CryptoLogic Limited (NDAQ: CRYP) received some advice from one of its largest shareholders over the past month along with a request for new board members. Aziz Javaid, who owns a 12.5% stake in the firm, sent a letter to the board expressing his view that the company should promptly execute on a recovery plan designed to stabilize revenues, streamline size and operations, achieve cost reductions, more effectively manage cash flows, and take other steps to improve operating and financial performance.

Here is a copy of the letter taken from a Schedule 13D filing with the SEC:

I remain very concerned about the track record and performance of the current Board and Management and am not persuaded that the Board, on behalf of all its shareholders, is doing its utmost to safeguard the company’s future and capitalise on its potential and remaining financial strength.

It appears to me that the Board has presided over significant destruction of shareholder value and has failed to protect and maximise shareholder value of the Company.

In my view the Board has not acted either promptly or decisively to halt the decline in the business and I believe the Board and Management have lost the confidence of shareholders who have seen the value of their shares fall precipitously by approximately 90% since May, 2008.

In my view the Board and Management have collectively:

A) Presided over the loss of the Company’s three largest licensees (William Hill, Littlewoods and Peak) which in my estimation accounted for approximately 30% of the Company’s revenue which approximates to the percentage revenue loss suffered by the Company at the time of the enactment of UIGEA in October 2006. This is a travesty of immense proportions. The new strategy that the Company has put forward in its press releases of 9th and 23rd December 2008 are reactive to this loss of business in a time of distress and unfortunately it reads more like a laundry list of operational actions than a strategic roadmap.
Who on the Board has been held accountable for this loss of business which by my reckoning would represent in excess of $25M in revenue on an annual basis?

B) Squandered $4.2M of shareholder funds in an abortive foreign exchange transaction (as reported by the Company).
Who on the Board has been held accountable for this loss which represents in excess of 10% of the Company’s cash and cash equivalents as reported for Q3 2008 and a shareholder value loss of 30 cents per share?

C) Mis-managed the cost and expense structure of the Company such that operating expenses in Q3 2008 at $16.5M were 40% higher than Q3 2007 at $11.8M.
Who on the Board has been held accountable for this loss of $4.7M in cash (as a result of excessive operating expenses) and a shareholder value loss of 34 cents per share? It would appear that the Board and Management are not focused on execution and the day to day operations of the Company. It is this apparent lack of accountability that concerns me the most and is my primary motive for writing to you again.

First, I would like to comment on the Company’s new strategy.

It is interesting to note that in the press release of 9th December 2008 there is pointed mention of “a return to growth and profitability” whereas the press release of 23rd December 2008 only refers to “a return to profitability”. This is a significant change, and represents a downgrade, that needs to be explained as it could have a substantial impact on shareholder value generation.

- the proposed reduction in annual operating costs of $12-15 Million is too little too late. This proposed reduction was originally announced in response to the outsourcing of the poker business. A combination of this plus the loss of William Hill and Littlewoods plus the general loss of revenue would in my judgement predicate the need to reduce annual operating costs in the range of $25-30 Million. Such a reduction could underwrite a return to profitability in 2009 and reflect reality and be commensurate with the financial size and state of the business.

- the strategic partnership with GTECH for the poker-related operations is in my opinion a forced and distressed move and is as a consequence of the loss of the poker liquidity associated with the departures of William Hill, Littlewoods and Peak from the Cryptologic poker network. Such a partnership should have been explored at the first signs of the potential defection of these licensees in August 2008 and more beneficial strategic alternatives sought with other operators.
The remaining three items from the strategy list are not strategic in nature but are operational housekeeping actions necessary and in keeping with the day to day running of the Company.

What is missing from the Company’s new strategy is the thought, the vision and the insight to make Cryptologic relevant in the internet gaming segment and to give it size and bulk to compete globally and keep pace with the industry leaders. The Board should consider various “strategic alternatives” including M&A activity; simply focussing on improving the current business does not appear to be a realistic option given the Board and Management’s track record of poor execution and the continuing loss of licensees and cash.

Second, I believe it is imperative that the Company promptly take key actions to stem the cash burn (and introduce a tough cash management regime), reduce the complexity and cost structure of the Company, and bring a sense of consistency and predictability to the financial management of the Company.

Before I make my recommendations I need to remind you of a few facts:

a) During my eleven month tenure as the President & CEO of Cryptologic (April 2007 — February 2008), revenues increased from $15.1M in the first quarter of 2007 to $18.3M in the first quarter of 2008, a 21% increase as reported by the Company (excluding unique one-time items).

During this same period operating expenses decreased every quarter, and a loss making company whose non-US revenues were declining quarter on quarter in 2006 was transformed into a revenue growth and profitable Company generating free cash after all liabilities, commitments and investments were taken care of.

This focus on results is best demonstrated in Q4 2007 for which the Company posted revenue of $20.4M and net earnings of $5.0M (24.5%), or $0.36 per fully diluted share, which resulted in the net cash declared at 31st March 2008 being $81.0M up $3.5M since 31st December 2007.

As was quoted by the Company in a press release issued at the time of my departure in February 2008 it was said that I had “lead the company to renewed profitability” and that my accomplishments “include achieving four consecutive quarters of sequential growth”.

b) During the last nine months (April 2008 — December 2008), the quarterly revenues have been on a downward trend and have dropped sequentially for the first three quarters of 2008. In particular, revenue for Q3 2008 was $14.0M, a decrease of 16.4% from Q2 2008 sequentially, and 19.7% when compared with the same period of 2007. Expenses are increasing at an alarming and unpredictable rate and are up for the same period by 40%, ($16.5M in Q3 2008 versus $11.8M in Q3 2007).

