr. Halpern says the U.S. Securities and Exchange Commission filing gave ammo to critics who bash Z-Trim on the Internet, a group Z-Trim has tangled with in separate court fights.

"We take being attacked very seriously. Maybe it's our fighter mentality,'' says Mr. Halpern, a youthful 48-year-old. The 5-foot-4, 133-pound exec won a silver medal in the lightweight judo category at the 1977 Maccabiah games, an international athletic competition held in Israel. Four members of his management team also have black belts in judo. Another was a national rifle champ.

Mr. Halpern's 12-year-old holding company, called Circle Group Holdings Inc. until last week, owns businesses ranging from bed linens to anthrax vacuums to self-defense videos.

But he's staking the company's future on Z-Trim, in a play for the Holy Grail of the food industry. Researchers at giant companies have worked for years to find a substance that gives food the taste and feel of fat, without the deleterious health effects. Results have been frustrating. Procter & Gamble Co.'s Olestra, for example, caused diarrhea in some consumers.

"If someone could crack the code and come up with a fat substitute that tastes as good and has the same texture and mouthfeel, it would be huge. But that's a huge `if,' '' says Robert Goldin of industry research firm Technomic Inc. "It would be worth billions of dollars.''

Mr. Halpern believes he's found it in Z-Trim. He says the taste and texture of food made with Z-Trim are appealing enough to make consumers eat less fat, blamed for so many health woes.

"The biggest global health problem is obesity and Z-Trim is a major part of the solution,'' Mr. Halpern says. "We believe by the end of the year Z-Trim will be widely known in America. It's not really a hard sell.''

Born in the USDA

Originally developed by the U.S. Department of Agriculture, Z-Trim is made from cereal brans such as corn, oats or soy. Mr. Halpern's company bought it in August 2002 from Florida-based Utek Corp. for 2.8 million shares of common stock.

The company converted to publicly traded status in June 2002 without raising cash in a traditional initial public offering. Since then, it has raised $14 million in private stock sales to finance production, distribution and marketing of Z-Trim. The company employs 26 at a 44,000-square-foot office/factory in Mundelein.

Z-Trim Holdings doesn't separately report sales of its namesake product, which is part of a larger business unit that lost $1.9 million last year as sales fell 29% to $43,339.

Regulation requirements

The company as a whole, which relies on bedding for 91% of its sales, lost $6 million last year, up from $4 million in 2004. Mr. Halpern attributes most of the loss to new regulations requiring public companies to expense stock options. Companywide revenue dropped 23% to $514,608.

In the first quarter of 2006, increased spending on Z-Trim boosted the company's net loss to $2.7 million from $1.5 million a year earlier.

Mr. Halpern says investors will see moderate growth in Z-Trim sales when the company breaks out the product's sales for the first time in its second-quarter report. He won't identify customers, but recent Z-Trim press releases say "a U.K. non-dairy cheese manufacturer'' ordered 1,100 pounds of Z-Trim and "an American hamburger chain'' will use will use Z-Trim in salad dressings at its locations in the Philippines.

Looking for signs

Z-Trim's stock has fluctuated as investors looked for signs that food companies would buy its signature product. In January 2004, shares shot to $8 from $2 when Z-Trim announced a "long-term'' deal to supply the fat substitute to Nestle USA.

Soon after, the company came under fire on the Internet. Mr. Halpern shot back with lawsuits. In February 2004, he sued Rob Montemarano for libel, accusing him of calling Z-Trim a "junk product'' on the RagingBull.com Web site. The case ended after the parties advised the court that the dispute had been resolved. Efforts to locate Mr. Montemarano were unsuccessful.

Then Timothy Miles, proprietor of the site Our-Street.com, wrote that the Nestle deal had ended and accused Mr. Halpern of withholding that information from investors. On July 2, 2004, Mr. Halpern sued Mr. Miles for libel. The case was settled in January 2006 on confidential terms. Mr. Miles says the settlement bars him from discussing the case.

Also in July 2004, Mr. Halpern sued local technology writer Ron May for libel, alleging he erroneously reported that the American Stock Exchange had suspended trading of the company's shares. The shares were never suspended, and Mr. May agreed in a settlement not to write about Z-Trim again. Citing the settlement agreement, Mr. May declines to comment.

Z-Trim Holdings acknowledged in October 2004 that Nestle had stopped using Z-Trim. Mr. Halpern says the deal ended because a contractor he'd hired to make Z-Trim for Nestle couldn't keep up with demand. A Nestle spokeswoman won't say why Nestle stopped using Z-Trim.

By the end of 2004, the company's stock was trading below $2 on the American Stock Exchange. It closed at $1.06 last week.

Online critics haven't been Z-Trim's only courtroom opponents. In 2002, Z-Trim sued public relations firm Fleishman-Hillard Inc., charging that the firm failed to deliver on promises of media coverage for the company. Fleishman-Hillard countersued, alleging Z-Trim didn't pay its bills, and the case settled on terms neither will discuss.

In January 2003, Z-Trim sued virus protection software maker Network Associates Inc., which sells under the McAfee brand, claiming the California-based company, which has since adopted McAfee as its name, overloaded his computer system with unsolicited e-mail ads for its products. Mr. Halpern says he dropped the case after McAfee agreed to stop sending the emails. McAfee's attorney didn't return calls.

"The company has always had a policy to stand tall and fight these battles,'' Mr. Halpern says.

The Foreman case grew out of a plan to assemble a celebrity army to promote Z-Trim. So far, the advisory panel includes six-time Ms. Olympia Cory Everson; Juan-Carlos Cruz, a pastry chef and host of Food Network show "Calorie Commando,'' and William Smithburg, former CEO of Quaker Oats Co. The advisers will be paid in stock options to spread the word about Z-Trim in television appearances and print ads.

Mr. Halpern says he's focused on Z-Trim now and will pick his legal battles more carefully going forward-though he has hired high-profile Houston attorney John O'Quinn to investigate whether short-sellers are manipulating Z-Trim Holdings stock. He plans to sell or spin off Z-Trim's other businesses and spend $4 million marketing the fat substitute in the next 12 months. He's even thinking about creating a reality TV show around Z-Trim.

"I'm a laser,'' he says. "I stay focused.''

Contact: jjargon@crain.com

CAPTION(S):

Greg Halpern * George Foreman's company is embroiled in a court fight over a confidentiality agreement with Z-Trim. * Plant manager Brad Gulledge works at the Z-Trim factory in Mundelein. The fat substitute is made from cereal brans.

Source Citation
JARGON, JULIE. "HALPERN'S FOOD FIGHT; Suit against George Foreman's firm is the latest skirmish in Z-Trim CEO's four-year battle to market fat substitute." Crain's Chicago Business 26 June 2006: 3. General OneFile. Web. 22 June 2010.
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