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 19, 2011 SYMBOL COMPANY INVESTOR AFCB Athens Bancshares Corp PL Capital CBNJ Cape Bancorp Inc. Sy Jacobs CLX Clorox Corporation Carl Icahn CSII Cardiovascular Systems Discovery Capital DSPG DSP Group Starboard Value EXTR Extreme Networks, Inc. Starboard Value FSFG First Savings Financial Group FJ Capital Long/Short Equity GNET Global Traffic Network, Inc. Harvest Capital Strategies IDSA Industrial Services of America David Russell IRL New Ireland Fund Bulldog Investors JCP JC Penney Company Pershing Square KTOS Kratos Defense & Security MMI Investors MENT Mentor Graphics Corp Casablanca Capital MRVC.PK MRV Communications Raging Capital NABI NABI Biopharmaceuticals 683 Capital Management RGEN Repligen Corp Ronald Chez STRI STR Holdings Red Mountain Capital TII Tii Network Technologies Norman Pessin UTL Unitil Corp Anita Zucker VRSN VeriSign Inc. ValueAct Capital (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. 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 15

3 Athens Bancshares Corp (AFCB) Activist Investor: PL Capital Shares 150,737 Catalyst: % Outstanding 5.4% On August 15 PL Capital disclosed a 5.4% active ownership position in AFCB and stated that the bank is currently trading at 65% of its tangible book value per share. As a result, PL suggested AFCB aggressively pursue a stock repurchase. Share Price M 30M 27M 3M 52 wk. range EV/ Cape Bancorp (CBNJ) Activist Investor: Sy Jacobs Shares % Outstanding 1,122, % 8.99 Catalyst: On August 16 Sy Jacobs sent a letter to the board of CBNJ expressing their disappointment with the book value of CBNJ and the lack of capital deployed in both accretive loan growth and share buybacks. Furthermore, Jacobs suggested the board undertake a sale process for the Company as soon as possible. Share Price M 104M 206M -132M 52 wk. range EV/ We previously covered CBNJ in our February 13, 2009 Catalyst Research Report, highlighting CBNJ s settlement agreement with Patriot Financial (6.6% shareholder at an avg. cost of $9.28). 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. Clorox Co. (CLX) Activist Investor: Carl Icahn Shares 12,500,000 Catalyst: % Outstanding 9.80% On August 18 Icahn nominated eleven individuals to CLX s board for election at the next annual meeting. Not Avail Share Price B 8.6B 10.9B -2.3B 1.1B 52 wk. range EV/ 9.9 We previously covered CLX in our July 22, July 15 and February 11, 2011 Catalyst Research Reports, highlighting Icahn s 9.08% ownership stake (ownership included 11,500,000 call/put options that expire ) and disclosure that he supports the Company s plan to buy back between ten and eleven million shares. On July 14 Icahn sent a letter to the Chairman and CEO of CLX proposing to acquire the Company for $76.50/share net in cash. On July 20 Icahn raised his offer to acquire CLX from $76.50/share to $80.00 per share. For additional information see our blog post on this investment: On July 18 CLX adopted a poison pill with a 10% trigger. Page 3 of 15

4 Cardiovascular Systems Inc. (CSII) Activist Investor: Discovery Capital Shares 986,525 Catalyst: % Outstanding 6.0% On August 17 Discovery disclosed a 6.0% active ownership stake in CSII Share Price M 201M 192M 9M -8M 52 wk. range EV/ Negative DSP Group (DSPG) Activist Investor: Starboard Value (formerly Ramius Group) Shares 1,408,700 Catalyst: % Outstanding 6.0% 7.96 Share Price M 153M 88M 65M -2M 52 wk. range EV/ Negative Starboard increased their ownership in DSPG from 6% to 9.1% over the past month. On August 22 Starboard sent a letter to the Company expressing its belief that the Shares are deeply undervalued and that significant opportunities exist to improve shareholder value based on management and the Board s taking certain actions in accordance with the recommendations set forth in the letter. Starboard also expressed its belief that the core issue facing DSPG is excessive spending in pursuit of non-core growth initiatives that have failed to produce expected revenue growth and that have, in turn, severely impacted profitability. In the letter, Starboard urged DSPG to immediately reduce spending on non-core growth initiatives in order to significantly improve profitability as well as hire a reputable investment bank to explore strategic alternatives to maximize value for shareholders. Finally, Starboard stated its discontent with the Board s decision to implement a Poison Pill with an unreasonably low 10% threshold and called on the Board to redeem the Poison Pill as a matter of good corporate governance. We previously covered DSPG in our June 24 Catalyst Research Report, highlighting Starboard s 6.0% active ownership stake. A copy of Starboard s August 22 letter is available here: Legal counsel to Starboard Value Continue to Next Page Page 4 of 15