Free cash, cash equivalents and short term investments are down $44.3M (53%) (from $83.8M at the end of Q3 2007 to $39.5M at the end of Q3 2008) which translates into a reduction in shareholder value of $3.20 per share. The share price has plummetted approximately 90% since May 2008, down from $21.97 in May 2008, all of which is very concerning. I am sure you will agree that this is not an outstanding or stellar performance deserving of any senior management bonuses or awards.

c) I have written to you previously expressing my concern as a security holder about the state of the business. In August 2008 I warned about the potential loss of William Hill to Playtech and suggested that the Board of Cryptologic carefully consider all available strategic alternatives. I also suggested a massive cash conservation and profitability exercise which entailed staff lay-offs, cancellation of the dividend and the write-offs of non-performing and legacy assets.
Based on the Company’s public disclosures, it does not appear that any of these suggestions were taken heed of.

d) In September 2008 I wrote to you and suggested that the Board should take definitive steps to restore profitability and re-emphasised my points from c) above. I also suggested that a new CEO, mananagement team and board would have no reservations in doing this and that the current team would only be able to do so if they could get unencumbered from the past. I also cautioned that cash management had to be the number one priority. I do not believe any actions were taken.

e) In November 2008 I wrote to you specifically on Cash Planning & Management. I warned of the perils of running down the cash in the current capital constrained markets and suggested a substantial list of actions (which I will amplify on later) that needed to be taken immediately to staunch the outflow of cash. I again reiterated my view that the current Board and Management team were wedded to the past and unlikely to be able to effect change.

Again, I saw no tangible steps taken to preserve cash, other than a press release in early December saying that such measures will be detailed in a conference call in mid-January 2009, which quite frankly is again too little too late.

I believe the Company needs a Board and Management team who have the determination to put in place tough and urgent actions to stem losses and conserve cash.

Overall, the shareholders need to be convinced that the company’s financial condition and short and medium term cash needs are deliverable and that plans to achieve long term viability are in place.

As the first step in this process, and to underpin the return to profitability, I would like to see the following actioned:

#1 The Board needs to have approved, by 15th January 2009, the financial plan for 2009 by month, to include revenue, expenses, profit and cash. The Board should work on the assumption that the economic environment will worsen in the coming months, especially in the UK where the bulk of the Company’s revenue is derived from, and therefore need to take significant actions to align the cost and expense structure with what is likely to be an extended downturn. The cost and expense plan needs to reflect the worst case scenario for revenue, giving pure upside in the event of an upturn in the business. This plan needs to be issued to the senior management team by mid-January along with targets and compensation plans which underpin the achievement of the financial plan.

#2 The manpower plan to support this financial plan should be in the range of 150-200 employees with the reductions applied consistently through all levels of directors and management, resulting in a pyramid shape structure as opposed to a mushroom shaped structure of the remaining employee population.

#3 The senior management structure and cost needs to be reduced by 50% to reflect the reality of the reduced size and complexity of the business. The “new” company cannot afford a CEO, CFO and CTO on their present compensation levels and is going to have to employ more versatile individuals who can cover more than one brief, in keeping with the new smaller size of the Company.

#4 A major simplification of the company’s legal, tax and management structure(s) needs to be carried out. The current structure is drastically over complicated and dis-proportionate to the size and scale of the business. For example, being registered in Guernsey, tax resident in Ireland, and being listed on three stock exchanges is “over engineering” for a company of this size. This results in complexity which is a distraction for the Board and Management which in turn is cost that can easily be eliminated.

#5 The number of locations from which the company is served should be reduced. The relocation to Dublin, Ireland, should be recognised as a failure, the costs associated with it written off and the Irish office closed with relocation of its activities to the existing call centre and administrative headquarters located in Cyprus (where incidentally the tax rate is lower than that in Ireland). The three current market listings (Nasdaq, TSX, LSE) should be reduced to one listing.

#6 Development costs should be reduced and high cost resources situated in Toronto significantly reduced with more work being performed in low cost locations in Eastern Europe, to give the Company greater development capacity and flexibility, bringing it closer to its customers and markets, and thereby enabling it to compete on an equal footing with its competitors.

#7 There should be immediate write-offs of failed investments and those investments which do not support the objectives of the “new” company e.g. Agile, Parbet, AliOnline. If implemented promptly, this could have an immediate positive impact on the operational profitability of the Company in Q1 2009 and assist with the employee and cost reduction program.

#8 An immediate reduction, and in some cases elimination, in external consultants fees in particular those attributed to the Chairman and his law firm where he is a partner. This law firm, Stikeman Keeley Spiegel Pasternak, collected fees totalling $1,020,000.00 in 2007 and $688,000.00 in 2006. In doing so it would also be prudent and good corporate governance not to have vested in one individual, Bob Stikeman, the roles of Chairman and Company Secretary and to engage an alternative law firm to ensure that there are no risks of conflicts of interest.

#9 A cash focus which addresses the cancellation of share buy backs and dividends, and the collection of cancellation fees from departing and defaulting licencees.

#10 Compensation plans for the senior management team which are based on monthly cash targets, with definition and rules clearly spelt out for Accounts Receivable and Accounts Payable, to achieve profitability in each of the four quarters of 2009 and free cash and cash equivalents in excess of $55M by the end of 2009.

#11 Board approval required for all new capital (CAPEX) and expense committments (OPEX) over $50,000, to include new hires, and changes in any terms and conditions of doing business with employees, suppliers or licensees.

