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 18, 2011 SYMBOL COMPANY INVESTOR ADGF Adams Golf Inc. SJ Strategic Investments CBRL Cracker Barrel Biglari Holdings CMBX CombiMatrix Corporation Greggory Schneider CTMMA.PK CTM Media Holdings, Inc. Raging Capital Management CTO Consolidated Tomoka Land Co Carlson Capital DAVE Famous Dave s of America JCP Investment Management EK Eastman Kodak Investment Partners FKWL.OB Franklin Wireless Corp Steven Sherman; Karen Singer; David Oros; Lloyd Miller FURX Furiex Pharmaceuticals Inc. Fredric Eshelman HPQ Hewlett-Packard Company Relational Investors NAV Navistar International Carl Icahn RLH Red Lion Hotels Corp Columbia Pacific TUC Mac-Gray Corp Moab 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 12

3 Adams Golf Inc. (ADGF) Activist Investor: SJ Strategic Investments LLC Shares 2,698,519 Catalyst: % Outstanding 34.6% On November 17 SJ Strategic formed a Group with other shareholders (totaling 34.6% of ADGF shares Not Avail outstanding) and announced plans to (i) nominate up to four directors and (ii) submit a stockholder proposal to declassify the board. Share Price M 40M Enterprise Value 30M Net Cash 11M 6M 52 wk. range EV/ 4.8 Cracker Barrel Old Country Store (CBRL) Activist Investor: Biglari Holdings Shares 2,287,987 Catalyst: % Outstanding 9.9% On November 14 Biglari issued a letter to CBRL shareholders outlining a business improvement plan for the business. A copy of the letter is available at Share Price B 1.1B Enterprise Value 1.6B Net Cash -550M 231M 52 wk. range EV/ 6.9 We previously covered CBRL in our September 23, September 2, August 26 and June 17, 2011 Catalyst Research Reports, highlighting Biglari s active ownership stake and August 23 letter expressing concern over the Company s failure to disclose operating segments for both the restaurant and the retail operations. On September 1 Biglari nominated two individuals to the 11 member board (later reduce to one nominee). On September 23 CBRL adopted a Poison Pill with a 10% trigger that will expire at the Company s shareholder meeting unless approved by shareholders. The Company states that the action was in response to Biglari s clearance under the Hart-Scott-Rodino Act to acquire up to 49.99% of the Company s common stock. In a press release issued on the same day, Biglari states that the reasoning provided by the board to adopt the pill is misleading since they have told the Company that they are not interested in seeking control. Biglari s August 23 letter is available here: Biglari s September 1 letter is available here: Cracker Barrel s September 1 letter to Biglari is available here: Proxy Solicitor to Cracker Barrel Proxy Solicitor to Biglari Holdings Legal counsel to Biglari Holdings Page 3 of 12

4 CombiMatrix Corporation (CBMX) Activist Investor: Greggory Schneider Shares 537,500 Catalyst: % Outstanding 5.02% On November 14 Greggory Schneider disclosed a 5% active ownership stake in CBMX and stated that he Not Avail believes the stock is undervalued and that he may soon talk with management about it. Share Price M 22M Enterprise Value 13M Net Cash 10M -7M 52 wk. range EV/ Negative CTM Media Holdings, Inc. (CTMMB.PK) Activist Investor: Raging Capital Shares 1,389,767 Catalyst: % Outstanding 22.7% Raging Capital recently increased their ownership in CTM s Class B stock from 20.6% to 22.7% Share Price 2.39 We previously covered CTM in our March 18 Catalyst Research Report, highlighting Raging Capital s change in filing status from passive to active investor and 20.6% stake in the Company s Class B common stock. 32M 19M Enterprise Value 11M Net Cash 8M 3M 52 wk. range Legal counsel to Raging Capital EV/ 3.6 Continue to Next Page Page 4 of 12

5 Consolidated Tomoka Land Co. (CTO) Activist Investor: Carlson Capital Shares % Outstanding 296, % Catalyst: On November 18 Carlson Capital disclosed a 5.1% active ownership stake in CTO. Share Price We previously covered CTO in numerous Catalyst Research Reports (most recently on April 22, 2011), highlighting letters Wintergreen Capital (27% shareholder at an average cost of $57.48/share) had sent to the board disclosing concerns with the Company s slow response to unlock value. 15M 151M Enterprise Value 163M Net Cash -11M 2M 52 wk. range EV/ 74.1 On March Wintergreen filed a proxy in order to replace three directors at the annual meeting (2 nominees were elected). On December Wintergreen delivered three shareholder proposals for inclusion in the Company s 2010 proxy materials: (i) nominate one independent candidate for election to the board (nominee was elected), (ii) implement an annual shareholder referendum on executive compensation (proposal was adopted), and (iii) require majority vote for election of all directors in uncontested elections (adopted). On November 23, 2010 Wintergreen nominated one individual for election to the board at CTO s annual meeting on April 27, Wintergreen also submitted a proposal to de-stagger the board so all directors are elected annually. On March 10 Wintergreen delivered a letter to the Board of CTO urging the CEO to resign, stating that his continued involvement with the Company could negatively impact the recruitment of a new CEO. On April 19 Wintergreen issued a press release stating its opposition to the re-election of the Company s outgoing CEO to the board of directors at the April 27, 2011 annual meeting. Legal counsel to Carlson Capital Famous Dave s of America Inc. (DAVE) Activist Investor: JCP Investment Management Shares 412,633 Catalyst: % Outstanding 5.3% On November 14 JCP Investment Management disclosed a 5.3% active ownership stake in DAVE Share Price 9.03 We previously covered DAVE in our April 10, 2009 Catalyst Research Report, highlighting Vicuna Capital s letter to DAVE s board of directors announcing their intention to withhold their votes for directors at the 2009 annual meeting due to the Company s underperformance and CEO turnover over the past few years. In 154M addition, Vicuna demanded a representative from their Fund be added to the board immediately. 69M Enterprise Value 89M Note: In April 2009 Vicuna owned 11% of DAVE however they no longer hold this position. Net Cash -19M 16M 52 wk. range EV/ 5.8 Legal counsel to JCP Investment Management Page 5 of 12

