CATALYST EQUITY RESEARCH REPORT Weekly Research Highlighting Activist Investments

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1 Weekly Research Highlighting Activist Investments Subscribe to receive this FREE Report ed weekly.

2 HIGHLIGHTING ACTIVIST INVESTMENTS Week Ending August 23, 2013 SYMBOL COMPANY INVESTOR ASI American Safety Insurance Catalina Holdings BKS Barnes & Noble Leonard Riggio BSP American Strategic Income II Bulldog Investors EQU Equal Energy Ltd Lawndale Capital FES Forbes Energy Services Steel Partners GCOM Globecomm Systems Oliver Press Partners MSCI MSCI Inc. ValueAct ODP Office Depot Starboard Value PACR Pacer International Becker Drapkin SMCG Millennium India Aquisition Hudson Bay; Fir Tree; Sanlam SMTX SMTC Corp Wynnefield Corp TSSI TSS, Inc. Norman Pessin WTSL Wet Seal, Inc. Clinton Group HEDGE FUND SOLUTIONS (HFS) provides investment research, strategy and stakeholder communications consulting to companies and investors interested in, or involved with, shareholder activist campaigns. Since 2001 HFS has become the trusted advisor to numerous institutional investors, CEOs and board members worldwide. HFS also administers The Official Activist Investing Blog, the definitive source for activist shareholder information. Catalyst Investment Research is a portfolio of activist investing research products that combine company-specific shareholder activism research with deep value investment analysis and access to industry insiders. HEDGE FUND SOLUTIONS PORTFOLIO OF ACTIVIST INVESTING RESEARCH INCLUDES: Daily Alerts Weekly Summary of Activist Investments Quarterly Buying Analysis of Top 50 Activist Investors Company-Specific Shareholder Activism Analysis (combining shareholder activism & deep value company analysis) Special Reports on Activist Investing 400+ Page Shareholder Activism Report & Regularly Updated Shareholder Activism Resource Portal To Learn More: Download a brochure Page 2 of 14

3 American Safety Insurance Holdings, Ltd (ASI) Activist Investor: Catalina Holdings Shares 548,390 Catalyst: % Outstanding 5.7% Catalina withdrew its buyout proposal and agreed to purchase American Safety Reinsurance, Ltd from Fairfax after Fairfax purchases ASI. Share Price M 291M Enterprise Value 203M Net Cash -88M 59M 52 wk. range EV/ 3.49 We initially covered ASI on March 5 when Catalina disclosed a 5.6% active ownership stake. Catalina currently owns 5.7% at an average cost of 19.92/share On July 29 Catalina offered to purchase ASI for $29.75/share in cash. On August 6 Catalina sent a letter confirming its offer price of $29.75/share as superior to FairFax Financial's $29.25/share offer. On August 8 FairFax Financial increased its buyout offer from $29.25 to $30.25 and correspondingly increased the breakup fee from $9.1M to 13.4M On August 14 Catalina increased its offer to $30.75/share with a $9.186 million break-up fee. Proxy Solicitor to American Safety Insurance Barnes & Noble, Inc. (BKS) Activist Investor: Leonard Riggio Shares % Outstanding 22,633, % Catalyst: Riggio announced he has suspended his efforts to make an offer for BKS's retail business. Share Price B We previously covered BKS in our February 17, 2012 Catalyst Research Report, highlighting G Asset Management s 5.0% active ownership stake and its letter to the board reiterating their belief that the Company should spin-off the Nook business in order to create substantial value for shareholders. In their analysis, G Asset Management suggested BKS could be worth $71/share if the company is sold in pieces. 846M Enterprise Value 750M Net Cash 73M 17M 52 wk. range EV/ 44.8 A copy of G Asset Management s letter to the BKS board is available here: At that time, G Asset Management s ownership consists of 41,575 shares of common stock and 2,978,600 shares subject to options exercisable within 60 days. On February 25 Riggio notified the Board he plans to propose to purchase all of the assets of BKS s retail business, including B&N Booksellers and barnesandnoble.com and would exclude the NOOK Media LLC (comprising the digital and College businesses). Continue to Next Page Page 3 of 14

