Riley Investment Gets Active With MAIR (MAIR) Citing Concerns The Fair Value of Mesaba Is Not Being Received

In a 13D filing on MAIR Holdings Inc. (Nasdaq: MAIR), 5.3% holder Riley Investment noted they changed their filing status from 13G to 13D saying they have become concerned that the company is not receiving fair value for its subsidiary Mesaba Airlines, in connection with their negotiations with Northwest Airlines (OTC: NWACQ) with respect to Mesaba’s bankruptcy claim and/or acquisition. The firm said 4.56% holder Lloyd Miller and 1.8% holder Palmyra Capital share their concerns.

Riley believes that the interests of the independent shareholders should be represented in the negotiation and approval of any such transaction. The firm said Northwest, MAIR’s largest shareholder with approximately 28% of the outstanding shares, has a clear conflict of interest in the negotiation process.

Riley said to ensure shareholders are treated fairly, any deal between Northwest and the company or its subsidiary should be approved by a majority of the company’s disinterested shareholders.

Riley also noted the three vacancies on the board and wants to enter discussions with the company to fill the spots with their representatives.

A Copy of the Letter:

Dear Gentleman:

Riley Investment Management holds approximately 5.2% of the outstanding shares of MAIR Holdings. As we have previously discussed, we are aware of acquisition discussions between Northwest Airlines and Mesaba Airlines, a wholly owned subsidiary of MAIR, and have noted Northwest’s most recent amended Schedule 13-D. We believe the $145 million claim amount proposed by Northwest is grossly inadequate. We believe that Lloyd Miller, who holds approximately 4.56% of the MAIR stock, Palmyra Capital Advisors which holds approximately 1.8% along with several other shareholders, share our concerns.

We believe that for meaningful discussions on claim values or acquisition values to occur between Northwest Airlines and Mesaba, it is necessary that MAIR’s independent shareholders participate. Northwest, MAIR’s largest shareholder with approximately 28% of the outstanding shares (not 39.5% as claimed in Northwest’s 13-D filing), has a clear conflict of interest in the negotiation process and the current MAIR directors may have long-standing relationships with Northwest due to its stake in the Company. To assure fairness in both substance and procedure, it is imperative that the interests of other significant shareholders are actively involved in the negotiation and approval of any transaction. The board cannot assume that Northwest will negotiate for the company or its shareholders’ best interests. Nor can it be assumed that, if the company’s shareholders are asked to approve any transaction with Northwest, Northwest, as a MAIR shareholder, will vote its shares in the best interest of the company or the company’s disinterested shareholders. Shareholders of MAIR should remember that Doug Steenland, president of Northwest Airlines, appears to have ignored similar conflict of interest issues when he served on the board of MAIR during the negotiation of Mesaba’s current ASA and also oversaw MAIR’s $30 million investment into Mesaba. Both the ASA and $30 million investment were completed less than three weeks prior to Northwest Airlines filing for bankruptcy and under Mr. Steenland’s watch as a MAIR board member.

To ensure the fair treatment of the company’s shareholders, any deal between Northwest and the company or its subsidiary should be approved by a majority of the company’s disinterested shareholders. We hope you concur. We are offering to play a constructive role in this process in the effort to receive fair value for our ownership of Mesaba. Because we represent a significant percentage of MAIR’s outstanding stock not held by Northwest and are not conflicted with regard to the negotiations with Northwest, we believe our participation would improve the negotiating process. We note there are currently three vacancies on the board and wish to enter into immediate discussions regarding placing our representatives on the board.

Given the announcement by Northwest of its plans, and the need for a timely response, we would be interested in meeting with you soon to discuss our views. If you prefer, we will seek to include other significant holders in such a meeting.

If our concerns are not addressed, we reserve our rights to protect our interests and those of other holders by all reasonable methods, including intervention in the Mesaba or Northwest bankruptcy proceedings, or seeking to convene a shareholder meeting which would amend the MAIR bylaws to require approval by holders not affiliated with Northwest, and possibly also seek to enlarge the MAIR board in a manner that would let shareholders fill the new seats created by the expansion.

We hope that we can resolve these concerns amicably in the interest of all shareholders.

Very truly yours,

John Ahn

Principal, Riley Investment Management LLC

Chapman Capital Urges Cypress Semi (CY) to Split-Off SunPower (SPWR) Look at LBO of Core Business

Activist hedge fund Chapman Capital sent a letter to the board of Cypress Semiconductor (NYSE: CY) recommending the company reorganize via a split-off of its controlling stake in SunPower (Nasdaq: SPWR) and subsequent going-private LBO transaction of the core semiconductor business.

Chapman Capital said they own 1.5 million shares, or just over 1% of the Cypress stock.

Chapman said it is their understanding that this past fall, the company engaged Credit Suisse to represent Cypress in LBO discussions that valued Cypress Core at $1.8-$2 billion. The firm said based on the core value and including the SunPower stake the stock should be worth $22 per share, which compares to the current market price of around $16. Chapman said taking into account Cypress' existing cash balances, one could argue that Cypress core now trades at nearly the same value as when it was taken public twenty years ago.

Chapman said "given the salubrious environment for private equity capital and relatively healthy stake of the Cypress Core business, there is a strong argument to be made that striking while the iron is hot is readily applicable to a Cypress Core LBO."

Chapman said they are "investors and not speculators associated with Cypress", indicating they are in for the long-term.

Chapman also said they plan to hold founder T. J. Rodgers to his promise that "you and I are going to make as much money as fast as we can on this."

Letter

The letter is very long, but you can read the full letter here: Chapman Capital Recommends Reorganization of Cypress Semiconductor Corporation

DG FastChannel (DGIT) Confirms 11.4% Point.360 (PTSX) Stake, Notes Past Nondisclosure Agreement

UPDATE: In a 13D filing before the close on Point.360 (Nasdaq: PTSX), DG FastChannel (Nasdaq: DGIT) confirmed they acquired an 11.4% stake (1.1 million shares) in the company. The stake was noted earlier in a filing from Midwood Capital, which sold the PTSX stake to DGIT. The shares were purchased at $3.25 in a transaction dated 12/22.

In a pretty standard disclosure, DG FastChannel said it may in the future seek the views of, hold active discussions with and respond to inquiries from members of the board of directors, officers or representatives of the Company and other persons regarding the Company’s affairs and strategic alternatives, and the interests of other stockholders in participating in such alternatives.

DG FastChannel also noted in the filing that they entered into a Nondisclosure Agreement with the Company on August 16, 2006 for purposes of evaluating a possible business relationship.

Shares of Point.360 finished 49% higher today on the news.

Nierenberg Investment Management Requests $4 Special Dividend from Electro Scientific (ESIO)

In an amended 13D filing on Electro Scientific Industries Inc. (Nasdaq: ESIO), 9.5% shareholder Nierenberg Investment Management disclosed a letter sent to the sent to the Chairman of the Board of ESIO proposing a special one-time cash dividend of $4.00 per share.

The firm said it is their understanding that their dividend proposal will be considered at the meeting of ESIO's Board to be held in mid-January 2007 and said they will await the outcome of that meeting before making any decisions as to any future action they might take with respect to their proposal.

A Copy of the Letter:

Dear Jon,

Anticipating that Electro Scientific Industries' (ESI) Board of Directors maymeet before the company announces second quarter earnings, we respectfully request that ESI pay a one time dividend of $4.00 per share to all shareholders. Paying such a dividend would demonstrate powerfully ESI's commitment tomaximizing both shareholder value and return on equity (ROE). We see no adverse consequences from such a dividend. (To be clear, we do not favor a sharere purchase or an ongoing dividend. All we seek is a one time dividend similar tot hat paid by Microsoft. In our experience, repurchase and ongoing dividend programs are often more symbolic than real.)

When we visited you October 5th, after the company's annual shareholder meeting,you put your finger on exactly what has been troubling us about ESI: the stagnation of its share price. We discussed three things which you and the company could do to increase director ownership of ESI shares. Unfortunately most of what we discussed has not occurred, at least not yet, and what has occurred has been minor. Aggregate outright ownership of ESI shares by its eight outside directors has risen from zero to only 4,000 shares, an average of only5 00 shares per director. Since we see little evidence that ESI is requiring outside directors to have meaningful "skin in the game," we have decided to stop pushing it. We will focus, instead, on the fundamental issue: the stagnation of ESI's share price, much of which we attribute to sub-optimal allocation of capital.

ESI's share price has fluctuated around $20 per share for a decade. One can contend persuasively that ESI deserves better than being a stock market"flat-liner." You and the other outside directors bring strong industry experience. ESI has a solid management team. We believe that Nick Konidaris is a terrific CEO and we have been positively impressed in our discussions with Tom Wu and John Metcalf, both of whom Nick hired. ESI enjoys leading market shares in its major businesses, where it solves the problems of sophisticated global customers. ESI is good corporate citizen in Oregon. Recently, ESI has introduced exciting new products, reinvigorating its existing businesses, and, we hope, launching several promising new ones. And the company enjoys a fortress balance sheet, fed and protected by a business model which should generate positive operating cash flow, even during downturns.

