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 November 16, 2012 SYMBOL COMPANY INVESTOR APFC American Pacific Corp Cornwall Capital ATRM Aetrium, Inc. Concerned Aetrium Shareholders AWRE Aware, Inc. Privet Fund C Citigroup, Inc. Trillium Asset Management CAS A.M. Castle & Co Huber Capital Management CEDC Central European Distribution Mark Kaufman EDGW Edgewater Technology Echo Lake Capital HAMP Hampshire Group Wynnefield Capital HTCH Hutchinson Technology Timothy Stabosz JDAS JDA Software Praesidium Investment Management LHCG LHC Group Coliseum Capital MLVF Malvern Bancorp PL Capital ODP Office Depot, Inc. Starboard Capital PRXI Premier Exhibitions Greggory Schneider SD Sandridge Energy TPG-Axon Management SMID Smith-Midland JCP Investment Partners STEC STEC, Inc. Balch Hill Capital SUMR Sumer Infant, Inc. Wynnefield Capital TWOC Trans World Corp Wynnefield Capital UNAM Unico American Corp Biglari Holdings VRML Vermillion, Inc. Concerned Vermillion Stockholders VVUS VIVUS Inc. QVT Financial XRTX Xyratex Ltd Baker 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. Page 2 of 14

3 American Pacific Corp. (APFC) Activist Investor: Cornwall Capital 1,141, % 8.44 On November 16 Cornwall Capital formally nominated 1 person for election to APFC s board. Share Price M We previously covered APFC in our November 9, November 2, September 28, September 7, 2012; December 9, 2011 and September 23, 2011 Catalyst Research Reports, highlighting Mill Road Capital s 7.3% active ownership stake at an average cost of $6.58/share. Mill Road subsequently increased their ownership to 9.3% in December M 152M -66M 55M 52 wk. range EV/ 2.7 On October 11, 2011 Cornwall disclosed a 6.5% active ownership stake. On September 6, 2012 Cornwall Capital disclosed that they have recently increased their ownership and sent a letter to the board proposing that two of the current directors be immediately replaced by two of Cornwall s designees. On September 26, 2012 Aegis Capital (9.24% at an avg. cost of $9.19/share) changed their filing status from passive to active investor and announced plans to speak with the board. On November 2 we reported that Cornwall Capital had provided APFC information regarding two potential director candidates for the Board and APFC agreed to grant Cornwall a limited one-time waiver to their advance notice requirements for Cornwall to provide timely advance notice of nominations of directors; provided that such waiver only extends to November 16, 2012 and is only applicable to Cornwall s two candidates. On November 9 we reported that Cornwall Capital increased their active ownership from 13.3% to % since recommending 2 individuals for election to the board. Aetrium Inc. (ATRM) Activist Investor: Concerned Aetrium Shareholders (CAS) 1,796, % On November 14 the Concerned Aetrium Shareholders CAS issued a shareholder presentation outlining the 1.01 reasons for their proxy solicitation to replace 6 board members. Share Price M 6M 2M 4M -5M 52 wk. range EV/ Negative A copy of the November 14, 2012 shareholder presentation is available here: We previously covered ATRM in our October 5, September 21 and August 17 Catalyst Research Reports, highlighting Jeff Eberwein s announcement that he was forming an investment group called the Concerned Aetrium Shareholders with a 16.66% active ownership position. In addition, CAS announced that one of the members of their investment group met with ATRM on June 11 to discuss the Company s performance. CAS plans to continue discussions with ATRM regarding corporate strategy, on-going business operations, potential asset sales, membership of the board of directors, and company management, among other topics. On September 12 the Concerned Aetrium Shareholders (CAS) requested ATRM call a special meeting of shareholders to remove and replace board members. By press release dated September 27, 2012, CAS welcomed ATRM s call of a special meeting (scheduled for November 26, 2012) and reiterated its proposal to create a 50/50 mix between CAS nominees and the incumbent board of directors, or, as a second preference, to replace all incumbent members of the board with CAS nominees. In its press release, CAS additionally called on the Company s board of directors to (a) refrain from taking any action that negatively impacts the Company s corporate governance or is otherwise adverse to shareholders interests, including, without limitation, implementing or changing the Company s poison pill, altering the structure of the board, delaying the special meeting of shareholders or adopting other antitakeover or defensive measures and (b) not make any asset sales or acquisitions or take any other significant corporate actions until after the special meeting. Page 3 of 14