4 American Strategic Income Portfolio II (BSP) Activist Investor: Bulldog Investors Shares % Outstanding 895, % Catalyst: Bulldog submitted a shareholder proposal (14a-8 proposal) seeking a periodic self-tender offer at close to NAV On July 26 Bulldog disclosed a 5.6% active stake in BSP Share Price 8.04 Enterprise Value Net Cash 52 wk. range EV/ BSP is currently trading at a % discount to its Net Asset Value. Equal Energy Ltd. (EQU) Activist Investor: Lawndale Capital Shares 1,500,000 Catalyst: % Outstanding 4.6% EQU rejected Montclair Energy's increased bid of $4.75; Lawndale agrees with the board's decision. Share Price M 171M Enterprise Value 190M Net Cash -22M 29M 52 wk. range EV/ 8.8 We previously covered EQU in our March 29, February 1, 2013; December 14, 2012 Catalyst Research Report, highlighting Nawar Alsaadi s (5.0% shareholder at $3.28/share) letter to EQU s Chairman criticizing the board s oversight while shareholder value has declined by 93% since In the letter Alsaadi demanded EQU (i) immediately halt the company s pursuit of so-called accretive acquisitions and excessive capital spending, and focus instead on returning cash to shareholders, (ii) the initiation of a substantial Dutch auction tender offer at a price range of $3.50 to $4.50, (iii) a material increase in the amount of the announced annual dividend, (iv) the introduction of shareholder representatives on the board of directors, (v) the resumption of the strategic review process to further explore alternatives to enhance shareholder value, which includes the possibility of restructuring into a Canadian FAIT. On February 1, 2013 we reported that after further deliberation and communication with EQU and other shareholders, Alsaadi decided not to run a proxy contest to replace directors at this year s annual meeting. On March 25 Montclair Energy proposed to purchase EQU for $4/share. On the same day EQU announced it has formed a special committee of the board and hired advisors to help evaluate the offer. On April 2 Lawndale sent a letter to the EQU board demanding they fully examine a sale and add 1 Lawndalerecommended individual to the board. On August 14 Montclair Energy increased its offer to purchase EQU from $4 to $4.75. A copy of Montclair s revised proposal is available here: Continue to Next Page Page 4 of 14

5 Forbes Energy Services Ltd (FES) Activist Investor: Steel Excel (Steel Partners) Shares 3,539,689 Catalyst: % Outstanding 16.6% Steel increased "active" ownership from 14.3% to 16.6% 3.61 Share Price 4.99 We initially covered FES on March 15, 2013 when Steel disclosed a 12.8% active stake at an average cost of $3.48/share. 427M On May 28 Steel increased its active stake in FES from 12.8% to 14.3%. 110M Enterprise Value 378M Net Cash -271M 69M 52 wk. range Legal counsel to Steel Excel EV/ 5.5 Continue to Next Page Page 5 of 14

