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 11, 2011 SYMBOL COMPANY INVESTOR AUTO.OB AutoInfo Inc. Baker Street Capital COSI Cosi, Inc. Blum Growth Fund DGICB Donegal Group Gregory Shepard FFNW First Financial Northwest, Inc. Joseph Stilwell HFFC HF Financial Corp PL Capital QSII Quality Systems Ahmed Hussein THRD TF Financial Corp Lawrence Seidman ZZ Sealy Corp H Partners Management 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 9

3 AutoInfo, Inc. (AUTO.OB) Activist Investor: Baker Street Capital Shares 3,094,884 Catalyst: % Outstanding 9.1% On November 10 Baker Street disclosed a 9.1% active ownership stake in AUTO Share Price M 22M Enterprise Value 41M Net Cash -19M 6M 52 wk. range EV/ 6.3 Cosi Inc. (COSI) Activist Investor: Blum Growth Fund Shares % Outstanding Share Price 3,500, % Not Avail 0.73 Catalyst: On November 9 Blum issued a press release saying that the COSI board is disregarding shareholder concerns by not holding a special meeting of shareholders to vote on a new direction for the Company. On the same day Royce & Associates (9.6% shareholder at an average cost of $4.77/share) changed their investment status from passive to active investor and disclosed a letter they sent to the Chairman & Interim CEO on November 1 expressing their dissatisfaction with the performance of the Company s board and management team over the past several years. 103M 37M Enterprise Value 30M Net Cash 8M -1M 52 wk. range EV/ Negative On November 10 COSI s board sent a letter to Blum saying that they would welcome his offers of assistance but his request to change a majority of the board will effectively give him control of the Company without paying a premium to shareholders. A copy of COSI s letter is available here: Comment: We previously covered COSI in our October 28, October 21, October 14 and September 16 Catalyst Research Reports, highlighting Blum s active investor status. In September Blum announced he may propose (i) to change the number or term of directors or fill any existing vacancies on the board, and (ii) to change senior management. On October 12 Blum publicized a plan for how COSI can instill confidence for all stakeholders, and create significant shareholder value. A copy of Blum s plan is available here: On October 21 Blum agreed to a telephonic interview with COSI s executive search firm for the purpose of evaluating him as a possible CEO candidate. On October 26 Blum announced he has placed advertising in both The Wall Street Journal and Investor s Business Daily that calls for shareholder input regarding the current state of business at COSI. In addition, Blum launched a website for shareholders to voice their opinion: Page 3 of 9

4 Donegal Group, Inc. (DGICB) Activist Investor: Gregory Shepard Shares 3,602,900 (Class A) 397,100 (Class B) % Outstanding 18.4% (A) 7.12% (B) $14.41 (A) $16.72(B) Catalyst: On November 7 Gregory Shepard submitted a shareholder proposal to DGICB for inclusion in the Company s proxy statement for the annual meeting to be held in April The proposal requests that the board (1) appoint a committee of independent, non-management directors to explore strategic alternatives to maximize shareholder value, including consideration of a merger of DMIC with another mutual insurer followed by the sale or merger of DGI, (2) instruct such committee to retain a leading investment banking firm to advise the committee with respect to such strategic alternatives and (3) authorize the committee and investment banking firm to solicit and evaluate offers for the merger of DMIC followed by the sale or merger of DGI. Share Price (A) (B) 453M 351M Enterprise Value 355M Net Cash -1M 5M 52 wk. range EV/ 69.8 First Financial Northwest Inc. (FFNW) Activist Investor: Joseph Stilwell Shares 1,488,106 Catalyst: % Outstanding 8.5% Stilwell has increased his ownership in FFNW from 7.9% to 8.5% since early September Comment: We previously covered FFNW in our September 16 Catalyst Research Report, highlighting Stilwell s 7.9% active ownership position and statement that the shares are currently undervalued. Share Price M 84M Enterprise Value -35M Net Cash 119M 52 wk. range EV/ Continue to Next Page Page 4 of 9

