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 April 30, 2010 SYMBOL COMPANY INVESTOR AVSO.OB Avatech Solutions, Inc. Donald Walsh BBND BigBand Networks, Inc. ValueAct Capital CASB Cascade Financial Corp Craig Skotdal DENN Denny s Corp The Committee to Enhance Denny s DHG DWS Dreman Value Income Edge Fund Western Investment DVD Dover Motorsports Marathon Capital EMMS Emmis Communications Corp Alden Global Distressed Fund ENTZ.PK Entrx Corp Brian Cassady FUN Cedar Fair LP Q Funding KEF Korea Equity Fund Bulldog Investors PQ PetroQuest Energy Inc. SPO Advisory SWWI.PK Simon Worldwide Inc. Everest Special Situations TESS Tessco Technologies Discovery Capital TYW TS&W Claymore Tax-Advantaged Balanced Fund Western Investment (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. 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 Avatech Solutions, Inc. (AVSO.OB) Activist Investor: Donald Walsh Shares 6,819,787 % Outstanding 39.9% 0.55 Share Price M 17M Enterprise Value 14M 3M 1M 52 wk. range EV/ 10.4 On April 27, an investment Group consisting of 37 investors - totaling 39.9% of AVSO shares outstanding, announced their intention to (i) effectuate a sale, (ii) influence management, and if possible work with them, to pursue shareholder value enhancement strategies, and (iii) engage in discussions with third parties with respect to (i) and (ii). We previously covered AVSO in our April 2 Catalyst Research Report, highlighting the Group s February 24 announcement that they intend to influence management to pursue a sale. On March 31 AVSO commented on the group s filing stating, We remain committed to our current strategic plans and believe that they are in the best interest of all Avatech stakeholders including those represented in the 13D group. We have been steadfast in improving the financial model of the business resulting in positive income and cash flow for each quarter in this fiscal year. This attention to cost management and profitability was a cornerstone of the plan that allowed us to navigate through the recent recession and we have emerged in a position of strength. Our balance sheet is stronger than it has ever been. Our core business is exceptionally solid and our leadership position in the markets we serve continues to be one of our most valuable assets. In addition, we have been able to hold on to what we believe is the best work force in the industry and our technical expertise continues to give us a significant competitive advantage. BigBand Networks, Inc. (BBND) Activist Investor: ValueAct Capital Shares 6,357,162 % Outstanding 9.4% 3.30 ValueAct has been aggressively increasing their ownership position in BBND recently - having purchased approximately 9.4% of the company s shares outstanding since mid-january. Share Price M 226M Enterprise Value 50M 172M 0 52 wk. range EV/ 381 Cascade Financial Corp. (CASB) Activist Investor: Craig Skotdal Shares 1,396,800 % Outstanding 11.5% On April 27 CASB entered into a settlement agreement with a shareholder group led by Craig Skotdal. Under the terms of the agreement CASB agreed to add three new members to an expanded board of fifteen. In addition, the board agreed not to pay executive bonuses until the Company has repurchased the preferred stock issued in conjunction with capital received under the government s TARP program. Share Price M 24M Enterprise Value 302M -277M 52 wk. range EV/ Page 3 of 12

4 Denny s Corp. (DENN) Activist Investor: The Committee to Enhance Denny s Shares 7,046,127 % Outstanding 7.1% 2.22 Share Price M 335M Enterprise Value 579M -256M 91M 52 wk. range EV/ 6.4 On April 27 The Committee to Enhance Denny s added the Murano Group to their investment Group. The total shares now owned by The Committee is 7.1% of DENN shares outstanding. We previously covered DENN in our March 5, January 22, 2010; and October 12, 2007 Catalyst Research Reports, highlighting Olstein Capital s (in 2007 a 9.5% owner but no longer invested in DENN) announcement that the stock was undervalued at $4.76/share and that steps could and should be taken to increase market valuation. We also reported that Oak Street Capital and Soundpost Partners had accumulated approximately 5.0% of DENN since early November On January 21 they filed an active ownership position with the SEC which revealed very little other than their belief that DENN represented an attractive investment. On March 1 Dash Acquisitions, Oak Street and Soundpost (collectively 6.5% shareowners) formed The Committee to Enhance Denny s and announced they have nominated three individuals to the board for election at the 2010 annual meeting on May 19. The Committee s website is DWS Dreman Value Income Edge Fund, Inc. (DHG) Activist Investor: Western Investment Shares 2,888,974 % Outstanding 11.2% Share Price M Enterprise Value 52 wk. range EV/ On April 20 Western filed a definitive proxy statement in connection with their proxy solicitation to elect four new directors to the board of DHG. The meeting is scheduled for May 24, We previously covered DHG in our March 26 Catalyst Research Report, highlighting Western s March 25 nomination of four individuals for election to the board of DHG. In addition, Western submitted a shareholder proposal that the board remove the classified board structure so that all directors are elected annually. DHG is a closed-end fund. As of April DHG was trading at a discount to its Net Asset Value. Continue to Next Page Page 4 of 12

