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 February 13, 2009 SYMBOL COMPANY INVESTOR ABVA Alliance Bankshares Corp Frank Williams ATML Atmel Corp. Microchip Technology Inc. AVCA Advocat Inc. Bristol Investment Fund BWC.TO Bridgewater Systems Crescendo Partners CBNJ Cape Bancorp Inc Patriot Financial CHE Chemed Corp MMI Investors DIN DineEquity Inc MSD Capital DPS Dr. Pepper Snapple Group Trian Fund ENZN Enzon Pharmaceuticals David Barlow MIM MI Developments Greenlight Capital MIPI Molecular Insight Pharma David Barlow MSPD Mindspeed Technologies AIGH Investment Partners PRSC Providence Service Corp Investment (Avalon Correctional) RLH Red Lion Hotels Corp Columbia Pacific Opportunity SNG Canadian Superior Energy Palo Alto Investors TEAM TechTeam Global Emancipation Capital TEAM TechTeam Global Costa Brava TUTR Plato Learning Stephen Becker The Official Activist Investing Blog The Activist Blog & Tacklers Insights Provided By Contributing Experts From Around The Globe HEDGE FUND SOLUTIONS is a Philadelphia-based strategy consulting, public relations and investor communications firm focused on shareholder activism. We have an unparalleled depth of knowledge on the subject matter and are the trusted advisor to numerous CEOs, board members and institutional investors worldwide. Page 2 of 12

3 Alliance Bankshares (ABVA) Activist Investor: Frank Williams Shares 105,243 % Outstanding 2.06% Share Price M 10M 13M Net Cash -2M N/A 52 wk. range EV/ N/A On February 10 Frank Williams announced that the Board of Directors of ABVA should (i) aggressively reduce operating expenses through a reduction of infrastructure and personnel costs and (ii) replace certain executive officers and members of the Board. We previously covered ABVA in our January 16 Catalyst Research Report, highlighting John Edgemond s (7.3% ownership) plans to speak with the Board about the Company s strategic options, including the possible merger, sale or consolidation of the Company, or the sale of all or substantially all of the Company s assets for the purpose of enhancing long term shareholder value. In addition, Edgemond disclosed that he may propose for inclusion in the Company s proxy materials an advisory vote for review of the Company s strategic options. Atmel Corp. (ATML) Activist Investor: Microchip Technology Inc. Shares % Outstanding Share Price B 1.7B 1.4B Net Cash 300M 196M 52 wk. range EV/ 7.0 On February 10 Microchip Technology announced they were ending their bid to acquire ATML and withdrew their Director nominees for election to the Board at the 2009 annual meeting. On October 1, 2008 Microchip Technology and ON Semiconductor offered to purchase ATML for $5.00/share in cash. After ATML s board determined the offer was inadequate they reduced the trigger on their poison pill from 20% to 10%. On November 18 ON Semiconductor withdrew from the joint acquisition proposal and, as a result, Microchip announced they would have to completely withdraw the offer. Later, Microchip announced they would seek to elect a slate of seven directors to the board at the Company s 2009 annual meeting. Advocat Inc. (AVCA) Activist Investor: Bristol Investment Fund Shares 378,020 % Outstanding 6.67% Share Price M 15M 38M Net Cash -23M 18M 52 wk. range EV/ 2.1 On February 13 Bristol disclosed that the reason they had withdrawn their director nominees for the Board last May was due to the fact that AVCA agreed to include their shareholder proposals in the Company s definitive proxy. Since that time Bristol has increased their ownership by 83,186 shares (equivalent to 1.54% of AVCA shares outstanding) and reserved their right to call a special meeting or nominate directors for election at the next annual meeting. We previously covered AVCA in numerous Catalyst Research Reports (most recently on May 9), highlighting Bristol s offer to buy the Company in July 2006 for $16.80/share. On February 4 th 2008 Bristol sent a letter to AVCA requesting (i) the full board be elected annually (ii) the appointment of two institutional shareholders to the board (iii) AVCA present a binding resolution to shareholders to vote on whether to redeem the poison pill (iv) the company decline to renew any and all golden parachutes, (v) the company revise the current Board's compensation and (vi) the company hire a credible investment bank to review alternatives, including an immediate stock buyback and the elimination of acquisitions. On April 2 Bristol nominated two directors and on May 6 they withdrew their nominees. Page 3 of 12