But ESI's balance sheet also depresses ROE and may encourage loose spending. 38%of ESI's current share price sits in cash and marketable securities, lon gawaiting deployment, earning only a 4% pre-tax return. For more than six years,ESI has carried over $4 per share in cash and marketable securities on its balance sheet. Since the beginning of 2000, ESI's total cash and marketable securities has nearly quadrupled, through a secondary offering and retained earnings. ESI's most recent balance sheet showed $7.33 in cash and marketable securities per issued and outstanding share.

We believe that just two factors drive a company's long term share price: growthin earnings per share and its ROE. While ESI's recent investments in R&D are beginning to drive higher sales and profits, it will be very difficult for ESI to reach and sustain a mid-teens ROE with cash-bloated shareholders equity ofnearly $400 million. Even if ESI were to earn $1.00 per share in calendar 2007, this accomplishment would only drive a 7% ROE, half the level we consider appropriate for an enterprise with ESI's management quality and market share. We are convinced that unless ESI pays out a large special dividend, the company cannot reach and sustain an acceptable ROE. And, without a strong ROE, ESI'sshare price will continue to languish.

One of a Board's primary responsibilities is to be the ultimate allocator of capital. We are convinced that when a company retains too much cash, and does not use it for a long time, its other allocations of capital may be distorted by its wealth, further diminishing investor returns. For example, companies flush with cash may pour too much money into real estate, such as manufacturing facilities, laboratories, and offices. The current trend toward outsourcing makes such investments particularly ill-timed. Companies may sink too much money into expensive software system deployments, without adequate payback. They may even begin to act like diversified investment funds, putting the shareholders' money into other operating companies. The lesson of our experience is that cash is spent most wisely when there is less of it.

Paying out $4.00 cash per share will not stress or impair ESI. The company remains profitable; it is further reducing costs; and it should generate profits and positive operating cash flow in most foreseeable circumstances. Paying a special cash dividend should not jeopardize employee retention or customer or vendor relationships. Nor would paying such a dividend put ESI's growth strategy at risk. Even after paying out a $4.00 per share cash dividend, ESI would retainnearly $100 million of cash and $211 million of net working capital and have zero debt. Should the company find an acquisition, it still would have plenty of dry powder. Moreover, to fund a large acquisition, the company could issue stockto pay the seller; it could sell additional equity in a private placement or a secondary offering; and it could borrow.

You may recall from our prior discussions with you and management that our concerns about capital allocation and ROE are neither new nor casual. We alsohave been sharing these concerns with some of the company's large shareholdersand some of the analysts who follow the company. Seven investment firms ownalmost half the company's shares.

You can expect us to continue discussions with ESI's largest shareholders, as only five or six months remain before we must decide whether and how to bring our concerns before the next annual shareholders meeting. It is possible that we may press for the dividend in several different ways, such as by introducing a resolution at the annual meeting or even by nominating our own outside director candidates. Our strong preference, like yours, would be to conserve time and money by avoiding an electoral contest, but we raise these possibilities here today to demonstrate the gravity of our concern and our willingness to invest in preparing, if necessary, a campaign of persuasion.

In conclusion, we want to reiterate our enthusiasm for ESI and note that ourconcern about allocation of capital is an issue which transcends the company. Too many public technology companies today are cocooned in green blankets. Inallocating capital they often are fighting the last war, driven by memories ofan era when growth was faster and cyclicality steeper. While understandable, this mindset undervalues what ESI management has done, and is doing, to reducecost, broaden revenues, and diminish cyclicality. It is time for ESI's Board to share the green blanket with its ultimate owners, your shareholders. We are happy to discuss this issue further with you at any time.

Thank you for listening to our concerns.

Sincerely yours,

David Nierenberg

Point.360 (PTSX) Surges After DG FastChannel (DGIT) Buys 1.1M Shares

Point.360 (Nasdaq: PTSX) is soaring higher this morning following a 13D disclosure after the close Wednesday that large holder Midwood Capital sold its entire 1,108,674 shares to DG FastChannel (Nasdaq: DGIT) on 12/22 for $3.25 in a privately negotiated transaction. The shares represent over 11% of Point.360. Shares of Point.360 closed at $2.40 per share the day of the transaction. The stock is current at $3.24, up 37% on the session.

ValueAct Capital Raises Stake in PRA International (PRAI) to 14.4%

In an amended 13D filing on PRA International (Nasdaq: PRAI), ValueAct Capital disclosed a 14.4% stake (3.48 million shares) in the company. This is up from the 11.2% stake (2.58 million shares) the firm disclosd in August.
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Steel Partners Lowers Stake in Walter Industries (WLT) to 4.3%

In an amended 13D filing on Walter Industries, Inc. (NYSE: WLT), Steel Partners II disclosed a 4.3% stake (1.875 million shares) in the company. The hedge fund disclosed sales of 538,554 shares from 12/21 thru 12/26 at prices from $27.09 to $27.57.

Harbinger Capital Seeks to Elect Two to Openwave (OPWV) Board

In a 13D filing on Openwave Systems, Inc. (Nasdaq: OPWV), Harbinger Capital and related funds disclosed a 10.6% stake (10 million shares) in the company and the filing of preliminary proxy material in order to elect James L. Zucco and Andrew J. Breen to the Board of Directors. The firm changed their filing status from 13G to 13D, indicating their new activist stance with the investment.

If Mr. Zucco and Mr. Breen were elected they plan to propose (i) establishing a unified and focused vision for the company's overall product offering with the company's most strategic core products; (ii) phasing-out non-performing product lines to reduce costs; (iii) immediately reducing quarterly operating expenses to approximately $50 million and (iv) immediately commencing a significant share repurchase program.

Shamrock Activist Value Fund Discloses 6.67% Stake in ProQuest (PQE)

In an original 13D filing after the close on ProQuest Company (NYSE: PQE), Shamrock Activist Value Fund disclosed a 6.67% stake (1.99 million shares) in the company.

The hedge fund said it has no current plans or proposals with respect to the Company or its securities of the types enumerated in paragraphs (a) through (j) of this Item 4 to the form Schedule 13D promulgated under the Act.

Shares of ProQuest are trading near a 52-week low and recently suffered heavy losses after announcing an ongoing accounting review will result in the restatement of previously reported earnings for fiscal years 2001 through 2004 and for the first three quarters of 2005. The company sees earnings before interest and taxes significantly lower for each year of the restatement.

Glenview Capital Management Sells 3M Take-Two Interactive (TTWO) Shares

In an amended 13D filing on Take-Two Interactive Software Inc. (Nasdaq: TTWO), Glenview Capital Management disclosed a 6.7% stake (4.88 million shares) in the company. The firm disclosed sales of 3 million shares on 12/21 at $19.25 per share.

Icelandic Investment Company FL Group Discloses Nearly 6% Stake in AMR Corp (AMR)

In a 13G filing (passive stake) on AMR Corporation (NYSE: AMR), Icelandic investment company FL Group disclosed a 5.98% stake (12.8 million shares), making it the third largest shareholder in the airline.

In a statement, FL Group said it has been building its stake for a considerable period of time and the total investment exceeds US $400 million.

FL Group is known for its investments in airline industry, which represents approximately 25% of its total assets. On its easyJet stake, the company made a profit of US $190 million when it was sold in April 2006 and on its stake in Icelandair, FL Group made a profit of US $400 million in October 2006.

Hannes Smarason CEO of FL Group said: "We believe AMR Corp. is well positioned to take advantage of the growing US air travel market. The supply-demand balance has improved considerably over the last several years and the company enjoys one of the best positions in the industry to take advantage of that as well as to build auxiliary revenues. We are excited about this investment."

Afternoon reports from FT.com, said the group plans to request a meeting with the company's management.

NOTE: The stake was reported earlier at our main site in the 13G section. You can track more 13G here: http://www.streetinsider.com/13Gs

Northwest Airlines Discloses Talks With MAIR Holdings (MAIR) Regarding Possible Mesaba Buyout

In an amended 13D filing after the close Friday on MAIR Holdings Inc. (Nasdaq: MAIR), 39.5% holder Northwest Airlines (OTC: NWACQ) confirmed that Northwest, MAIR's wholly owned subsidiary Mesaba Aviation, the committee of unsecured creditors of Mesaba and MAIR Holdings are in discussions with respect to entering into a potential acquisition by Northwest of all the equity interests in an entity resulting from a bankruptcy plan of reorganization of Mesaba (the principal consideration in such acquisition would consist of Mesaba having an allowed general unsecured claim in Northwest’s bankruptcy case in an amount equal to $145 million).

Northwest, Mesaba, the UCC and MAIR have not reached any definitive agreement with respect to the Potential Acquisition and there can be no assurances as to whether or when any such agreement will be reached.

Shares of MAIR Holdings surged last week after he President of Mesaba, John Spanjers, disclosed the Northwest talks in a letter to its 3,000 employees Wednesday.

