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 July 2, 2010 SYMBOL COMPANY INVESTOR ALOY Alloy Inc. Simcoe Partners; SRB Management BBND BigBand Networks, Inc. ValueAct Capital BJ BJ s Wholesale Club Inc. Green Equity Investors CASM Cas Medical Systems Norman Pessin CRWS Crown Crafts Inc. Wynnefield Partners DLIA delia*s Inc. Thesis Fund Management FFHS First Franklin Corp. Lenox Wealth Management FURX Furiex Pharmaceuticals Inc. Tyndall Capital Partners GRZ Gold Reserve Inc. West Face Capital ITEX.OB ITEX Corp. Polonitza Group LRTR.PK LL&E Royalty Trust Robert Robotti PPCO Penwest Pharmaceuticals Co Perceptive Advisors; Tang Capital ROAC Rock of Ages Corp North Star Investment 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 11

3 Alloy Inc. (ALOY) Activist Investor: Simcoe Partners; SRB Capital Shares 1,629,755 % Outstanding 12.5% Share Price M 123M 99M 24M 11M 52 wk. range EV/ 9.1 On June 28 Simcoe (5.0%) and SRB Capital (7.5%) separately entered into voting agreements with ALOY to vote the shares they own in favor of the company s management-led buyout for $9.80 per share in cash. We previously covered ALOY in our April 16, March 19 and February 5, 2010; December 18, 2009 and August 17, 2007 Catalyst Research Reports, highlighting Simcoe Partners aggressive increase in ownership since late November 2009 (Simcoe currently owns 5% at an average cost of $7.03 per share) and SRB Management s disclosure on December 18, 2009 that they have a 10.3% active ownership interest in ALOY. On March SRB nominated three candidates for election to the board at the 2010 annual meeting. On April 15 when ALOY was trading at $8.63/share Simcoe and SRB added two new directors to the board under the terms of a negotiated settlement agreement. BigBand Networks Inc. (BBND) Activist Investor: ValueAct Capital Shares 9,910,315 % Outstanding 14.7% 2.88 ValueAct continues to aggressively increase their ownership position in BBND recently - having purchased approximately 15% of the company s shares outstanding since mid-january. Share Price M 204M 47M 166M -12M 52 wk. range EV/ Negative BJ s Wholesale Club Inc. (BJ) Activist Investor: Green Equity Investors Shares 2,100,000 % Outstanding 3.9% Share Price B 2.3B 2.2B 64M 352M 52 wk. range EV/ 6.4 On July 1 Green Equity announced their intention to talk to BJ s management about taking the company private. Green also has call options on 3,000,000 additional shares of BJ. Page 3 of 11

4 Cas Medical Systems (CASM) Activist Investor: Norman Pessin Shares 584,050 % Outstanding 5.8% On June 28 Pessin disclosed a 5.8% active ownership stake in CASM and reserved the right to seek changes in the management of the company. Share Price M 21M 23M -2M 0.5M 52 wk. range EV/ 49.2 Crown Crafts, Inc. (CRWS) Activist Investor: Wynnefield Partners Shares 1,573,573 % Outstanding 17.08% Share Price M 37M 42M -5M 11M 52 wk. range EV/ 3.8 On June 25 Wynnefield delivered a letter to CRWS notifying them of their intention to appear at the August 10 annual meeting to nominate and seek to elect two individuals to the board. We previously covered CRWS in our May ; July 4, 2008; December 7, October 12 and August Catalyst Research Reports, highlighting Wynnefield s threat to replace two directors if certain governance and compensation issues were not addressed. On August the Company announced one Wynnefield nominee was elected to the 7-person board following a contested election. On October Wynnefield delivered a letter to the board requesting they take prompt action to (i) form an independent Strategic Alternatives Committee and employ a competent outside arm s length firm to undertake an analysis of all the strategic options available, including a sale or merger, (ii) de-stagger the Board, (iii) implement a succession plan for the chief executive officer and other senior executives, and (iv) orient Board compensation away from cash and toward equity participation. On July 1, 2008 CRWS entered into a settlement agreement with Wynnefield, adding one of Wynnefield s nominees to the board, increasing their board representation to 2 of 7. On April Wynnefield sent a letter to Crown Crafts formally requesting that one current director resign from the board. delia*s Inc. (DLIA) Activist Investor: Thesis Fund Management Shares % Outstanding Share Price M 45M 18M 27M -8M 52 wk. range EV/ Negative On June 14 Thesis Fund (Ticker TFLEX) sent a letter to the board of DLIA (the letter was made public on June 28) demanding they examine strategic alternatives, including a sale. In the letter, Thesis stated, The typical, fully-penetrated, mall-based retailer often generates earnings before interest and taxes (EBIT), or pre-tax earnings, of 10% or more. We believe that delia s would be an attractive fit for a retailer who could earn a comparable EBIT margin on the Company s revenue base. Said differently, delia s could generate $22 million, or more, of profitability annually for the right acquirer. We believe that to the right acquirer delia s is worth five times, or more, our pro-forma estimate of contribution margin. That translates to an estimated value for the Company in excess of $150 million or a share price closer to $5, approximately three times higher than its current valuation. Page 4 of 11

