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 June 7, 2013 SYMBOL COMPANY INVESTOR ACFC Atlantic Coast Financial Corp Jay Sidhu DSPG DSP Group Roumell Asset Management ENVI Envivio, Inc. Richard A. Karp HARI Harvard Illinois Bancorp Joseph Stilwell LXK Lexmark International BlueMountain Capital MHGC Morgans Hotel Group Yucaipa Companies MLVF Malvern Bancorp Joseph Stilwell RDNT RadNet, Inc. JB Capital SIGM Sigma Designs Raging Capital VTSS Vitesse Semiconductor Kopp Investment Advisors VVUS VIVUS Inc. First Manhattan Co; Sarissa Capital ZTR Zweig Total Return Karpus 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 14

3 Atlantic Coast Financial Corporation (ACFC) Activist Investor: Jay Sidhu Shares % Outstanding 177, % 9.71 Catalyst: On June 6 Sidhu sent a letter to the board commenting on Glass Lewis recommendation for shareholders to vote for a merger (with Bond Street Holdings) and ISS s recommendation for shareholders to vote against the merger. Share Price M 13M Enterprise Value 138M -125M EBITDA 52 wk. range EV/EBITDA A copy of Sidhu s June 6 letter is available here: We previously covered ACFC in our May 24, April 26, April 19, April 12 and February 15 Catalyst Research Reports, highlighting Jay Sidhu and Bhanu Choudhrie (current directors of ACFC with a combined 6.6% ownership at $9.71 cost basis) plans to nominated 3 individuals for election to ACFC s board because of their concerns with the direction of the company under the stewardship of the current board and CEO. A copy of the nomination letter along with details for seeking additional board representation is available here: On April 10 Albury Investment (9.97%) announced plans to vote for the dissident group s 3 nominees and vote against a merger with Bond Street Holdings. On April 11 Jay Sidhu (6.6%) announced plans to vote against the merger. On April 18 Jay Sidhu sent a letter to the board of ACFC addressing the company s allegation that he is working in concert with The Albury Investment Partnership. A copy of Sidhu s letter is available here: On April 26 Amin Fadul Ali disclosed a 9.5% active ownership stake and announced plans to vote in favor of Sidhu's nominees and against the Bond Street merger. On April 24 Jay Sidhu sent a letter to Board stating that a $8/share revised buyout price would be more reasonable than the $5/sh current offer. A copy of Sidu s April 24 letter is available here: On May 21 Jay Sidhu sent a letter to the board addressing the company's "attempt to scare ACFC stockholders to accept a transaction that only you and not significant stockholders or the market believe is the only viable alternative for ACFC". A copy of Sidhu s letter is available here: Continue to Next Page Page 3 of 14

4 DSP Group (DSPG) Activist Investor: Starboard Value Shares 990,000 Catalyst: % Outstanding 4.5%% On June 6 Roumell Asset Management (4.5%) publicly disclosed its support for Starboard s nominees up for Not Avail election on June 10. Share Price M 178M Enterprise Value 139M 37M EBITDA 0.8M 52 wk. range EV/EBITDA Negative We previously covered DSPG in several Catalyst Research Reports, initially highlighting Starboard s 6.0% active stake and subsequent increases to 10.2%. Starboard currently owns 10.2% at an average cost of $7.60/share. On August 22, 2011 Starboard sent a letter to the Company expressing its belief that the shares were 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. A copy of Starboard s August 22, 2011 letter is available here: On April 4, 2012 DSPG entered into a settlement agreement with Starboard. Under the terms of the agreement DSPG increased the size of the board from 8 to 9 members and nominate two new members- Ken Traub and Tom Lacey, for election. On March 9, 2013 DSPG issued a letter to shareholders regarding a potential proxy contest with Starboard. In the letter DSPG stated that Starboard had proposed to avoid a proxy contest in exchange for extra seats on the board, significant representation on all board committees, an effective majority on the compensation committee, which would include half Starboard nominees and a Starboard chairman, as well as the formation of a new strategic committee, which would also include half Starboard nominees and a Starboard chairman. DSPG s shareholder letter is available here: On March 13 Starboard nominated 4 individuals for election to DSPG s board. On April 18 DSPG issued a letter to shareholders stating (among other things) that Starboard is trying to hijack the company. A copy of the Company s letter is available here: On May 14 Nokomis Capital, a 6.3% shareholder, issued a press release supporting Starboard s nominees for election to the DSPG board. On May 21 DSPG announced plans to declassify its board structure and a new Chairman will be appointed in 2014 (both actions are subject to a board vote which has not yet taken place). Starboard responded to DSP's announcement saying that the actions appear to be counter to good corporate governance (and taken in the middle of a proxy campaign) because DSPG did not consult the entire board and the board did not approve the actions before the Company announced these plans. Proxy Solicitor to DSP Group Legal counsel to Starboard Page 4 of 14