Bay Harbour Management Discloses 6% Stake in Sunterra (SNRR)

In a 13D filing Friday on Sunterra Corporation (OTC: SNRR), Bay Harbour Management disclosed a 6% stake (1.18 million shares) in the company.

In a pretty standard disclosure, the firm said, although its plans may change, they currently have no plan or proposal which relates to, or would result, in any of the events or transactions described in Item 4(a) through (j) of Schedule 13D.

QVT Financial Discloses 6.4% Stake in Top Tankers (TOPT)

In a 13D filing after the close Friday on Top Tankers Inc. (Nasdaq: TOPT), QVT Financial LP disclosed a 6.4% stake (1.8 million shares) in the company.

In a pretty standard disclosure, the firm said they may consider transactions of the type described in subparagraphs (a) through (j) of Item 4 of the Instructions to Schedule 13D and, subject to applicable law, may formulate a plan with respect to such matters. In addition, from time to time, the reporting persons may hold discussions with or make formal proposals to management or the board of directors of the Issuer, other stockholders of the Issuer or other third parties regarding such matters.

The firm said the shares were purchased between August 10, 2005 and December 21, 2006 for approximately $18.3 million.

Pirate Capital Discloses 5.6% in Mueller Water (MWA) From Walter's Spin-Off

Earlier we noted that Pirate Capital disclosed a 5.6% stake in Mueller Water Products Inc. (NYSE: MWA). Well this is true, but the stake was received from the spin-off of Mueller from Walter Industries Inc. (NYSE: WLT), a position Pirate has held.

So our earlier headlines that Pirate Capital is alive and well was a little premature. While the firm has shown its activism recently in Brink's (NYSE: BCO) and raised its stake in a few positions, the liquidations of its positions outweighs any buying and we still have not seen a new position since the hedge fund's shake-up in the fall.

NOTE: Our earlier post was deleted.

Parlux Fragrances (PARL) Holder Nussdorf Files Preliminary Consent Statement To Remove and Replace Board

In an amended 13D filing on Parlux Fragrances Inc. (Nasdaq: PARL) 12.2% holder Glenn H. Nussdorf disclosed he filed a preliminary consent statement on Schedule 14A with the SEC in connection with his proposed solicitation of consents from the holders of Common Stock to (i) remove, without cause, all existing members of the Company's Board of Directors, and (ii) elect himself, Michael Katz, Joshua Angel, Anthony D'Agostino, Neil Katz and Robert Mitzman as the directors of the Company.

Link to Preliminary Consent Statement

Large TLC Vision (TLCV) Holder Sowood Changes Filing Status to 13D, Seeks Talks with Management

In a 13D filing after the close on TLC Vision Corp. (Nasdaq: TLCV), Sowood Capital Management disclosed an 8.1% stake (5.58 million shares). This is unchanged from the position disclosed for the quarter ended September 30. The firm changed its filing status from 13G to 13D, saying it anticipates seeking to engage in discussions with management of the company.

Caxton Associates Raises Stake in InFocus (INFS) to 9.9%

In an amended 13D filing after the close on InFocus Corporation (Nasdaq: INFS), Caxton Associates disclosed a 9.9% stake (3.95 million shares). This is up from the 8.9% stake (3.55 million shares) the hedge fund disclosed in the original 13D filing on 10/13.

In the original filing, Caxton said they believe that the intrinsic value of the Company, and the amount a strategic or financial buyer would pay to acquire the Company, is significantly greater than the current market value of the Common Stock.

The firm also said unless significant changes are made promptly, changes in the Board are in the best interests of all shareholders. They also said the Board should immediately work with management to develop a new business plan and said the new plan should be assessed against other available alternatives, including the possibilities of a sale or restructuring of the Company.

In October, InFocus hired Banc of America to evaluate strategic alternatives.

Blum Capital Accumulates 6.9% Stake in Career Education (CECO)

In a 13D filing after the close on Career Education Corp. (Nasdaq: CECO), Blum Capital discloses a 6.9% stake (6.55 million shares) in the company.

In a pretty standard disclosure, Blum said the stake is for investment purposes and said it may in the future communicate with shareholders, officers and/or members of the board of directors of the company.

Pirate Capital Lowers Stake in Walter Industries (WLT) to 5.7%

In an amended 13D filing on Walter Industries, Inc. (NYSE: WLT), Pirate Capital disclosed a 5.7% stake (2.9 million shares) in the company. This is down from the 3.17 million share stake Pirate disclosed for the quarter ended September 30, 2006. The firm held 3.7 million shares for the quarter ended June 30, 2006.

NOTE: Pirate Capital has been liquidating a number of positions recently following the hedge-funds shake-up in the fall.

Steel Partners Continues to Cut Stake in Layne Christensen (LAYN)

In an amended 13D filing on Layne Christensen Co. (Nasdaq: LAYN), Steel Partners II disclosed a 6.6% stake (1.02 million shares) in the company. This is down from the 7.8% stake (1.2 million shares) the company disclosed on 12/13. The firm held 1.42 million shares for the quarter ended September 30, 2006.

On October 16, 2006, Warren Lichtenstein, the head of Steel Partners, resigned from the board of directors of the company and was replaced by Steel Partners VP John J. Quicke. The group has been an activist investor in Layne Christensen for some time, filing its first 13D in December of 2003.

TNS (TNS) Higher Following $20 Offer from Founder/Former CEO

Shares of TNS, Inc. (NYSE: TNS) are higher this morning following an offer from founder and former CEO John J. McDonnell, Jr. to take the company private at $20 per share, through a new acquisition vehicle, Dunluce Acquisition Corporation. The equity for the transaction has been committed to, in its entirety, by ABRY Partner. The offer was disclosed in a 13D filing late Wednesday.

Shares of TNS are up 13% to $19.37 in early action Thursday.

Transaction Network Services is one of the leading providers of business-critical, cost-effective data communications services for transaction-oriented applications.

A Copy of the Letter:

Gentlemen:

We are pleased to present this offer to acquire all of the outstanding shares of common stock (the “Common Stock”) of TNS, Inc. (the “Company”) at a cash purchase price of $20.00 per share through a new acquisition vehicle, Dunluce Acquisition Corporation (“Dunluce”), a Delaware corporation. We believe that our offer is fair and in the best interest of the Company and its stockholders. This offer is fully financed and contemplates all-cash consideration predicated on all stockholders being treated equally. Our offer represents a significant premium over the trading values of the Company’s Common Stock on a 1-day (16.8%) and 30-day average closing price (17.0%) basis. This offer is made without condition, except for the negotiation of definitive documentation and the satisfactory completion of confirmatory due diligence.

Dunluce has received commitments to underwrite the entire purchase price through a combination of debt and equity. The equity for the transaction has been committed to, in its entirety, by ABRY Partners, LLC (“ABRY”). With $2.8 billion of capital under management, ABRY is one of the most experienced and successful private equity investment firms in North America focused on investing exclusively in the media, communications and business services industries. Since 1989, ABRY has completed over $18.0 billion of leveraged transactions and other private equity and mezzanine investments, representing investments in more than 450 media, communications and business services properties. Additionally, we have secured debt commitments from each of JP Morgan, Morgan Stanley and SunTrust to fully underwrite the debt upon closing of the transaction. Commitment letters from ABRY and each of the lenders are enclosed herewith.

Given my longstanding involvement in the Company as its founder and CEO, our financing group will be in a position to complete confirmatory due diligence and finalize a merger agreement in an expedited manner. I am aware of the Board’s desire to minimize distractions to the Company and its management and have spent considerable time with each of the financing sources discussing the business. Furthermore, each of the financing sources has performed significant due diligence from publicly available information.

At this point, all that is left to be done is to enable our financing sources to complete their confirmatory due diligence. The legal and accounting advisors to ABRY and our lenders stand ready to begin their work immediately. Additionally, we are prepared to negotiate a merger agreement concurrently with the confirmatory due diligence period.

This offer will not create a binding obligation on the part of either the Company or Dunluce with respect to any transaction unless and until such time as definitive documentation is approved, executed and delivered by the respective parties.

look forward to working with the Company and its legal and financial advisors in a mutual effort to complete a transaction to benefit the Company’s public stockholders. If we do not hear from you regarding definitive next steps with respect to a transaction process by 5:00pm EST on Wednesday, January 10, 2007, please consider this offer to be withdrawn. Your prompt consideration of this offer is requested. Should you have any questions, please contact us or our financial advisor, Signal Hill Capital Group, LLC.

Please note that Dunluce plans to file this offer as an exhibit to a Schedule 13D with the U.S. Securities and Exchange Commission in compliance with the requirements set forth under the Securities Exchange Act of 1934, as amended.

Sincerely,

John J. McDonnell, Jr.