5 First Franklin Corp. (FFHS) Activist Investor: Lenox Wealth Management, Inc. Shares 167,265 % Outstanding 9.95% Share Price M 14M 44M -30M N/A 52 wk. range EV/ N/A On June 23 Lenox Wealth sent a letter to the Chairman of FFHS requesting financial information specifically related to how the company reserves for loan losses. On July 2 Lenox sent a letter questioning the board s independent classification of a board member and included a copy of NASDAQ guidelines for determining director independence. We previously covered FFHS in our June 11, May 7, April 9, February 26,February 19, 2010; December 11, November 13 and October 9, 2009 Catalyst Research Reports, highlighting Lenox Wealth s aggressive increase in ownership since early May On October (when the stock was trading at $6/sh) Lenox announced their belief that the company s assets were not adequately reflected in the market price. On November 12 Lenox announced they intended to consider a variety of different alternatives to encourage management and the Board to maximize shareholder value. On December 8 Lenox submitted a shareholder proposal to declassify the board. On February Lenox nominated two individuals for election to board at the next annual meeting. On May 7 Lenox offered to acquire FFHS for $18.00 per share, payable in shares of Lenox common stock. Furiex Pharmaceuticals Inc. (FURX) Activist Investor: Tyndall Capital Partners Shares 700,000 % Outstanding 7.1% 9.92 On June 28 Tyndall Capital announced they believe FURX shares are undervalued and that they intend to work with the Company to explore all available strategic options for increasing the value, including exchanging views with the Company's management and Board of Directors, and possibly other shareholders, concerning the strategic direction of the Company. Share Price M 99M 99M 0-34M 52 wk. range EV/ Negative Gold Reserve Inc. (GRZ) Activist Investor: West Face Capital Shares 11,384,509 % Outstanding 19.12% On June 30 West Face Capital announced they may request board representation at GRZ. Share Price M 69M -22M -9M 52 wk. range EV/ Negative Page 5 of 11

6 ITEX Corp. (ITEX.OB) Activist Investor: Polonitza Group Shares 472,536 % Outstanding 13.10% Share Price M 17M 13M 5M 2M 52 wk. range EV/ 5.5 On June 15 Polonitza tried to arrange a conference call with ITEX s board and, in advance, sent a letter stating they would refuse to accept any non-public information during the meeting. On June 18 the board indicated that they do not wish to communicate directly with the shareholder group. We previously covered ITEX in our April 9 Catalyst Research Report, highlighting a March 23 rd letter from the Polonitza Group to ITEX s board stating that they will continue to seek the following changes at the company: - Improve the profitability of franchises - Improve corporate governance - Boost the number of franchise locations and overall member growth through organic growth - Provide additional services to the member base - Supply clarity as to the future of ITEX s arrangement with SuperMedia - Proper management of free cash flows - Improve ITEX s churn rate - Splitting the CEO and CFO positions LL&E Royalty Trust (LRTR.PK) Activist Investor: Robert Robotti Shares 1,918,821 % Outstanding 10.10% Share Price M 25M 26M 0 N/A 52 wk. range EV/ N/A On June 29 Robotti sent a letter to The Bank of New York Mellon Trust, as Trustee for LL&E, in which they proposed a sale of the Trust assets for units of a newly formed LLC, to preserve unit holder value. In the letter Robotti outlined the steps that would need to be taken to effect the transaction. We previously covered LRT in our May 7, 2010 and October 24, 2008 Catalyst Research Reports, highlighting Robotti s letter to The Bank of New York Mellon Trust Company calling upon them to delay the sale of the Trust's assets and only to proceed if it receives a bid that reflects the intrinsic value which Robotti believe is a multiple of the Trust's current capitalization (at that time it was $23 million). In addition, Robotti requested the Trustee to call a meeting of Unit holders for the purpose of amending the Trust Agreement to extend the term of the Trust for an additional three years. In the Oct letter Robotti provided a very detailed value analysis of the assets owned by the Trust (see link below). On April Robotti sent a letter to LRT proposing they raise $3-5M through a rights offering and use the proceeds to transfer the Trust s assets into a newly formed publicly-traded pass through entity in order to remove the 2010/2011 deadline on the sale of the Trust s assets. Continue to Next Page Page 6 of 11