4 Aware, Inc. (AWRE) Activist Investor: Privet Fund Management 820, % 3.49 On November 13 Privet sent a letter to AWRE s board demanding they address their $15M revenue biometrics software business. In the letter Privet states, this business does not have the scale to justify being a public company. Furthermore, the business has not demonstrated the ability to nor do we believe it can grow sufficiently to substantiate its long-term viability as an independent enterprise. The biometrics industry is fragmented with too many small-scale competitors. Share Price M 133M 18M 115M 4M 52 wk. range EV/ 4.5 In addition, Privet demanded the board address the $115M cash balance and improve disclosure associated with the company s ongoing litigation. A copy of Privet s November 13 letter is available here: We previously covered AWRE in our April 13 and February 3 Catalyst Research Reports, highlighting Privet Fund s initial 4.1% active ownership stake and their announcement that the company s shares are materially undervalued by the market, especially relative to a reasonable valuation of the sum of the Corporation s component parts. On April 11 Privet sent a letter to the board expressing concern over the lack of clarity and the amount of time it has taken the company to examine strategic alternatives for monetizing its patent portfolio. A copy of Privet s April 11 letter is available here: Citigroup, Inc. (C) Activist Investor: Trillium Asset Management/AFSCME Employees Pension Not Avail Not Avail Not Avail On November 14 Trillium issued a press release announcing that they have submitted a shareholder proposal to be included in Citigroup s proxy materials. The proposal asks shareholders to vote to request the board explore a separation of one or more business units. Share Price B 106B -69B 194B N/A 52 wk. range EV/ N/A A copy of Trillium s press release is available here: Continue to Next Page Page 4 of 14

5 A.M. Castle & Co (CAS) Activist Investor: Huber Capital Management 1,898, % On November 13 CAS changed their investment with CAS from passive to active and disclosed an 8.2% Not Avail ownership stake. Share Price B 293M 577M -284M 65M 52 wk. range EV/ 8.9 Central European Distribution Corporation (CEDC) Activist Investor: Mark Kaufman 6,960, % 6.35 On November 14 Kaufman sent a letter to CEDC s board commenting on a letter Roustam Tariko (CEDC s largest shareholder with 19.5% ownership). In the letter Kaufman said he shared Mr. Tariko s profound concern and deep frustration with the state of the business and called upon the board to reconstitute its membership with Kaufman and 3 additional independent directors. Share Price M 138M 1.4B -1.3B 64M 52 wk. range EV/ 22.2 A copy of Kaufman s November 14 letter is available here: We previously covered CEDC in our March 16, February 24, February 3, 2012 and December 9, 2011 Catalyst Research Reports, highlighting Russian Standard s (9.9% shareholder) initial proposal to sell CEDC its Rouse business in exchange for 19.9% of the Company s shares outstanding. We also highlighted that on December 9, 2011 Mark Kaufman sent a letter to the board highlighting a few key points for the board to address, including (i) restructuring CEDC s balance sheet, (ii) improve management and governance, (iii) issue any new shares fair and equally, (iv) consider a business combination with Russian Standard. On February 1, 2012 Russian Standard submitted a second strategic partnership proposal to the board of CEDC (this first proposal was submitted on Dec. 6, 2011). In the proposed Partnership, Russian Standard suggested two transactions to take place: (i) Russian Standard will exchange $103 million of 2013 Convertible Notes at $7.00 per share in exchange for 25% of the Company s post-dilution ownership, and (ii) Russian Standard will sell CEDC its Roust business assets in exchange for an additional 7.99% ownership. In addition, Russian Standard will appoint 3 directors and key members of the Company s Russian management. A copy Russian Standard s February 1, 2012 Proposed Transaction is available here: On February 17 Mark Kaufman nominated himself for election to the CEDC board at the next annual meeting. On March 12, 2012 the board of CEDC sent a letter to Kaufman stating that the board currently intends to include Kaufman on the list of directors for nomination at the 2012 annual meeting of stockholders. Page 5 of 14