6 Globecomm Systems Inc. (GCOM) Activist Investor: Oliver Press Partners Shares % Outstanding 1,100, % Catalyst: GCOM announced it is being acquired by Wasserstein & Co. for $14.15/share in cash Share Price M 330M We previously covered GCOM in several Catalyst Research Reports initially highlighting Discovery Capital increase in active ownership from 5.3% to 6.9% since late July 2012 (Discovery reduced its ownership to 5.9% in late December). We also highlighted Discovery s October 9 letter to the board recommending they immediately engage an investment bank to solicit offers from multiple parties that Discovery believe are interested in acquiring the company. Enterprise Value 285M Net Cash 55M 34M 52 wk. range EV/ 8.50 On October 16 Emancipation Capital disclosed a 5.0% active stake (avg. cost of $11.47/sh) and stated that they should re-engage investment bankers and prepare the company for sale. In addition, Emancipation suggested GCOM add at least one shareholder representative to the board. On October 25 JMB Capital disclosed a 6% active stake (avg. cost of $10.28/share) and announced their support for Discovery Capital and Emancipation Capital s call for the company to re-engage an investment bank to examine a sale of the business. In addition, JMB said they will oppose the re-election of directors and the stock option plan at the upcoming annual meeting. On November 8 Emancipation Capital announced plans to vote their shares against the Company s proposed stock incentive plan at the 11/15 annual meeting because the Proposal, as it currently stands, includes a compensation plan for Directors that Emancipation is strongly against. On January 3 JMB Capital sent a letter to the Board (i) highlighting that several directors had more withhold votes than for votes (see below) at the Nov 15, 2012 annual meeting, and (ii) strongly urged the board to consider options to maximize shareholder value, including reengaging an investment banker to pursue a sale of the company. Director Shares Shares Broker For Withheld Non-Votes Richard E. Caruso 8,832,891 9,263,380 3,579,974 Keith A. Hall 13,887,565 4,208,706 3,579,974 David E. Hershberg 14,603,823 3,492,448 3,579,974 Harry L. Hutcherson, Jr. 8,992,802 9,103,469 3,579,974 Brian T. Maloney 8,615,493 9,480,778 3,579,974 Jack A. Shaw 8,912,314 9,183,957 3,579,974 A. Robert Towbin 9,180,637 8,915,634 3,579,974 C.J. Waylan 8,835,892 9,260,379 3,579,974 On August 15 OPP nominated 8 directors for election to the board. A copy of OPP s press release is available here: Legal counsel to Oliver Press Proxy Solicitor to Globecomm Systems Page 6 of 14

7 MSCI Inc. (MSCI) Activist Investor: ValueAct Capital Shares 7,394,017 Catalyst: % Outstanding 6.1% ValueAct increased its "active" stake in MSCI, Inc. (the parent company to ISS) from 5.0% to 6.1% On November 28, 2012 ValueAct disclosed a 5.0% active ownership stake in MSCI. Share Price M 4.7B Enterprise Value 5.1B Net Cash -484M 448M 52 wk. range EV/ 11.5 Continue to Next Page Page 7 of 14

8 Office Depot, Inc. (ODP) Activist Investor: Starboard Value Shares 42,278,000 Catalyst: % Outstanding 14.6% On August 14 ODP and Starboard entered into a settlement agreement. 3 Starboard nominees will join an expanded board and 2 current directors agreed to resign. Share Price B 1.2B Enterprise Value 1.4B Net Cash -178M 244M 52 wk. range EV/ 5.7 A copy of the settlement agreement is available here: We previously covered ODP in several Catalyst Research Reports, initially highlighting Starboard s September 17, 2012 letter to ODP s Chairman stating that they strongly believe the company s shares are deeply undervalued. On October 12 we reported that Starboard had increased its active ownership stake from 13.3% to 14.8% since sending a letter to the Chairman on September 17. On November 16 Starboard sent a letter to ODP criticizing them for adopting a poison pill takeover defense. In the letter Starboard stated that the pill was designed to effectively cap our ownership at our current position and limit the voting ability of shareholders, while protecting the status quo. On November 27 Starboard disclosed it has retained Joseph Vassalluzzo (former Vice Chairman of Staples) and Bob Nardelli (former CEO of Home Depot) as advisors to its investment in ODP. On January 24 ODP announced management has had conversations with Starboard and, as a result, is extending the deadline for nominating directors to the board to the close of business on February 25, On February 20 ODP announced a merger of equals with Office Max (OMX). On February 27 Starboard sent a letter to the ODP board recommending they obtain consent from OfficeMax under its merger agreement to immediately explore a sale of the Company s JV interest for $690.5 million to Grupo Gigante S.A.B. On March 18 Starboard issued a press release announcing it has nominated 6 individuals for election to ODP s board. On April 22 Starboard sent a letter to the board commencing a consent solicitation to elect new directors. On June 12 Starboard filed a complaint requesting the Delaware Chancery Court compel ODP to hold its 2013 annual meeting. On June 17 ODP announced its annual meeting will take place on August 21 (with a July 11 record date). The special meeting to vote on the proposed merger between ODP and OfficeMax was July 10. Starboard filed its definitive proxy materials to elect 4 directors at the August 21 annual meeting. On August 2 Starboard issued a whitepaper titled, "Transforming Office Depot A Plan For Renewal And Reinvigoration". Starboard also issued a shareholder presentation. Starboard issued a press release stating that ISS and Glass Lewis recommend ODP shareholders vote to elect 3 of Starboard's nominees. On August 13 Office Depot said it will appoint the 3 Starboard nominees recommended by ISS and GL to an expanded board if the 2 current directors managing the CEO Selection Committee are re-elected. On August 14 Starboard commented on ODP's settlement offer saying it is not in the best interest of shareholders. Legal counsel to Starboard Value Proxy Solicitor to Office Depot Page 8 of 14