Chairman and Chief Executive Officer

Dunluce Acquisition Corporation

Clinton Group Lowers Stake in Optimal Group (OPMR) to 4.99%

In an amended 13D filing on Optimal Group (Nasdaq: OPMR) today, Clinton Group disclosed a 1.19 million share stake (4.99%) in the company. This is down from the 1.5 million share stake the company disclosed in an October filing and the 1.61 million share stake the firm held for the quarter ended September 30, 2006.

Recently, Optimal bought back 1.1 million shares, a move Clinton Group was advocating. Optimal also recently announced a offer for all of the issued and outstanding shares its Irish subsidiary FireOne Group plc . In a past letter, Clinton Group said it would be interested buying FireOne.

Shamrock Activist Value Fund Raises Stake in Collectors Universe (CLCT) Slightly

In an amended 13D filing on Collectors Universe Inc. (Nasdaq: CLCT), Shamrock Activist Value Fund disclosed a 10.17% stake (849K shares) in the company. This is up from the 8.96% stake (757K shares) the firm disclosed in July.

Clinton Group (GFF) Discloses 5.2% Stake in Griffon (GFF), Wants Sale of Subsidiaries or Company

In a 13D filing on Griffon Corp. (NYSE: GFF), Clinton Group disclosed a 5.2% stake (1.54 million shares) in the company. The firm also delivered a letter to the company stating its belief that the market price of the Shares fails to reflect the stand-alone value of the company's operating subsidiaries. The letter also indicated the firm's desire to work constructively with Griffon's management to continue to evaluate multiple strategic alternatives for the Issuer, including, but not limited to, a tax-free spin-off or sale to strategic acquirors of one or more of the company's subsidiaries, or a going-private transaction for the company.

In the letter Clinton Group said, "Our analysis ultimately suggests that fair value for Griffon's stock approximates $31-$35, prior to certain adjustments..."

A Copy of the Letter:

Dear Mr. Blau:

We greatly appreciate you and Mr. Edelstein taking the time to discuss with us Griffon Corporation ("Griffon" or the "Company") and its prospects, and we are pleased with management's willingness to listen to shareholder ideas and opinions. Currently, funds and accounts managed by Clinton Group Inc.("Clinton") beneficially own in excess of 5% of the outstanding shares of theCompany.

We have been impressed with the franchise that management has built, and continue to appreciate management's eye towards returning shareholder value through steady share repurchases. We have invested in Griffon because we believe the market price of Griffon shares fails to reflect the true value of the Company's operating subsidiaries, if they were to be valued on a stand-alone basis.

Given the apparent disconnect between each segment's intrinsic value and the Company's current stock price, we were pleased to hear on last quarter's conference call that management was proactively reviewing strategic alternatives with respect to the defense segment. We hope to work constructively with management to continue to evaluate multiple strategic alternatives, including,but not limited to, a tax-free spin-off or sale to strategic acquirors of one or more of Griffon's subsidiaries, or a going-private transaction for the Company. Given the market leading positions of Clopay Corporation's garage door division and specialty films division, as well as Telephonics Corporation's well positioned and growing defense segment, we believe any of these initiatives, or a combination thereof, would unlock significant value for existing shareholders.

Based on our due diligence, we firmly believe that competitors in each respective segment both hold the Company's subsidiaries in high regard and have tremendous strategic interest. Additionally, a publicly traded comparable company analysis as well as our due diligence supports the notion that ample demand would exist for Telephonics Corporation in the public market as a stand-alone company.

Our analysis ultimately suggests that fair value for Griffon's stock approximates $31-$35, prior to certain adjustments as footnoted below.

TABLE

We enjoyed meeting with you and hope to continue an open and constructive dialogue. To that end, please feel free to call me at 212-XXX-XXXX or Tobin Kim,Vice President, at 212-XXX-XXX, anytime to discuss any and all issues further at your convenience.

Conrad Bringsjord

Managing Director

Portfolio Manager Event Driven and Activist Investments

Bill Ackman's Pershing Square Accumulates 11.3% Stake in Ceridian (CEN)

In a 13G (passive stake) filing on Ceridian Corporation (NYSE: CEN) this morning, activist investor Bill Ackman's Pershing Square Capital hedge fund disclosed an 11.3% stake (15.7 million shares) in the company. The firm did not disclose a position in Ceridian for the quarter ended September 30, 2006.

Ackman may be best known for his fight to implement changes at McDonald's Corp. (NYSE: MCD). He was also instrumental in getting Wendy's International (NYSE: WEN) to make aggressive changes, including spinning off its Tim Horton's (NYSE: THI) chain.

Recently, Ackman has built large stakes in book retailers Borders Group Inc. (NYSE: BGP) and Barnes & Noble (NYSE: BKS) - calling both companies undervalued.

Ceridian is a top human resources outsourcing company.

NOTE: 13G filings at the main premium site are open to the public. You can view them here: http://www.streetinsider.com/13Gs

Mason Capital Discloses 8% Stake in Internet Capital Group (ICGE)

In a 13D filing after the close on Internet Capital Group Inc. (Nasdaq: ICGE), Mason Capital Management disclosed an 8% stake (3.12M shares, 2.7M which represent Convertible Notes owned) in the company.

Mason Capital said it has had discussions with senior management of the comapny concerning the company's business and management and expects to continue to have such discussions in the future.

Chapman Capital Wants a 13D Letter Writer/Editor

The New York Times DealBook blog notes that mega-activist hedge fund Chapman Capital is looking for a 13D Letter Writer/Editor, among other positions. Here's a link to their Craigslist job postings

Job Description:

Activist 13D Letter Writer/Editor: write original and edit/proofread activist 13D correspondences from Chapman Capital to Fortune 1000 CEOs and Boards of Directors. Writers/editors must have articulate and witty approach to written communication. Compensation level is ultra-competitive.

Mellon HBV Alternative Strategies Amends 13Ds Following Buyout/Name Change; Raises ASMI Stake, Lowers CALC

Mellon HBV Alternative Strategies amended some 13D filings after changing its name to Fursa Alternative Strategies pursuant to the sale to Mickey Harley, its CEO. The unit was sold following parent Mellon Financial's (NYSE: MEL) agreement to be acquired by Bank of New York (NYSE: BK)

The firm raised its stake in ASM International NV (Nasdaq: ASMI) from to 4.47 million shares (8.3%) from 4.27 million shares (8%).

The firm lowerd its stake in California Coastal Communities Inc. (Nasdaq: CALC) to 915K shares (8.4%) from 1 million shares (9.9%).

No change to the firm's 1.33 million share stake (12%) in Integral Systems Inc. (Nasdaq: ISYS)

No change to the firm's 349.9 million share stake (36.5%) in CarsUnlimited.com Inc. (OTCBB: CAUL)

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Pirate Capital Now Considering Nominatting Two More to Brink's (BCO) Board

In an amended 13D filing after the close on The Brink's Company (NYSE: BCO), 8.5% holder Pirate Capital, which has been pushing the company for a sale, said the company has not responded to its request that Thomas R. Hudson Jr. immediately be appointed to the company's Board of Directors other than to indicate that Mr. Hudson's nomination for election to the Board will be considered in due course.

Pirate is now contemplating proposing two additional nominees for election at the upcoming annual meeting.

Pirate's effort to have Brink's put on the auction block got a boost yesterday after another large holder, MMI Investments, said they also support a sale.

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Relational Investors Submits Proposal for Changes at Home Depot (HD)

In a recent letter sent to Home Depot Inc. (NYSE: HD), disclosed by the company today, 0.64% holder Relational Investors LLC submitted a shareholder proposal to be considered at the company's 2007 Annual Meeting.

In the proposal, Relational Investors requested that the Board of Directors form a committee comprised exclusively of independent directors to evaluate the strategic direction of the Company and the performance of management, with duties to include studying strategic alternatives for the Company, including a major operational restructuring and/or recapitalization, a partial or complete sale or buyout of the Company, and/or a major recomposition of the executive team.

Relational Investors said it is submitting the Proposal because it believes there is opportunity for substantial appreciation in the value of the stock if the proposed changes are made.

In response to the proposal, Home Depot said it will oppose the formation of the committee but will accommodate a meeting with the firm to be arranged shortly after the first of the year.

Home Depot Proxy

Home Depot Press Release

Blum Capital Lowers Stake in UAP Holding to 6.1%

In an amended 13D filing on UAP Holding Corp. (Nasdaq: UAPH) after the close Friday, Blum Capital disclosed a 6.1% stake (3.13 million shares) in the company. This is down from the 7.1% stake (3.62 million shares) the firm disclosed in an October 20th 13D filing, which showed the firm was buying stock.

SCSF Equities Raises Stake in C&D Technologies (CHP) to 11.1%

In an amended 13D filing on C&D Technologies Inc. (NYSE: CHP), SCSF Equities disclosed an 11.1% stake (2.85 million shares) in the company. This is up from the 9.9% (2.53 million shares) the firm disclosed in November.

Another Large Brink's (BCO) Shareholder Supports a Sale

In an amended 13D filing on The Brink's Company (NYSE: BCO) late Friday, 8.3% holder MMI Investments said it will supports Pirate Capital's proposal that the company immediately engage an investment banking firm to explore all strategic alternatives, including a possible sale.