#12 A fresh evaluation as to whether the terms for the disposal of the poker business (to Boss/GTECH) are favourable given the cash situation and focus of the company and whether a full merger with another on-line gaming company would deliver greater shareholder value.
Time is of the essence and shareholders should be given the opportunity to opine on this move as it represents a major change to the composition of the Company’s business and its assets.

Thirdly, Board Representation.

I would like the Board to nominate me and another significant shareholder to serve on the Board of Directors of the Company. The numerical strength of two directors should be commensurate with the shareholding of shareholders who are interested in ensuring their investment is in safe hands. I do not wish to increase the size or cost of the Board hence two current members would have to be replaced.

In proposing this change, and assuming that all of these actions are taken, I am taking up this position solely to ensure focus and execution by the Board and Management and to protect the investment made by shareholders.

The Board needs to accept that the increased scrutiny and accountability as a result of two new directors (including myself) will only help the Company’s performance especially as they are owners of the Company. This “unwanted disruption”, as you term it, will expose the directors such that they are held accountable at the individual level and collectively. I believe any rejection of this request will continue the pattern of ignoring the concerns of the Company’s shareholders.

In this letter, I have made a number of specific operational and strategic recommendations, including having asked the Board to replace 2 existing directors with myself and another shareholder. If the Company does not promptly act to address such recommendations and concerns, I will be compelled to consider all available alternatives, including the possible launching of a proxy contest to replace the Board of Directors at an EGM.

As you know, I have purchased 870,000 Shares which is 6.3% of the total issued share capital (including the exchangeable shares) and have options to purchase another 1.2% or 169,394 shares. It would take the action of shareholders owning at least 10% of the outstanding shares of the Company in order to call an EGM.

I hope that this situation can be resolved amicably. However I will not hesitate to take other alternatives in the event that I do not get your cooperation or see any progress in the business.

I sincerely hope you heed the wishes of the Company’s shareholders and move expeditiously in executing the actions listed above thereby making a proxy contest unnecessary, as no rational person would want the Company to continue to perform as it has over the past nine months. There must be change especially as the Company is in the very fortunate position (at the moment) of not having any debt to service or to re-finance.

I look forward to hearing back from you within a few days.

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Standard Motor Products, Inc. (NYSE: SMP) shareholders may see some drastic changes is one activist hedge fund gets its way. GAMCO Investors, which owns around 10% of the company, spoke with executives on January 26th and made a series of proposals aimed at increasing shareholder value. The discussions were outlined in a letter attached to a Schedule 13D/A filing with the SEC.

Here’s what the letter said:

It was good chatting with Jim Burke and yourself today.  It gave me the opportunity to thank you for eliminating the dividend and positioning yourself to repurchase shares at a future date.

It also gave me the opportunity to suggest that you consider “a going dark transaction.”  As long as you trade in the Pink Sheets and provide continuing information to your shareholders, we would support such a transaction.  It is particularly cost effective in this Sarbanes-Oxley world.

As long as we are opening the door on financial engineering, we are holders of your convert for several of our clients.  These converts come due this July.  We would like you to consider extending the maturity by one-year and lowering the conversion price as an incentive.

I look forward to a continuing dialogue and with best regards.

The most interesting portion of this letter is the so-called “going dark transaction”, which is Wall Street code for a delisting. In this case, the hedge fund is supporting a delisting to the PinkSheets in order to save money on SarbOx compliance costs. This would likely reduce operating expenses substantially, but would also result in reduced liquidity for shareholders.

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Cowlitz Bancorporation (NDAQ: CWLZ) directors may face a fight during the next annual meeting after an activist hedge fund announced its own slate of directors. Crescent Capital, which owns 23.7% of the firm, continued its hostile takeover attempt with a new Schedule 13D/A filing with the SEC.

Crescent initially contacted the company with an all cash offer at $15.00 per share on July 27, 2007, but the board rejected the offer as not in the long-term best interest of shareholders. Since then, the bank has deteriorated substantially with its share price dropping to their current levels of around $5.85.

On March 6, 2008, Crescent’s representatives met with the board and discussed appointing a representative from the hedge fund to the board. However, the hedge fund was again rebuffed when the board declined to appoint any representative on April 21, 2008.

Crescent then sent a letter to the board nominating its own slate of directors for consideration during the company’s next annual meeting. Meanwhile, the bank has obtained some government funds and is seeking private money to expand its loan portfolio and reassure investors that it’s doing well.

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Location Based Technologies Inc. (OTC-BB: LBAS) is one micro-cap company that may be worth watching. The manufacturer of personal GPS tracking gear and software’s industry is expected to grow at an annual compounded rate of 104% through 2012, according to a research report by RNCOS. This equates to substantial increases in sales over the next few years along with a higher valuation for companies like Location Based Technologies.

Revenues are expected to jump from $63 million in 2009 to $1.1 billion in 2013 as the market for personal GPS locators is embraced by concerned parents, cautious pet owners, and prudent employers. Meanwhile, earnings before interest in taxes could increase from $1 million in 2009 to $198 million in 2013. Assuming a discount rate of 5% and a 0% terminal growth rate, this means the cash flow in today’s dollars would be about $648.5 million, or $7.30 per share.

The $7.30 valuation represents a steep discount to the current $1.01 share price if the assumptions prove to be correct. Most investors will likely wait until the firm receives some necessary approvals and begins making sales in order to take a position. However, those investors willing to take the additional risk and purchase the stock ahead of time could benefit from a sharp increase in share price over the next few years.