9 Pacer International (PACR) Activist Investor: Becker Drapkin Shares 2,906,593 Catalyst: % Outstanding 8.2% Becker Drapkin increased its active stake in PACR from 6.8% to 8.2% On May 6 Becker Drapkin disclosed a 6.8% active stake in PACR Share Price B 225M Enterprise Value 191M Net Cash 27M 20M 52 wk. range EV/ 9.5 Millennium India Acquisition Company (SMCG) Activist Investor: Hudson Bay; Fir Tree; Sanlam International Shares 2,904,982 Catalyst: % Outstanding 35.30% Hudson Bay filed a preliminary consent solicitation and proxy statement seeking to elect a new board of directors. Share Price M 6.6M Enterprise Value 5.9M Net Cash 0.8M N/A 52 wk. range EV/ N/A A copy of the preliminary consent solicitation and proxy statement is available here: SMTC Corp (SMTX) Activist Investor: Wynnefield Partners Shares % Outstanding 860, % 2.36 Catalyst: On August 20 Wynnefield disclosed it has added 1 individual to the SMTX board Share Price M We initially covered SMTX in our April Catalyst Research Reports, highlighting Red Oak s change in filing status from passive to active. Red oak owns 15.92% at an average cost of $1.84/share. On March and March Red Oak sent two letters to SMTX stating shareholder value could be maximized through the sale of the company. 31M Enterprise Value 53M Net Cash -22M 6M 52 wk. range EV/ 9.4 On June 4, 2010 SMTX and Red Oak entered into a settlement agreement. Under the terms of the agreement SMTX added two individuals recommended by Red Oak to a board that will not exceed seven members. On June 8, 2010 SMTC adopted a tax preservation poison pill with a 4.9% threshold in order to protect the company s approximately $100M in US federal NOLs On January 5, 2012 SMTX entered into an Agreement with Red Oak limiting Red Oak s voting ability regarding the approval of a transaction in which Red Oak is part of the buying group. On May 24 Wynnefield Partners disclosed a 5.3% active stake in SMTX. Page 9 of 14

10 TSS, Inc. (TSSI) Activist Investor: Norman Pessin Shares % Outstanding 1,735, % Catalyst: Pessin increased his active ownership in TSSI from 8.8% to 12.10% On October 2, 2012 Pessin increased his "active" ownership from 6.2% to 8.8%. Share Price M 11M Enterprise Value 10M Net Cash 1M -0.7M 52 wk. range EV/ Negative Legal counsel to Norman Pessin Continue to Next Page Page 10 of 14