4 Bridgewater Systems (BWC.TO) Activist Investor: Crescendo Partners Shares 2,918,333 % Outstanding 12.7% On February 12 BWC announced they had received a notice from Crescendo that the activist hedge fund intends to replace five of eight board members at the Company. Share Price 3.80 C$ 44M 87M 37M Net Cash 50M 4M 52 wk. range EV/ 9.25 Cape Bancorp (CBNJ) Activist Investor: Patriot Financial Shares 876,205 % Outstanding 6.6% 9.28 On February 9 CBNJ entered into a settlement agreement with Patriot Financial. Under the terms of the agreement CBNJ agreed to nominate one individual from Patriot to the board through 2011, or for as long as Patriot holds 4.9% of the Company s stock. Share Price M 106M 294M Net Cash -188M N/A 52 wk. range EV/ N/A Chemed Corp (CHE) Activist Investor: MMI Investors Shares 800,000 % Outstanding 3.6% Share Price B 931M 1.1B Net Cash -210M 154M 52 wk. range EV/ 7.4 On February 12 MMI issued a press release calling on CHE to pursue a tax-free spin-off of one of its two businesses, Roto-Rooter. In the release, MMI suggested the spin-off could lead to potential value creation of 40% - 70%. MMI was successful in pressing Brinks Corp (BCO) to spin-off their Home Security unit last year and has recently suggested Unisys (UIS) examine spinning off their government services division. Page 4 of 12

5 DineEquity Inc. (DIN) Activist Investor: MSD Capital Shares 2,512,356 % Outstanding 14.38% Share Price B 133M 2.5B Net Cash -2.4B 343M 52 wk. range EV/ 7.3 On February 5 one individual from MSD Capital (Michael Dell s investment firm) joined the board of DIN. In a SEC filing on February 9, MSD announced their intention to have continued discussions with management and the board regarding debt repayment, changes in the Company s capitalization and dividend policy, disposition of owned restaurants, composition of senior management, including the hiring of a new Chief Financial Officer, and the composition of the board of directors. We previously covered DIN in our December 5 and September 19 Catalyst Research Reports, highlighting MSD Capital s and Southeastern Asset Management s (18.4% ownership at a cost of $19.98/share) change in SEC filing status from passive investor to active investor. DIN owns the Applebees and IHOP restaurant franchises having purchased Applebees in November 2007 after Breeden Capital won board representation there through a proxy contest. Since that time, DIN s stock has dropped from $65/share to its current level. Dr. Pepper Snapple Group, Inc. (DPS) Activist Investor: Trian Fund Shares 7,401,678 % Outstanding 2.92% Share Price B 4.2B 7.6B Net Cash -3.4B 1.1B 52 wk. range EV/ 6.7 On February 10 DPS announced the appointment of one new director supported by Trian. We previously covered DPS in our December 19 Catalyst Research Report, highlighting Trian s announcement that they own 7.4M shares of DPS along with 10.8M cash-settled swaps, giving them an economic exposure to about 7.18% of DPS shares outstanding. On the same day, Trian announced they are extremely disappointed with the Company's performance since their spin off from Cadbury Group earlier this year. Trian believes DPS is undervalued because Wall Street views the business as a bottling company and not a branded beverage company that owns a number of great brands. Some of which include: 7UP, A&W, Canada Dry, Dr Pepper, Nantucket Nectars, Snapple and Yoo-hoo. Enzon Pharmaceuticals Inc. (ENZN) Activist Investor: DellaCamera Capital Management Shares 3,446,558 % Outstanding 7.6% 7.46 Share Price M 315M 454M Net Cash -139M 25M 52 wk. range EV/ 18.1 On February 9 DellaCamera sent a letter to ENZN calling upon them: (i) to avail itself of new and independent voices on its Board by immediately adding two former ImClone board members to its Board; (ii) to hold the 2009 annual meeting in New York City; and (iii) to seek guidance from a new financial advisor. We previously covered ENZN in our January 30, 2009, October 10, July 4, May 23, May 2 and March Catalyst Research Reports, highlighting Carl Icahn s 7.83% ownership in ENZN and his public request that they explore strategic alternatives. We also highlighted DellaCamera s repeated request for the business to be sold and their demand for the removal of three board members on the compensation committee. On July 1 st DellaCamera demanded they take actions to increase stockholder value, including (i) engaging Goldman Sachs to review strategic alternatives, (ii) authorize a $150M share repurchase and implement an $80M repurchase immediately, (iii) monetize $70M of the company s royalty streams, and (iv) explore a split-off of the biotechnology subsidiary. DellaCamera believes ENZN s biotechnology division is worth $300M. On January 7, Della Camera nominated two people to ENZN s board. Page 5 of 12