Location Based Technologies expects to begin selling its products in the first quarter of 2009. The Oreo-sized GPS devices can be placed almost anywhere and tracked via phone or internet. A strong network of distributors and tight cost controls should help drive value in this company over the next five years. Meanwhile, a strong patent portfolio continues to build value in its technology. For an in-depth research report on this company, including financial projections, click here.

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Western Asset Variable Rate Strategic Fund (NYSE: GFY) shares may see a dramatic rise in value if an activist hedge fund gets its way. Karpus Management, which owns a 9.37% stake, inteds to present a proposal aimed at eliminating the investment management agreement between the fund and Legg Masion Partners Fund Advisor.

The reason was stated in the supporting statement:

In 2005, our Fund's investment manager asked for and received approval of a new management agreement and new sub-advisory agreement in conjunction with the transfer of Citigroup's asset management business. At that point in time, shareholders trusted the Fund and allowed for the transfer of management of a fund just over 1 year old.

Since the announcement of the approval of the new agreements (12/19/2005-07/31/2008) the Fund has traded at an average daily discount to net asset value of -11.01%. The discount on GFY has consistently been among the widest of all taxable closed-end bond funds. Indeed, the discount for comparable closed-end taxable bond funds for this time period was only -5.0%, placing our Fund's discount significantly wider than the average during this time period.

The market tends to place a fair price on an asset-in this case a share of a closed-end fund. Perhaps the explanation for why GFY has traded at such a persistently wide discount is that its NAV performance has been disappointing for a long period of time. From its inception (10/27/2004) through 7/31/2008, the NAV total return on our fund was 6.81%, which places the fund squarely in the bottom quartile as compared to other taxable closed end bond funds for this time period. (as categorized by Thomas J. Herzfeld Advisors Inc). Based on market price, an investor who purchased GFY at the IPO would have experienced a loss of 6.71% through July 31, 2008. Furthermore, the fund has significantly underperformed its benchmarks as stated in its 3/31 filing. Since its inception, the Merrill Lynch Constant Maturity 3-Month LIBOR Index ("ML Benchmark") and the Lehman Brothers US Aggregate Index ("Lehman Benchmark") have returned 17.46% and 15.9%, respectively, through July 31, 2008. It seems clear that the poor performance of the Fund is directly responsible for the persistently wide discount.

In addition to historically poor performance, on a year-to-date basis, the Fund's recent net asset value and price performance have been especially poor. Specifically, GFY's total net asset value return was -7.99% through July 31, whereas the stated ML and Lehman benchmarks returned 2.25% and 1.04%, respectively. This most recent poor performance appears highly attributable to the Fund's holdings in mortgage related securities and provides further indications to us that the Fund's investment manager and sub-adviser must be terminated.

As closed-end fund shareholders, poor NAV performance combined with a wide discount to net asset value is the most harmful combination possible. To address these issues, we believe that a change to a new investment advisor and new sub-advisor is needed.

Meanwhile, a fellow shareholder made a similar recommendation to convert the fund to an open-ended fund or liquidate it. This would force the assets that are now undervalued to come to value. Meanwhile, if Legg Mason were fired, then the fund's expenses could be greatly reduced.

Here's the other investor's letter submitted to the board:

We recently received Western Asset Variable Rate Strategic Fund's ("GFY" or the "Fund") proxy statement via UPS Next Day Air. According to the UPS website, it cost roughly $21 to mail each such package. To just our firm, the Fund sent five packages totaling approximately $105. Because we do not know how many Next Day Air packages were sent to other fellow shareholders, we cannot accurately estimate how much money management has thus far wasted on mailings. Nevertheless, as shareholders, we strongly urge management to stop bleeding assets from the Fund through expensive and unnecessary steps to ensure its own objectives. It appears to us that Fund management is more concerned with retaining assets and entrenching current management than actually doing something about the poor performance of the Fund.

Before the Fund unnecessarily spends more shareholder money, it ought to also consider the sheer fact that three separate shareholders submitted proposals on their own accord. This should indicate to the Fund that something is wrong. Why is the Fund's response to these critical shareholder concerns to spend more money rather than confront and address the significant and perpetual net asset value underperformance of the Fund? If three separate shareholders have submitted proposals to ask the Fund to address performance concerns, how many other shareholders have the same concerns? Why is the Fund fighting these concerns rather than talking to all shareholders and telling them how they plan on addressing this critical issue? Moreover, why didn't they talk to shareholders prior to issuing their proxy statement, as is allowable under Rule 14a-12?

We are tired of management not doing something about the poor net asset value performance and the persistently wide discount of the Fund and now are appalled at the use of Fund (shareholder) money to dodge shareholder concerns. Should the Board continue to frivolously spend shareholder dollars to fight its owners, we intend to seek reimbursement from management. We believe that the Fund's recent actions only further indicate that a new independent manager and subadvisor are needed. The Fund management must stop spending money as if it were Dennis Kozlowski in Sardinia and do the right thing for shareholders. In our opinion, the Board is using GFY like a piggy bank in order to entrench the economic interests of Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company.

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The Global Positioning System has grown in popularity among consumers, especially for navigational purposes. In fact, Garmin (NDAQ: GRMN) is a $3.4 billion public company with millions of subscribers. However, a new breed of devices is quickly revolutionizing the market – personal locators. These devices can help consumers track their children, pets and other objects worldwide using GPS systems.  So, how can investors get involved in this new trend?

Location Based Technology (OTC-BB: LBAS) a leading producer of these devices via its PocketFinder® line of products. The market for these products is expected to grow at a compounded annual growth rate of more than 104% through 2012, according to RNCOS. Meanwhile, the firm also produces software designed to take advantage of smartphone GPS systems. In fact, its iPhone application was downloaded more than 10,000 times within weeks of its release.