5 Extreme Networks, Inc. (EXTR) Activist Investor: Starboard Capital (formerly Ramius Group) Shares % Outstanding 9,115, % 3.00 Catalyst: On August 10 EXTR s Nominating and Governance committee postponed the deadline to nominate directors to the board from August 15 until October 3, Starboard announced that they are continuing to evaluate whether to seek board representation and urged the board to take immediate steps to maximize shareholder value. Share Price M 289M 194M 95M 17M 52 wk. range EV/ 1129 We previously covered EXTR in our June 17, May 27, April 22, 2011; October 15, July 23 and March Catalyst Research Reports, highlighting Starboard s initial 5.8% active ownership position in the Company. On July Ramius nominated two individuals for election to the board. In addition, Starboard submitted a shareholder proposal asking shareholder to request that the board take the necessary steps to declassify so that all directors are elected annually. On October 15 EXTR entered into a settlement agreement with Starboard. Under the terms of the agreement EXTR agreed to increase the size of their board to nine members and add one individual from Starboard to the board. On June 17 we highlighted that Starboard increased their ownership from 6.4% to 9.9% since obtaining board representation in October Legal counsel to Starboard Capital First Savings Financial Group (FSFG) Activist Investor: FJ Capital Long/Short Equity Fund Shares 159,285 Catalyst: % Outstanding 6.73% FJ Capital has increased their active ownership stake in FSFG from 5.6% to 6.7% since January Not Avail Share Price We previously covered FSFG in our January 7, 2011; January 9 and January 2, 2009 Catalyst Research Reports, highlighting activist investor Joseph Stilwell s rapid increase in ownership in late At that time, Stilwell owned 8.3% of FSFG at an average cost of $9.29/share. Stilwell currently owns less than 1% of FSFG. 22M 34M We also highlighted FJ Capital s 5.62% active ownership position in January M -60M 52 wk. range EV/ Continue to Next Page Page 5 of 15

6 Global Traffic Network, Inc. (GNET) Activist Investor: Harvest Capital Strategies Shares 1,575,000 Catalyst: % Outstanding 8.3% On August 17 Harvest Capital sent a letter to GNET opposing the August 3 announced sale of the Company for $14.00/share. Harvest believes GNET is worth at least $16.10/share. Share Price M 254M 212M 42M 18M 52 wk. range EV/ 11.6 A copy of Harvest Capital s August 17 letter is available here: Industrial Services of America (IDSA) Activist Investor: David Russell Shares 375,524 Catalyst: % Outstanding 5.4% On August 18 David Russell disclosed a 5.4% active stake in IDSA and stated that he hopes to work with Not Avail management and the board to increase shareholder value and raise the company's visibility with prospective investors. Also, Russell said he will encourage certain members of the board to make a more significant investment in the Company's shares with personal funds in order to align their interests more directly with the interests of shareholders. Share Price M 46M 86M -40M 16M 52 wk. range EV/ 5.3 New Ireland Fund (IRL) Activist Investor: Bulldog Investors Shares 690,759 Catalyst: % Outstanding 10.55% Bulldog has increased their ownership in IRL from 10.55% to 11.69% since mid-july. Not Avail Share Price 7.06 We previously covered IRL in our July 15 Catalyst Research Report, highlighting Bulldog s increased ownership from 6.31% to 10.55% since announcing on May 31 that they are concerned about the Fund s persistent discount to Net Asset Value. 2M 47M As of August 22, 2011 IRL was trading at a % discount to NAV. 45M 2M 52 wk. range EV/ Page 6 of 15