6 MI Developments (MIM) Activist Investor: Greenlight Capital Shares 5,387,535 % Outstanding 11.7% Share Price M 346M 783M Net Cash -437M 142M 52 wk. range EV/ 5.5 On February 9 Greenlight sent a letter to the board of MIM opposing the use of the Company s cash to fund certain business development projects at Magna Entertainment (MEC). Both MIM and MEC are controlled by Frank Stronach. We previously covered MIM in our November 7, October 17, August 29, April 18 and March 7 Catalyst Research Reports highlighting Greenlight s proposals that MIM (i) increase the company s debt to capital ratio, (ii) increase the dividend payments, and (iii) increase the number of shares repurchased. On April 14 Hotchkis & Wiley (11.5% shareholder) sent a letter to the special committee of the independent board members strongly opposing the proposed debt restructuring deal between MIM and MEC. On August 25 Farallon Capital (8.5% Class A shareholder) sent a letter to the Company urging the Board to resume work on a reorganization proposal that would be capable of receiving widespread shareholder support. In particular, the letter stated Farallon s belief in the importance of the Company presenting to shareholders a transaction that will: (i) offer a realistic way to align interests by eliminating the Company s dual-class voting structure; (ii) implement best-in-class corporate governance arrangements; and (iii) enable the Company to reestablish its business relationship with Magna International. On October 17 Farallon sent another letter opposing the Company s loan extension to MEC. In the letter Farallon stated the board was pursuing a valuedestruction investment in the loan and should instead be investing in an accretive share repurchase program. Farallon continued to voice their disapproval of Stronach s ownership entanglement with both businesses. On November 4 Greenlight sent a letter to MIM demanding the board examine alternative bridge financing loans to Magna Entertainment Corp (MEC). Greenlight also questioned the independence of two newly appointed directors who both seem to have a relationship with Frank Stronach. Molecular Insight Pharmaceuticals, Inc. (MIPI) Activist Investor: David Barlow Shares 2,735,447 % Outstanding 10.9% 1.82 Share Price M 68M 112M Net Cash -44M -70M 52 wk. range EV/ Negative On February 10 Barlow sent a letter to Chairman of MIPI expressing his concern over the board s choice of hiring a new CEO who lacks a proven track record of building significant and sustainable value for patients and shareholders. We previously covered MIPI in our January 30 Catalyst Research Report, highlighting a letter from Barlow (the Company s former CEO until Sept and a Director until Jan 6, 2009) to MIPI expressing his grave concern over the mismanagement of the business and investor relations process which have led to a 61.1% reduction in shareholder value since September On Jan 30 MIPI announced several changes to the management and the Board of Directors, and adopted a poison pill with a 20% trigger. [Go To Next Page] Page 6 of 12