Location Based Technologies expects to begin selling its products in the first quarter of 2009. The Oreo-sized GPS devices can be placed almost anywhere and tracked via phone or internet. A strong network of distributors and tight cost controls should help drive value in this company over the next five years. Meanwhile, a strong patent portfolio continues to build value in its technology. For an in-depth research report on this company, including financial projections, click here.

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Hiland Holdings GP, LP (NDAQ: HPGP) shares remain little-changed despite receiving a takeover offer at a price substantially higher than the current market place. Harold Hamm proposed to acquire all of the outstanding common units of the company that are not owned by him at $9.50 for the LP and $3.20 for the common units.

Here's a copy of the letter:

I hereby propose the acquisition of all the outstanding common units of Hiland Partners, LP (the “Partnership”) not owned by Hiland Holdings GP, LP (“HPGP”) at a cash purchase price of $9.50 per common unit. As you are aware, I control the general partner of HPGP and, with my affiliates and the Hamm family trusts, own approximately 61% of the common units of HPGP, which in turn owns approximately 37% of the common units of the Partnership. My current intent is to structure the acquisition in the form of a merger of the Partnership with a new acquisition vehicle to be formed by me, one of my privately-held affiliates and the Hamm family trusts. I am concurrently delivering a letter to the board of directors of the general partner of HPGP proposing to acquire all of the outstanding common units of HPGP not owned by me, my affiliates or the Hamm family trusts at a cash purchase price of $3.20 per common unit (the “HPGP Transaction”).

The proposed price represents a premium of approximately 20% above the closing price of the Partnership’s common units on January 14, 2009. I believe that, if the adverse impact of commodity prices on gathering and processing fundamentals and the challenges presented by the global economic crisis persist, the Partnership will experience a meaningful decrease in future distributable cash flow and will need substantial new equity capital to remain in continued compliance with its debt covenants. Obtaining such equity capital in the current environment on acceptable terms does not appear feasible and would be significantly dilutive to current unitholders. Accordingly, I am of the view that a going-private transaction is the best strategic alternative currently available to the Partnership to maximize unitholder value during a time of significant market and industry turmoil.

I would continue as Chairman following the transaction, and I also expect that the Partnership’s senior management team and valuable employee base would remain in place. Furthermore, I anticipate continuing to run the Partnership’s business in accordance with current practice.

As the founder and controlling stakeholder of the Partnership, I believe that I am well-positioned to negotiate and complete the proposed transaction in an expedited manner with a high degree of closing certainty. No debt financing will be required to consummate this transaction or the HPGP Transaction, and neither closing will be conditioned on obtaining financing. Moreover, I do not anticipate that any regulatory approvals will be impediments to the closings. Execution of a definitive merger agreement for this transaction will be conditioned on execution of a definitive merger agreement providing for the HPGP Transaction, and closing of this transaction will likewise be conditioned on closing of the HPGP Transaction, as well as customary conditions for transactions of this type. We are preparing a proposed merger agreement that we intend to provide shortly.

I expect that you will ask the conflicts committee of the board of directors to evaluate my proposal and that both transactions will be subject to the approval of a majority of the public unitholders of each partnership. I and members of senior management who sit on the board of directors will support the referral of this proposal to the conflicts committee and its engagement of financial and legal advisors. I welcome the opportunity to present my proposal to the conflicts committee and its advisors as soon as possible. However, please be aware that I am interested only in acquiring common units of the Partnership and not in selling (or causing my affiliates to sell) interests in the Partnership.

I expect to make appropriate filings on Schedule 13D disclosing my proposals with respect to the Partnership and HPGP promptly after delivery of this letter.

This proposal is non-binding, and no agreement, arrangement or understanding between the parties with respect to this proposal or any other transaction shall be created until such time as mutually satisfactory definitive documentation is executed and delivered.

I, along with Wachovia Securities and the rest of my advisory team, look forward to working with the conflicts committee and its advisors to complete a mutually acceptable transaction that is attractive to the Partnership’s public unitholders. Should you have any questions, please do not hesitate to contact me.

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Southern Connecticut Bancorp Inc. (AMEX: SSE) shares opened sharply higher after a Schedule 13D filing with the SEC revealed that the firm was in talks to sell itself for more than $9.00 per share. Seidman and Associates, which owns a 6.52% stake in the company, questioned why the deal hasn’t gone through and why shareholders were not notified of the impending sale. The activist also nominated their own slate of directors to effect change and take action to unlock shareholder value.

Here’s a copy of the letter:

You have disclosed to me that the Board has received a written letter of intent, in excess of $9.00, to purchase Southern Connecticut Bancorp, Inc. (SSE).  In addition, you represented that the Board was speaking with at least two (2) additional purchasers.  You also represented that the Board has unanimously voted to sell SSE.

Your disclosures to me during our last phone conversation have left me with the impression that you and maybe some of the other Board members may now not be acting in the best interest of all the shareholders.  I cannot understand why the Board has not concluded the SSE sale.  The Board should now make full disclosure with respect to the details of the Board’s negotiations so the shareholders can evaluate the Board’s conduct.

Based upon my many conversations with you, if SSE is not sold, a change in the composition of the Board, in my opinion, is required.  Therefore, I will be nominating Neal S. Axelrod and myself for election to the Board at the next annual shareholders meeting in accordance with Section 1.13 of the SSE Bylaws.  Hopefully we can avoid a costly proxy contest.  Please contact me to discuss the issues raised in this letter.