6 Eastman Kodak Co. (EK) Activist Investor: Investment Partners Asset Management Shares % Outstanding 215,113 <1% Not Avail Catalyst: On November 15 Investment Partners submitted a stockholder proposal to EK for inclusion in the Company s proxy materials. The proposal seeks to have shareholders vote to redeem the Poison Pill issued by EK on August 1, The NOL tax preservation rights plan (i.e. poison pill) has a 4.9% trigger. Share Price B 297M Enterprise Value 993M Net Cash -670M -270M 52 wk. range EV/ Negative We previously covered EK in our July 18, 2008 Catalyst Research Report, highlighting Franklin Mutual Advisers (at the time Franklin Mutual owned 5.4% however they no longer hold a position) announced that on June 17, 2008 they sent a letter to EK suggesting the Company return its substantial excess cash to shareholders rather than make a potentially dilutive acquisition. On June 24, 2008 EK announced a $1 billion share repurchase program, over half of which would be funded by additional cash (not already reflected on the balance sheet) resulting from a tax settlement with the IRS. Franklin believed the share repurchase needed to be expanded and/or supplemented to provide an additional return of capital to shareholders. Legal counsel to Investment Partners Franklin Wireless Corp. (FKWL.OB) Activist Investor: Steven Sherman; Karen Singer; David Oros; Lloyd Miller Shares 1,481,722 Catalyst: % Outstanding 12.6% On November 15 Lloyd Miller joined the previously formed investment Group for the purpose of promoting 2.30 changes to FKWL s corporate governance and board orientation. The Group now owns 12.6%. Share Price M 17M Enterprise Value 6M Net Cash 11M N/A 52 wk. range N/A EV/ N/A We previously covered FKWL in our August 5 Catalyst Research Report, highlighting the fact that three individuals - Sherman, Singer and Oros, formed an investment Group and sent a letter to the board of directors. In that letter, the Group said that the Company s stock price performance reflects poor corporate governance and that the board has failed to provide adequate public disclosures and regular communications with shareholders. Accordingly, the Group have demanded a written plan to (i) improve the stock performance, (ii) schedule an annual meeting, (iii) investigate any irregularities in approving the Company s 2009 stock option plan, and (iv) improve public disclosure and communications. If the Company does not provide this plan and assurances of the board s immediate action, the Group will seek to elect two new directors to the board. Furiex Pharmaceuticals, Inc. (FURX) Activist Investor: Fredric Eshelman Shares 1,732,729 Catalyst: % Outstanding 17.5% On November 15 Eshelman advised FURX that he believes the Company is undervalued and intends to Not Avail purchase up to 25% of the shares outstanding. Share Price M 153M Enterprise Value 109M Net Cash 44M -53M 52 wk. range EV/ Negative We previously covered FURX in our August 20, 2010, July 9, 2010 and July 2, 2010 Catalyst Research Reports, highlighting Tyndall Capital s (in July 2010 Tyndall was a 7.1% shareholder at an avg. cost of $9.92/sh) announcement that they believe the shares were undervalued and that they intended to work with the Company to explore all available options for increasing value. On July 9, 2010 Kingstown Capital announced a 6% active ownership position (Kingstown currently owns 4%) Legal counsel to Kingstown Capital Page 6 of 12

7 Hewlett-Packard Company (HPQ) Activist Investor: Relational Investors Shares 17,251,400 Catalyst: % Outstanding <1% On November 17 HPQ entered into a settlement agreement with Relational Investors. Under the terms of the Not Avail agreement one person from Relational will join an expanded board of 14 members for a period of at least two years. Share Price B 53B Enterprise Value 68B Net Cash -13B 18B 52 wk. range EV/ 3.8 Navistar International Corp. (NAV) Activist Investor: Carl Icahn Shares % Outstanding 7,251, % Not Avail Catalyst: On November 14 NAV entered into a settlement agreement with Icahn. Under the terms of the agreement NAV agreed to declassify the board so that all directors are elected annually. In addition, the Company agreed not to implement a Poison Pill. Share Price B 2.6B Enterprise Value 6.3B Net Cash -3.5B 723M 52 wk. range EV/ 9.0 We previously covered NAV in our November 4, October 14, 2011; and November 21, 2008 Catalyst Research Reports. In November 2008, we reported that Owl Creek Capital s increased their ownership to 9.45% at an average cost of $45.64/share. On October 13, 2011, Carl Icahn disclosed a 9.8% active ownership stake (subsequently increased to 9.99%) and disclosed that he has had conversations with the Company about adding a person to the board. Continue to Next Page Page 7 of 12

