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 30, 2013 SYMBOL COMPANY INVESTOR ADK AdCare Health Systems, Inc. Park City Capital AVAV AeroVironment, Inc. Engaged Capital BABB BAB, Inc. JCP Investments BID Sotheby s Third Point JCP J.C. Penney Perry Capital MGPI MGP Ingredients The Cray Group NUAN Nuance Communications Carl Icahn PENX Penford Corporation Seacor Holdings SPW SPX Corporation Relational Investors TSPT Transcept Pharmaceuticals SC Fundamental Value Fund TSRA Tessera Technologies Starboard Value (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 10

3 AdCare Health Systems Inc (ADK) Activist Investor: Park City Capital Shares % Outstanding Cost Basis 750, % 4.13 Catalyst: On August 26 Park City sent a follow up letter to ADK after meeting with the Chairman. In this letter Park City introduces a REIT conversion scenario which suggests the REIT worth $5.28/sh + $0.28 annual dividend and the operating company worth $6.43/sh. Share Price M 65M Enterprise Value 219M -153M 7M 52 wk. range EV/ 30.7 A copy of Park City s August 26 letter is available at the bottom of this SEC filing: We initially covered ADK on April 4 when Park City Capital disclosed a 5.1% active ownership stake in announced it was holding discussions with existing board members about board representation. On July 16 Park City sent a letter to the Chairman of ADK with a sum-of-the-parts analysis suggesting the stock should be trading around $13/share (currently $4). Park City also requested a board seat. A copy of Park City s letter is available here: AeroVironment, Inc. (AVAV) Activist Investor: Engaged Capital Shares 1,153,101 Catalyst: % Outstanding 5.1% On August 27 Engaged sent a letter to the board stating they "are committed to take any and all actions Cost Basis necessary in order to unlock shareholder value". Share Price M 499M Enterprise Value 361M 129M 9M 52 wk. range EV/ 39.5 A copy of Engaged s letter is available here: We initially covered AVAV on July 17 when Engaged Capital disclosed a 5.1% "active" stake, nominated 1 individuals to the board, and stated the stock price does not reflect (i) the potential for significant earnings and cash flow growth from the core Unmanned Aircraft Systems business as Defense spending normalizes, (ii) the value of AVAV s cash, short- and long-term investments, which was $217.5 million as of April 30, 2013, representing approximately 47% of the market capitalization as of July 16, 2013, and (iii) the advantaged position in pursuing multiple growth opportunities in the fast growing UAS market. Proxy Solicitor to AVAV Legal counsel to Engaged Capital Page 3 of 10

4 BAB, Inc. (BABB) Activist Investor: JCP Investments Shares 783,320 Catalyst: % Outstanding 10.8% JCP increased its active stake in BABB from 9.2% to 10.8%. Cost Basis 0.71 Share Price 0.80 We previously covered BABB on May 9 and April 25 highlighting JCP s initial 5.8% active stake and subsequent increase in ownership to 8.2% 3M On May 30 JCP increased its active stake in BABB from 8.2% to 9.2%. 6M Enterprise Value 5M 1M 0.3M Legal counsel to JCP Investments 52 wk. range EV/ 22.5 Sotheby s (BID) Activist Investor: Third Point Shares 3,952,000 Catalyst: % Outstanding 5.7% On August 26 Third Point disclosed a 5.7% "active" stake in BID. Cost Basis Share Price We initially covered BID on July 30 when Marcato disclosed a 6.6% active stake in the form of stock and options. Marcato currently owns 6.68%, consisting of stock and 1.2M options (approx.. 2% of BID) at a $45 strike price through Oct M 3.2B Enterprise Value 3.0B 181M 218M 52 wk. range EV/ 13.7 J.C. Penney Co. (JCP) Activist Investor: Perry Capital Total Shares 19,000,000 Catalyst: % Outstanding 8.62% Perry Capital increased its "active" stake from 7.3% to 8.62% Cost Basis Share Price B 2.8B Enterprise Value 7.0B -4.28B -1.36B 52 wk. range EV/ Negative We initially covered JCP in October 8, 2010 Catalyst Research Reports, highlighting Pershing Square s initial 16.5% active ownership position and Vornado Realty Trust s 11.9% active ownership position. On January 24, 2011 JCP announced they will nominate Bill Ackman and Steve Roth from Vornado Realty to their board. The board also announced they will appoint an additional director in the near future. On April 25, 2013 Soros disclosed a 7.91% passive ownership stake in JCP. On August 9, 2013 Perry Capital disclosed a 7.3% "active" stake ($15.10 cost basis) and sent a letter to the board expressing its lack of confidence in the company, urging them to improve the financial and operational management of the company. On August 12 Bill Ackman from Pershing Square resigned from the board and entered into a settlement which included 2 new directors. Pershing subsequently announced it was selling its entire stake in JCP. Page 4 of 10

