Chapman Capital Cuts Stake in Building Materials (BLG)

In an amended 13D filing after the close on Building Materials Holding (NYSE: BLG), Chapman Capital disclosed they lowered their stake in the company to 7.5% (2,212,339 shares). This is down from the 9.0% stake (2,656,339 shares), the firm disclosed in a past filing.

The firm said they sold stock in November and December of 2007 in order to satisfy the Funds' tax planning.

Chapman Capital, which had been pushing for a sale of Building Materials, is underwater in the position, mainly due to the continued deterioration of the housing market. Shares of Building Materials are currently selling at about $6.50 per share --- Chapman's average cost is in the mid-$14 range.

New Trades From Top Activists

Here are a few intereting new trades put on from some of our favorite activist funds as disclosed in their lastest 13F filings (Qtr Ended 06/30/07). The stakes mentioned below are all under 5% so no 13Ds are required and the stakes are not nessecarly 'active', but we thought were interesting.

Williamn Ackman's Pershing Square Capital noted a new 10.3 million share stake in office product retailer Staples Inc. (Nasdaq: SPLS).

Jana Partners noted a new 6.5 million share stake in cable company Charter Communications Inc. (Nasdaq: CHTR), a new 725K share stake in broker Goldman Sachs (NYSE: GS), and a new 3 million share stake in rail service company Trinity Industries Inc. (NYSE: TRN).

Robert Chapman's Chapman Capital disclosed a a 460K shares stake in market research firm Harris Interactive Inc. (Nasdaq: HPOL).

Dan Loeb's ThirdPoint disclosed a new 9.65 million share stake in business software company BEA Systems Inc. (Nasdaq: BEAS), a 2.75 million share stake in REIT Douglas Emmett Inc (NYSE: DEI), and a 1.4 million in Veeco Instruments Inc. (Nasdaq: VECO). A full summary of Loeb's 13F is here.

Carl Icahn's Icahn Management's disclosed a new 2.4 million share stake in department store operator Macy's, Inc. (NYSE: M), a 3.5 million share stake in aluminum company Alcoa (NYSE: AA) and a 3.9 million share stake in packaged foods maker Kraft Foods Inc. (NYSE: KFT). A full summary of Icahn's 13F is here.

MMI Investments disclosed a small 138,300 share stake in utility National Fuel Gas Co. (NYSE: NFG)

Warren Lichtenstein's Steel Partners II disclosed a new 2 million share stake in home improvement retailer Home Depot (NYSE: HD), a 642K share stake in adult entertainment company Playboy Enterprises Inc. (NYSE: PLA), a 4.4 million share stake in oil driller Pride International Inc. (NYSE: PDE)

Atticus Capital disclosed a new 1.6 million share stake in heavy equipment maker Caterpillar Inc. (NYSE: CAT), a 2.1 million share stake in electric utililty Entergy Corp. (NYSE: ETR), and a new 4.6 million share stake in oil driller Transocean Inc. (NYSE: RIG).

Chapman Capital Discloses 9.9% Stake in Packeteer (PKTR), Demands Sale

In a 13D filing on Packeteer, Inc. (Nasdaq: PKTR), Robert Chapman's Chapman Capital disclosed a 9.9% stake in the company and demanded the company hire an investment bank to maximize shareholder value. Chapman noted that attempt to communicate with top executives was unsuccessful.

From the filing, "On July 30, 2007, Mr. Robert L. Chapman, Jr. attempted to contact the Issuer's Chief Executive Officer, Mr. David G. Cote, to inform him of the Reporting Persons a) having become the owners collectively of 9.9% of the Issuer's Common Stock, and b) demand that the Issuer hire an investment bank to maximize shareholder value. Mr. Cote refused to return Mr. Chapman's telephone call. Subsequently, Mr. Chapman contacted the Issuer's Chief Financial Officer, Mr. David C. Yntema, who refused both a) to record a written message for Mr. Cote regarding Chapman Capital's demand that the Issuer hire an investment bank to maximize shareholder value, and b) to give Mr. Cote a message to that effect. In addition, Mr. Yntema stated that Mr. Cote would not be returning Mr. Chapman's telephone call at any time in the future. Mr. Chapman also contacted the Issuer's Chairman, Mr. Steven J. Campbell, who refused to provide his E-mail address to allow Chapman Capital to provide, unilaterally and thus completely outside the venue of Regulation FD, information to the Issuer's Board of Directors such as that within the forthcoming Original 13D Filing. Following Mr. Chapman's conveyance of Chapman Capital's demand regarding the maximization of shareholder value, the conversation between Mr. Chapman and Mr. Campbell terminated abruptly."

Chapman Capital Seeks To Replace Vitesse Semi (VTSS) Board

Chapman Capital, a 7.2% holder of Vitesse Semiconductor Corp. (OTC: VTSS), said it has determined to seek nominees to replace all or part of the Board of Director of the company. Chapman said the company last allowed shareholders to elect Board Representatives some 18 months ago, which Chapman said is in clear non-compliance with Delaware law.

Chapman said it expects to file today with the SEC a Schedule DEFN14A initiating the process of soliciting proxies from shareholders of the Company

Chapman Capital Plans to Solicit Proxies To Replace Vitesse Semi (VTSS) Board

In an amended 13D filing on Vitesse Semiconductor (OTC: VTSS), 6.3% holder Chapman Capital informed the company's management that they intend to submit to the SEC a Schedule 14A commencing a process of soliciting proxies to replace the Board of Directors.

Chapman Demands Vitesse Semi (VTSS) Hold Annual Meeting To Elect Directors

In an amended 13D filing Friday afternoon on Vitesse Semiconductor (OTC: VTSS), 5.3% holder Chapman Capital demanded the company immediately schedule a Meeting of Stockholders to elect directors. Chapman also demanded Jim Cole, head of Vitesse's Corporate Governance Committee, resign from the Board immediately.

Robert L. Chapman, Jr., Managing Member of Chapman Capital, commented, "In breach of the most basic tenet of corporate governance, Vitesse's beleaguered owners, in a heightened state of distress following the Company's options backdating scandal and resultant nearly two year lapse of audited financial statements, were permitted last to elect directors to their company's Board of Directors on January 24, 2006, nearly 17 months ago. Jim Cole, perplexingly still head of Vitesse's Corporate Governance Committee despite being held responsible by major past and present owners for the Company's deep-seated problems, and who also holds a seat on Vitesse's Audit Committee that has failed to produce nearly two years of audited financials and Compensation Committee that appears to have stuffed the pockets of Mr. Cole's friends and business partners in their capacities as CEO, EVP of Finance, and Chief Financial Officer, must resign from the Board immediately."

Chapman: "Nabi is not yet worthy of our disdain or disgust"

In a 13D filing Friday afternoon on Nabi Biopharmaceuticals (Nasdaq: NABI), Chapman Capital disclosed a 6.6% stake in the company and issued a press release announcing its support for the maximization of Nabi shareholder value via a three-step transaction: 1) FDA approval of Nabi’s BLA for Nabi-HB Intravenous; 2) the distribution of the proceeds from the sale of Nabi Biologics; and 3) partnering/licensing of Nabi’s vaccine pipeline led by smoking cessation drug, NicVAX (Nicotine Conjugate Vaccine).

Robert L. Chapman, Jr., Managing Member of Chapman Capital, commented, “Unlike many of our activist targets, Nabi is not yet worthy of our disdain or disgust. The Company has taken the necessary steps to prepare for its restructuring and recapitalization."