Please distribute a copy of this letter to all of the SSE Board members.

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How would you like to know where your kids are at all times? How about receiving alerts when your pets leave the yard? Many people have heard of GPS navigation, but so-called personal location services represent an emerging trend. In fact, a recent research report found that the global market for location based services will grow at a compounded annual growth rate of 104% through 2012.

Personal locators have many unique uses, including:

• Keeping track of children
• Monitoring nomadic pets
• Tracking company vehicles
• Catching speeding teens
• And much more…
  

Location Based Technologies (OTC-BB: LBAS) is a leading manufacturer of these revolutionary new products. The firm has created the smallest single-board GPS unit in the world – about the size of an Oreo – that is set to be released in the first quarter of 2009. The firm has also developed a comprehensive yet easy-to-use software solution to manage these devices from anywhere.

These devices will be made available for under $150 per unit with a basic monthly fee of less than $20 per month with multiple convenient access points. This means big opportunity for Location Based Technologies as these devices take off in popularity. They are just now being released in Europe, but rest assured, the trend will eventually make its way back to the United States.

View Location Based Technologies Research Report

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Icagen, Inc. (NDAQ: ICGN) shares opened sharply higher after a large shareholder demanded changes at the biotechnology company. Xmark Opportunity Partners, which owns a 9.1% stake in the firm, disclosed a letter to the board of directors in a Schedule 13D filing with the SEC. The shareholder pointed out several actions that the company was taking against shareholders and threatened to take action against the board and seek representation if they didn’t back down.

Here’s a copy of the letter:

Xmark Opportunity  Partners,  LLC  ("Opportunity  Partners" or "we" or "us" or "our") is the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd.  (together,  the "Xmark Funds").  As you are aware, the Xmark Funds are significant shareholders in Icagen, Inc. (the "Company").

As you also are aware,  on September  26, 2008,  Opportunity  Partners filed a Schedule 13D (the "13D")  announcing  its intention to evaluate  closely the  performance  of the  common  shares  of  the  Company,  including,  without limitation,  analyzing and assessing the Company's business, assets, operations, financial condition, capital structure, management and prospects, as well as the fact  that it may,  from  time to time,  evaluate  various  options  in order to attempt to influence the  performance  of the Company and the  activities of its Board of Directors.  On December 1, 2008,  Opportunity  Partners filed Amendment No. 1 to the 13D ("13D Amendment No. 1") disclosing the text of a letter,  dated November 29, 2008 ("Letter 1"), that it had sent to the Board of Directors  that detailed,  among other items,  (a) our efforts to observe a meeting of the Board of Directors,  (b) the Xmark Funds'  accumulation of the Company's common shares and (c) our  strong  belief  that an  extraordinary  transaction  is in the best interest of the Company and its shareholders.

On December 2, 2008,  just day(s) after we sent Letter 1 and filed 13D Amendment No. 1, the Board of Directors adopted a poison pill. To us, the timing of this move is curious and  disturbing  to say the least.  We strongly  believe that this poison pill will deter buyers from the Company to the detriment of the Company's  shareholders and to the benefit of existing  management.  In adopting the poison  pill,  the Board  only  reinforced  our  long-standing  belief  that management is entrenched and the Board is out of touch. Moreover, management and the Board have not recently  announced any cost-cutting  initiatives,  at a time when  companies  all over  the  world,  in every  industry,  are  cutting  costs aggressively.  And, the Company has made only immaterial changes to its material employment agreements.

After  receiving  Letter 1, the Company  offered us an  opportunity to sign a set of confidentiality  agreements to allow us to evaluate steps, if any, that  management  has taken  from a  strategic  perspective.  Unfortunately,  we believe  that the  conditions  of this offer  rendered  it hollow and  illusory. Specifically,  the Company conditioned its disclosure of the Company's strategic plans upon our (i) essentially agreeing to lock-up the shares owned by the Xmark Funds  (which we always  have been  willing to do) and (ii)  agreeing  to remain silent  in  the  public  market  (including  no  proxy  battle),  for  a  period potentially  extending  through the next annual meeting (June 2009). The Company attempted to secure our silence. The proposed  confidentiality  agreements would have  undermined a key purpose of our request -- to speak out and take action if we found that  management  and the Board are not acting  responsibly  and in the best interests of the Company's shareholders.

Rather  than walk away from the  table,  we sought  middle  ground and responded to the Company's  offer with a compromise in the  alternative:  (x) we would agree to lock up the shares owned by the Xmark Funds and remain  silent in the public market through the next annual  meeting if the Company  allowed us to attend a single  meeting  of the Board or (y) we would  agree to a lock up for a period of four (4) months,  so that we would be able to speak at the next annual meeting. In our view, this was a reasonable  compromise.  We wanted a voice; the forum  for  our  voice  -- the  marketplace  or the  boardroom  -- was up to the Company. The Company flatly rejected this proposal.

From this  experience,  we believe that  management and the Board have little or no interest in benefiting the Company's shareholders.  The Company has taken  action  to  quell  public  market  activity  in its  shares,  while  also requesting silence from its most active shareholder. We continue to be amazed by the behavior of the Board,  one that includes  luminaries such as Dr. Charles A. Sanders,  Lead Director of Genentech,  Inc., Anthony B. Evnin,  Managing General Partner of Venrock  Associates,  and Dr. Dennis B. Gillings,  Chairman and Chief Executive Officer of Quintiles Transnational Corp., but, perhaps, nothing should amaze us at this point.