7 J.C. Penney Co. (JCP) Activist Investor: Pershing Square Capital Total Shares % Outstanding 62,475, % Not Avail Catalyst: On August 19 JCP entered into an agreement with Pershing Square enabling them to increase their ownership above the poison pill threshold through synthetic long positions to as much as 26.1% of JCP s outstanding stock. Share Price B 5B 7B -1.6B 1.4B 52 wk. range EV/ 5.0 We previously covered JCP in our January 28, 2011 and October 8, 2010 Catalyst Research Reports, highlighting Pershing Square s 16.5% active ownership position. On the same day, Vornado Realty Trust disclosed an 11.9% active ownership position. On January JCP announced several operational initiatives aimed at maximizing long-term growth and profitability. In addition, JCP announced they will nominate Bill Ackman from Pershing Square and Steve Roth from Vornado Realty to their board. The board also announced they will appoint an additional director in the near future. Kratos Defense & Security Solutions (KTOS) Activist Investor: MMI Investments Shares % Outstanding 2,978, % Catalyst: MMI continues to increase their ownership in KTOS. They now own 8.6% and have disclosed their belief that the company is undervalued and will unlikely change while they remain an independent public company. As a result, MMI says they may engage with the board about examining strategic alternatives. Share Price M 265M 435M -174M 31M 52 wk. range EV/ 14.1 We previously covered KTOS in our February 18, 2011 and April 16, 2010 Catalyst Research Reports, highlighting an announcement on April 15 from Charles Tomas (5.6% shareholder) stating his belief that KTOS should not be a publicly traded company due to the sensitive nature of its business from a national security point of view. He also said he has attempted on multiple occasions to engage with management to discuss this concern, without success. On April Tomas advised an employee of KTOS that he intended to make a tender offer to purchase the company on or before May 10, On February 7 KTOS announced plans to buy Herley Industries (HRLY) for $19.00 per share in cash ($270M). See our February 11, 2011 Catalyst Research on the activist investments at HRLY. On February , MMI disclosed a 7.7% active ownership stake in KTOS. Legal counsel to MMI Investments Continue to Next Page Page 7 of 15

8 Mentor Graphics Corp. (MENT) Activist Investor: Casablanca Capital Shares 7,154,819 Catalyst: % Outstanding 6.4% Casablanca has increased their active ownership in MENT from 5.5% to 6.4% since early July Share Price M 1.1B 1.2B -100M 162M 52 wk. range EV/ 7.4 We previously covered MENT in our April 29, April 1, March 11, February 25, February 11, February 4, 2011; June 25, June 11 and May Catalyst Research Reports, highlighting Carl Icahn s May announcement that he owns 6.86% (Icahn currently owns 14.7%). At that time Icahn announced he intended to hold conversations with MENT s management to discuss maximization of shareholder value. On February we highlighted that Casablanca Capital disclosed a 5.5% active ownership. (See additional comments below) On February 4 MENT announced that it would hold its 2011 annual meeting on May 12 (March 11 record date), which is six weeks earlier than last year, leaving shareholders only 10 days to nominate directors. Carl Icahn On February 11 Icahn nominated three people to MENT s board. On February 9 Icahn said MENT should put itself up for sale. On February 22 Icahn offered to purchase MENT for $17 per share in cash. On March 31 Icahn sent a letter demanding that the Company immediately make public the terms of the recent convertible debt offering. In particular, Icahn wants to know what will happen if the Company is sold. Casablanca Capital On February 7 Casablanca sent the board of MENT a letter in response to the Company s announcement that they have moved forward the annual meeting by six weeks. On February 11, Casablanca nominated three people to MENT s board. On March 10 Casablanca withdrew their nominees and announced their support for Carl Icahn s three nominees. On March 31 Casablanca sent a letter to the board of MENT objecting to the board s rejection of Carl Icahn s $17 per share offer and its commencement of a private placement of $220 million of convertible debt. On April 25 Casablanca Capital sent a letter to MENT (i) stating their support for Carl Icahn s director nominees at the May 12 annual meeting, and (ii) highlighting several of their continuing concerns about the Company. Legal counsel to Casablanca Capital Continue to Next Page Page 8 of 15

9 MRV Communications Inc. (MRVC.PK) Activist Investor: Raging Capital Shares % Outstanding Share Price 9,075, % $ M 205M Catalyst: On August 16 Raging Capital sent a letter to the board of MRV expressing its extreme displeasure with the company s failure to address concerns raised by other shareholders. In the letter Raging Capital requested that the Company make every effort to avoid a proxy contest with other shareholders and suggested they do the following: (i) agree to install a smaller and more focused Board that has meaningful and broad shareholder representation, (ii) pay a meaningful cash dividend to shareholders of no less than $120 million, (iii) take the steps necessary to divest at least one of its remaining business units and use the proceeds to pay another meaningful dividend to shareholders, (iv) take the steps necessary to have its shares relisted on Nasdaq, and (v) regularly hold quarterly earnings calls. 58M 147M 18M 52 wk. range EV/ 3.2 A copy of Raging Capital August 16 letter is available here: We previously covered MRVC in our August 12, July 22 and July 1, 2011; and August 21, 2009 Catalyst Research Reports, highlighting Boston Avenue Capital s and Spencer Capital s (calling themselves the Value Investors for Change ) attempt to replace the entire nine-member board at the 2009 annual meeting. In November 2010 Value Investors for Change and MRV reached a settlement agreement. Under the terms of the agreement MRV expanded the board from 9 to 10 members and added three individuals recommended by the activist group. On June 18, 2011 Boston Avenue Capital (1.1% shareholder and board member) demanded MRV pay a $120 million cash dividend to shareholders. On June 30 Karen Singer and Lloyd Miller, who collectively own 4.4% of MRVC, sent a letter to the board expressing their support for Boston Avenue Capital s recent demand that the Company pay a special cash dividend of $120M (~0.94/share). On July 21 Raging Capital disclosed a 5.02% active ownership stake at an average cost of $1.41/share. On August 11 Boston Avenue and Spencer Capital amended their group filing and added T2 Management and Prescott Capital as members. The new group now owns 8.6% of MRVC shares outstanding. In addition, the investment group announced plans to (i) seek a special meeting to reduce the number of directors from eight to five and (ii) elect five directors. The five directors to be nominated are three current directors: Charles Gillman (Boston Ave), Kenneth Shubin Stein (Spencer Capital; current chairman of MRVC), and Igal Shidlovsky. The investment group says they intend to nominate a fourth and fifth director (as of yet undetermined persons). In addition, the investment group says they currently plan to propose the Company return cash to its stockholders out of its cash reserve of approximately $120 million. Legal counsel to Raging Capital Continue to Next Page Page 9 of 15