NOTE: Nabi has been a long time activist target of Dan Loeb's Third Point LLC

A Copy of Chapman's Letter to Nabi Interim CEO Dr. Leslie Hudson Ph.D.:

Dr. Hudson,

Chap-Cap Partners II and Chap-Cap Activist Partners (the “Chapman Funds”), advised by Chapman Capital L.L.C., own approximately four million common shares, or just over 6.6%, of Nabi Biopharmaceuticals (“NABI”, or the “Company”). Today’s Schedule 13D filing by Chapman Capital places Nabi in the historically distinct position of having a total of four, 5-12% activist ownership blocks1 each independently fomenting an identical strategic imperative for the Company. This mandate, conveyed to you by the owners to whom the Board of Directors (the “Board”) that hired you reports, has been defined as follows: 1) FDA approval of Nabi’s BLA for Nabi-HB® Intravenous; 2) the distribution of the proceeds from the sale of Nabi Biologics; and 3) partnering/licensing of Nabi’s vaccine pipeline led by smoking cessation drug, NicVAX® (Nicotine Conjugate Vaccine).2 Essentially, nearly 40% of Nabi’s ownership base has filed Schedule 13D’s with virtually identical activist platforms -- the conversion of the Company into a royalty trust following a special dividend financed by a divisional asset sale.

Unlike many of our activist targets,3 Nabi’s Board and executive hired help is not yet worthy of our disdain or disgust. The Company has taken the necessary steps to prepare for the restructuring and recapitalization described above. In March 2007, Nabi outlined its intent to bifurcate itself into two strategic business units4 to “provide business clarity to the investment community, improve operating and financial performance and facilitate successful completion of Nabi’s strategic alternatives process, including but not limited to [Nabi’s] work with Banc of America Securities.”5 Last month, Nabi announced successful results6 for its Phase IIb proof-of-concept study for NicVAX®.7 Under Nabi’s new corporate design, you repeatedly have committed to “further reduce its cost structure and cash burn in 2007”; accordingly, the Company’s implementation of that cost reduction just this week8 gives Chapman Capital confidence that you are a man of your word, with that word being “execution” (walk) and not the formerly insuperable one of “vision” (talk).

In conclusion, Chapman Capital anticipates Nabi’s long overdue announcement of FDA approval for Nabi-HB® Intravenous (before Cangene Corporation’s HepaGam B™ gains damaging traction in the liver transplantation market).9 This shall be preceded or followed by the sale of Nabi Biologics for a valuation that alone should approximate Chapman Capital’s $5/share cost basis in the Company’s shares. Lastly, like Cytos Biotechnology AG before it, Nabi shall license NicVAX® to a global pharmaceutical company such as GlaxoSmithKline plc or Pfizer Inc.,10 both of which may be interested in marketing NicVAX® in combination with their own "first-line" smoking cessation drug therapies.11 Should you fail to execute on these mandates, it is near certainty that Chapman Capital’s filings shall take on a distinctly less genial tone.

Chapman Requests Meeting With Building Materials' (BLG) CFO and Two Divisional Presidents To Discuss Costs

In an amended 13D filing after the close on Building Materials Holding Corp. (NYSE: BLG), 8.1% holder Chapman Capital disclosed a letter to CFO William M. Smartt requesting a meeting with him and the two divisional presidents, BMC West's Stan Wilson and SelectBuild's Mike Mahre, to discuss the company's expense reduction and capital allocation plans.

In the letter, Chapman Capital's Managing Member, Robert L. Chapman, Jr., said, "As I noted when we spoke recently, Building Materials Holding Corporation's cost reduction and capital allocation strategies are of paramount importance to its short and medium term financial performance. Operating margin erosion is the natural result of the hyper-cyclical revenue declines hitting all residential building suppliers. However, it is my view, particularly after having discussions with various parties knowledgeable of Mr. Mellor's spending habits while in his current role at the Company, that your own focus on reversing some of the "boom years'" expense patterns is crucial to BMHC's expeditious path to profitability. Obviously, capital allocation becomes an even more important issue during periods of customer weakness and fiscal restraint."

Chapman Capital Discloses 7.4% Stake in Building Materials (BLG), Urges Sale

In a 13D filing after the close Friday on Building Materials Holding (NYSE: BLG), Chapman Capital disclosed a 7.4% stake in the company and recommended the company engage financial advisors to explore the complete or divisional sale of the Company.

Chapman Capital's Robert L. Chapman, Jr. said, "Having recently made personal contact with BMHC’s peers and leveraged consolidators of the building supply industry, I can convey an extremely high level of interest from both private equity and strategic building supply players in the acquisition of the Company."

Chapman concluded, "it was with much appreciation that Chapman Capital has become familiar with you and other senior management of BMHC. Moreover, I was gratified to discover during our meeting earlier this week the tight compatibility between Chapman Capital’s strategic goals for the Company and those of you, Mr. Smartt and apparently BMHC’s Board. The stock market is ascribing virtually no value to SelectBuild, making it imperative that BMHC management and the Board rectify this deficiency both via operating margin improvement and subsequent change-of-control premium offered for BMHC or its divisions by financial or strategic acquirers. Given Lehman Brothers’ current engagement to maximize the value of HD Supply, we strongly recommend that the Board engage it or an equally qualified advisor to begin discussions with prospective acquirers in earnest."

A Copy of the Letter:

Dear Mr. Mellor (and the BMHC Board of Directors):

Chap-Cap Partners II and Chap-Cap Activist Partners (the “Chapman Funds”), advised by Chapman Capital L.L.C., own approximately 2.2 million common shares, or just over 7.4%, of Building Materials Holding Corporation (“BMHC”, the “Company”). To put this ownership stake (the “Chapman Ownership Stake”) into perspective, the Chapman Funds’ financial interest in BMHC now exceeds that of the entirety of BMHC’s management and Board of Directors (“the Board”; together, the “Insiders”) by a nearly four-to-one ratio.11 At the risk of implying that this statistic on its own is not reason for concern, even more disconcerting is our estimation that nearly 100% of the Insider Stake was granted free of cost to the Insiders, and is residual of the exercise-and-sale of free stock option grants that have flooded your personal coffers with millions of dollars in the last six months alone.12 This followed Mr. Mellor being San Francisco’s own “$6 Million Man” in 2006, with his total compensation coming in at a whopping $6,236,182.13 The balance of BMHC’s senior management team also seems to have a disconnect between stock ownership and compensation, with Chief Financial Officer William M. Smartt hitting $2,201,114 in 2006 total compensation despite his mere 20,000 BMHC share ownership, SelectBuild CEO Michael D. Mahre stacking up $2,696,251 despite his small 22,000 BMHC share stake, BMC West CEO Stanley M. Wilson adding $2,199,728 despite his 45,234 BMHC shareholding, and General Counsel Paul S. Street accumulating $1,676,489 despite 82,944 of BMHC share ownership.14

Despite this asymmetry, it is our sincere intention for this initial written communication with you and the balance of the Board to be considered amicable and productive, rather than invective or, as past activist targets have claimed, viscerally scurrilous. Uncharacteristically, Chapman Capital is not taking this approach because May flowers have intoxicated me with unalloyed happiness or inexplicable tolerance for excessive “agency issues” in BMHC’s corporate governance. Instead, our behavior is the direct response to your responsible, accountable, fiduciary-duty cognizant reception to Chapman Capital’s initial accosting of, and ensuing dialog with, you and Mr. Smartt. In fact, you could provide a public service by calling and educating the corporate cretins in respective management and director positions at Entertainment Distribution Company/EDCI (Clarke H. Bailey - (212) 333-8478; and James M. Caparro - (917) 974-4061), Vitesse Semiconductor (James A. (Hole)/Cole - (805) 497-3222) and FSI International (Donald S. Mitchell - (858) 759-7783; and Benno G. Sand - (612) 840-5702). Hopefully, this letter will be viewed as yet another in a steady stream of constructive communications, the aim of which is to remedy the undervaluation of BMHC due in large part to its bloated cost structure and depressed operating margins within its SelectBuild construction services division (“SelectBuild”).