11 Wet Seal Inc. (WTSL) Activist Investor: Clinton Group Shares % Outstanding 6,963, % $3.48 Catalyst: Clinton continues to encourage the board to accelerate its buyback program. Share Price M We initially covered WTSL in our August 3, 2012 Catalyst Research Report, highlighting Clinton s letters to WTSLA s board of directors stating that they intend to solicit written consents from other shareholders to remove board members and replace them with new directors unless the Company can justify why they are not examining a complete strategic review of the business with the aid of an investment banker. 334M Enterprise Value 231M Net Cash 112M -19M 52 wk. range EV/ Negative On August 22, 2012 Clinton issued a press release announcing the five director nominees they plan to elect to the WTSLA board by way of written consent. On August 30 Clinton disclosed that they have increased their ownership stake from 4.71% to 6.49% and announced they have filed a preliminary consent statement with the SEC to elect five new members to the company s 6-member board. On September 5 Clinton sent a letter to the board of WTSLA stating that there is a misalignment between the board s compensation and the creation of shareholder value. On September 13 Clinton Group sent a letter to the board of WTSL requesting their board nominees be provided equal access to strategic and operational information during the consent solicitation period. Clinton states that this will help to enable a smooth transition to a new board. On September 18 Wet Seal proposed a settlement to end Clinton Group s consent solicitation. Clinton rejected the offer. On September 20 Wet Seal added two additional directors to their board, reduced overall director compensation and removed the poison pill. On September 25 proxy vote advisor ISS recommended a vote for the removal of 2 incumbent directors and for the election of 2 Clinton nominees. On September 28 proxy vote advisor Glass Lewis recommended a vote for the removal of 4 incumbents and for the addition of 4 Clinton nominees. On October 4 Wet Seal entered into a Settlement Agreement with Clinton. Under the terms of the Agreement Clinton replaced 4 of the Company s 7 directors. On October 22 Clinton disclosed they have had discussions with WTSL s new Chairman and another board member about hiring a new CEO and returning excess cash to shareholders as quickly as possible. In particular, Clinton believes a $50-75M buyback or self-tender would be appropriate. On January 7 WTSL announced the hiring of a new CEO. On February 13, 2013 Clinton sent a letter to the Board suggesting the Company implement a Dutch Auction to return as much as $35 to $55 million in capital this quarter In-Depth Activist Research & Webcast on WTSL Hedge Fund Solutions issued several in-depth research reports on this situation (Activist coverage initiated Aug. 15; Activist Updates/Research Notes Aug. 28, Sept. 21, Oct. 2 and Oct. 5). For a copy of this research contact dpark@hedgerelations.com or On August 23 Hedge Fund Solutions and APB Financial Group hosted a 30 minute webcast with Greg Taxin, head of activist investments for Clinton Group, to discuss their investment thesis in WTSL. For a link to the webcast replay contact Brian Luster at APB Financial Group bluster@abbygroup.com or Legal counsel to Clinton Group Proxy Solicitor to Wet Seal Page 11 of 14

12 CONTACT INFORMATION: Hedge Fund Solutions, LLC Damien J. Park Tel FREE Subscription to the weekly report: or The Catalyst Equity Research Report is a general circulation weekly. Hedge Fund Solutions and/or its affiliates (the Firm ) may have a consulting relationship with the companies featured in this report (the Companies ). The Firm may also actively trade in the securities of the Companies for its own account. At any time, the Firm, funds it manages and/or its employees or their family members may have a long or short position in registered or non-registered securities or in options on any such security of any company mentioned in this report. The information contained in this report is not a complete analysis of every material fact with respect to the company, industry, or security and is not an offer or solicitation to buy or sell any security. Although opinions and estimates expressed in this report reflect the current judgment of the Firm, the information upon which such opinions and estimates are based is not necessarily updated on a regular basis. In addition, opinions are subject to change without notice. The Firm from time to time may perform consulting services for companies mentioned in this report and may occasionally possess material, nonpublic information regarding such companies. This information is not used in the preparation of this report. Facts and other information contained in this report have been obtained from the public sources considered reliable but are not guaranteed in any way. Hedge Fund Solutions Portfolio of Activist Investing Products Catalyst Investment Research Daily: Alerts Weekly: Catalyst Equity Research Report Quarterly Buying Analysis Top 50 Activist Investors Specific Activist Target Catalyst Investment Research Special Reports Shareholder Activism Report & Resource Portal Download a Brochure Page 12 of 14