MMI submitted a presentation which indicates that Brink's has many attractive, value-enhancing strategic options including an LBO, sale to a strategic acquiror, tax-free split-up of the company, leveraged recapitalization or another significant stock repurchase.

MMI Investments said Brink's potential value from following strategic alternatives is likely to be $70 or more per share.

MMI Investments said Brink's has multiple options, and more than one could be explored simultaneously which they believe makes the likelihood of success much greater.

A Copy of the Cover Letter Sent to the Company:

Dear Members of the Board,

MMI Investments, L.P. is the owner of 4,008,000 shares of The Brink’s Company (“BCO”) or approximately 8.3% of the outstanding stock. We believe BCO’s brands, financial performance, market positions and management are among the best in its industry. We therefore remain extremely frustrated with its continued undervaluation relative to its operating success, its peers’ trading multiples and the value it might achieve from pursuing one of several potential strategic alternatives.

Another large stockholder has raised the question of BCO pursuing a strategic alternatives review and indicated that it intends to submit a stockholder proposal to that effect at BCO’s 2007 annual meeting of stockholders. As we understand the proposal described in their Schedule 13D amendment, we are in support of it. The reasons for our support are reflected in our presentation transmitted for filing with the SEC today, a copy of which is enclosed herein, which indicates that BCO has many attractive, value-enhancing strategic options including an LBO, sale to a strategic acquiror, tax-free split-up of the company, leveraged recapitalization or another significant stock repurchase. Details underlying these analyses are included in the presentation materials, but in summary we believe that BCO’s potential value from following one of these strategic alternatives is likely to be $70 or more per share. Moreover, we believe that because BCO has multiple options, more than one could be explored simultaneously which we believe makes the likelihood of success much greater.

For the reasons described in the accompanying presentation materials, we believe that, as with the BAX sale process last year, BCO’s stockholders’ interests could best be served by a formal review of strategic alternatives by a qualified investment banker, whose mandate would include an active canvassing of potential buyers and the debt and equity markets. As discussed therein, BCO’s valuation and operations are complex subjects which require explanation and study to appreciate fully. We believe that several factors obscure the value that potentially could be achieved by pursuing strategic alternatives, such as the expected significant increase in 2007 (and beyond) EBITDA, the future transference of the cash burden of the legacy liabilities from the company’s operations to the VEBA assets (which we believe will shortly be overfunded if not utilized soon) and the aggressive growth of BHS which hinders cash flow generation. We believe that an active canvassing of the market is essential in order that interested parties properly appreciate these factors in estimating BCO’s true value.

Further, we believe that given the current strength of the mergers and acquisitions market (as evidenced yesterday in the robust price paid for HSM Electronic), as well as the equity and credit markets, that BCO would be well advised to pursue its alternatives in the beginning of 2007. A costly and time-consuming proxy contest with such stockholder during the first half of 2007 unnecessarily risks missing this window of opportunity.

As we note in our presentation, if management and the Board have a compelling argument in opposition to the analysis herein, we would welcome such a dialogue, as well as the opportunity to discuss this matter with the Board if they so desire. Please let us know.

Sincerely,

Clay Lifflander

Link to MMI's Presentation

Large Weyerhaeuser (WY) Holder Wants Company To Become a REIT

Weyerhaeuser Co. (NYSE: WY) has seen an significant move higher over the past few session following a request from 7.6% shareholder Franklin Mutual Advisers to modify its corporate structure to become more efficient vis-а-vis a Real Estate Investment Trust (REIT) structure. The request was disclosed in a 13D filing yesterday afternoon.

In a letter sent to the company the investment firm said, "Despite the best efforts of the company and other similarly situated entities, it now appears that the tax law will continue to favor holding timber properties in entities such as Timber Investment Management Organizations (“TIMOs”) or Real Estate Investment Trusts (“REITs”). The structural disadvantages to Weyerhaeuser include the inability to competitively bid on timberlands undergoing a sale process, a higher weighted average cost of capital and the full double taxation of timberland generated earnings. According to a recent report from one major Wall Street analyst, by 2010 the current structure, as opposed to a REIT structure, would destroy an incremental $24 per share of shareholder value, or nearly 35% of today’s equity value. FMA strongly believes Weyerhaeuser must immediately take steps to eliminate this disadvantage, including possibly converting the current corporate structure to a REIT."

The firm also said, "Many paper and forest product companies such as Rayonier (NYSE: RYN), Potlatch (NYSE: PCH), Georgia Pacific (NYSE: GP), International Paper (NYSE: IP) and the former Boise Cascade have become more competitive, realized substantial operating benefits and experienced significant share price appreciation by either converting to a REIT or by selling their timberlands."

Share of Weyerhaeuser are up 3.35% in afternoon action.

A Copy of the Letter:

Dear Board Members:

Franklin Mutual Advisers (“FMA”) owns approximately 18 million shares of Weyerhaeuser stock and has been a 13-d filer on the company since April 2005. We acknowledge the positive steps the company has taken over this period to restructure the business, including the sale of the Fine Paper business that is scheduled to close during the first quarter of 2007.

However, FMA continues to believe that the share price of Weyerhaeuser reflects a substantial discount to the intrinsic value of its underlying assets and core businesses. While the restructuring actions taken to date have been rational and objective, we believe the management and board of directors of Weyerhaeuser must act with an increased sense of urgency and accelerate its efforts to enhance and crystallize this intrinsic value for the benefit of all shareholders.

These steps include (1) a corporate reorganization that will eliminate the tax disadvantages of owning timber properties in a “C” corporation and (2) accelerating the time frame for the planned restructuring of the containerboard business.

Despite the best efforts of the company and other similarly situated entities, it now appears that the tax law will continue to favor holding timber properties in entities such as Timber Investment Management Organizations (“TIMOs”) or Real Estate Investment Trusts (“REITs”). The structural disadvantages to Weyerhaeuser include the inability to competitively bid on timberlands undergoing a sale process, a higher weighted average cost of capital and the full double taxation of timberland generated earnings. According to a recent report from one major Wall Street analyst, by 2010 the current structure, as opposed to a REIT structure, would destroy an incremental $24 per share of shareholder value, or nearly 35% of today’s equity value. FMA strongly believes Weyerhaeuser must immediately take steps to eliminate this disadvantage, including possibly converting the current corporate structure to a REIT.

Many paper and forest product companies such as Rayonier, Potlatch, Georgia Pacific, International Paper and the former Boise Cascade have become more competitive, realized substantial operating benefits and experienced significant share price appreciation by either converting to a REIT or by selling their timberlands. For example, since becoming a REIT in January, 2004, Rayonier produced (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 20.4% through 12/12/06. Potlatch has produced (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 25.3% through 12/12/06 since becoming a REIT in January, 2006. In contrast, Weyerhaeuser has generated (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 3.9% since January, 2004. While we are not today suggesting that Weyerhaeuser divest its timberlands, we are strongly suggesting that the Company must modify its corporate structure to become more efficient vis-à-vis the REIT structure. FMA believes that this step, along with the closing on the sale of the Fine Paper business and executing and accelerating the current restructuring plans in the containerboard business, will enhance shareholder value over the long-term.

We look forward to further discussion of these ideas with you.

Sincerely,
Peter Langerman, Chief Executive Officer
Michael Embler, Chief Investment Officer

Docucorp (DOCC) Holder BlueLine's Offer To Enter Merger Discussions Turned Down

In an amended 13D filing after the close on Docucorp International Inc. (Nasdaq: DOCC) 5.6% holder BlueLine Capital said it offered to enter into a confidentiality agreement with the Company so that BlueLine and its partners could explore the opportunity to make a offer for the Company materially above the $10.00 proposed in the Merger Agreement with Skywire Software.

The firm said in an email dated December 12, 2006, a representative of the Company refused to discuss any transaction with BlueLine despite the possibility that BlueLine’s proposal may be significantly better than the terms under the current Merger Agreement.

A Copy of the Letter:

Gentleman:

BlueLine Partners, L.L.C. (“BlueLine”), through its affiliated entities, currently owns approximately 5.6%, of the common stock of Docucorp International, Inc. (“Docucorp” or the “Company”) and is the Company’s third largest stockholder. BlueLine takes an operations-centric approach to its investments with the principal consideration being the potential of the underlying business opportunity. Since becoming a stockholder of the Company, BlueLine has met several times with Michael D. Andereck, Docucorp’s CEO, to offer advice and discuss strategic alternatives for increasing the Company’s value.