6 Edgewater Technology, Inc. (EDGW) Activist Investor: Echo Lake Capital Not Avail Not Avail On November 17 Echo Lake sent a letter to the independent board members of EDGW demanding they Not Avail examine strategic alternatives. Share Price M 41M 28M 13M 5M 52 wk. range EV/ 5.3 A copy of Echo Lake s November 17 letter is available here: Hampshire Group (HAMP) Activist Investor: Wynnefield Capital Management 655, % On November 14 Wynnefield disclosed an 8.73% active ownership stake in HAMP along with a letter they 2.76 sent to the board on November 12 demanding a meeting to discuss ways to improve value. Share Price M 23M 34M -12M -6M 52 wk. range EV/ Negative A copy of Wynnefield s November 12 letter is available here: We previously covered HAMP in our January 6, 2012 Catalyst Research Report, highlighting Norman Pessin s increased active ownership from 5% to 7.9% (average cost of $2.71/share). On November 13 Pessin disclosed he has sold his entire stake in HAMP Legal counsel to Norman Pessin Hutchinson Technology (HTCH) Activist Investor: Timothy Stabosz 1,323, % 2.14 On November 13 Stabosz disclosed a 5.5% active ownership stake in HTCH and sent a letter to the board. In the letter Stabosz stated that THE SHAREHOLDERS DESERVE TO BE REWARDED; AND AFTER 5 YEARS OF SIZABLE LOSSES, THEY DESERVE TO HAVE A COMPANY THAT RETURNS TO GROWTH AND PROFITABILITY, SOONER RATHER THAN LATER. Share Price M 39M 142M -93M 14M 52 wk. range EV/ 10.2 A copy of Stabosz s November 13 letter to HTCH s board is available here: Page 6 of 14

7 JDA Software Group, Inc. (JDAS) Activist Investor: Praesidium Investment Management 2,026, % Praesidium reduced their active ownership stake in JDAS from 7.8% to 4.7% since an individual from Blum Capital joined the board in May. Share Price M 1.9B 1.8B 134M 168M 52 wk. range EV/ 10.7 We previously covered JDAS in our May 4, 2012 Catalyst Research Report, highlighting a letter from Praesidium to JDAS stating that the new board member (from Blum Capital, a 4.5% shareholder) and the creation of the position of Lead Independent Director are important first steps toward the ultimate crystallization of value of JDA. LHC Group (LHCG) Activist Investor: Coliseum Capital 2,248, % On November 14 an individual from Coliseum Capital joined the board of LHCG. Not Avail Share Price M 314M 339M -25M 64M 52 wk. range EV/ 5.3 Malvern Federal Bancorp (MLVF) Activist Investor: PL Capital 471, % 8.92 PL Capital has increased its active ownership in MLVF from 7.2% to 8.3%. Share Price We previously covered MLVF in our October 26, January 27, 2012; September 3, 2010, May and April Catalyst Research Reports, highlighting Joseph Stilwell s (9.9% shareholder avg. cost $10.67/share) belief that MLVF s shares were undervalued. 20M 56M 104M -48M N/A 52 wk. range EV/ N/A On August 31, 2010 Stillwell announced he was mailing a letter to shareholders expressing his continued dissatisfaction with the company and its directors. On January 17, 2012 Stilwell announced he was dropping q lawsuit against MLVF because the Company announced plans to do a second step conversion. On October 22, 2012 PL Capital disclosed a 7.2% active ownership stake in MLVFD and highlighted several concerns they have with the company following a special meeting on October 2 when a large percentage of shareholders voted against several proposed governance changes by the board. Page 7 of 14