Nobody can blame BMHC’s management team for the steep correction of the U.S. homebuilding market, though the Board’s granting you generous financial rewards during its 2004-2006 boom years should not be ignored. Boom or bust, shallow or deep, the ups and downs of the homebuilding industry unfortunately are out your control (as compared to the self-inflicted shareholder immolation of the EDC/Vitesse/FSI miscreants named above). Auspiciously, sales of new homes rose 16% last month as homebuilder price concessions enticed buyers with a shot at median home prices down nearly 11%.15 Thus, it appears that the clearance of excess regional home inventory (the creation of which benefited BMHC by essentially pulling revenues from 2007-2008 into prior years) can be catalyzed with “couponing” and other marketing techniques designed to capitalize on the elastic nature of your customers’ newly built homes.

Though stipulating that homebuilding cycles are beyond BMHC’s control, corporate and divisional overhead can be restrained by a realistic, practical management team. In a market where U.S. single family building permits (the industry’s standard 30-day leading indicator) are falling nearly 30% year/year,16 BMHC must take drastic action to rationalize its expense base to fit today’s reduced base level of homebuilding. This is especially true given that BMHC’s outsized exposure to boom/bust markets (such as San Diego and Phoenix) have experienced single family building permit declines approaching 40% in recent months.17 Simply stated, intense focus is required immediately on SG&A expense reduction in Mike Mahre’s SelectBuild division in order to navigate effectively this cyclical downturn. Moreover, in order to regain a more favorable public market valuation, BMHC must demonstrate that it can stabilize operating margins and cash flow despite prospectively sustained weak housing conditions. SelectBuild has invested an estimated $700 million into 17 acquisitions and five greenfield operations over the past five years;18 accordingly, there is no reason that its estimated real-time $1.3-1.4 billion in revenues should not receive a minimum valuation of 50% of such sales,19 which happens to coincide with its $700 million “cost basis.”

Chapman Capital, on behalf of what it believes is a significant percentage of BMHC’s owners, strongly recommends that the Company engage financial advisors to explore the complete or divisional sale of the Company. The building materials sector arguably is in the third or fourth inning of a consolidation wave, somewhat akin to where SelectBuild’s primary customers, the national homebuilders, found themselves a decade ago. To proclaim that the $400 billion building supply sector is undergoing consolidation would be a masterpiece of understatement. HD Supply, Home Depot, Inc.’s professional building supply subsidiary that a) in 2006 engaged in M&A estimated at $4.4 billion20 spread over one dozen targets,21 and b) is in the final stages of being consolidated itself for an estimated $9-11 billion.22 Even Masco Corporation, the $12 billion (in market capitalization and revenues) manufacturer and marketer of home improvement and building products, recently exhibited appreciation for the advantages of vertical integration within the building materials supply chain.23 Having recently made personal contact with BMHC’s peers and leveraged consolidators of the building supply industry, I can convey an extremely high level of interest from both private equity24 and strategic building supply players in the acquisition of the Company. Chapman Capital recognizes the unique value of BMHC’s assets, the years and efforts required to assemble and integrate them. As a result, we are not encouraging an inopportune, undervalued sale, but instead a methodical auction timed to consummate into the inevitable cyclical recovery.

In conclusion, it was with much appreciation that Chapman Capital has become familiar with you and other senior management of BMHC. Moreover, I was gratified to discover during our meeting earlier this week the tight compatibility between Chapman Capital’s strategic goals for the Company and those of you, Mr. Smartt and apparently BMHC’s Board. The stock market is ascribing virtually no value to SelectBuild, making it imperative that BMHC management and the Board rectify this deficiency both via operating margin improvement and subsequent change-of-control premium offered for BMHC or its divisions by financial or strategic acquirers. Given Lehman Brothers’ current engagement to maximize the value of HD Supply, we strongly recommend that the Board engage it or an equally qualified advisor to begin discussions with prospective acquirers in earnest.

Sincerely,

Robert L. Chapman, Jr.

Footnotes:

1 Robert E. Mellor ownership stake: precisely 254,370 (vs.154,354 year/year) shares per BMHC 2007 Proxy Statement. Total outstanding share count of 29,170,793 as of March 7, 2007.
2 Sara L. Beckman ownership stake: precisely 18,653 (vs. 16,890 year/year) shares per BMHC 2007 Proxy Statement.
3 Eric S. Belsky ownership stake: precisely 1,519 (vs. 0 year/year) shares per BMHC 2007 Proxy Statement.
4 James K. Jennings, Jr. ownership stake: precisely 17,100 (vs. 15,600 year/year) shares per BMHC 2007 Proxy Statement.
5 Norman J. Metcalfe ownership stake: precisely 7,519 (vs. 3,000 year/year) shares per BMHC 2007 Proxy Statement.
6 David M. Moffett ownership stake: precisely 1,500 (vs. 0 year/year) shares per BMHC 2007 Proxy Statement.
7 R. Scott Morrison, Jr. ownership stake: precisely 26,700 (vs. 24,200 year/year) shares per BMHC 2007 Proxy Statement.
8 Peter S. O’Neill ownership stake: precisely 41,996 (vs. 40,180 year/year) shares per BMHC 2007 Proxy Statement.
9 Richard G. Reiten ownership stake: precisely 32,809 (vs. 28,454 year/year) shares per BMHC 2007 Proxy Statement.
10 Norman R. Walker ownership stake: precisely 0 (vs. NA year/year) shares per BMHC 2007 Proxy Statement.

11 The Chapman Funds owned 2,189,239 as of May 24, 2007 vs. “the Insider Stake” of 572,344 shares (or 2% of the shares outstanding) owned by BMHC management and the Board as of March 7, 2007 (Source: BMHC 2007 Proxy Statement, dated April 2, 2007).
12 Mr. Mellor sold 71,491 and 28,509 BMHC shares at approximately $26/share November 17-21, 2007 for a total of $2,605,393.
13 Source: BMHC 2007 Proxy Statement.
14 Ibid.
15 The U.S. Census Bureau reported that sales of newly constructed homes rose 16.2% in April 2007 to a seasonally adjusted annual rate of 981,000 homes, the largest monthly gain in 14 years.

16 U.S. single family building permits declined 28% in March 2007 (over 2006 levels) to an annual pace of 1.1 million.
17 BMHC’s regional markets experienced a single family building permit decline of 37% (vs. a 31% national rate decline) in the three months ending February 2007.
18 SelectBuild transaction highlights include the following (Target Revenue/Acquisition Price/Acquisition Date): 27% interest in Riggs Plumbing (N/A, $10.5MM, 3/28/2007), Willis Roof Consulting ($90.0MM, N/A, 06/30/06), Davis Brothers ($110.0MM, $43.3MM, 8/1/2006), Azteca (N/A, $1.5MM, 4/1/2006), Boulder's West (N/A, $6.7MM, 4/1/2006), Benedeti Construction ($145.0MM, N/A, 1/11/2006), MWB Building Contractors ($80.0MM, $57.1MM, 1/11/2006), 20% stake in WBC Construction (N/A, $31.4MM, 1/1/2006), HnR Framing & Home Building Components ($140.0MM, $72.6MM, 10/18/2005), Campbell Companies ($200.0MM, $85.6MM, 8/31/2005), Gypsum Construction (N/A, $5.9MM, 9/1/2005), 20% stake in WBC Construction (N/A, $24.8MM, 8/1/2005), 51% interest in BBP Companies ($100.0MM, $10.4MM, 7/1/2005), 73% interest in Riggs Plumbing (N/A, $19.2MM, 4/19/2005), 51% interest in RCI Construction (N/A, $4.9MM, 1/27/2005), 51% Interest in A-1 Building Components (N/A, $2.3MM, 9/1/2004), 49% interest in KBI Norcal (N/A, $14.0MM, 8/9/2004), 67% Interest in WBC Mid-Atlantic (N/A, $5.1MM, 10/1/2003), BMC West (N/A, $5.1MM, 6/1/2006), 60% stake in WBC Construction (N/A, $24.0 MM, 1/1/2003), and 51% interest in KBI Norcal (N/A, $7.1MM, 6/24/2002).
19 Valuation Assumptions (Chapman Capital research): 14-20% (cycle trough-peak) gross margins reduced by 6-10% (cycle peak-trough) SG&A loads, capitalized at 16-17% ROI.