BlueLine believes that Docucorp is currently undervalued relative to its potential. Despite recent challenges around integrating the Newbridge assets, slower than anticipated penetration into the healthcare segment and relatively flat new software license revenues, the underlying business and the Company’s future potential remains very strong. As a result BlueLine has since October 2006 been considering the possibility of offering to acquire the Company in a go-private transaction. Several private equity partners and other interested investors have expressed a willingness to join BlueLine in this endeavor. Subject to execution of a confidentiality agreement and further analysis of the Company’s records, BlueLine believes that it, along with its partners, can make a cash offer for all of the outstanding common stock of the Company at a purchase price materially above the $10.00 proposed in the Agreement and Plan of Merger dated as of December 6, 2006 by and among Skywire Software, LLC, Skywire Star Acquisition Corp. and the Company (the “Merger Agreement”).

Pursuant to Section 5.7 of the Merger Agreement, BlueLine is prepared to enter into a confidentiality agreement and participate in discussions with the Company’s Board and management regarding submitting a written proposal relating to a proposed transaction. BlueLine believes its proposal will qualify as a “Superior Proposal,” as such term is defined in the Merger Agreement and that it is in the best interests of the Company and its stockholders to provide additional information to BlueLine and to fully explore this opportunity.

Please provide a form of confidentiality agreement at your earliest convenience. BlueLine is prepared to move quickly and looks forward to discussing a possible transaction with you.

Very truly yours.

Timothy P. Bacci

Managing Director

A Copy of Company's E-Mail Response:

Dear Mr. Bacci:

On behalf of Docucorp’s board of directors, I am responding to your December 12 letter, a copy of which has been forwarded to me by Mike Andereck. If you have reviewed a copy of the Merger Agreement, and in particular Section 5.7 thereof, you will understand that Docucorp is contractually prohibited from responding further to your letter.

Very truly yours,

Bruce H. Hallett

Hallett & Perrin, P.C.

Large Glenayre Tech (GEMS) Holder Chapman Capital Expresses Concerns

In an amended 13D filing after the close on Glenayre Technologies, Inc. (Nasdaq: GEMS), 9.7% holder Chapman Capital LLC disclosed a letter to the company reiterating concerns by many Glenayre's owners regarding CEO Jim Caparro's lack of direct financial ties to the Common Stock of Glenayre.

The firm expressed concerns when Mr. Caparro disclosed that he had purchased an additional interest in privately placed securities of the EDC division, instead of purchasing even a single share of Glenayre stock. The firm also said various owners also had voiced their concerns over Mr. Caparro's troubled, brief tenure while CEO of Atari Inc., which experienced financial difficulties during the period of Mr. Caparro's leadership.

A Copy of the Letter:

Mr. Schwitter,

Chapman Capital L.L.C. is the investment advisor to entities that own nearly 10% of the common stock of Glenayre Technologies, Inc. (hereinafter, "Glenayre"). Evidence of this ownership exists in a Schedule 13D filed August 24, 2006 and subsequent Form 13F filed November 8, 2006, with the U.S. Securities and Exchange Commission. Our investors’ ownership of Glenayre’s common stock shares should not be confused with the investment securities reportedly purchased by Glenayre CEO James M. Caparro. Mr. Caparro, instead of using the cash given to him by Glenayre’s owners (last year alone in the form of approximately $1,000,000 in salary and bonus, including social club fees) to purchase the same Glenayre stock owned by the shareholders paying his egregiously high income, has decided on several occasions to make an investment (apparently not offered to top Glenayre shareholders such as Chapman Capital) in Glenayre’s EDC subsidiary.1 This correspondence relates to your letter dated December 13, 2006, on behalf of Glenayre’s Mr. Caparro.

Chapman Capital hereby advises your firm and Mr. Caparro to cease and desist in taking the following actions:

1) Making Baseless, Spurious Claims: As conveyed to Mr. Caparro yesterday (when he first returned the last of over twenty unanswered messages left for him by three members of Chapman Capital), no abusive (much less illegal) communication has been directed at any employee of Glenayre by any member of Chapman Capital. The commentary purportedly received by Mr. James Jewell (apparently a secretary within Mr. Caparro’s office) accusing him of being “Chief Ankle Grabber … of the Castro District”, whatever that is intended to mean, was not communicated by any associate of Chapman Capital. Chapman Capital has neither knowledge nor interest in such personal matters relating to Glenayre employees. In fact, we find those allegations particularly insulting to members of the homosexual community, many of whom presumably send private, potentially provocative, text messages over Glenayre’s globally-installed messaging systems. Once again, I must reiterate that we support Mr. Jewell no matter what may be his sexual preference, irrespective of how or where it may manifest itself, subject to his behavior not putting at risk our investors’ sizable stake in Glenayre.

On numerous occasions, Chapman Capital has received telephone calls from individuals claiming to be parties other than themselves (“pretexting"), with the occasional delivery of profanity as part of this impersonation. In fact, several months ago we received a call from someone apparently pretending to be “Jimmy Caparro,” and who demanded that I personally “genuflect before [him] and play a song on [his] ‘skin flute’.” Though I do not have any knowledge of Mr. Caparro’s sexual preference, I was confident that Mr. Caparro was not the person making that call, even in the highly unlikely event that that this may have been his personal fantasy. More importantly, like Glenayre and yourself, I did not possess any evidence to support any such outrageous claim, and thus saw no need to enlist the services of outside counsel. As Mr. Jewell has virtually no experience speaking with me, it is impossible that he could have any confidence in matching to my voice the voice of the party that purportedly made such insensitive comments to Mr. Jewell (whatever may be his sexual orientation). I myself could not identify the voice of any employee of Glenayre, including Mr. Caparro (even though I have spoken with him on three occasions.)

2) Wasting Corporate Assets: Your letter is so entirely preposterous as to only be viewed as a waste of corporate assets. Under the leadership of Messrs. James M. Caparro and Clark H. Bailey, Glenayre has reported net losses in each of the last three quarters, and as such a company hardly can afford paying whatever overpriced and potentially padded bills any law firm (other than Paul Hastings, which certainly never has padded any bills to clients) may submit for "services rendered." I must believe, Mr. Schwitter, that there are enough ambulances for you to chase in New York City (or pedestrians who slip and fall on the winter snow) to surpass the billable hours threshold imposed upon you by your partners, and that you will not find the need to scribe such absurd communiqués in the future. This is particularly important given that Chapman Capital's investors indirectly are paying nearly 10% of each of any bill from a law firm such as yours.

3) First Amendment Rights/Public Figures: Though is it possible that Constitutional Law was not taught at your alma mater (The Albany Law School of Union University; Paul Hastings hopefully has raised the bar on new associates since 1983), I encourage you to read something seemingly foreign to you called the "First Amendment." Therein, Chapman Capital (via its employees) derives the right to express its opinions, and make disclosures of fact, relating to Glenayre, its employees and officers. No matter how threatening your letter was intended to be, you cannot stop Glenayre’s owners from expressing an opinion that Mr. Caparro is a washed-up entertainment industry executive whose position as CEO of Atari Inc. terminated in June 2005 after a mere six-month tenure, and just weeks before Atari’s shares plunged 39% in one day after reporting a financial-covenant breaching loss for the June 2005 quarter during which Mr. Caparro was its CEO.2

Given your apparent lack of knowledge in this area, I also seriously doubt that U.S. history was available at your undergraduate alma mater (Rensselaer Polytechnic Institute; I suspect your curriculum may have been in TV/VCR repair, or perhaps Computer Drafting and Design was your specialty). Please, for your own benefit and that of Glenayre’s owners, please inquire if “the Institute” will allow someone your age to enroll in a crash course in "Criminal Justice." Should you pass the requisite classes, I strongly recommend that you apply any newfound knowledge to the backdated options investigation at Glenayre itself. Mr. Clarke Bailey certainly would be more than happy to sit down with you and explain how such a potential criminal act is perpetrated upon the innocent owners of a public company.

Sincerely,

Robert L. Chapman, Jr.

1 On December 13, 2006, in a conversation with Mr. Chapman, Mr. Caparro confirmed that since becoming affiliated with Glenayre in 2005, he had not purchased a single share of Glenayre stock.

2 On August 10, 2005, Atari (Nasdaq: ATAR) shares experienced their largest drop ever after announcing a $32.8 million first quarter loss and a 78% drop in sales. This forced Atari to say that it would rely on its majority owner, France’s Infogames Entertainment SA, for financing after the results caused it to violate financial covenants.

Bob Olstein Comments on New Fund

On CNBC today, Bob Olstein of Olstein Capital Management discussed his new activist slanted fund, the Strategic Opportunity Fund. He said he plans to close the 'valuation gap' in companies he targets and get active if mangers don’t act.

Commenting on Citigroup (NYSE: C), Olstein said the company needs a new CEO. He also thinks the stock is worth $60 per share and advocates busting-up the company.

Olstein also said his fund bought Gap (NYSE: GPS) in last month or two. Olstein wants the company to downsize. He said if the company doesn’t act they will send a letter requesting action. Olstein also wants a buyback at Gap. Link to CNBC Video

Pirate Capital Continues to Adjust Portfolio, Sells 6M Shares of Aquila (ILA)

In an amended 13D filing on Aquila Inc. (NYSE: ILA) this morning, Pirate Capital disclosed an 18.7 million share stake (5%) in the company. This is down from the 24.7 million share stake the firm held for the quarter ended September 30, 2006.