5 Envivio, Inc. (ENVI) Activist Investor: Richard A. Karp Shares % Outstanding 1,010, % Not Avail Catalyst: On June 6 Karp issued a press release announcing he has nominated himself for election to the board. He also expressed concern over the 75% loss in 1-year share value and called upon the board to act with a new sense of urgency. Share Price M 46M Enterprise Value -4M 50M EBITDA -17M 52 wk. range EV/EBITDA 0.25 A copy of Karp s press release is available here: Legal counsel to Richard Karp Strategy & Communications to Richard Karp Harvard Illinois Bancorp, Inc. (HARI) Activist Investor: Joseph Stilwell Shares 80,000 Catalyst: % Outstanding 9.6% Stilwell announced plans to run a proxy contest at next year s annual meeting if the business is not sold before 9.96 then. Share Price M 10M Enterprise Value -13M 24M EBITDA 52 wk. range EV/EBITDA We previously covered HARI in our May 8 and March 1, 2013; May 25, February 10, and February 3, 2012; and April 1, 2011 Catalyst Research Reports, highlighting Stilwell s original 7.3% active ownership stake and statement saying, We will encourage management to take the steps necessary to earn a normalized return on equity. If the Issuer is unable to do the foregoing within a reasonable timeframe, we will encourage them to sell. On February 3, 2012 we reported that Stilwell had increased his ownership from 7.3% to 9.8% and announced that he has recently requested a copy of the Company s shareholder list (presumably to begin a proxy solicitation to replace certain directors). On February 7 Stilwell nominated two individuals for election to HARI s board. On May 25 Stilwell announced that even though his director nominee was not elected to the HARI board, he intends to run a board nominee again in On February 28 Stilwell nominated 2 individuals for election to the HARI board and reiterated his opinion that the Company should be sold. On May 8 Stilwell sent a letter to shareholders suggesting if management can t fix the Company then it should be sold. On May 23 Stilwell s nominee was defeated at the annual meeting. Page 5 of 14

6 Lexmark International (LXK) Activist Investor: BlueMountain Capital Shares 4,385,599 Catalyst: % Outstanding 7.0% BlueMountain increased its active ownership stake in LXK from 5.6% to 7%. Not Avail Share Price B 2.0B Enterprise Value 1.8B 180M EBITDA 569M 52 wk. range EV/EBITDA 3.2 Morgans Hotel Group (MHGC) Activist Investor: Yucaipa Cos Shares % Outstanding 0 0% 0 Catalyst: Yucaipa (who owns warrants to purchase an aggregate of 28% of MHGC stock) announced that it supports management s plan to examine strategic alternatives but Yucaipa will not be a bidder in the process. Yucaipa also announced that it opposes OTK s slate for election to the board. Share Price M 254M Enterprise Value 791M -540M EBITDA 17M 52 wk. range EV/EBITDA 46.0 We previously covered MHGC in several Catalyst Research Reports, initially highlighting Edward Scheetz s aggressive increase in ownership between November 2008 and March Over that time Scheetz acquired 1.2M shares, or approximately 4%, of MHGC shares outstanding. On March Scheetz announced he had met with members of the board of MHGC to discuss way to enhance shareholder value. On April Ron Burkle/Yucaipa purchased $78M of MHGC s convertible debt from Harbinger Capital. If converted, Burkle would own 9.9% of the company. On June 1, 2011 HG Vora announced an active investment in MHGC and disclosed a 9.97% ownership position at an avg. cost of $5.42. (Parag Vora is one of OTK s nominees) On August we reported that Vector Group disclosed a 5.6% active ownership stake in MHGC. On March 15, 2013 OTK sent a letter to shareholders of MHGC and nominated 7 individuals for election to the board. On April 1 MHGC announced it is swapping the ownership of its Delano South Beach Hotel for Yucaipa s convertible notes and preferred stock. They also announced a $100 million rights offering back by Yucaipa. As a result, the Company is pushing its annual meeting back to July 10. On April 4 OTK filed a lawsuit seeking to stop the recapitalization in advance of the stockholder meeting. On April 8 OTK obtained a delay of the Company s rights offering pending a hearing for a preliminary injunction in DE Chancery Court, which is expected May 15. On May 15 DE Chancery ruled in favor of OTK: MHGC must keep March 22 record date and is prohibited from doing a deal with Yucaipa On May 17 the company disclosed a large international hotel group offered $7.50/sh to acquire the Company in Nov On May 22 OTK mailed its definitive proxy statement to elect 7 directors to the board and sent a letter to shareholders. Page 6 of 14