5 MGP Ingredients (MGPI) Activist Investor: The Cray Group Shares 4,940,101 Catalyst: % Outstanding 27.5% On August 27 The Cray Group issued a press release responding to the Company's postponement of the annual Cost Basis Not Avail meeting. Share Price M 86M Enterprise Value 121M -30M 15M 52 wk. range EV/ 8.3 A copy of the letter is available here: We initially covered MGPI on June 13 when The Cray Group filed proxy materials seeking to elect 3 directors to the board at the Company s 2013 annual meeting. On August 1 The Cray Group issued a presentation it gave to ISS. On August 6 The Cray Group sent a letter to shareholders outlining the reasons why they should vote for its 3 nominees. On August 9 The Cray Group sent a letter to shareholders addressing the Company's recent allegations against the shareholders, the recently amended employment agreements, and company performance On August 19 The Cray Group announced ISS supports 1 of its nominees for election to the board; MGP announced Glass Lewis recommends supporting the company's nominees. On August 22 MGPI announced it was postponing its annual meeting (for up to 60 days). Nuance Communications, Inc. (NUAN) Activist Investor: Carl Icahn Shares 52,437,750 Catalyst: % Outstanding 16.90% Icahn increased his "active" stake in NUAN to 16.9% and announced he may seek board representation. Cost Basis Share Price B 6.0B Enterprise Value 7.2B -1.5B 345M 52 wk. range EV/ 20.8 Page 5 of 10

6 Penford Corp. (PENX) Activist Investor: Seacor Holdings Shares 1,186,600 Catalyst: % Outstanding 9.55% PENX expanded its board from ten to eleven directors and added one individual from Seacor. Cost Basis Not Avail Share Price M 174M Enterprise Value 252M -84M 25M 52 wk. range EV/ 10.2 SPX Corp. (SPW) Activist Investor: Relational Investors Shares 6,898,535 Catalyst: % Outstanding 15.22% Relational increased its "active" stake in SPW from 13.65% to 15.22%. Cost Basis Share Price B 3.4B Enterprise Value 4.7B -1.4B 455M 52 wk. range EV/ 10.3 We previously covered SPW in our March 1, 2013 Catalyst Research Report, highlighting Relational s 8.76% active stake and its opinion that the shares are undervalued. Relational believes that despite the Company s attractive business mix, total shareholder returns and profitability have lagged peers due primarily to excessive prices paid for acquisitions. Toward this end, Relational suggests: increasing operating profit margins to levels achieved by comparable peer businesses, accelerating divestment of non-core underperforming assets around the Company s Flow business, establishing rigorous capital allocation disciplines and processes that properly balance growth and investment returns, and properly aligning executive compensation and shareholder value creation. On March 25 Relational increased its active stake from 8.76% to 9.9%. On May 6 Relational increased its active stake from 9.9% to 13.65%. Transcept Pharmaceuticals (TSPT) Activist Investor: SC Fundamental Value Shares 1,265,365 Catalyst: % Outstanding 6.7% On August 28 SC Fundamental sent a follow-up letter to TSPT after speaking with management about a share Cost Basis 4.41 repurchase. In the letter SC Fundamental demanded a coherent explanation for not doing a buyback. Share Price M 50M Enterprise Value -27M 78M -16M 52 wk. range EV/ 1.7 A copy of SC Fundamental s August 28 letter is available at the bottom of its SEC filing. We initially covered TSPT on August 14 when SC Fundamental sent a letter to TSPT analyzing the value of a 6.5 million share buyback, suggesting the stock should be $5/share. A copy of SC Fundamental s letter is available here: Page 6 of 10