Pirate Capital has been adjusting a number of positions recently following the hedge funds shake-up in the fall.

The selling at the fund appears to far outweigh the buying, which could be related to redemptions. But recent activist activity in Brinks and increased stakes in other core holdings shows that the fund plans on being around for a while.

Here are some other notable changes in the fund's positions since the September 30th 13F

James River Coal Company (Nasdaq: JRCC) stake lowered from 2.34 million shares to 679K shares

Mirant Corporation (NYSE: MIR) stake lowered from 4.15 million shares to '0'

CEC Entertainment (NYSE: CEC) stake lowered from 3.045 million shares to 2.44 million shares
The Pep Boys (NYSE: PBY) stake raised from 5.62 million shares to 6.6 million shares

PW Eagle (Nasdaq: PWEI) stake raised from 2.81 to 2.94 million shares

Brinks Co. (NYSE: BCO) stake raised from 3.95 million to 4.12 million shares

Harbinger Capital Gets Active with Ryerson (RYI), Citing Board/Management Failures

In a 13D filing after the close on Ryerson Inc. (NYSE: RYI), Harbinger Capital disclosed a 9.7% stake (2.55 million shares) in the company and noted they changed their filing status from 13G to 13D, taking a more active approach with the investment. This is up from the 6.7% stake (1.765 million shares) the firm disclosed in a November 27th 13G filing.

The firm said they have grown increasingly concerned that the board of directors and senior management have not been appropriately vigilant in their management of the company, particularly with respect to its lack of focus on profitability and the management of inventory. The firm said peer companies have been consistently successful in turning inventory.

The firm said it is considering a range of options to encourage better performance, including potential changes in the operations, management, or capital structure as a means of enhancing shareholder value. The firm is also considering nominating one or more persons to the board.

From the "PURPOSE OF TRANSACTION' section of the filing:

The Reporting Person initially reported their investment on a Schedule 13G onNovember 27, 2006. Since that time, the Reporting Persons have examined the financial and operating performance of the Issuer and have grown increasingly concerned that the board of directors and senior management of the Issuer have not been appropriately vigilant in their management of the Issuer, particularly with respect to its lack of focus on profitability and the management of inventory.

The Reporting Persons observe that the Issuer's peer companies have been consistently successful in turning inventory more rapidly than the Issuer and have also consistently earned higher gross, operating and net margins throughout the business cycle. Given this persistent under performance by the Issuer since it was established as a stand-alone enterprise in 1999, the Reporting Persons have concluded that the board of directors has provided insufficient oversight of management's ability to deliver acceptable performance in the key factors that are critical to maximizing the value of the Issuer's existing asset base, geographic presence and product portfolio. The Reporting Persons believe that the current board of directors, while talented and undoubtedly qualified in general business matters, lacks the specific qualifications necessary for understanding the value drivers within the metals processing and distribution business which drive acceptable shareholder returns.

As a result, the Reporting Persons are considering a range of actions by which they may be able to encourage the Issuer to improve its performance. Such activities may include taking a position (including by contacting management and other shareholders of the Issuer) with respect to potential changes in the operations, management, or capital structure of the Issuer as a means of enhancing shareholder value. Such suggestions or positions may include one or more plans or proposals that relate to or would result in any of the actions required to be reported herein. In addition, the Reporting Persons are also considering nominating one or more persons for election to the Issuer's board of directors at the Issuer's next annual meeting of shareholders.

Chapman Capital Liquidates More of its Vitess Semi (VTSS) Position

In an amended 13D filing after the close on Vitesse Semiconductor (OTC: VTSS), Chapman Capital disclosed a 2.5% (5.6 million shares) stake in the company. The is down from the 6.2% stake the firm disclosed in December.

The firm said based on the increased percentage of the Funds' capital being invested in semiconductor-related equities, they determined it prudent to reduce their long semiconductor sector exposure via sales of Common Stock.

In addition, the firm reduced their combined ownership position in the Issuer below the 5% threshold in order to relieve themselves of certain reporting requirements associated with Section 13D of the Securities Exchange Act of 1934

The firm noted that on December 12 they were informed that the company determined to replace Mr. Hassel as Chief Financial Officer, an action that Chapman Capital had advocated for several months.

Steel Partners II Lowers its Stake in Layne Christensen (LAYN)

In an amended 13D filing on Layne Christensen Co. (Nasdaq: LAYN), Steel Partners II disclosed a 7.8% stake (1.2 million shares) in the company. This is down from the 1.42 million share stake the firm disclosed for the quater ended September 30, 2006.

On October 16, 2006, Warren Lichtenstein, the head of Steel Partners, resigned from the board of directors of the company and was replaced by Steel Partners VP John J. Quicke. The group has been an activist investor in Layne Christensen for some time, filing its first 13D in December of 2003.

MedImmune (MEDI) Holder Matrix Asset Advisors Again Urges Sale

In a new letter sent to MedImmune Inc. (Nasdaq: MEDI), 0.75% shareholder Matrix Asset Advisors reiterated their view that it would be in the best interest of shareholders to sell the company. The firm also expressed this view in a November 21st letter to the company.

The firm believes that while the Company has amassed an array of world class products and intellectual property, the best way to realize the intrinsic value of the assets is by selling the company to a motivated strategic buyer.

While the firm didn't name names, they believe that several major pharmaceutical companies would be highly motivated to acquire the company. The firm also notes that industry analysts see a takeover value in the range of $40-$45 per share.

Monarch Activist Partners Raises Stake in Cost-U-Less (CULS), Continues to Urge Company To Sell

In a 13D filing on Cost-U-Less, Inc. (NASDAQ: CULS), Monarch Activist Partners disclosed a 6.4% stake (257K shares) in the company. This is up from the 5.3% stake the firm disclosed on 09/08. The firm disclosed a letter to the company strongly urging the company explore a sale.

The firm said, "While we appreciate your desire to grow the business organically, it is apparent that the market refuses to assess fair value to the company in its current form. A quick review of your peer group clearly states this point. Currently, Pricesmart (NASDAQ: PSMT), your self-acknowledged closest competitor, trades at an Enterprise Value to EBITDA multiple of close to 16 times, whereas CULS trades at approximately a 4.5 multiple. Taking a very conservative valuation approach by applying a 40% discount to the median EBITDA multiple of your industry peer group, CULS is worth at least $12 a share." The firm also said, " In light of the issues raised in this letter and as a significant shareholder we ask you and the Board to engage the services of an investment banker to facilitate the sale of the company."

A Copy of the Letter:

Dear Mr. Meder:

I am writing this letter on behalf of Monarch Activist Partners LP("Monarch") which is currently the beneficial owner of approximately 6% ofCost-U-Less ("CULS").

The purpose of this letter is to reiterate what Monarch has verbally statedon multiple telephone calls over the last few months with yourself and Mr.Martin Moore, which is: we strongly urge you to explore the sale of the company immediately. As mutually acknowledged, we are not alone is this equest, as other shareholders of size have asked for the same.

While we appreciate your desire to grow the business organically, it isapparent that the market refuses to assess fair value to the company in itscurrent form. A quick review of your peer group clearly states this point.Currently, Pricesmart (PSMT), your self-acknowledged closest competitor,trades at an Enterprise Value to EBITDA multiple of close to 16 times,whereas CULS trades at approximately a 4.5 multiple. Taking a veryconservative valuation approach by applying a 40% discount to the medianEBITDA multiple of your industry peer group, CULS is worth at least $12 ashare.

Compounding matters, the business, according to your latest earningsrelease, is dealing with a 9% increase in operating expenses which islargely attributed to rising utility expenses, an issue that does not lenditself to a quick resolution. Outside of operating expenses, the cost ofbeing public with Sarbanes Oxley expenses and other regulatory costs makesthe rationale of "going it alone" far less viable.

We fail to see how even the most ambitious growth plan will resolve the deepmultiple discount the market attributes to CULS. Not to mention, given thecapital required to open each new store combined with all the site specificrequirements, rapid expansion appears highly improbable. In light of theissues raised in this letter and as a significant shareholder we ask you andthe Board to engage the services of an investment banker to facilitate thesale of the company. While you have stated that the Board continues to lookat all options and keeps an open mind to any potential offer, it is time forthe company to take a far more proactive stance.

Should the company fail to act on our recommendation, we reserve all of ouroptions, including seeking board representation if necessary.

I look forward to your response.

Very truly yours,

Sohail Malad

Managing Partner

Factory Card & Party's (FCPO) Strategic Alternatives Review News is a Win for Midwood Capital

Factory Card & Party Outlet's (NASDAQ: FCPO) news today that it initiated an external process to explore strategic alternatives is a win for 9.7% holder Midwood Capital Management. The hedge fund has been pushing the company to hire an investment banker to explore a sale since August. Link1, Link 2

Based on calculations, Midwood Capital paid an average of $7.92 for each share its owns. Today FCPO is trading at $8.45.