5 HF Financial Corp. (HFFC) Activist Investor: PL Capital Shares % Outstanding 688, % Catalyst: On November 7 PL Capital rejected the Company s offer to expand the size of the board and to appoint one individual from PL Capital to the open position stating that shareholders deserve the right to express their views through the election of board members at the annual meeting. Share Price M 65M Enterprise Value 211M Net Cash -146M 52 wk. range EV/ Comment: We previously covered HFFC in our 14, October 7, September 23, August 26, 2011; December 4, 2009 and September Catalyst Research Reports, highlighting a settlement agreement between PL Capital (9.9% shareholder) and HFFC. Under the terms of that agreement HFFC adopted a majority voting policy and PL Capital agreed not to attempt to replace board members at the 2009 or 2010 annual meetings. On December 1, 2009 PL Capital sent a letter to HFFC outlining their concerns related to the Company s announced stock offering. In the letter, PL Capital stated that because the offering is so dilutive to existing shareholders, the board must not have understood it completely. PL Capital further requested that the board and management reduce their compensation fees by 30% to be in line with the reduction in shareholder value generated by the dilution. Finally, PL Capital said they regret signing a standstill agreement with the board and look forward to its expiration. On August 17, 2011 PL Capital nominated two individuals for election to HFFC s board at the next annual meeting. On September 16, 2011 PL Capital sent a letter to HFFC requesting that they delay the current search for a new CEO and conduct a full scope review of strategic alternatives. On September 30 Sandler O Neill (9.4% shareholder at an avg. cost of $8.14) delivered a letter to the board expressing their belief that opposing the directors nominated by PL Capital Group will be a waste of shareholder capital, as well as the belief that a new CEO should not be hired until after the Company's annual meeting and after the newly elected Board can explore all strategic alternatives. The letter also stated that they hope that the Board will not raise their compensation in light of the Company's poor performance. On October 11 PL Capital sent a letter to HFFC in order to address several aspects of the Company s proxy solicitation materials, including HFFC s statement that PL Capital has violated federal banking laws and regulations because they have not disclosed their intent to control the Company. PL Capital stated that HFFC s comments are misleading and inappropriate, and that they have no intention to control the Company. Furthermore, PL Capital states that it is the job of the Federal Reserve Board, not the Board of HFFC, to determine whether PL Capital is in compliance with applicable federal banking laws and regulations. A copy of PL Capital s October 11, 2011 letter to the Board is available here: On October 13 Sy Jacobs (9.04% shareholder at an average cost of $8.10/share) disclosed an active ownership stake and stated that the Company s lackluster operating performance and failure to execute on its strategic goals has been disappointing. Furthermore, Jacobs believes the current CEO search should be delayed until a newly elected board has had a chance to conduct a comprehensive review of the Company s strategic alternatives. Lastly, Jacobs announced his intention to vote for PL Capital s slate of directors at the annual meeting. On October 14 HFFC announced that the Board has named a new Chairman and a new interim President and CEO. HFFC s annual meeting is scheduled for December 13, 2011 with an October 17 record date. Proxy Solicitor to HF Financial Page 5 of 9

6 Quality Systems Inc. (QSII) Activist Investor: Ahmed Hussein Shares 9,334,700 Catalyst: % Outstanding 15.9% On November 10 Hussein (a current board member) expressed his continued concern about the former CEO s Not Avail independence as the Board s Chairman. Share Price M 2.4B Enterprise Value 2.3B Net Cash 127M 123M 52 wk. range EV/ 18.1 Comment: We previously covered QSII in our July 4, 2008, May 30, 2008 and August 3, 2007 Catalyst Research Reports, highlighting Hussein and QSII standstill agreement whereas the Company agreed to nominate Hussein to the board in exchange for him not progressing with a proxy contest in Following the agreement, Hussein announced that he remained concerned about the structure of the board and the corporate governance of the Company. On May 27, 2008 Hussein announced his frustration with the Board s interpretation of the Settlement Agreement. In particular, under Hussein s interpretation of the Agreement, the Company s lawyer was to be removed but has continued to work for the Company. In addition, Hussein called for improved corporate governance, including: (i) better minute taking at board meetings and (ii) a reduction in the powers of the Chairman. On July 1, 2008 Hussein announced his intention to nominate six people (including three current directors) to the board at the 2008 annual meeting. On September 10, 2008 QSII announced shareholders elected 7 of 8 company nominees. TF Financial Corp (THRD) Activist Investor: Lawrence Seidman Shares 154,768 Catalyst: % Outstanding 5.48% On November 4 THRD entered into a settlement agreement with Seidman. Under the terms of the Agreement Not Avail Seidman will appoint one person to the board at the next scheduled board meeting. Share Price M 56M Enterprise Value 103M Net Cash -46M 52 wk. range EV/ Legal counsel to Lawrence Seidman Sealy Corp. (ZZ) Activist Investor: H Partners Management Shares 14,616,441 Catalyst: % Outstanding 14.5% On November 7 H Partners changed their filing status from passive to active investor and announced plans Not Avail to influence the governance and business strategies of the Company. Share Price B 175M Enterprise Value 879M Net Cash -700M 136M 52 wk. range EV/ 6.5 Page 6 of 9

7 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 7 of 9

8 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. 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. Marc Weingarten, Partner marc.weingarten@srz.com Tel: Page 8 of 9

9 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: 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. 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. 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 9 of 9