7 Mindspeed Technologies Inc. (MSPD) Activist Investor: AIGH Investment Partners Shares 1,200,000 % Outstanding 5.0% Share Price M 21M 26M Net Cash -5M 15M 52 wk. range EV/ 1.8 On February 11 AIHG announced they have become increasingly dissatisfied with the Company's performance which they attribute to mismanagement by the current Board and Officers of the Company. As a result, AIHG announced they are soliciting other shareholders to vote against three proposal up for shareholder approval this year, including: (i) increase of long-term incentive shares, (ii) increase of Directors stock plan, and (iii) a stock option exchange program. Providence Service Corp. (PRSC) Activist Investor: Investments (Avalon Correctional Services) Shares 2,293,895 % Outstanding 18.6% 1.34 Share Price M 47M 249M Net Cash -232M 44M 52 wk. range EV/ 5.6 On February Investments (acting through Avalon Correctional Services (CITY.PK) and as the Providence Committee for Accountability) filed a preliminary consent soliciting statement seeking nine changes to PRSC s bylaws, including: (i) fill board vacancies either by a stockholder vote or by the affirmative vote of 75% of the directors then in office, (ii) reimburse stockholders that nominate successful director candidates, (iii) elect directors by majority vote in uncontested elections, (iv) allow stockholders with 25% or more of the outstanding shares to call special meetings, (v) limit the chair s ability to adjourn a stockholders meeting when a quorum is present, (vi) eliminate advance notice provisions for director nominees or stockholder business, (vii) eliminate pre-textual questionnaires and agreements for director nominees, (viii) remove the board s control over the record date in consent solicitations, and (ix) require the affirmative vote of 75% of the directors then in office to approve changes to stockholder adopted or amended bylaws unless approved by the stockholders. We previously covered PRSC in our January 23 Catalyst Research Report, highlighting s January 21 letter demanding to inspect certain books and records of the Company, including a stockholder list. Red Lion Hotels Corp (RLH) Activist Investor: Columbia Pacific Opportunity Fund Shares 2,339,308 % Outstanding 12.8% On February 10 Columbia sent a letter to RLH expressing their disappointment in the Board s decision to adopt a poison pill. Columbia, who has previously expressed an interest in acquiring RLH, demanded the Board remove the pill and begin the process of liquidation or sale of the Company to return value to shareholders in the timeliest manner possible. Share Price M 48M 167M Net Cash -120M 31M 52 wk. range EV/ 5.5 Page 7 of 12

8 Canadian Superior Energy (SNG) Activist Investor: Palo Alto Investors Shares 15,752,500 % Outstanding 9.3% 2.05 Share Price M 85M 106M Net Cash -20M 22M 52 wk. range EV/ 4.8 On February 12 Palo Alto sent a letter to SNG (and issued a press release) questioning the Company s decision to monetize certain assets and demanded the Company organize a shareholders call to discuss the transaction. In addition, Palo Alto reiterated a previous request for the Company to add new directors with significant oil & gas experience. We previously covered SNG in our November 7 and October 10 Catalyst Research Reports, highlighting Steelhead Partners (13% shareholder) letter to the Board raising questions about the approval of a bridge financing facility for Challenger Energy Corp. and certain conflicts of interest believed to exist because the Chairman of SNG has a sizable interest in Challenger Energy Corp. and serves as its Chairman. On November 5 Palo Alto sent a letter to SNG requesting a number of corporate governance improvements including reconstituting the board of directors to include new independent directors. TechTeam Global (TEAM) Activist Investor: Emancipation Capital Shares 737,035 % Outstanding 6.17% 8.51 Share Price M 47M 69M Net Cash -22M 21M 52 wk. range EV/ 3.2 On February 6 Costa Brava (see TEAM/Costa Brava below) sent a letter to TEAM requesting that the board s nominating committee consider five candidates for election to the Company s board. On February 11 TEAM expanded the board and appointed three of Costa Brava s nominees (which included one individual associated with Emancipation Capital) to the board of directors. We previously covered TEAM in our October 31 Catalyst Research Report, highlighting Emancipation Capital s announcement that they had communicated to several members of the Company s management and Board of Directors ways to maximize shareholder value. Specifically, Emancipation indicated that they strongly believe TEAM should sell its Government Technology Services business segment and use the proceeds of the sale to retire indebtedness and repurchase up to 50% of the outstanding shares at a premium via a dutch auction. TechTeam Global (TEAM) Activist Investor: Costa Brava Shares 1,319,274 % Outstanding 12.1% Share Price M 47M 69M Net Cash -22M 21M 52 wk. range EV/ 3.2 On February 6 Costa Brava sent a letter to TEAM requesting that the board s nominating committee consider five candidates for election to the Company s board. On February 11 TEAM expanded the board and appointed three of Costa Brava s nominees (which included one individual associated with Emancipation Capital) to the board of directors. See comments related to TEAM/Emancipation Capital above. Page 8 of 12