10 NABI Biopharmaceuticals Activist Investor: 683 Capital Partners Shares % Outstanding 2,332, % Not Avail Catalyst: On August 16 th 683 Capital Partners disclosed a 5.4% active ownership position in NABI and sent a letter to the board stating that the company has a strong history of doing the right things for shareholders since In the letter, 683 Capital stated that the company should make a statement explicitly ruling out an acquisition as a possible route to maximizing shareholder value and instead, explore distributing cash to shareholders via a dividend or implement a share repurchase. 683 Capital also suggested Nabi examine a sale. Share Price M 75M -27M 100M -5M 52 wk. range EV/ We previously covered NABI in numerous Catalyst Research Reports in 2007 and We highlighted activist investor Chapman Capital s request that the Company license technology, sell a subsidiary, and use the proceeds to issue a special dividend to shareholders. We also covered activist investor Third Point s proxy contest to remove and replace board members at the 2007 annual meeting. On January 31, 2008 DellaCamera Management (DCM) sent a letter to the company supporting their recent decision to explore strategic alternatives. In the letter DCM called upon the Board to consider additional methods to return capital to shareholders, including the payment of a special dividend and/or the initiation of a substantial Dutch tender, should the outcome of the strategic process result in a transaction that is neither a sale nor a merger. Repligen Corp. (RGEN) Activist Investor: Ronald Chez Shares % Outstanding 2,656, % Not Avail Catalyst: On August 15 Ronald Chez sent a letter to the board of RGEN requesting (i) the adoption of a stock ownership program applicable to directors and officers, (ii) rescission of the poison pill, and (iii) retention of a qualified investment banker to advise with respect to an analysis of the most productive use of corporate assets and enhancement of shareholder value Share Price M 101M 58M 44M 0.25M 52 wk. range EV/ We previously covered RGEN in our June 24, 2011 Catalyst Research Report, highlighting Chez s 8.1% active ownership stake and the fact that he has held discussions with members of the board with respect to their attempts to enhance shareholder value. Continue to Next Page Page 10 of 15

11 STR Holdings (STRI) Activist Investor: Red Mountain Capital Shares 2,597,011 Catalyst: % Outstanding 6.3% On August 15 Red Mountain disclosed a 6.3% active ownership stake in STRI Share Price M 450M 585M -142M 108M 52 wk. range EV/ 5.4 Tii Network Technologies, Inc. (TIII) Activist Investor: Norman Pessin Shares 783,766 Catalyst: % Outstanding 5.7%% Norman Pessin has increased his ownership in TIII from 3.9% to 5.7% since March 1.26 Share Price 2.09 We previously covered TIII in our March 18 Catalyst Research Report, highlighting Pessin s March % active ownership position. 65M 28M 29M -2M 7M Legal counsel to Norman Pessin 52 wk. range EV/ 4.2 Unitil Corp. (UTL) Activist Investor: Anita Zucker Shares 553,500 Catalyst: % Outstanding 5.1% On August 23 Anita Zucker disclosed a 5.1% active ownership stake in UTL Share Price M 276M 609M -333M 68M 52 wk. range EV/ 8.9 Page 11 of 15

12 VeriSign Inc. (VRSN) Activist Investor: ValueAct Capital Shares 8,821,469 Catalyst: % Outstanding 5.3% On August 17 ValueAct disclosed a 5.3% active ownership stake in VRSN. Not Avail Share Price M 5B 4B -806M 349M 52 wk. range EV/ 11.4 Page 12 of 15

13 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 13 of 15

14 PLATINUM SPONSORS Legal Advisers 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: Page 14 of 15

15 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: 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: 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 15 of 15