5 Dover Motorsports Inc. (DVD) Activist Investor: Marathon Capital Shares 3,184,590 % Outstanding 17.49% Share Price M 79M Enterprise Value 125M -43M 8M 52 wk. range EV/ On April 26 Marathon sent a case study (which Marathon commissioned) to the board of DVD outlining the reasons why DVD is undervalued. The case study can be viewed here: We previously covered DVD in our April 9, March 5, 2010; December 18, November 27, November 13, October 7, May 15, March ; December 12, September 19, June 20, May 30, May and July Catalyst Research Reports, highlighting Marathon Capital s announcement that they had urged management to initiate a sale process. On November Marathon sent a letter to the Trustees of RMT Trust offering to acquire their ownership in DVD for $2.35 per share. On November 17 the Trustee for the RMT Trust, who control DVD through the supermajority voting class A shares, said they have no interest in pursuing Marathon s $2.35/sh purchase offer. On March GAMCO Investors (7.7% shareholder) sent a letter to DVD announcing their intention to vote their shares in favor of a proposal submitted by Marathon at the 2009 annual meeting to eliminate the poison pill. Marathon claims that over 90% of non-insiders voted to remove the company s poison pill. On December Marathon sent another letter to the board expressing concern over the board s ability to enhance shareholder value. On March Marathon entered into an exclusive agreement with H.A. Humpy Wheeler (a Nascar racetrack manager) to help address value enhancement opportunities at DVD. On April 7 Marathon sent a letter to DVD requesting the company provide further clarification on their statement in opposition to Marathon s shareholder proposal to eliminate the restrictions of the transferability of class A common stock. Currently, the company s bylaws prohibit class A common stock to be sold or transferred to anyone other than existing class A shareholders or members of their immediate family. Emmis Communications Corp. (EMMS) Activist Investor: Alden Global Distressed Opportunities Fund Shares 10,456,646 % Outstanding 25.2% Share Price M 88M Enterprise Value 421M -333M 33M 52 wk. range EV/ 12.9 On April 26 Alden (along with the company s CEO) submitted a letter of intent to purchase EMMS for $2.40 per share. We previously covered EMMS in numerous Catalyst Research Reports (most recently on July ), highlighting Arnhold & S. Bleichroeder Advisers (4.6% shareholder), Chesapeake Partners (7.4%) and activist investor Farallon Partners (10.4%) recommendation that the board seriously consider proceeding with whatever steps are necessary to sell properties and return capital to shareholders. On July Martin Capital sent a letter to EMMS criticizing the board for the company s poor performance over the past 14 years (at that time EMMS was trading at $1.56 per share). In the letter, Martin suggested shareholders would have received a better return on their investment in EMMS by burying his money in a coffee can in the backyard for a decade and a half. Also in the letter, Martin questioned the independence of the Company s lead independent director due to her close relationship with EMMS s Chairman & CEO (and 60% shareholder). Finally, Martin suggested the best course of action for the business is an orderly divestiture of its operating assets and equitable distribution of the proceeds to both A and B class shareholders. Page 5 of 12

6 Entrx Corp. (ENTZ.PK) Activist Investor: Brian Cassady Shares 737,498 % Outstanding 9.9% Share Price M 3M Enterprise Value 1M 2M 0.1M 52 wk. range EV/ 8.1 On April 22 Brian Cassady was appointed to the board of ENTZ. We previously covered ENTZ in our March 19, February 12 and January 15, 2010 Catalyst Research Reports, highlighting Cassady s letters to the board requesting the opportunity to discuss and actively assist in the value creation process at the company. He also inquired about becoming a member of the board. Cedar Fair LP (FUN) Activist Investor: Q Funding Shares 10,021,418 % Outstanding 18.2% Share Price M 807M Enterprise Value 2.5B -1.7B 309M 52 wk. range EV/ 8.2 On April 28 Q Funding announced their intention to nominate two independent directors for election to the board at the Company s June 7 annual meeting. In addition, Q disclosed they have hired executive search firm Spencer Stuart to identify the candidates. We previously covered FUN in our April 9, March 19, February 12 and February 5 Catalyst Research Reports, highlighting Neuberger Berman Group s (9.6% at an avg. cost of $14.16/sh) opposition to a buyout offer from private equity firm Apollo. On February 12 Q Funding announced they did not believe FUN could obtain the necessary shareholder approval to do the deal at $11.50 per share. On March 15 FUN postponed the special meeting to vote on the buyout until April 8, On March 16 Q Funding sent a letter to FUN stating that they will not participate in any transaction that will require them to sell their shares and not participate in the long-term value potential of the business. On April 9 (following the company s April 7 announcement that the $11.50/sh merger deal with Apollo Management had been terminated) Q Funding announced their intention to engage in conversations with the company and other shareholders about the future of the business. Korea Equity Fund, Inc. (KEF) Activist Investor: Bulldog Investors Shares 652,198 % Outstanding 5.82% Share Price M 112M Enterprise Value 109M 4M 52 wk. range EV/ On April 16 Bulldog sent a letter to KEF announcing their intention to submit two shareholder proposals for inclusion on the company s proxy materials (one proposal is to liquidate the fund). Bulldog also nominated one individual for election to the board at the next annual meeting. As of April 30 KEF (a closed-end fund) was trading at a % discount to its net asset value. Page 6 of 12