13 PLATINUM SPONSORS Broker-Dealer APB Financial Group is a Special Situations Brokerage Firm tailored to investors seeking fundamental value and catalyst-driven activist investments. Contact: Steven Abernathy, Principal sabernathy@abbygroup.com Tel: PLATINUM SPONSORS Legal Advisers Olshan Frome Wolosky LLP is a law firm dedicated to providing personal service tailored to the specific requirements and concerns of the firm s clients. Olshan is widely recognized as a preeminent law firm in the activist strategy area, and represents experienced activist investors, funds new to the activist area, as well as other investment and hedge funds. Olshan has extensive experience advising clients in a wide range of activist strategies, from private negotiations with management to public, high profile proxy contests, including expertly and efficiently handling litigation relating to activist matters. We also specialize in mergers and acquisitions and hostile takeovers, with extensive expertise in these matters. Olshan s highly regarded attorneys provide a full range of legal services and are uniquely positioned to provide expert advice regarding the complicated and nuanced legal issues facing activist investors today. Contact: Steve Wolosky, Partner swolosky@olshanlaw.com Tel: Schulte Roth and Zabel LLP, one of the leading law firms in the activist investing area, has been involved in some of the highest-profile campaigns facing the business world in recent years. Serving both activist-only and occasional activists, the firm advises on federal securities law, state corporate law, Hart-Scott-Rodino, proxy rules and related matters, as well as handling investigations and litigations arising out of clients' activist activity. The firm, with over 375 lawyers in offices in New York, Washington, D.C., and London, has a long history of serving private equity and hedge fund clients. Contact: Marc Weingarten, Partner marc.weingarten@srz.com Tel: David Rosewater, Partner david.rosewater@srz.com Tel: Page 13 of 14

14 PLATINUM SPONSORS Proxy Advisors Alliance Advisors LLC is a multi-faceted shareholder communications firm specializing in proxy solicitation, corporate governance consulting, and information agent services. Our in-depth view of the investor communities and governance environment allows us to prepare for successful outcomes. Alliance Advisors fight team has built a distinguished reputation by successfully completing countless contested assignments. The team will complete a comprehensive analysis of the shareholder base and build a calculated battle plan accordingly. We will assist in the crafting and delivery of your message to the target audience, ensuring the message is heard and understood. Alliance Advisors consistently delivers successful outcomes to our clients. Contact: Peter Casey, Executive Vice President pcasey@allianceadvisorsllc.com Tel: Innisfree M&A Incorporated is a full service proxy solicitation/investor relations firm providing clients with sound tactical and strategic advice and results-oriented implementation in proxy and consent solicitations (whether friendly or contested), tender and exchange offers, mergers, rights offerings, strategic restructurings and other domestic and cross-border transactions requiring action by public security-holders. We provide expert consulting services on a wide range of matters, including executive compensation proposals, corporate governance issues and investor relations. Innisfree s reputation derives from our success in complex and/or contested situations. Key to that success is our ability to track, identify and understand the shifting dynamics of a company s security-holder base and provide battle-tested advice based on that information. We are convinced, and our unrivaled record demonstrates, that this refined, analytical based approach enables us to deliver the extraordinary results our clients expect. Contact: Arthur Crozier, Co-Chairman acrozier@innisfreema.com Tel: MacKenzie Partners, Inc. is a full-service proxy solicitation, investor relations and corporate governance consulting firm specializing in mergers-and-acquisitions related transactions. The firm has offices in New York City, Los Angeles, Palo Alto and London. MacKenzie's services include corporate governance consulting, security holder solicitations, information agent services for tender and exchange offers, beneficial ownership identification, market surveillance and associated financial, investor and media relations services. We work in close partnership with our client's attorneys, investment bankers and other consultants, providing advice and counsel at each stage of the transaction. Contact: Mark Harnett, President mharnett@mackenziepartners.com Tel: Page 14 of 14