20 HD Supply doubled in size with its $3.5 billion acquisition of Hughes Supply Inc. in January 2006.
21 HD Supply reportedly has expended approximately $8 billion buying the estimated 39 companies in its composition, in an effort to leverage Home Depot’s $70 billion supply chain.
22 Home Depot reportedly has retained Lehman Brothers, Inc. to conduct a strategic review of HD Supply, including its sale in part or entirety.
23 Masco acquired on May 1, 2007, Erickson Construction Company (turnkey framer) and Guy Evans, Inc. (millwork, interior and exterior door, window and bath hardware installer) for an estimated .8-1.0 times a combined $200 million in anticipated 2007 revenues, roughly in line with the valuation placed on Masco 2001 acquisition BSI Holdings. In 2002, Masco acquired Service Partners LLC (insulation installer) and other smaller businesses for $1.2 billion.
24 Leonard Green & Partners, L.P. reportedly gained 2.5 times its $88 million investment for a 60% stake in White Cap Construction Supply Inc. upon its acquisition by Home Depot in 2004; Warburg Pincus, LLC and its affiliate JLL Partners are the private equity backers to Builders FirstSource, Inc. (Nasdaq: BLDR), having a 50% combined ownership stake as of March 27, 2007.

Chapman Capital Lowers Stake in eSpeed (ESPD) to 6%

In an amended 13D filing on eSpeed, Inc. (Nasdaq: ESPD), Chapman Capital disclosed a 6% stake in the company. This is down from the 8.1% stake the firm disclosed in a May 11th 13D/A filing.

Chapman has been pushing the company to sell. In April, the company's controlling stockholder, Cantor Fitzgerald, L.P., rejected a $12.00/share acquisition proposal from Tullett Prebon Plc.

Chapman Said Glenayre's (GEMS) CEO Needs a Reality Check, Likes Loeb's Third Point Sale Call

In an amended 13D filing on Glenayre Technologies, Inc. (Nasdaq: GEMS), 9.9% holder Chapman Capital discusses improper exchange of EDC Equity Options for Glenayre common stock by CEO Jim Caparro and joins another large holder, Third Point LLC, in calling for a sale of the company.

Chapman Capital's Managing Member Robert L. Chapman, Jr. said, "The fact that Glenayre's Board of Directors (the "Board") gifted you (i.e., for free) the initial $215,000 that you used to obtain, for free, your initial investment in the Class B units of Glenayre subsidiary EDC has not escaped Glenayre's lividly indignant owners. Taking into account that $215,000 "signing bonus," on top of your base salary during partial-2005 EDC employment, "your" entire 2005 investment in Glenayre's EDC subsidiary required essentially not a single penny from your own, pre-Glenayre bank account. Viewed in that light, I must opine that you have Guinness Book of World Records-qualified genitalia of steel to attempt, after watching Glenayre’s stock tumble from nearly $6/share to under $2/share during your CEO tenure, to exchange these "free" and potentially worthless EDC equity options ("profits interests") for actual common shares in Glenayre - the same shares that Chapman Capital and other owners have purchased with their investors’ own, hard earned money."

Commenting on Third Point LLC's 13D last week Chapman said, "It should be noted that Chapman Capital shares the four stated concerns listed in such Item 4, having concluded that what is "clearly best for shareholders" is to "put the Company up for sale." If by now you have not realized that the days of your being paid an annual compensation exceeding $1.8 million (based on the Board’s awarding you a 100% bonus for 2006 performance) for the service of driving Glenayre's owners' collective investment into the ground, it's high time for a reality check."

A Copy of the Letter:

Via Electronic Mail

Re: Litigation vs. Glenayre Technologies et. al. (James M. Caparro) re: Illegal EDC Equity Option Exchange

Mr. Caparro (and the Glenayre Board of Directors):

As many are aware from our widely-read Schedule 13D amendment filed with the SEC on December 14, 2006 (http://www.sec.gov/Archives/edgar/data/808918/000136541706000035/formsc13d.htm), Glenayre Technologies, Inc. (“Glenayre” or the “Company”) 9.9% owner-advisor Chapman Capital views you as nothing more than a “washed-up entertainment industry executive” who was hoisted (by fellow Glenayre “siphoner” and Chairman, Mr. Clarke Bailey) from recent un/self-employment into a public-company position that paid you nearly $2 million annual compensation, plus “EDC profit interests,” in exchange for your supervisory oversight (i.e., not operational management, left to Mr. Thomas Costabile) of a $150 million micro-market capitalization, loss-producer (Source: 2006 Form 10-K: http://www.sec.gov/Archives/edgar/data/808918/000095014407002895/g06102e10vk.htm).

The fact that Glenayre’s Board of Directors (the “Board”) gifted you (i.e., for free) the initial $215,000 that you used to obtain, for free, your initial investment in the Class B units of Glenayre subsidiary EDC has not escaped Glenayre’s lividly indignant owners. Taking into account that $215,000 “signing bonus,” on top of your base salary during partial-2005 EDC employment, “your” entire 2005 investment in Glenayre’s EDC subsidiary required essentially not a single penny from your own, pre-Glenayre bank account. Viewed in that light, I must opine that you have Guinness Book of World Records-qualified genitalia of steel to attempt, after watching Glenayre’s stock tumble from nearly $6/share to under $2/share during your CEO tenure, to exchange these “free” and potentially worthless EDC equity options (“profits interests”) for actual common shares in Glenayre - the same shares that Chapman Capital and other owners have purchased with their investors’ own, hard earned money.

James Caparro Two-Year Refusal to Buy Glenayre Stock: Literally for years, Glenayre’s owners have beseeched you to use your own personal retained earnings (from decades of “success” in the entertainment industry) to purchase, on the open market, the same Glenayre’ common shares that have been purchased by your nearly $2 million/year compensating benefactors, Glenayre’s true owners. Despite a wide variety of periods during which you had the legal right (and arguably ethical devoir) to purchase Glenayre stock, you have refused to purchase even one single share, using defenseless excuses and pretexts that would be accepted as reasonable only by a simian imbecile (this is not to be taken as a direct reference to Mr. Matthew Behrent, Glenayre SVP & Chief Acquisitions Officer, who was rewarded indirectly out of Glenayre’s owners’ pockets for the brilliance of liquidating Glenayre Messaging immediately following its loss of Sprint-Nextel as its primary customer). However, after reading the Glenayre 2007 Proxy Statement on Schedule DEF14A (the “2007 Proxy Statement”) recently filed with the SEC on April 26, 2007 (http://www.sec.gov/Archives/edgar/data/808918/000095014407003810/g06789def14a.htm), Glenayre’s owners finally have gained a sense for what may be Jim Caparro’s true master plan.

Illegal Exchange of EDC Equity Options for Glenayre Common Stock: It is with the utmost seriousness that I caution you and “your” Board against further “evaluating whether to exchange the EDC profits interests for equity of the Company” … “in order to align the equity compensation received by all executive officers." (Source: 2007 Proxy Statement, Page14). By the Board’s own admission per the 2007 Proxy Statement, “the [EDC] profits interests are designed to work like options, and they vest over a two-year period or upon a change of control of EDC. The profits interest structure was used instead of stock options because at the time of the acquisition, a limited liability company could not grant options without tax risks. As such the profits interest structure was created to incentivise [sic] management in lieu of stock options. As a result, the Tier 1 Profits Interests function similar to options with an exercise price equal to the original per share equity investment, and the Tier 2 and Tier 3 profits interests have exercise prices at 50% and 100% premiums, respectively, to that value.” If these “EDC Equity Options” (the proper moniker for them, instead of “profits interests,” based on the Board’s own description of their intended design and function) are to be exchanged for anything, it must not be for “equity of the Company”) but instead for Glenayre Equity Options (i.e., options to buy Glenayre common shares) with identical exercise prices a) equal to the original, b) 50% higher and c) 100% higher than" the price at which Glenayre traded upon the announcement that Glenayre’s only business would be EDC. It has been noted by Chapman Capital (and other significant Glenayre owners) that Glenayre cannot claim to have completed any EDC Equity Option-for-Common Stock exchange given that a) no Form 8-K or related press release has been issued by Glenayre making public what would be, without question, the material event of Glenayre’s owners being massively diluted via an (illegal) exchange of “profits interests for equity of the Company”, and b) the two-year tax period following the date of the EDC acquisition’s completion /closing on May 31, 2005 has not elapsed (Source: http://www.sec.gov/Archives/edgar/data/808918/000095014405006192/g95544e8vk.htm).