7 Malvern Federal Bancorp (MLVF) Activist Investor: Joseph Stilwell Shares % Outstanding 645, % Catalyst: Stilwell announced plans to seek board representation and push for dividends and share buybacks. Share Price We previously covered MLVF in our November 16, 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. 17M 75M Enterprise Value 35M 40M EBITDA 52 wk. range EV/EBITDA 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. On November 16 we reported that PL Capital had increased its active ownership from 7.2% to 8.3%. On March 15, 2013 we reported PL Capital had increased its active ownership in MLVF from 8.3% to 9.8% ($9.47 cost basis). RadNet, Inc. (RDNT) Activist Investor: JB Capital Shares % Outstanding 2,440, % 2.57 Catalyst: JB Capital increased its active ownership stake from 5.2% to 6.1%. Share Price Enterprise Value M 105M 690M We previously covered RDNT on May 31, 2013; September 19, 2011, September 2, 2011 and February 25, 2011, initially highlighting Red Mountain s February 22 active 5.8% ownership stake and announcement that [they] have met with the management of RadNet and expect to maintain a dialogue with management regarding, among other things, RadNet s operations, strategic direction, capital structure and corporate governance and Red Mountain s expectation that management will pursue appropriate measures to enhance shareholder value. -584M EBITDA 101M 52 wk. range EV/EBITDA 6.8 On August 30, 2011 RDNT entered into a Standstill Agreement with Red Mountain Capital. Under the terms of the agreement Red Mountain can purchase up to 9.9% of RDNT s stock but is restricted from running a proxy contest against the company while the agreement is in place. On September 19, 2011 we reported that Red Mountain increased its ownership from 7.5% to 9.7% since entering into a standstill agreement. On May 28, 2013 BlueMountain Capital increased its ownership from 6.5% to 7.8% and changed its filing status from passive to active. Page 7 of 14

8 Sigma Designs, Inc. (SIGM) Activist Investor: Raging Capital Shares 2,760,360 Catalyst: % Outstanding 8.1% Raging Capital increased its active stake from 7.0% to 8.1% Share Price M 172M Enterprise Value 105M 69M EBITDA -51M 52 wk. range EV/EBITDA Negative We previously covered SIGM in our May 4, April 13, April 6, March 30 and March 16 Catalyst Research Reports, highlighting Potomac s initial 5.3% active ownership stake. On April 2 Potomac called on the board to focus on improving operating performance and managing its cash position to improve shareholder value. Potomac noted that the company had spent over $200M on acquisitions and an additional $500M on R&D over the past five years (totaling an aggregate value of 29x the current enterprise value), contributing toward a 75% loss in shareholder value. In addition, Potomac highlighted that the company s recently announced transaction to acquire Trident Microsystems DTV business represents another purchase price in excess of its enterprise value and demanded that the board cease all acquisitions until after its annual meeting. On April 5 Potomac nominated 3 people for election to SIGM s 4-member board. On April 10 SIGM reduced the trigger on their poison pill from 15% to 10%. On April 30 Potomac Capital sent a letter to the board expressing concern with the board s action to reduce the poison pill threshold from 15% to 10%. In addition, Potomac (i) commented on the board s lack of meaningful ownership, and (ii) demanded the board not engage in any ill-advised transactions. Finally, Potomac encouraged the board to engage with them in discussion regarding the composition of the board in hopes of ultimately reaching an agreeable resolution to the proxy contest. On August 2 SIGM entered into a settlement agreement with Potomac Capital. Under the terms of the agreement SIGM agreed to expand the board from 4 to 5 directors and add 2 individuals recommended by Potomac and a 3 rd individual mutually agreed upon by both parties. On April 3 Raging Capital disclosed a 5.6% active ownership stake in SIGM and disclosed a letter to the Company expressing concern with the pace of the turnaround. On May 7 Raging Capital increased its active stake to7.0%. Legal counsel to Raging Capital Legal counsel to Potomac Capital Proxy Solicitor to Sigma Designs, Inc. Continue to Next Page Page 8 of 14