7 Penwest Pharmaceuticals Co (PPCO) Activist Investor: Perceptive Advisors; Tang Capital Shares 13,172,044 % Outstanding 41.3% Share Price M 104M 95M 9M 5M 52 wk. range EV/ 20.7 On June 22 Perceptive Advisors and Tang Capital announced their director nominees were elected to the board. As a result, the dissident s nominees now constitute a majority of the board of directors. We previously covered PPCO in numerous Catalyst Research Reports dating back to On January 9, 2009 Perceptive and Tang announced their intention to elect three directors and in June Perceptive and Tang won two board seats at the annual meeting. On February Perceptive and Tang nominated three individuals to the board for election at the 2010 annual meeting. Rock of Ages Corp. (ROAC) Activist Investor: North Star Investment Management Shares 739,551 % Outstanding 15.4% On June 28 North Star sent a letter to ROAC stating they are still undecided as to the merits of the May 6, 2010 unsolicited proposal by Swenson Granite to purchase the company for $4.38 per share in cash, stating their belief that the true value of the company is substantially higher. Share Price M 29M 44M -15M 5M 52 wk. range EV/ 8.2 Page 7 of 11

8 CONTACT INFORMATION: Hedge Fund Solutions, LLC Damien J. Park Tel FREE Subscription to the weekly report: or The Catalyst Equity Research Report is a general circulation weekly. Hedge Fund Solutions and/or its affiliates (the Firm ) may have a consulting relationship with the companies featured in this report (the Companies ). The Firm may also actively trade in the securities of the Companies for its own account. At any time, the Firm, funds it manages and/or its employees or their family members may have a long or short position in registered or non-registered securities or in options on any such security of any company mentioned in this report. The information contained in this report is not a complete analysis of every material fact with respect to the company, industry, or security and is not an offer or solicitation to buy or sell any security. Although opinions and estimates expressed in this report reflect the current judgment of the Firm, the information upon which such opinions and estimates are based is not necessarily updated on a regular basis. In addition, opinions are subject to change without notice. The Firm from time to time may perform consulting services for companies mentioned in this report and may occasionally possess material, nonpublic information regarding such companies. This information is not used in the preparation of this report. Facts and other information contained in this report have been obtained from the public sources considered reliable but are not guaranteed in any way. Hedge Fund Solutions Portfolio of Activist Investing Products Catalyst Investment Research Daily: Alerts Weekly: Catalyst Equity Research Report Quarterly Buying Analysis Top 50 Activist Investors Specific Activist Target Catalyst Investment Research Special Reports Shareholder Activism Report & Resource Portal Download a Brochure Page 8 of 11

9 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 9 of 11

10 PLATINUM SPONSORS Proxy Advisors The Altman Group is a full service proxy solicitation firm whose senior professionals have over 250 years of industry experience. We have developed one of the most experienced proxy fight teams in the industry, having been retained in 46 contested solicitations over the past 3 years alone and our 80% win record is unequaled. We were presented with the 2008 TOPS Award recognizing the firm with the highest rated proxy solicitation practice (the third consecutive win for us). We provide strategic consulting, shareholder identification, institutional and proxy advisory firm insight and advanced proxy solicitation services. Paul Schulman, Executive Managing Director pschulman@altmangroup.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 10 of 11

11 GOLD SPONSORS Laurel Hill Advisory Group is a full service, cross-border proxy solicitation firm whose partners and associates are highly recognized in the areas of corporate governance, shareholder activism, and mergers & acquisitions. Laurel Hill was founded in late 2007 by a team of experienced professionals who have worked on over a hundred proxy fights and deals in the U.S. and Canada in the past two years. We are the fastest growing proxy firm in North America providing expertise in corporate governance consulting, shareholder identification, corporate actions (tender offers, consent solicitations), strategic proxy solicitation advisory services, and shareholder asset recovery programs. Tom Cronin, Partner tcronin@laurelhillag.com Tel: SSG Capital Advisors, LLC ( SSG ) is a nationally recognized independent investment bank that assists public companies, as well as their stakeholders in providing strategic alternatives analysis including sales and acquisitions, optimizing capital structures, evaluating dividends and share buyback programs, business unit divestitures, monetization of intellectual property, preservation of NOL s, PIPEs, and strategic investments such as joint ventures. As a specialist in maximizing shareholder value we offer the expertise our clients need in today's complex and ever changing financial markets. Since 2001, SSG has successfully completed over 160 investment banking assignments on behalf of clients throughout North America and Europe. Mark Chesen, Managing Director mchesen@ssgca.com Tel: Page 11 of 11