Litigation by Chapman Capital et. al. a 100% Certainty: Under no circumstances should you expect to avoid litigation by Glenayre’s owners should you exchange your EDC Equity Options for actual Glenayre common stock. Given the state of the physical audio (compact disk) industry, exacerbated by your oversight of the EDC business, it may be argued that the value of EDC has fallen significantly since its May 31, 2005 purchase by Glenayre. As a result, Glenayre’s owners are not so ignorant to be unaware of the fact that those EDC Equity Options (“profit interests”) never may become “in the money,” and thus may prove to be absolutely worthless, as a direct result of a) the decision of the Board, you, Mr. Bailey, and strategic advisor/profit-interest recipient Morgan Joseph & Co. Inc. (http://www.morganjoseph.com) to buy EDC from Universal Music Group in the first place and b) your own (mis)management of EDC/Glenayre into its current and prospective state of cash flow generation and value. I cannot exaggerate the following point: DO NOT force Glenayre’s owners to squander their own and Glenayre's cash resources on prosecuting and defending respective lawyers to rake you over smoldering, white-hot legal coals (figuratively) in response to any further attempt by owners of EDC Equity Options to misappropriate the equity, cash and other assets of the company owned by holders of Glenayre common shares (that excludes you, of course). Your greed has tested our collective patience too long, and too far; moreover, it shall not be difficult to prove in a court of law the outright breach of fiduciary duty by this agedly conflicted Board of Directors.

Fair Exercise Price for Glenayre Equity Options: Based on the market’s own valuation of Glenayre and EDC as one and the same following the sale of Glenayre Messaging, the exercise price on any Glenayre Equity Options received by you and others (in exchange for EDC Equity Options, a.k.a. EDC “profit interests”) must be set at no less than a price between $2.37 and $2.70 per share. On December 14, 2006, in immediate response to the Company’s announcement that it had agreed to sell Glenayre Messaging to IP Unity for $25 million (Form 8-K; http://www.sec.gov/Archives/edgar/data/808918/000111667906002755/glen8k-121506.htm), Glenayre’s common stock closed at $2.61/share; moreover, for the balance of 2006, Glenayre stock traded between $2.40 and $2.60 per share, averaging $2.53/share during those final two weeks of 2006. On January 3, 2007, when the Company’s stock traded and closed at approximately $2.50/share, Glenayre announced “that on December 31, 2006 the Company completed the previously announced sale of its Messaging business to IP Unity for $25 million in cash” (Form 8-K; http://www.sec.gov/Archives/edgar/data/808918/000111667907000117/glen8k.htm ). In the following two months, the market valued Glenayre, once again essentially as the EDC division itself, between $2.37 and $2.70 per share. I repeat, between the date Glenayre Technologies became EDC for all intents and purposes, and March 6, 2007, Glenayre was valued by the market at an average closing price of $2.57/share. Only after the March 6, 2007 conference call in which you introduced disappointing guidance for EDC (and not Glenayre Messaging, which had been sold the prior year), which formed the rationale for the nearly 40% downward revision (from $5.00 to $3.10) in Glenayre’s share target price by its only Wall Street sellside research analyst, did Glenayre’s stock begin its descent to Caparro-induced depths under $2.00 per share. As a result, there is absolutely no justification for setting below $2.37 - $2.70/share the exercise price of any Glenayre common stock options you and others may receive in exchange for potentially worthless EDC Equity Options (“profit interests”).

Excessive Board Compensation: With net losses in two of the last four quarters (or three if you do not count extraordinary items), it seems inconceivable that the Board can justify compensation of roughly three quarters of a million dollars (Source: 2007 Proxy Statement, Page14). Included in this amount are stock awards worth $21,499 per director and option awards reaching as high as $84,066. Chapman Capital finds the awards of any such “rewards” insulting to Glenayre’s owners who endured a 21% loss in share value during calendar 2006. The Compensation Committee claims to believe that compensation should reward performance. Chapman Capital believes that as well.

Misaligned Compensation Structure: Members of Glenayre’s management have economic incentives that are directly opposed to shareholder interests. Despite the fact that EDC was structured as a limited liability company to maximize the utilization of Glenayre’s tax loss carryforwards, Messrs. Bailey and Behrent are contractually entitled to awards of stock options upon completion of certain acquisition or divestiture events, irrespective of their success or failure as measured by an assessment of the return or loss to Glenayre’s owners. It is no wonder then that “Mr. Bailey remains focused on acquisition opportunities for the Company” as he stands to gain from any increase in M&A activity. For his “outstanding performance” in divesting the messaging business (at near liquidation value), Mr. Behrent was awarded a discretionary bonus of 250,000 options (Source: 2007 Proxy Statement, Page 12).

Third Point Activist 13D Filing: Last week’s Schedule 13D filing by Third Point LLC (http://www.sec.gov/Archives/edgar/data/808918/000089914007000879/g3727409b.txt; May 3, 2007) was your first official warning that your continued siphoning off of value from Glenayre had forced yet another large owner to defend its investment via activist, corporate warfare. In such filing’s Item 4, Mr. Loeb also made specific reference to the issue of an improper exchange of EDC Equity Options for Glenayre Common Stock, stating, “the Reporting Persons are concerned that Mr. Caparro will unduly benefit from an exchange of these "options" into Company "equity" [emphasis added] while the Common Stock valuation is temporarily depressed.” The fact that your latest brush with a Glenayre owner seeking to protect his clients’ investment came so soon after your meeting with its representative, Mr. Jeffrey R. Perry, is further testament to the failure of your tyro-level of chicanery and financial slight-of-hand. It should be noted that Chapman Capital shares the four stated concerns listed in such Item 4, having concluded that what is “clearly best for shareholders” is to “put the Company up for sale.” If by now you have not realized that the days of your being paid an annual compensation exceeding $1.8 million (based on the Board’s awarding you a 100% bonus for 2006 performance) for the service of driving Glenayre’s owners’ collective investment into the ground, it’s high time for a reality check.

Robert L. Chapman, Jr.
Managing Member
Chapman Capital L.L.C.

P.S. In preparation for Chapman Capital’s forthcoming Schedule 13D Amendment of its investment in Glenayre Technologies, Inc. (“Glenayre” or “the Company”), I suggest that you read and the Glenayre Board of Directors (“the Board”) the excerpt below from Alan Murray’s Revolt In The Boardroom: The New Rules of Power in Corporate America. Subsequently, you may want to take a break from admiring your 2007 Grammy after-party photos to read the entire book, start-to-finish, and the re-read it. Given that Mr. Thomas Costabile, EDC’s highly paid Chief Operating Officer, is (according to all reporting sources) carrying nearly the entire operational load at EDC (i.e., few can determine what is your contribution to the Company), I doubt you lack the free time to read this book cover to cover.

Chapman Rips Into eSpeed (ESPD) CEO "Howie" Lutnick And Short Seller Hughes

In a 13D filing Thursday afternoon on eSpeed Inc. (Nasdaq: ESPD), 9.3% holder and activist investor Chapman Capital disclosed a letter to eSpeed Chairman/CEO Howard W. Lutnick. Chapman has been pushing for a sale of the company.