7 PetroQuest Energy Inc. (PQ) Activist Investor: SPO Advisory Shares 5,145,700 % Outstanding 8.1% SPO Advisory has purchased 8.1% of PQ since early April. On April 30 the Fund filed an active ownership position with the Company. Share Price M 380M Enterprise Value 531M -157M 157M 52 wk. range EV/ 3.4 Simon Worldwide Inc. (SWWI.PK) Activist Investor: Everest Special Situations Fund Shares 0 % Outstanding 0 0 Share Price M Enterprise Value -2M 15M 52 wk. range EV/ On April 19 Simon Worldwide repurchased all of Everest s ownership (3,589,201 shares) in the company for $0.35/share. We previously covered SWWI in our June 15 and April Catalyst Research Reports, highlighting Everest s demands that the Company hold an annual meeting to elect directors, hire an investment bank to explore strategic alternatives, and have the majority of preferred shareholders agree to reduce its liquidation preference. In February, Everest sent a letter to SWWI proposing that the Company restructure by exchanging preferred stockholders shares with 70% of common stock and that Everest would elect two representatives to the board of directors. Continue to Next Page Page 7 of 12

8 Tessco Technologies (TESS) Activist Investor: Discovery Equity Partners Shares 680,092 % Outstanding 14.2% Share Price M 129M Enterprise Value 120M 2M 17M 52 wk. range EV/ 7.1 On April 22 Discovery gave a presentation to the board of TESS relating their concerns about the company s corporate governance practices. In the presentation, Discovery recommended steps to improve shareholder value. The presentation is available here: We previously covered TESS in our March 5 and February ; July 24, January ; July 11 and June 13, 2008 Catalyst Research Reports, highlighting Discovery s July letter to the Board explaining they had withheld their votes at the 2008 annual meeting for the election of two directors in order to express its dismay with (i) the Board s adoption, without stockholder approval, of a poison pill and an amendment to the Company s Bylaws to increase the percentage of consenting stockholders required to call a special stockholder meeting from 25% to 50%, (ii) the Company s repurchase of the shares owned by a potential strategic acquirer, and (iii) what Discovery Group views as an emerging corporate governance crisis at the Company. On January Discovery submitted a shareholder proposal requesting shareholders vote to eliminate the poison pill. On July Discovery sent another letter to the board highlighting that 75% of nonmanagement shareholders voted in favor of removing the pill. In the letter Discovery disclosed that several private equity firms are interested in buying the business and suggested the board remove the poison pill and create a committee to adopt and supervise specific guidelines to respond to interests expressed by other parties. On February 1 Discovery submitted a shareholder proposal to be included in the company s proxy materials. The proposal requested shareholders to vote to declassify the board. On March 4 Discovery sent a letter to Tessco s board inquiring about inquiries they have recently received from private equity firms and large distribution companies interested in acquiring TESS. In the letter, Discovery explains why the company is a potential takeover target (low comparable market value and strong product offering that is desirable to strategic buyers) and why the company is being shunned by the market (microcap stock, missed operating targets, adoption of a poison pill, classified board with staggered terms). Finally, Discovery suggests TESS is worth $30-$36 per share in a change of control situation. TS&W Claymore Tax-Advantaged Balanced Fund (TYW) Activist Investor: Western Investment Shares 681,166 % Outstanding 4.44% 9.58 Share Price M 162M Enterprise Value 167M -6M 52 wk. range EV/ On April 26 Western Investment sent a letter to TYW nominating three individuals for election to the board at the 2010 annual meeting. We previously covered TYQ in our February 19 Catalyst Research Report, highlighting Western s submittal of a shareholder proposal to declassify the board. TYW is a closed-end fund that is currently trading at a -9.94% discount to its net asset value. Page 8 of 12

9 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 9 of 12

10 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 10 of 12

11 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 11 of 12

12 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 12 of 12