9 Plato Learning (TUTR) Activist Investor: Stephen Becker Shares 4,119,523 % Outstanding 17.1% 1.59 Share Price M 36M 16M Net Cash 20M 5M 52 wk. range EV/ 2.9 Becker has increased his ownership in TUTR by 1,568,700 shares (equivalent to 6.5% of TUTR shares outstanding) since mid-january. We previously covered TUTR in our January 16 Catalyst Research Report, highlighting Becker s January 16 announcement that he intends to engage the management and board of directors of the Company in constructive discussions with a goal to improve the Company's business and operations, and enhance shareholder value. In addition, Becker announced he may recommend corporate governance improvements and request board representation. Page 9 of 12

10 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. Page 10 of 12

11 PLATINUM SPONSORS Georgeson Inc. is the world s leading provider of strategic proxy and corporate governance advisory services to corporations and shareholder groups working to influence corporate strategy. For over half a century, Georgeson has specialized in complex solicitations such as hostile and friendly acquisitions, proxy contests and takeover defenses. For eight consecutive years, Georgeson has been ranked the No. 1 proxy solicitor for M&A transactions in the US. Georgeson s experts include former corporate secretaries who have worked toward successful outcomes with activist investors, former directors of US research at RiskMetrics, M&A attorneys, and the most experienced proxy solicitation team in the industry. Contact: Rachel Posner, Senior Managing Director and General Counsel rposner@georgeson.com Tel: Olshan Grundman Frome Rosenzweig & 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 450 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: RealMoney, the paid subscription service for TheStreet.com, provides insights, analysis and detailed investment recommendations from top investment professionals, all in real time. Damien Park, The CEO of Hedge Fund Solutions, is 1 of 45 of Wall Street's best investment professionals that provide RealMoney subscribers with a running commentary on actionable investment ideas throughout each trading day. Mr. Park, an expert on activist investing, focuses exclusively on providing current market commentary on these investments. Page 11 of 12

12 GOLD SPONSORS Lowenstein Sandler is a nationally recognized corporate law firm with offices in Boston, New York, Palo Alto and Roseland, with more than 270 attorneys providing a full range of legal services. The firm s commitment to its clients is demonstrated through its client-centered, service-oriented culture. Lowenstein Sandler attorneys are regularly recognized for excellence by clients and peers in national publications, including Best Lawyers in America, Chambers USA: America s Leading Lawyers for Business and The Legal 500. The attorneys in our Investment Management and Corporate practices represent more than 200 domestic and offshore hedge funds, private equity funds, venture capital funds and other pooled investment vehicles, with assets under management ranging from $50 million to more than $30 billion. Our clients also include fund managers, investment advisers, administrators, broker-dealers and institutional investors. Contact: Jeffrey Shapiro, Partner jshapiro@lowenstein.com Tel: NachmanHaysBrownstein, Inc. (NHB) is a leading turnaround and crisis management firm specializing in complex and challenging operational, organizational and financial issues affecting public and privately-held companies worldwide. For the past fourteen consecutive years, NHB has been listed as one of the "Top Turnaround Firms" in Turnarounds & Workouts. NHB introduces leading hedge funds and private equity sponsors to proprietary investment opportunities, while providing them with the management resources to quickly drive performance results at portfolio companies. The Firm s seasoned managers have a broad range of expertise in corporate governance, operational and financial due diligence, Six Sigma quality control, lean manufacturing techniques, process systems and controls, and information systems management. When appropriate and necessary, NHB s leadership team will act as interim CEO, COO, CFO and CRO and/or join a Company s Board of Directors. NHB also provides investment banking services, including refinancing, recapitalizations and business divestiture. In addition, the firm has extensive expertise in all aspects of bankruptcy and non-bankruptcy alternatives such as winddowns and orderly liquidations. Contact: Howard Brod Brownstein, Principal hbrownstein@nhbteam.com Tel: x225 The Altman Group is a full service proxy solicitation firm whose senior professionals have over 250 years of industry experience. We have developed one of the most experienced proxy fight teams in the industry, having been retained in 46 contested solicitations over the past 3 years alone and our 80% win record is unequaled. We were presented with the 2008 TOPS Award recognizing the firm with the highest rated proxy solicitation practice (the third consecutive win for us). We provide strategic consulting, shareholder identification, institutional and proxy advisory firm insight and advanced proxy solicitation services. Contact: Paul Schulman, Executive Managing Director pschulman@altmangroup.com Tel: For Sponsorship Information Contact Damien Park at or dpark@hedgerelations.com Page 12 of 12