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 October 29, 2010 SYMBOL COMPANY INVESTOR ARCI Appliance Recycling Centers of America Norman Pessin ATSC ATS Corporation Osmium Capital BITS Bitstream Inc. Columbia Pacific Capital CORE Core-Mark Holding Company MMI Investments DUCK Duckwall-ALCO Stores Strongbow Capital FMMH.PK Fremont Michigan Insuracorp Biglari Holdings RTYFZ.PK Realty Finance Corp Beck Street Capital 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 10

3 Appliance Recycling Centers of America Inc. (ARCI) Activist Investor: Norman Pessin Shares 492,851 % Outstanding 8.9% Cost Basis Share Price M 21M Enterprise Value 30M Net Cash -10M 3M 52 wk. range EV/ Negative Norman Pessin recently increased his active ownership in ARCI from 6.3% to 8.9%. We previously covered ARCI in our March 12, 2010 Catalyst Research Report, highlighting Pessin s initial 6.3% active ownership position. ATS Corporation (ATSC) Activist Investor: Osmium Special Situations Fund Shares 4,734,980 % Outstanding 21.01% Cost Basis Share Price M 69M Enterprise Value 87M Net Cash -18M 12M 52 wk. range EV/ 7.1 Osmium has recently increased their ownership in ATSC from 18% to 21% and announced plans to contact members of the board or management to discuss shareholder matters. We previously covered ATSC in our February 5, 2010 Catalyst Research Report, highlighting Osmium s three director nominees for election to the board at the 2010 annual meeting. In a letter to the Company, Osmium requested the Company appoint two of these three individuals to the board. On March 26, ATSC expanded the board from seven to nine members and added one Osmium candidate along with one other individual for election at the 2010 annual meeting. At the time, we highlighted that Osmium believed ATSC s market capitalization (approx. $58M in February) did not accurately reflect the underlying value of the Company s U.S. federal service business, industry-leading margins and prospective contract opportunities. N.B.: The ATSC Board is currently comprised of eight members. The Company promoted a new CEO on Oct, 11; the former CEO continues as Chairman. Continue to Next Page Page 3 of 10

4 Bitstream Inc. (BITS) Activist Investor: Columbia Pacific Opportunity Fund Shares 1,577,927 % Outstanding 15.7% Cost Basis Share Price M 70M Enterprise Value 66M Net Cash 4M 0.35M 52 wk. range EV/ Columbia Pacific continues to increase their ownership in BITS. They now own 15.7%. We previously covered BITS in our September 24, September 21, May 7, April 23, March 12, 2010 and September 11, 2009 Catalyst Research Reports, highlighting Raging Capital s (8.5% shareholder at an average cost of $5.71) change in their filing status with the SEC from passive owner to active owner. On February Raging Capital nominated three individuals to the board. On March 12 NV North American announced their intention to propose a candidate for appointment or election to BITS s board. In addition, NV indicated their support for greater shareholder representation on the board. On April 20 Columbia Pacific changed their filing status with the SEC from passive investor to active investor. On April 27 BITS entered into a settlement agreement with Raging Capital. Under the terms of the agreement BITS agreed to increase the size of the board from 6 to 8 members and appointed two individuals recommended by Raging Capital to the board. On May 7, 2010 HFS issued a Special Report on Activist Investing in Small & Microcap Companies (subscription-only) which featured BITS as one of four compelling small cap activist investment situations. If you are interested, contact us for a complimentary copy of this Report. dpark@hedgerelations.com. On August 18 Columbia Pacific sent a letter to BITS s board of directors requesting they form a non-executive committee for the purpose of exploring a potential sale. On the same day NV North American Opportunity Fund (12% shareholder) sent a letter to the board supporting Columbia s request. NV further stated their belief that BITS s current structure is too complex for public markets to ascertain the value of attractive underlying business units, and premiums paid in recently announced transactions suggest acquirers are willing to pay fair prices for quality assets. In September we highlighted that Columbia Pacific had increased their ownership from 13.2% to 14.5% since sending the August 18 letter. Legal counsel to Raging Capital Core-Mark Holding Company (CORE) Activist Investor: MMI Investments Shares 840,500 % Outstanding 7.8% Cost Basis Share Price B 352M Enterprise Value 348M Net Cash 8M 58M 52 wk. range EV/ 6.01 MMI has increased their ownership in CORE from 6.6% to 7.8% since filing an active ownership position in September. We previously covered CORE in our September 24 Catalyst Research Report when MMI disclosed a 6.6% active ownership stake and announced they may engage in discussions with the Board regarding strategic alternatives. We estimate 17%+ of CORE s shares are held by activist investors. Legal counsel to MMI Investors Page 4 of 10