In the letter, Chapman Capital's Managing Member, Robert L. Chapman, Jr., suggested Lutnick unknowingly dedicated 50% of the caller period of yesterday's earnings conference call to short seller Justin Hughes of Philadelphia Financial. Chapman calls Hughes "linguistically confused", saying at no time did he inform Hughes that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." Chapman said, "To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed."

Chapman also responds to attacks from Lutnick who said his firm was carrying out a "pump and dump". Chapman said, "One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint."

Chapman said, "long-term holders" of eSpeed - those in the stock since the December 1999 IPO - have lost 60%.

A Copy of the Letter:

Dear Howie,

It was with continued awe and amazement that I listened to your command performance over today's conference call spinning eSpeed's 1Q2007 results. As this was a call under your favorite form of oversight (i.e., full and immediate control), I determined it futile to attempt to communicate with you via this forum. Instead, I viewed the hour as an opportunity to be entertained by you, particularly as you unknowingly dedicated 50% of the caller period to someone overseeing a large short position in eSpeed Class A shares, Mr. Justin Hughes of San Francisco's linguistically (and apparently geographically) confused Philadelphia Financial.

I label Mr. Hughes as “linguistically confused” out of compassion for a man whose high-turnover "career" includes a stint at now-defunct Robertson Stephens, less than a year at Jefferies & Co., a downtick to an analyst position at Hovde Capital LLC before finally landing at Philadelphia Partners. However, one cannot ignore Mr. Hughes' own "questionable" behavior today on the call. As he is well aware, at no time was he informed by me that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed. If Mr. Hughes has not moved back into unemployment once again, he should contact you directly and ask, off-line, if either of those firms have an interest in buying "your Company." As I already possess the affirmative answer to this apparent conundrum, Mr. Hughes need not make such a call to Chapman Capital.

Regarding your own "improper and disingenuous" commentary, I think it is appropriate to make a few observations to supplement or correct the latest public record (at least the one according to Howard W. Lutnick). As did you, let's start with Chapman Capital. One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint." In reality, you leaned your weight into the core "pre-dump pump" when you forecasted 2004 net operating earnings to be in the range of 80-84c/share, only to miss that projection by some 35% by the time 2004's 55c/share "non-GAAP" net operating income was reported on March 1, 2005.

As your “questionable” and conveniently distracting “pump and dump” sideshow is worthy of precious little further ink, let me make this clear: you made that accusation this morning despite the facts that a) Chapman Capital (and its advised Funds) had made not a single share sale in the market in the weeks before or “in the 32-hour period beginning the morning of April 18th, the same day that Tullett announced its approach to us and Chapman Capital demanded the removal of all of eSpeed’s independent directors and again demanded the immediate auction of eSpeed; b) the entity whose actions caused the “inflation” (or pumping) of eSpeed’s common stock was Tullett Prebon Plc (via a $12/share acquisition proposal), and not Chapman Capital L.L.C.; c) Chapman Capital’s only Common Stock activity in the open market between our March 14, 2007 original Schedule 13D filing and this morning’s conference call was the April 24, 2007 purchase of eSpeed Class A shares (at $8.85/share) via Bank of America Securities; and d) the party most responsible for “dumping on” (vs. the “pumping” up of) eSpeed was Chapman Capital, which has issued not one nor two but three press releases highly critical of eSpeed’s management, runaway expense structure and resultant near un-profitability, corporate mis-governance and potential conflicts of interest with Cantor Fitzgerald L.P. I cannot imagine that anyone reading those three public testaments would come away feeling the author was “pumping up” the stock. Furthermore, any hedging transactions entered into by Chapman Capital were entirely appropriate applications of widely accepted risk management policies employed by managers obeying their fiduciary duties to their shareholders/partners (foreign concept?), and were prudent in light of Tullett Prebon’s April 18, 2007 announcement that Cantor had “informed Tullett Prebon that Cantor is not interested in selling its controlling interest on the terms proposed.”

This morning, you described Chapman Capital’s actions as not being those “of a serious long-term holder” of eSpeed. Well, Howard, let’s now discuss how the actions of the longest-term holders of eSpeed have fared en route to today’s forecast for “non-GAAP net operating income [of] $0.00 per diluted share” for the current fiscal quarter. By definition, the “longest-term” holder of eSpeed is one who paid $22.00 per share in eSpeed’s December 1999 IPO. This lucky, longest-term holder’s allegiance to “Emperor Howard” has driven him to hold his eSpeed shares for the longest term possible - never selling. This kind chap finds himself still sipping his Howard-flavored Kool-Aid that induces hallucinations of a future day “when and if BGC’s business goes electronic,” allowing eSpeed to “receive 65% of the revenues over time for new products.” This fortunate fellow should be careful not to look too closely at the growth trajectory of these “new products,” for if he does so he will realize that sequential growth in this expensive pipe-dream now finds itself at just over 7%. Sadly, it would appear that “the actions of a long-term holder” are to lose nearly 60% of his investment in “your Company.”

From the shallow bottom of my heart, I pray for your buddies at “long-term holder” Downtown Associates that short-term eSpeed short seller Justin Hughes, for once, is not right.

Robert L. Chapman, Jr.
Managing Member
Chapman Capital L.L.C.

eSpeed (ESPD) Comments on Tullett Proposal and Recent Shareholder Statements

eSpeed, Inc. (NASDAQ: ESPD) commented on recent statements and proposals made by one of eSpeed's competitors and by certain shareholders in Schedule 13D filings in recent weeks.

The Company said on April 19th they sent a letter to Terry Smith of Tullett Prebon plc stating that the Board of Directors has been informed by its controlling stockholder, Cantor Fitzgerald, L.P., that it is not interested in selling its controlling interest in the Company to Tullett, in terminating its arrangements with eSpeed on the terms proposed by Tullett in its recent letters, or in proposing alternative terms to Tullett. The Company is not in a position to pursue Tullett's acquisition proposal because such a proposal cannot be consummated without the consent of our controlling stockholder.

Yesterday, Tullett Prebon disclosed its $12 offer for eSpeed.

Activist shareholders, Chapman Capital and WC Capital have been pushing for a sale of the company. Chapman also wants members of eSpeed's board replaced, an independent auditor to review the Joint Services Agreement and the conversion of all Class B common shares into Class A common stock

Related Stories

Tullett Bids $12 for eSpeed (ESPD), Chapman Recommends Kozlowski or Ebbers As Ethics Officer

Earlier, Tullett Prebon plc confirmed that it has made an approach to eSpeed, Inc. (Nasdaq: ESPD) in relation to a possible acquisition by Tullett Prebon of eSpeed at a price of $12 per eSpeed Class A Common Share in cash.

Tullett said eSpeed referred this proposal to Cantor and has informed them that Cantor is not interested in selling its controlling interest on the terms proposed.

eSpeed has been an activist target of Chapman Capital, which today demanded the replacement of eSpeed Directors Albert Weis, John Dalton, Barry Sloane & Barry Gosin. Chapman Capital also reiterated its demands that the Board immediately retain an independent auditor to review the Joint Services Agreement, compel the conversion of all Class B common shares into Class A common stock, and engage an investment bank to maximize shareholder value via an auction of the Company.

Robert L. Chapman, Jr., Managing Member of Chapman Capital, said, "Chief Executive Howard Lutnick's three-kingdom reign over Cantor Fitzgerald, eSpeed and BGC Partners appears so infested with potential conflicts of interest and incestuous inter-company transactions that a completely new set of corporate governors may be required to exterminate any vermin from eSpeed's board room."

Chapman also mockingly said, "Following eSpeed's April 12th arguably belated decision to hire a 'Chief Ethics Officer,' I propose that either Dennis Kozlowski or Bernie Ebbers be considered to fill the position once they have been discharged from their respective prison cells."