The Lion Fund Spurns Friendly Ice Cream's (FRN) Offer for One Board Seat

In an amended 13D filing on Friendly Ice Cream Corp. (AMEX: FRN), 14.9% holder The Lion Fund/Sardar Biglari disclosed a letter rejecting the company's recent proposal to offer the firm one seat on the board of directors. The firm had been looking for two seats.

In a letter to the Chairman, Biglari said, "We are disappointed with the actions of the Board of Directors of Friendly Ice Cream Corp. We do not believe the board offer of one board seat encumbered with a number of stipulations and with the obvious objective of diluting our influence is good business, good judgment, or good governance."

Biglari also said, "Friendly's is too important to its shareholders and its community for us not to pursue our two board seats without the handicap of unreasonable restrictions."

A Copy of the Letter:

Dear Don:

We are disappointed with the actions of the Board of Directors of FriendlyIce Cream Corp. We do not believe the board offer of one board seat encumbered with a number of stipulations (see Exhibit A) and with the obvious objective of diluting our influence is good business, good judgment, or good governance.

Subsequent to our acquisition of a large position in Friendly Ice CreamCorp.'s common stock, both its bond and stock prices have risen to a level tha treflects the anticipation of change. Any offer that strips us of our rights wemust reject. The restrictions that the offer would impose on us include:

- An attempt to prevent us from engaging in transactions with shareholders without board approval for a period of three years after serving as directors.

- An attempt to require that for three years after serving as directors we support and vote in favor of future proposals - without knowing what they are - which would destroy our independence.

- An attempt to prevent us from supporting other shareholders in opposition to any matter recommended by the board for three years after serving as directors.

- An attempt to limit us to one board seat, which would hamper our ability to foster intelligent discussion on the board by preventing us from getting a second to our motions.

- An attempt to require our resignation if our ownership is reduced below 10% would subject us to a stipulation that does not apply to any other director.

With the proposed restrictions, we would be marginalized as board members,and shareholders will get more of the same - strategies that have destroyed shareholder wealth. No other director has a financial stake in the company as significant as ours, and all have failed thus far in their capacity as stewards of shareholders' capital.

As the largest stockholder, we are not being unreasonable to ask for a minority position on the board, namely two board seats. It is also most unfortunate that the current board would rather cost shareholders more money to fight a proxy battle that we are confident of winning, than having our two nominees on the board. I make that statement not to impress you but rather toimpress upon you that shareholders are voicing their support. Our plan is to help the company, and the cost of this battle, in our judgment, is not as great as the potential losses we all could endure through more board errors of omission and commission.

Dr. Philip L. Cooley - Lion Fund director and Vice Chairman of WesternSizzlin - and I have the experience to serve knowledgeably and judiciously. We would be constructive contributors on the board. Shareholders are intelligent enough to realize that a fresh and sound perspective by financially committed board members is essential after the company's dismal performance under the current board's watch. Friendly's is too important to its shareholders and its community for us not to pursue our two board seats without the handicap of unreasonable restrictions.

We are principled in our pursuit, and we will not waver in our resolve.

Sincerely,

Sardar Biglari

Former SEC Chairman Turns Up Heat on Applebee’s (APPB), Nominates 4 to Board

In an amended 13D filing after the close on Applebee’s International (Nasdaq: APPB), 5.25% holder Breeden Capital, disclosed a letter delivered to the Company, informing the Company of its proposal to nominate four candidates for election to the Board of Directors of the Company at the Company’s 2007 annual meeting of shareholders. The nominees are: Richard C. Breeden, Laurence E. Harris, Steven J. Quamme and Raymond G.H. Seitz.

Mr. Breeden noted in a letter to the Applebee's directors that, over the three years ended December 1, 2006, Applebee's total return to shareholders was 13th worst out of 14 comparable companies. During this time, Applebee's total return was a NEGATIVE 13.4%, costing shareholders hundreds of millions of dollars in lost value. By contrast, competitors like Darden Restaurants (operator of Red Lobster and Olive Garden restaurants) and California Pizza Kitchen had total returns to shareholders in the same time frame of 99% and 71%, respectively.

Breeden Capital was founded by former SEC Chairman Richard C. Breeden.

Loeb's Third Point LLC Accumulates 5.4% Stake in Martin Marietta Materials (MLM)

In a 13D filing on Martin Marietta Materials Inc. (NYSE: MLM), Daniel Loeb's Third Point LLC disclosed a 5.4% stake (2.45 million shares) in the company. The firm disclosed purchases from 10/09 at $86.41-$86.50 thru 12/01 at $98.39.

In a pretty standard disclosure, Third Point said it believes the shares are undervalued and said they may from time to time, among other things, hold discussions with third parties or with management of such companies (including the Company) in which the Reporting Persons may suggest or take a position with respect to potential changes in the operations, strategy, management or capital structure of such companies as a means of enhancing shareholder value.

Rabble-rousing hedge fund manager Daniel Loeb is best known for his aggressive activism with his investments. Loeb's latest target was Pogo Producing Co. (NYSE: PPP), where he has urged the Board to sell the Company in whole or several parts to the highest bidder or bidders.

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Northwest Airlines (NWACQ) Continues Run-Up, Owl Creek Again Requests Equity Committee

In an amended 13D filing on bankrupt airline Northwest Airlines (OTC: NWACQ) this morning, 5% holder Owl Creek Asset Management again requested the company appoint an Official Northwest Equity Committee to represent shareholders' interest in Northwest cases.

Owl Creek said the recent filing of an application by Northwest to hire Evercore Group for the "evaluation and possible implementation of strategic alternatives", proves their point that there is inherent recoverable value in Northwest's shares.

Owl Creek said, ""strategic alternative" is investment banker-speak for the merger, acquisition, or consolidation transaction of which Owl Creek advised in its November 21 letter."

In its November 21st letter to the company, Owl Creek said NWACQ could be worth $19.75-$33.50 per share.

Shares of Northwest Airlines are 18% higher to $5.80 in early action Monday.

SAC Capital Opposes Phelps Dodge (PD) Merger with Freeport-McMoRan (FCX)

In a 13D filing this morning on Phelps Dodge (NYSE: PD), 5.1% holder (10.3 million shares) Steven A. Cohen / SAC Capital said the merger agreement with Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) undervalues the company and they plan to vote against the proposed transaction.

From the 'Purpose of Transaction' section of the filing:

The Issuer announced on November 19, 2006, that it had entered into a definitive agreement to merge with Freeport-McMoRan Copper & Gold Inc. ("FCX"). The Reporting Persons believe that the terms of the proposed FCX transaction would not provide full and fair value to the Issuer's shareholders and would deprive them of their ability to maximize the return on their investment. The Reporting Persons believe that the proposed FCX transaction offers few, if any, synergies to the combined operation, and would use the Issuer's balance sheet to fund the purchase in what is essentially a public recapitalization that would create disproportionate value for FCX shareholders at the expense of the Issuer's shareholders. In addition, the Reporting Persons believe there is unrecognized long term value that the Issuer's shareholders would forego if they sold their shares at FCX's proposed terms. Accordingly, the Reporting Persons currently intend to vote against the proposed FCX transaction.

RGM Capital Discloses a 5.66% Stake in Alloy (ALOY)

In a 13D filing today on Alloy, Inc. (Nasdaq: ALOY), RGM Capital disclosed a 5.66% stake (802K shares) in the company.

While the firm made no direct requests, they said they may engage in communications with one or more shareholders, officers or directors of Alloy, including discussions regarding the Issuer's operations and strategic direction.

The firm said it used funds of $8,479,218 to make the stock purchases.

Alloy is a nontraditional marketing company with expertise in direct mail, college and high school media, interactive, display media, college guides, promotional and social network marketing.

Blum Capital Sells 1.3M Shares of Nu Skin (NUS) in Block Sale

In an amended 13D filing on Nu Skin Enterprises (NYSE: NUS), Blum Capital disclosed a 9.9% stake (6.76 million) in the company. This is down from the 8.06 million share stake the firm held for the quarter ended September 30, 2006.

The firm said its sold 1.3 million shares on 12/05 at $18.12 to a broker in a block sale.

According to filings, Blum was buying stock as recently as June 2006 in the $16 range.

Pirate Capital Lowers Stakes in James River Coal (JRCC) and CEC Entertainment (CEC)

In an amended 13D filing on James River Coal Company (Nasdaq: JRCC), Pirate Capital disclosed a 4.1% stake (679K shares) in the company. This is down from the 7.4% (1.23 million shares) million share stake the firm disclosed on 11/22. Pirate held 2.34 million shares of James River Coal as of the quarter ended September 30th.

In a separate 13D/A filing, Pirate Capital disclosed a 7.3% stake (2.44 million shares) in CEC Entertainment (NYSE: CEC). Pirate held 3.045 million shares of CEC Entertainment as of the quarter ended September 30th.

Pirate Capital has been liquidating a number of positions since the hedge fund's shake-up in the fall.

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