5 Duckwall-ALCO Stores (DUCK) Activist Investor: Strongbow Capital Shares 543,517 % Outstanding 14.2% Cost Basis Share Price M 48M Enterprise Value 87M Net Cash -36M 9M 52 wk. range EV/ 9.8 On October 29 Strongbow announced they are considering a series of transactions in which all the DUCK shares owned by them would be distributed to their investors. The distribution is expected to occur before the end of We previously covered DUCK in numerous Catalyst Research Reports (most recently on March 7, 2008 when the stock was trading around $13.08/sh), highlighting Strongbow s request that the Company s chairman be replaced. In addition, Strongbow expressed their dissatisfaction with the company s three-year turnaround efforts and requested that DUCK (i) expand the size of the Board by one member and appoint an individual recommended by them and (ii) create an executive committee of the board charged with overseeing efforts by management to reduce cost. On February 19, 2008 Strongbow formally announced their intention to nominate a slate of directors to replace certain board members at the 2008 annual meeting. On March 7, 2008 Strongbow Capital and DUCK entered into a settlement agreement in order to avoid a proxy contest. In the settlement, DUCK agreed to replace two directors with two individuals recommended by Strongbow. Fremont Michigan InsuraCorp, Inc. (FMMH.OB) Activist Investor: Biglari Holdings Shares 172,500 % Outstanding 9.8% Cost Basis Share Price M 48M Enterprise Value 36M Net Cash 12M 8M 52 wk. range EV/ 4.81 On October 26 Biglari nominated one individual for election to the board at the next annual meeting. We previously covered FMMH in our October 22, October 15, May 7, and April ; December 25, October 30, June 12 and March Catalyst Research Reports, highlighting the activist efforts of Loeb Partners (9.0% shareholder), Biglari Holdings (9.9% at an avg. cost of $20.53) and Harry Long (est. 2.5% shareholder). On December 21 Biglari Holdings (Ticker BH; formerly Steak & Shake) sent a letter to the board proposing to acquire 100% of the Company s shares for $24.50 per share for a consideration of (1) cash, (2) stock of BH, or (3) a combination of cash and stock. In the letter Biglari stated that he wanted all members of the management team to remain in place other than the CEO. On December 23 the board of FMMH rejected the offer stating that the execution of the Company s current strategic plan represents a better long-term value for shareholders. On April 16 Harry Long commented on a piece of legislation (at the time a Bill was making its way through the Michigan State Senate) that focused on protecting certain companies (i.e. Fremont and other insurance companies) from a takeover by requiring a supermajority vote of 2/3rds outstanding shares to elect directors not backed by a majority of the board. According to an article cited by Long, the Bill was written at the request of Fremont. On April 30 Biglari issued a press release to inform shareholders how the board used shareholders money to lobby the Michigan legislature to pass a law that will require the votes of 66.67% of all outstanding stock to elect two or more directors not nominated by the existing board. On October 11 Biglari sent a letter to the board proposing to acquire the Company for $29/share in cash. On October 18 Loeb Capital disclosed a 9% ownership and sent a letter to the board asking them to initiate a process to maximize shareholder value, including selling the Company to the highest bidder. Legal counsel to Biglari Holdings Page 5 of 10

6 Realty Finance Corp. (RTYFZ.PK) Activist Investor: Beck Street Capital Shares 2,910,182 % Outstanding 9.44% Cost Basis Share Price M Enterprise Value 960M Net Cash -979M 52 wk. range EV/ On October 19 (Realty Finance was trading at $0.03/sh) Beck Street Capital issued a press release announcing a 9.4% ownership position. Beck Street said they have met with management to express their concerns over the direction of the business and proposed several initiatives designed to reduce overhead, position the Company for growth, and improve shareholder value. These proposals include reorganizing the board of directors and creating a new entity, managed by Beck Street. On October 26 Realty Finance announced a deal with JAS Investment Corp to be purchased for $0.11/share. On October 28 Beck Street announced they have issued a proposal for the restructuring of Realty Finance which includes an immediate cash distribution to shareholder estimated at $0.07/sh; or for those shareholders who are seeking liquidity, a stock buyback of $0.14/sh for up to 50% of the shares outstanding. Page 6 of 10

7 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 PLATINUM SPONSORS Legal Advisers Page 7 of 10

8 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. 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. Marc Weingarten, Partner marc.weingarten@srz.com Tel: Page 8 of 10

9 PLATINUM SPONSORS Proxy Advisors 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. Paul Schulman, Executive Managing Director pschulman@altmangroup.com Tel: 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. Rachel Posner, Senior Managing Director and General Counsel rposner@georgeson.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. 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. Mark Harnett, President mharnett@mackenziepartners.com Tel: Page 9 of 10

10 GOLD SPONSORS Laurel Hill Advisory Group is a full service, cross-border proxy solicitation firm whose partners and associates are highly recognized in the areas of corporate governance, shareholder activism, and mergers & acquisitions. Laurel Hill was founded in late 2007 by a team of experienced professionals who have worked on over a hundred proxy fights and deals in the U.S. and Canada in the past two years. We are the fastest growing proxy firm in North America providing expertise in corporate governance consulting, shareholder identification, corporate actions (tender offers, consent solicitations), strategic proxy solicitation advisory services, and shareholder asset recovery programs. Tom Cronin, Partner tcronin@laurelhillag.com Tel: SSG Capital Advisors, LLC ( SSG ) is a nationally recognized independent investment bank that assists public companies, as well as their stakeholders in providing strategic alternatives analysis including sales and acquisitions, optimizing capital structures, evaluating dividends and share buyback programs, business unit divestitures, monetization of intellectual property, preservation of NOL s, PIPEs, and strategic investments such as joint ventures. As a specialist in maximizing shareholder value we offer the expertise our clients need in today's complex and ever changing financial markets. Since 2001, SSG has successfully completed over 160 investment banking assignments on behalf of clients throughout North America and Europe. Mark Chesen, Managing Director mchesen@ssgca.com Tel: Page 10 of 10