Again,  please be advised that if the Company decides to raise capital in a dilutive  offering,  we will evaluate all available  options to protect the interests  of our limited  partners  and  shareholders,  including,  inter alia, commencing  legal  proceedings  against the Company to seek rescission of such a transaction and/or damages, as well as an action against the Board for breach of fiduciary duty.

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Neurobiological Technologies, Inc. (NDAQ: NTII) suspended its stroke drug development, which prompted at least one activist shareholder to demand that value be returned to shareholders. Highland Capital, which owns 17.6% of the firm, sent a letter to the board demanding that the company liquidate its assets and distribute the proceeds to shareholders. However, the company appears to be taking a different course of operation by hiring a new President and CEO.

"Following a thorough review of the interim data, it was determined that there was no group of patients in which Viprinex improved outcome, and therefore further development is not warranted," said Warren W. Wasiewski, Chief Medical Officer. "We are very disappointed that another potential treatment for this devastating disease has failed to show benefit for this patient population."

After the poor results, Neurobiological Technologies announced that it would begin reducing its workforce substantially in order to lower costs and preserve cash. However, Highland Capital learned that the company is seeking to hire a new COE and President, and that such action shows an intention to continue operations despite the lack of a viable new technology to create value in the future.

According to a Schedule 13D filing with the SEC:

Highland Capital delivered a letter to the Board requesting the expeditious wind down of the Issuer’s business. In the letter, Highland Capital expressed its belief that, due to the failure of the Viprinex program, the Issuer has no incremental value as an ongoing concern. Highland Capital expressed a strong belief that the only way to return value to the shareholders is through liquidation of the Issuer’s assets. The letter notes that the Issuer is seeking to hire a new CEO and President, and that such action shows an intention to continue operations. Highland Capital believes that the Board should immediately decide to liquidate the Issuer, and that hiring a new CEO and President is unnecessary if such action is to be taken.. Highland Capital expressly lists various assets, including cash, currently held by the Issuer which are all capable of near-term liquidation. Highland Capital asserts that it is the Issuer’s Board of Directors’ fiduciary duty to the public shareholders to liquidate these assets, wind down business, and return all proceeds to the public shareholders. Highland Capital expressed concern that the Board was considering “strategic options” to continue business which would result in the immediate degradation and eventual loss of all shareholder value.

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The market for location based GPS products is expected to increase 168% in 2008 with aggregate revenues for the sector growing by 169%, according to Gartner Research. The same research firm also predicted that the number of GPS subscribers would reach nearly 300 million with revenues expected to top $8 billion by 2011. So, what stocks should investors watch?

The most famous GPS stock is Garmin Ltd. (NDAQ: GRMN), which pioneered the idea of using GPS devices on automobiles to give directions. However, their success also bread a lot of competition that has now put pressure on its margins and growth rates. Moreover, GPS devices have become somewhat ubiquitous in new vehicles, so many manufactures just look for the cheapest.

The next big things in the GPS market are so-called personal location devices that can be used to keep track of children, the elderly, pets, vehicles and just about anything else. The pioneer of this industry is a small public company called Location Based Technology (OTC-BB: LBAS), which has produced the PocketFinder® line of devices. Check out PocketFinder.com to see their products.

The PocketFinder® line of products includes the smallest single-board GPS device on the market (about the size of an Oreo) along with award-winning personal GPS software that can run on many platforms. The product is set to be released in the first quarter of this year while the software has already been downloaded more than 10,000 times on many compatible smartphones, including the Apple iPhone.

PocketFinder® products and services can help customers triangulate a position and get directions to the device, calculate the distance traveled by and the speed of the device, alert when a pre-set boundary for the device has been violated, and much more via the unique software. The possibilities for these devices are endless between consumers tracking their children and pets and small businesses looking to track their assets!

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Penwest Pharmaceuticals (NDAQ: PPCO) may see some changes during the next annual meeting after a large shareholder proposed a new slate of directors for the board. Perceptive Life Sciences, Tang Capital Partners, and their affiliates collectively own 37.5% of the pharmaceutical company and nominated Joseph Edelman, Keven Tang, and Andrew Levin to the board at the 2009 annual meeting.

Investors should be careful before they vote in the new board members, however. Some rhetoric contained within a Schedule 13D filing with the SEC raises some questions. The funds commented:

While we strongly believe that changes to the board of directors are in the best interest of all shareholders of the company, … [we] may receive unique benefits if the nominees set forth herein are elected to the board. Such unique benefit will, if realized, result from the fact that the nominees are principals within our respective organizations and may be more receptive to our suggestions than any of the members of the board not affiliated with us.

These nominees may prove to perform better than the existing board, but the risk is that the principals will act in a more selfish way by promoting their own returns. Such deals could include financing deals between the company and hedge fund on above-market terms, the sale of assets to the hedge funds at below-market prices, and other actions that destroy shareholder value. The question for investor is: Is the risk worth it?

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Tikcro Technologies, Ltd. (OTC-BB: TIKRF) board members may be in for a fight after a large shareholder made several demands. Steven Bronson, who owns a 14.9% stake in the company, sent a letter to the board of directors demanding that it schedule a special meeting so that shareholders could vote on three proposals that it put forth in a Schedule 13D filing with the SEC.

The activist investor proposed three things:

1. Distribute $7.7 million of the approximately $7.9 million of the company’s cash and short-term investments to the shareholders of the company on a pro rata basis.
2. Distrubte the company’s BioCancell securities to the shareholders of the company on a pro rata basis.
3. Maintain the company as a public shell with $200,000 in cash to pay operating expenses while trying to consummate a sale or merger with a viable business.
   