8 Office Depot, Inc. (ODP) Activist Investor: Starboard Value 42,100, % 1.95 On November 16 Starboard sent a letter to ODP criticizing them for adopting a poison pill takeover defense. In the letter Starboard stated that the pill was designed to effectively cap our ownership at our current position and limit the voting ability of shareholders, while protecting the status quo. Share Price B 870M 922M -51M 391M 52 wk. range EV/ 2.4 A copy of Starboard s November 16 letter is available here: We previously covered ODP in our October 12 and September 21 Catalyst Research Report, highlighting Starboard s September 17 letter to ODP s Chairman stating that they strongly believe the company s shares are deeply undervalued. On October 12 we reported that Starboard had increased its active ownership stake from 13.3% to 14.8% since sending a letter to the Chairman on September 17. Legal counsel to Starboard Value Premier Exhibitions (PRXI) Activist Investor: Greggory Schneider 2,882, % On November 14 Schneider disclosed a 6% active stake in PRXI and suggested the board examine a sale that 2.14 should exceed $4.50/share. Share Price M 127M 125M 2M 5M 52 wk. range EV/ 25.0 We previously covered PRXI several times in 2009 highlighting Sellers Capital s proxy contest to gain board membership. Mark Sellers is currently Chairman of PRXI and owns 44% of the shares outstanding. Sandridge Energy (SD) Activist Investor: TPG-Axon Management 23,000, % 5.39 On November 8 TPG sent a letter to SD s board expressing its increasing concern with management's inability to maximize potential value for stockholders and setting forth their belief that SD should reconstitute the Board to include shareholder representatives and other credible independent directors, replace the current CEO and engage an advisor to explore strategic alternatives, including a potential sale. Share Price B 2.7B 6.4B -3.6B 777M 52 wk. range EV/ 8.2 In the letter, TPG stated, we believe fair value for SandRidge stock, even under a wide range of macro-economic and company scenarios, is $12 to 14 per share dramatically higher than the current $6 share price. Legal counsel to TPG-Axon Page 8 of 14

9 Smith-Midland Corp. (SMID) Activist Investor: JCP Investment Partners 300, % 1.64 On November 16 JCP urged the board to act with a greater sense of urgency to implement its business plan. We previously covered SMID in our September 14 and June 1 Catalyst Research Reports, highlighting JCP Investment Management s 6.3% active ownership stake in the company. Share Price M 8M 8M wk. range EV/ 4.9 On September 14 we reported that SMID nominated one individual from Tall Cotton Partners (12% shareholder) for election to the board at the next annual meeting. Tall Cotton plans to use the board membership to (a) review the company s charter, bylaws and shareholder rights plan, (b) work to improve the company s corporate governance and (c) strive to increase stockholder value. Legal counsel to JCP Investment STEC, Inc. (STEC) Activist Investor: Balch Hill Capital 4,190, % On November 16 Balch Hill disclosed that they have increased their ownership from 6.4%. In addition, Balch 5.64 Hill changed their filing status from passive investor to active investor. Share Price M 220M 34M 186M -48M 52 wk. range EV/ Negative Legal counsel to Balch Hill Capital Summer Infant, Inc. (SUMR) Activist Investor: Wynnefield Capital 3,000, % On November 15 Wynnefield Capital announced that, upon their request, SUMR had increased the size of its 3.42 board and added one person from Wynnefield to the open position. Share Price M 29M 124M -68M 16M 52 wk. range EV/ 7.6 Page 9 of 14

10 Trans World Corporation (TWOC) Activist Investor: 2,077, % On November 14 Wynnefield Capital disclosed a 23.4% active ownership stake and urged the board to seek 2.75 alternate ways to enhance shareholder value without diluting existing shareholders. Share Price M 22M 21M 1.6M 6M 52 wk. range EV/ 3.6 Unico American Corp. (UNAM) Activist Investor: Biglari Holdings 505, % On November 13 Biglari disclosed a 9.5% active stake in UNAM Share Price M 70M -8M 78M 2.6M 52 wk. range EV/ Negative Legal counsel to Biglari Holdings Vermillion, Inc. (VRML) Activist Investor: Concerned Vermillion Stockholders 256, % On November 13 the Concerned Vermillion Stockholders sent a letter to the board of VRML announcing plans Not Avail to elect one person to the board at the upcoming annual meeting. Share Price M 19M 10M 9M -11M 52 wk. range EV/ Negative A copy of the dissident group s November 13 letter is available here: Page 10 of 14

11 VIVUS Inc. (VVUS) Activist Investor: QVT Financial 8,346, % On November 15 QVT Financial disclosed an 8.3% active ownership stake in VVUS and announced they 6.95 have engaged in a constructive dialogue with VVUS s CEO and Board about marketing the drug Qsymia. Share Price B 875M 275M -95M 52 wk. range EV/ Negative Xyratex, Inc. (XRTX) Activist Investor: Baker Street Capital 5,308, % Baker Street has increased their active ownership in XRTX from 16.5% to 19.6%. $7.76 Share Price 8.68 We previously covered XRTX in our November 2 and October 26 Catalyst Research Reports, highlighting Baker Street s steady increase in ownership. 1.3B 230M 121M 103M 73M 52 wk. range Legal counsel to Baker Street EV/ 1.7 Page 11 of 14

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

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

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