Chapman's Press Release

Chapman Capital Makes Quick Work of Embarcadero Techn (EMBT)

On Friday, Embarcadero Technologies, Inc. (NASDAQ: EMBT), an activist target of Chapman Capital, announced they entered a definitive agreement to be acquired by an affiliate of private equity firm Thoma Cressey Bravo in a transaction valued at approximately $200 million, or $7.20 per share in cash. Chapman Capital said they would support the agreement.

On March 7, 2007, Chapman Capital filed a Schedule 13D demanding that Embarcadero resume negotiations with TCB or other bidders regarding the sale of the Company.

Chapman Capital, on average, paid in the low $6 range for its EMBT stake (about $6.07 for one fund and $6.23 for the other).

Chapman Capital has also recently called for the sale of FSI Int'l (Nasdaq: FSII) and eSpeed Inc. (Nasdaq: ESPD). He is also actively targeting a spin-off/sale of Cypress Semiconductor (NYSE: CY).

Another Chapman target, Sunterra Corporation (OTC: SNRR), recently announced a sale, which Chapman supported.

Chapman Capital Plans to Solicit Buyers, Recruit New Management for FSI Int'l (FSII)

In a 13D filing Friday afternoon on FSI Int'l (Nasdaq: FSII), Chapman Capital disclosed a 6.5% stake (1.99 million shares) in the company noting it has become increasingly disconcerted by the apparent divergence between ownership and management of the company. Chapman Capital said they plan to solicit interest in acquiring the company by prospective strategic buyers and plan the recruitment of alternate management and corporate governors for FSI.

Robert Chapman said he was "astonished" that the CEO's wife answered the telephone at his primary place of conducting the company's business.

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

On December 26, 2006, Mr. Chapman contacted Mr. Benno G. Sand (“Mr. Sand”), the Issuer’s Secretary and Executive Vice President of Business Development. Given that in approximately 75% of the fiscal quarters that comprised FY2000-FY2006 (inclusive) the Issuer had reported net losses, Mr. Chapman requested justification from Mr. Sand for the Issuer’s a) continued independence as a public company vs. sale to a more diversified player in the semiconductor equipment sector, b) Chief Executive Officer Donald S. Mitchell (“Mr. Mitchell”) being paid millions of dollars in cash compensation and hundreds of thousands of free Common Stock options while owning less than 30,000 shares of the Issuer’s Common Stock, and c) CEO Mr. Mitchell being allowed by the Issuer’s Board of Directors (the “Board”) to reside in sunny San Diego, California while the Issuer’s headquarters and core loyal employee base “shivers” in climatically disadvantaged Chaska, Minnesota. Mr. Sand responded, “In this industry, it doesn’t matter where the CEO lives because the customers are in Asia, Japan, China and Israel; he has commuted for six years, [and] I don’t view it as a perk.” Mr. Chapman contested Mr. Sand’s statement, asserting Chapman Capital’s view that it could not be beneficial to the morale of the Issuer’s employees to have the Issuer’s CEO living across the country in a vacation destination, taking millions of dollars in cash compensation, while the Issuer routinely reported millions of dollars of net losses and engaged in sporadic and significant employee layoffs. Dissatisfied with Mr. Sand’s insouciant and phlegmatic response, Mr. Chapman requested that Mr. Mitchell contact Chapman Capital, in its capacity as advisor to one of the largest blocks of the Issuer’s ownership, as soon as possible. Mr. Sand rejected Mr. Chapman’s request, stating that Mr. Sand was “joined at the hip with” Mr. Mitchell. Mr. Chapman reiterated his request that Mr. Mitchell contact Chapman Capital at Mr. Mitchell’s earliest convenience.

On December 29, 2006, Mr. Sand left a voice mail message for Mr. Chapman refusing to acquiesce to Chapman Capital’s request for a conference call with Mr. Mitchell that did not exacerbate the Issuer’s net losses by squandering cash on unnecessary telephone company-assisted conference calls. Mr. Chapman previously had offered to have Chapman Capital incur any and all expenses associated with a three-way conference call between Mr. Chapman, Mr. Sand and Mr. Mitchell; however, Mr. Sand intransigently rejected Chapman Capital’s offer to arrange for, an incur all expenses associated with, this simple three way conference call. Mr. Chapman had rationalized his insistence on the Issuer accommodating Chapman Capital’s request by explaining that though the actual expense incurred by the Issuer for arranging this one particular conference call was relatively small, it was Chapman Capital’s view that the Issuer’s poor financial performance dictated that it begin to eliminate any and all unnecessary corporate expenses, particularly those incurred by the Issuer’s leadership. On this date, Mr. Chapman contacted Mr. Sand once again to argue that the goal of conducting a three-way conference call, itself necessary due to Mr. Mitchell’s enjoyment of his location in San Diego, California, would be 100% attained via Chapman Capital’s arrangement and financial coverage thereof. Mr. Chapman demanded that Mr. Sand explain why the Issuer would refuse to engage in a conference call that was arranged and paid for by Chapman Capital, but would agree to one arranged for and paid for by the Issuer, which had reported net losses in approximately 75% of the past seven years’ fiscal quarters. Mr. Sand again refused to allow Chapman Capital to reduce the Issuer’s telecommunications expense, without offering any explanation besides the hackneyed, “because that’s how we do it.” Mr. Chapman communicated to Mr. Sand that Chapman Capital suspected that the true motives of Messrs. Sand and Mitchell were the unauthorized a) inclusion of additional surveillance, and b) recording of the conference call. Mr. Sand did not deny such accusation, and the call ended abruptly following Mr. Chapman’s conveyance to Mr. Sand that Mr. Chapman had come to understand why another significant owner of the Issuer had depicted Mr. Sand in a corpulently priapic fashion.

On December 29, 2006, in order to communicate with the Issuer’s most senior executive, Mr. Chapman telephoned Mr. Mitchell at his publicly listed telephone number in San Diego, California, where Mr. Mitchell presumably acts out his role as the Issuer’s Chief Executive Officer and President. Mr. Chapman was greeted by what he presumed was Mr. Mitchell’s secretary, a woman who identified herself as “Linda.” However, when Mr. Chapman attempted to identify the title and position of this counterparty, she corrected Mr. Chapman and stated that she was Mr. Mitchell’s wife. Mr. Chapman conveyed his astonishment that Mr. Mitchell’s wife had answered the telephone at Mr. Mitchell’s primary place of conducting the Issuer’s business, but regained sufficient composure to ask Linda Mitchell to have her husband return Mr. Chapman’s call at his earliest convenience. As of March 30, 2007, some three months later, neither Mr. Mitchell nor his wife and home office secretary Linda has returned Mr. Chapman’s telephone call.

On March 20, 2007, the Issuer reported a 2QFY2007 net loss of $4.3 million, or $0.14 per share of Common Stock, a net loss 16% higher than the $3.7 million net loss reported for the 2QFY2006. In addition, the Issuer reported backlog and deferred revenue as of February 24, 2007 (the end of 2QFY2007) of $26.8 million, backlog and deferred revenue 35% lower than that reported as of November 25, 2006 (the end of the 1QFY2007). Furthermore, the Issuer reported orders for the 2QFY2007 of $19.2 million, orders some 44% lower than that reported for the 1QFY2007 ending November 25, 2006, leading to a dismal 3QFY2007 revenue outlook of $22-25 million, 16-25% lower than the revenues reported for the 3QFY2006. Consistent with the string of Issuer net losses under Mr. Mitchell’s and Mr. Sand’s management, the Issuer forecast a net loss of $3.0 - 4.0 million for the 3QFY2007. Admitting that he had misguided forecasts of the “recovery in the semiconductor device segments” served by the Issuer, Mr. Mitchell announced his decision to reduce the Issuer’s employee head count by approximately 11% and implement other operating cost reductions. However, Mr. Mitchell did not announce any reduction of his own compensation or that of Mr. Sand, arguably the two individuals most responsible for the Issuer’s purported mismanagement, recurrent net losses and potentially conflicted strategic planning.