The cash distribution would result in a distribution of $0.91 per share given the 8.45 million shares outstanding. Meanwhile, BioCancell’s securities are not publicly traded, but their value could increase substantially in the event that it does go public. Given the current share price of just $0.50 per share, this could represent opportunity for investors who believe that the proposal will pass.

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Aladdin Knowledge Systems Ltd. (NDAQ: ALDN) shares jumped sharply earlier this week on media reports of a pending sale, but investors may want to wait for some solid numbers before taking action. Israel’s “TheMarker” reported that the security software provider may be sold to an affiliate of Vector Capital for $11 to $12 a share – well above the stock’s current trading price.

The numbers are mere speculation, however, given the deterioration in the financial markets. Originally, Aladdin received a non-binding proposal from Jasmine Holdco LLC, the affiliate of Vector, to buy all of Aladdin’s shares for $14.50 per share. However, the deal failed to materialize to date as the financing environment has presumably deteriorated for the acquiring company.

Regulatory filings show that it is unlikely that Jasmine will back off, however. The Vector Capital disclosed a 14.17% stake in the security company. The same regulatory filing also showed that the company extended its standstill agreement with Jasmine in order to presumably complete the financing on the deal. The large stake and agreement to extend are two signals that a deal is definitely in the works.

Investors are now waiting for a special meeting of the shareholders slated for January 9, 2009 where the terms of the deal are expected to be released. The price remains up in the air…

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Target Corporation (NYSE: TGT) may not seem like a bright spot in today’s market after shares were cut in half in 2008, but at least one activist investor is confident that value can be extracted from the retailer. William Ackman’s Pershing Square owns nearly 10% of the retailer and even created a separate fund to make a leveraged bet on a sharp turnaround.

Ackman’s theory relies on the fact that, unlike many other retailers, Target owns the land under its stores. Currently, this land is not valued at all in the retailer’s market capitalization. The activist investor believes that the true value of this land could be $40 billion or more given the location and tenant (Target). The problem is: How can we unlock that value?

Ackman proposed that Target spin-off its land into a real estate investment trust (REIT) that would then lease the land back to Target. Since the entity would be publicly traded on its own, it would have to come to its true value while Target would retain its value. Meanwhile, since the REIT would have Target as its tenant on its land with its buildings as collateral – a very safe bet.

The problem now is that Target seems hesitant to go through with the plan. Despite the fact that all major concerns were addressed, the retailer still believes that its credit rating and stock price may be adversely affected by the transaction. However, Ackman and Target are still likely in talks to smooth things over while investors wait for further comments from the company.

In the meantime, Pershing Square is hurting from Target’s demise. Pershing Square IV, which invests exclusively in the retailer with 2x leverage, lost 68% last year after Target’s stock slid 31% on the year. This adds to the fund’s losses of 43% in 2007 to make for a less-than-spectacular track-record. Investors are now questioning whether the plan will work.

However, Ackman is no stranger to being ahead of the game and remains confident. His short investment in bond insurers like MBIA took years to materialize and resulted in similar losses ahead of their big pay days. Target may turn out to be a similar story...

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Kona Grill (NDAQ: KONA) management is raking investors over the coals and they aren’t happy. Clarke Bennitt LLC was the first to uncover some questionable regulatory filings that clearly demonstrate a conflict of interest with shareholders. Now, many shareholders like Clarke Bennitt are demanding changes be made in order to restore confidence in the company, according to a Schedule 13D filing with the SEC.

A recent 8-K filing made with the SEC on December 29, 2008 was a shocking read to the shareholder. In the regulatory filing Marcus Jundt, chief executive of Kona Grill, quietly disclosed a large stock sale to his father at the ridiculously low price of $1.19 per share. Incredibly, this sale accounted for nearly 5% of the company’s outstanding shares!

Clarke Bennitt was also surprised by a Schedule 13D filing made by the second largest shareholder in the company. Mill Road Capital noted its opposition to a loan that violated the Sarbanes-Oxley amendments to the Act of 1943 prohibiting the company from directly or indirectly arranging loans to management. Further, the proposal wasn’t even part of a competitive bidding process.

It has become clear to these two shareholders that the Kona Grill is not operating in their best interest. Not only is it against the law to make personal loans to management, but the proceeds ended up coming from an under-market sale to an executive’s father for just $1.19 per share. The proposal hurts shareholders in two ways and they demanded it be rescinded immediately to ensure that a fair price is being achieved for both Kona Grill and its shareholders.

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Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) shares may be living up to their stock symbol after Sam Zell’s Equity Group Investments signed a confidentiality agreement with the hotel chain. Zell already owns approximately 8 percent of the firm, but the agreement could signal the famous investor’s appetite for boosting his stake in the firm. The move may also prove to be bullish for the hotel sector as any confidence in Starwood may also mean confidence in a larger recovery in the sector.

Sam Zell made his fortune in the real estate business by setting up Equity Group Investments, which spawned three public companies, including Equity Residential, the largest apartment owner in the United States, Equity Office Properties, the largest office owner in the country, and Manufactured Home Communities, a mobile home company. These were among the first public REITs and took advantage of shareholder money to buy up properties when debt wasn’t available due to terrible market conditions.

Sam Zell has lost at least a bit of his cache, however, with his acquisition of Tribune Company. The real estate billionaire’s entry into the media business turned out to be ill-timed with the news agency now suffering under $13 billion in debt that was used to take it private in 2007. Eventually, this led to the firm’s Chapter 11 bankruptcy earlier last month – or late last year. However, these events do not mean that Sam Zell has lost any of his ability to predict the real estate market through his investments!

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