9 Vitesse Semiconductor Corp. (VTSS) Activist Investor: Raging Capital Shares % Outstanding 3,107, % Not Avail Catalyst: Kopp Investment increased its active ownership stake in VTSS from 7.0% to 8.3% Share Price M We previously covered VTSS in several Catalyst Research Reports, initially highlighting Raging Capital s (RC) change in its filing status from passive to active investor. On July 25, 2012 RC purchased $4,000,000 Convertible Debentures at an 18% discount to the principal amount. If converted, RC will own an additional 1,442,666 shares of VTSS stock. 85M Enterprise Value 109M -22M EBITDA -3M 52 wk. range EV/EBITDA On November 20 RC nominated 2 individuals for election to the VTSS board. On December 13 VTSS announced they were in talks with RC concerning RC s nomination of 2 individuals for election to the board. To provide greater time to complete discussions, VTSS rescheduled the annual meeting from January 29 until March 7, As a result of the rescheduling RC withdrew its demand to inspect the Company s stockholder list. On January 15 VTSS issued its proxy statement identifying one of RC s nominees as a member of management s slate of director candidates up for election. On January 25 RC increased its ownership from 13.5% to 17.6% Legal counsel to Raging Capital Continue to Next Page Page 9 of 14

10 VIVUS Inc. (VVUS) Activist Investor: First Manhattan Co (FMC); Sarissa Capital Shares % Outstanding See Details See Details See Details Catalyst: On June 3 FMC issued a letter to VVUS shareholders seeking support for its 9 nominees. A copy of FMC s letter is available here: Share Price M 1.4B Enterprise Value 1.3B 150M EBITDA -175M 52 wk. range EV/EBITDA Negative On June 5 VVUS issued a letter to shareholders highlighting why shareholders should vote for its nominees. A copy of VVUS letter is available here: We initially covered VVUS in our March 29, 2012 Catalyst Research Report and again on November 15 when QVT Financial disclosed an 8.3% active ownership stake (avg. cost of $6.95/sh) and announced they have engaged in a constructive dialogue with VVUS s CEO and Board about marketing the drug Qsymia. On January 17 First Manhattan Co (FMC) disclosed a 7.2% active stake in VVUS and stated concerns about declining value and strategic direction of its management. On March 7 FMC nominated 6 individuals for election to the board at the next annual meeting. On March 26 VVUS announced a $110M non-equity, royalty-based financing. On April 9 outside legal counsel for FMC (Schulte Roth & Zabel) sent a letter to VVUS agreeing to allow the company to interview its nominees if the Company publicly announces the date of the annual meeting be no later than June 30. FMC sent a letter to VVUS seeking to inspect the Company's books and records to determine (i) if certain company statements about drug prospects in Europe are misleading and (ii) if the board breached its fiduciary duty in connection with trades made by board members Hedge Fund Solutions issued in-depth research on this activist situation and hosted a webcast with 2 of FMC s nominees. Qualified investors interested in receiving this research, obtaining a copy of the webcast transcript, or listening to the webcast online can contact Brian Luster at APB Financial at bluster@abbygroup.com or On May 23 FMC (9.9% shareholder at an average cost of $10.70/share) announced it had added 3 nominees to its slate to replace all of VVUS's 9-member board at the July 15 annual meeting. One of FMC s nominees is from Sarissa Capital (a 1.9% VVUS shareholder) and former Managing Partner at Icahn Associates. Legal counsel to FMC Proxy Solicitor to FMC Page 10 of 14

11 Zweig Total Return Fund (ZTR) Activist Investor: Karpus Capital Shares 1,679,847 Catalyst: % Outstanding 4.82 On June 3 Karpus sent a letter to ZTR requesting the closed-end fund tender for a significant percentage of the Not Avail outside shares at or near NPV. Share Price Enterprise Value EBITDA 52 wk. range EV/EBITDA As of June 7 ZTR was trading at a -9.73% discount to NAV 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