As a result of the matters described above, Chapman Capital has become increasingly disconcerted by the apparent divergence between ownership and management of the Issuer. Consequently, Chapman Capital intends to engage in the following actions to protect and enhance the value of direct investments in Common Stock made by the Issuer’s actual owners (as compared to members of the Issuer’s management receiving free stock option grants): a) the solicitation of interest in acquiring the Issuer by prospective strategic buyers; b) the recruitment of alternate management and corporate governors for the Issuer.

Another Large eSpeed (ESPD) Holder Calls for a Sale or Other Measures to Increase Shareholder Value

In a 13D filing after the close on eSpeed Inc. (Nasdaq: ESPD), WC Capital disclosed a 6.4% stake (1.92 million shares) in the company. The firm also disclosed a letter send to ESPD Chiarman, Howard W. Lutnick.

In the letter the firm said the shares are currently very undervalued. The firm also requested the board review certain options. 1: Sale of the Company, 2. Convert Class B shares to Class A, 3. Return of Capital to Shareholders (one-time dividend, share repurchases ), 4. Initiate Procedures and Structures Increasing eSpeed Autonomy.

Commenting on eSpeed's valuation the firm said, "Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share."

NOTE: eSpeed is also an activist target of Chapman Capital. Link to ESPD/Chapman reports.

A Copy of the Letter:

Dear Mr. Lutnick:

Thank you for the recent opportunities to discuss eSpeed's current business strategy and longer term opportunities.

As long-term shareholders of eSpeed we have performed our own analysis of the value of the company and have concluded that the shares are currently very undervalued. Specifically, we believe that the current valuation does not accurately reflect: 1) the company's strong cash positions of $187 million ($3.72 per share) as of December 31, 2006; 2) the company's strong duopoly position in the electronic trading of debt securities and related instruments; 3) the potential cash flow from the "core" trading business, which has been and continues to be masked by the large continuing investments in unprofitable new business initiative, and 4) the intellectual property inherent in the company's proprietary trading technology.

While our tone and sentiments may differ from those of other shareholders, we do nonetheless agree with several issues they have raised. Given the company's dramatic undervaluation relative to other "exchanges", we believe that steps to ensure a fair return for eSpeed shareholders are appropriate. Specifically, we request that the Board of Directors reviews the following options (many of which we have inquired about on past conference calls):

1) Sale of the Company: We believe the value of eSpeed's existing core business and assets could be significantly higher than the current enterprise value of the company which is approximately $475 million, based on the recent trading of $9.40 per share. We request that management actively engage industry and/or "financial" buyers (i.e. private equity) to ascertain values at which a transaction for all outstanding eSpeed's shares may be feasible.

2) Convert Class B shares to Class A: As allowed by Delaware law, we believe that in the "post-Enron" era of corporate governance, the company should convert the "super voting" Class B shares to Class A shares. This would allow an equitable "one share, one vote" structure and also give Class A shareholders the opportunity to have a greater say in important corporate matters. At the same time, it would allow Cantor Fitzgerald to maintain a dominant position in matters requiring shareholder voting.

3) Return of Capital to Shareholders: Given the significant liquid resources (cash and equivalents) of the Company, which were $187 million on December 31, 2006, we request the Board of Directors strongly consider options for returning capital to equity shareholders. We believe that a special one-time dividend of a meaningful size, a "Dutch" tender for the Company's shares or an aggressive "open market" share repurchase would enhance the value of the shares for all remaining shareholders. While the Company is authorized to repurchase shares in the open market, the Company has not done so to a meaningful degree.

4) Initiate Procedures and Structures Increasing eSpeed Autonomy: Given the complex three-way relationship between Cantor Fitzgerald, BGC and the company, we believe that segregating various business practices and initiating independent controls would protect the company's shareholders and potentially enhance returns. Specifically, with the pending public offering of BGC shares, we believe that the two public entities should have different accountants and independent Board Members. This will lessen the likelihood that one party is treated inequitably and that appropriate allocation of resources and expenses occurs.

We believe eSpeed is a valuable business enterprise that is significantly undervalued based on its current equity valuation. Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share. This analysis is based on reasonable multiples of revenues and/or cash flows and the significant cash position of the company. We request that the Board of Directors aggressively and expediously explore all options that could result in this type of outcome for the benefit of all eSpeed shareholders.

Thank you for your attention to this matter.

Sincerely,

Aaron H. Braun

Manager of WC Capital Management LLC (also known as Willow Creek)

Chapman Capital Demands Embarcadero Technologies (EMBT) Director Haroian Resign

Chapman Capital, a 9.3% holder of Embarcadero Technologies Inc. (Nasdaq: EMBT), demanded that Mr. Gary E Haroian immediately resign from the company's board of directors.

Robert Chapman said, "Mr. Haroian has been compensated into the hundred of thousand of dollars while acting out the part of a 'career director' of the board of Embarcadero, Aspen Technology, Inc., Lightbridge, Inc., Network Engines, Inc., and Phase Forward, Inc. In order to reinstate any semblance of obeying his responsibility to the owners of these public companies, Mr. Haroian should resign from whichever boards necessary to allow for this adequate attention and focus on the remaining issuers."

Chapman Capital has recently demanded that the company's Board of Directors maximize shareholder value via a change-of-control transaction. Chapman has determined to seek nominees to replace Class I directors Timothy C.K. Chou and Frank M. Polestra, and Class II directors Michael J. Roberts and Samuel T. Spadafora, should a sale of Embarcadero not be announced by March 30, 2007.

Chapman Demands Independent Audit of eSpeed (ESPD) - Cantor Fitzgerald Agreement

Large eSpeed, Inc. (Nasdaq: ESPD) holder, Chapman Capital LLC, demanded that the company's Board of Directors retain an independent auditor, distinct from eSpeed/BGC Partners/Cantor Fitzgerald's shared financial auditor Deloitte & Touche LLP, to review the Joint Services Agreement between eSpeed and Cantor Fitzgerald-related entities.

Chapman Capital said the goal of the audit would be to confirm or invalidate the related parties' claims that the Joint Services Agreement were negotiated and have been executed in an arms-length fashion.

Commenting on a recent patent ruling, Robert L. Chapman, Jr., Managing Member of Chapman Capital, siad, "This ruling fortifies Chapman Capital's apprehension that eSpeed itself may continue to incur significant licensing and other expenses, or may relinquish significant market data and other revenues, unnecessarily or improperly for the benefit of Cantor Fitzgerald."

Chapman Capital also reiterated its demand that the value of eSpeed's Class A shares be maximized via conversion of all Class B common shares into Class A common stock, followed by the full scale auction of the Company.

Note to Management: Don't Swear At Robert Chapman

Paul Kedrosky's Infectious Greed blog notes some choice comments made to Robert Chapman as disclosed in his hedge fund's amended 13D filing on Embarcadero Technologies (Nasdaq: EMBT), a company he is pushing to be sold. We noted the original 13D filing here.

The comment that is making all the commotion today is "Fuck You" - made by Embarcadero's CFO Michael Shahbazian to Chapman.

Here is what Chapman disclosed in the amended filing, "Furthermore, in response to certain comments made by Mr. Shahbazian during a conversation later that day, Mr. Chapman conveyed to Mr. Shahbazian Chapman Capital’s concern that, according to background checks directed by Chapman Capital, Mr. Shahbazian had been viewed negatively by various shareholders of Niku Corporation, ANDA Networks, Inc. and Walker Interactive, all of which in the past had employed Mr. Shahbazian in the capacity of Chief Financial Officer. Mr. Shahbazian reacted temperamentally to Mr. Chapman with the eloquent response, “Fuck you!” Mr. Chapman then forcefully informed Mr. Shahbazian that it was inappropriate and inadvisable for the Chief Financial Officer of a public company to utter such blasphemy to the advisor of a 9.3% ownership stakeholder in the Issuer."

Chapman has really stepped up his activity lately and is making headlines again. Here are some other posts on Chapman.