8 Red Lion Hotels Corp (RLH) Activist Investor: Columbia Pacific Opportunity Fund Shares % Outstanding 5,396, % Not Avail Catalyst: On November 14 Columbia said that they applaud management for successfully selling fully valued real estate, reducing debt, and reallocating capital to recently acquire the istar lease portfolio. With the hotel portfolio and balance sheet in a stable position, Columbia now believes it is time to engage an advisor to run a full process to sell or liquidate the entire company. Columbia intends to be part of this process as a potential acquirer. Share Price M 132M Enterprise Value 194M Net Cash -60M 16M 52 wk. range EV/ 12.5 We previously covered RLH in our July 8, 2011, December 3, 2010 and February 13, 2009 Catalyst Research Reports, highlighting a letter from Columbia to RLH in 2009 expressing their disappointment in the Board s decision to adopt a poison pill. Columbia, who has previously expressed an interest in acquiring RLH, demanded the Board remove the pill and begin the process of liquidation or sale of the Company to return value to shareholders in the timeliest manner possible. At the time of Columbia s letter in early 2009, RLH stock was trading around $2.60/share. On December 1, 2010 Columbia stated their belief that RLH should consider a sale of one or more assets. Furthermore, Columbia stated they may be interested in acquiring certain assets. On January 19 Columbia Pacific sent a letter to the board of RLH stating that the Company s January 18 announcement to sell two real estate assets was an important first step in the process to create and return value to shareholders. However, Columbia also stated that RLH explore the sale of the entire company or all of its real estate assets while focusing on growing the high margin franchise and management business. On July 8, 2011 we reported that Columbia had increased their ownership rom 22.3% to 24.68% since January when they sent a letter to the board suggesting they examine a sale of the entire company. Continue to Next Page Page 8 of 12

9 Mac-Gray Corp (TUC) Activist Investor: Moab Capital Shares % Outstanding 851, % 9.29 Catalyst: On November 10 Moab Capital sent a letter to the board of TUC requesting that they disclose a detailed description of the board s process of evaluating and rejecting KP Capital s $17.50/share buyout offer for the Company. Moab believes the board failed to discredit the offer and has also failed to demonstrate that there is any operating plan that will lead to shareholder net present value in excess of $17.50 per share. Share Price M 180M Enterprise Value 391M Net Cash -203M 65M 52 wk. range EV/ 6.1 We previously covered TUC in our May 22, 2009; May 15, April 11, January ; and December Catalyst Research Reports, highlighting a letter sent by Fairview Capital (at the time Fairview owned 6.4% at an avg. cost of $9.29; they now own approx. 3.3%) urging the board to consider strategic alternatives. On January River Road Asset Management (at the time a 14.2% shareholder at an average cost of $12.27/share; they now own approx %) changed their filing status with the SEC from passive to active investor and disclosed they had sent numerous letters to TUC requesting the Company explore strategic options, including a sale. On April 10, 2008 Fairview sent a letter to TUC expressing the growing discontent among shareholders with regards to the Company s poor financial performance and acquisition strategy. In the letter Fairview requested TUC (i) hold a meeting with concerned shareholders, (ii) develop and communicate a three-year business plan; hold management accountable to the plan, and (iii) form an independent committee to compare the status quo against a high dividend payout model or a sale. On February Fairview nominated two individuals for election to the board of TUC at the 2009 annual meeting. On May 12, 2008 Fairview issued a press release announcing one of their nominees to the board was elected at the annual meeting. On May 13, 2008 Fairview sent a letter to the board formally protesting the conduct of the 2009 annual meeting and demanded that the 964,950 shares delivered after the closing of the polls be included in the final vote count. Fairview believed the votes were not counted because of a technical issue relating to electronic vote tabulation and if the polls were open for one additional hour the technical glitch would have been resolved. TUC s Chairman decided to close the polls instead. On May 21, 2009 Fairview sent a letter to TUC shareholders highlighting the voting results of the 2009 annual meeting. In the letter Fairview called on the company to (i) name an independent chairman, (ii) if the board chooses to re-appoint the director that did not get elected, require him to stand for election at the next annual meeting, (iii) adopt a majority vote standard for the election of directors and declassify the board so all directors are elected annually, (iv) add the newly elected director to the governance & nominating committee, (v) let the poison pill expire, (vi) require directors to buy a significant amount of stock and (vii) take action to ensure all shareholders votes will be counted in the future. Page 9 of 12

10 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 10 of 12

11 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 11 of 12

12 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 12 of 12