7 Tessera Technologies (TSRA) Activist Investor: Starboard Value Shares 4,650,000 Catalyst: % Outstanding 8.6% Starboard increased its ownership from 7.4% to 8.6% since reaching a settlement agreement for board Cost Basis representation in May. Share Price M 1.0B Enterprise Value 608M 381M -30M 52 wk. range EV/ Negative We initially covered TSRA in our December 21, 2012 Catalyst Research Reports highlighting Starboard s increase in its active ownership stake from 4.7% to 5.7% in November. On December 21 Starboard nominated 5 individuals for election to the board. On February 19, 2013 Starboard sent a letter to TSRA s board (i) highlighting concerns and frustration with the Company s underperformance, (ii) outlining the company s dismal financial performance, (iii) discussing increasing expenses, declining revenues and loss in income, (iv) suggesting specific opportunities to unlock value and (v) discussing Starboard s board nominees. On March 1 Starboard sent a letter to shareholders noting that it is unfortunate the existing management team and Board have shown no interest in working with Starboard and instead have adopted certain measures designed to disenfranchise shareholders and entrench a subset of the Board. Starboard also discussed the recent abrupt resignation of two board members as a dysfunctional board environment. On March 6 Starboard issued a letter to TSRA shareholders commenting on the fact that the CEO may have been engaging in inappropriate behavior and demanded 2 additional board members resign, including the Chairman (four legacy directors remain), 1 Starboard direct representative join the board along with 4 new independent directors, a new Chairman and CEO be selected by the reconstituted board, and conduct a search for a new CEO. On March 15 Starboard filed its preliminary proxy statement with the SEC to elect 7 individuals to the TSRA board. On the same day TSRA sent a letter to Starboard offering them 2 board seats. On March 20 TSRA announced it is refocusing its Digital Optics business strategy. On March 22 TSRA announced its CEO is stepping down and 3 new directors recommended by the Company are joining the board immediately. On April 17 Starboard and TSRA issued a press release announcing it has filed its proxy statement and is formally seeking shareholder support to elect 6 directors. On May 3 TSRA issued a press release announcing it had expanded the board from 6 to 8 members and said the board will not nominate candidates to the open positions (thereby guaranteeing 2 seats to Starboard). Furthermore, knowing that stockholders are likely to vote on Starboard's proxy card, TSRA requested Starboard use a universal ballot (nominees for both sides on one card). When Starboard rejected, the Company suggested that Starbord is attempting to manipulate the outcome of the election. On May 14 Amici Capital, TSRA s largest shareholder with 9.72%, publicly supported Starboard s nominees. On May 23 TSRA entered into a settlement agreement with Starboard. Under the terms of the agreement TSRA increased the size of the board from 8 to 12, added 6 starboard nominees, reduce the size of the board to 10 after the election, and replaced the CEO. Legal counsel to Starboard Value Proxy Solicitor to Tessera Page 7 of 10

8 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 8 of 10

9 PLATINUM SPONSORS Broker-Dealer APB Financial Group is a Special Situations Brokerage Firm tailored to investors seeking fundamental value and catalyst-driven activist investments. 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. 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. Marc Weingarten, Partner marc.weingarten@srz.com Tel: David Rosewater, Partner david.rosewater@srz.com Tel: Page 9 of 10

10 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. 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. 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 10 of 10