Pressure BioSciences, Inc. (NASDAQ: PBIO) is expected to receive approximately $623,000 in the form of a tax refund from the government this year for the 2004 calendar year. The five-year carry back of 2008 net operating losses are eligible for small businesses under the American Recovery and Reinvestment Act of 2009, passed by Congress and signed into law by President Obama in February 2009.

The new tax provision could help many companies posting losses last year to get refunds for taxes paid as far back as five years earlier. The businesses could then re-file their old tax returns, using the losses suffered last year to offset profits made when times were good. The two year net operating loss carry-back provisions in 2002 provided much-needed relief to manufactures and Obama expanded it.

Pharmaceutical companies are likely to be the largest beneficiaries of this new law given their rather unstable operating histories. A company with a profitable drug for two of the last five years that sold it to fund a new drug in development may now reach out and get tax refunds for those two years of profitability. This could prove extremely valuable in today’s tough financing environment.

Another unintended consequence of this lengthening of the carry-forward may be in mergers and acquisitions. Often times, larger profitable companies buy non-profitable companies with promising assets to not only gain the assets, but also use the carry-forwards to help offset their profits. Now, these carry-forwards are valid for the past five years.

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Comtech Telecommunications Corporation (NASDAQ: CMTL) shares moved higher after several insiders purchased $650,000 earlier this week. President and CEO Fred Kornberg 25,000 shares for $22.57 per share, while other buyers included the firm’s CFO, VP of Finance, Corporate controller, VP of Tax and Secretary. The purchases are the first made in the open market in over three years, and all of the insiders still hold less than one percent of the company.

The move comes after Comtech announced weak 2010 earnings guidance and cut its 2009 earnings and revenue forecasts. Given that these insiders have traditionally been heavy sellers, many experts believe that the buying was an encouraging reversal of sentiment, even if they took more out in the past than they put in now. Meanwhile, at least one analyst remains optimistic on the stock – given its low valuation – with a price target of around $32.50 per share.

Comtech designs, develops, produces, and market products, systems, and services for communications solutions. The company has three business segments: telecommunications transmissions, mobile data communications, and radio frequency (RF) microwave amplifiers. The company sells its products to a diverse customer base in the global commercial and government communications markets. Shares of Comtech rose $0.15, or 0.63%, to $23.83 per share in early trading.

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Mexico Fund Inc. (NYSE: MXF) is receiving some criticism from shareholders with regards to its chronic discount to net asset value. City of London, which owns 17% of the fund, disclosed yet another letter to the board in a Schedule 13D filing with the SEC. In the letter, the hedge fund argued that the board must take immediate measures to reduce the excess supply in shares and narrow the discount.

Unlike mutual funds, closed-end funds like Mexico Fund do not automatically trade at the value of their underlying assets. Rather, shares of the fund are purchased and sold much like a regular stock. As a result, it is common for some closed-end funds to trade at a premium or discount to their net asset value, depending on investor sentiment about the future of the fund.

Unfortunately, the economic crisis has led to many investors pulling their money out of funds like the Mexico Fund. The result has been a chronic discount to net asset value that recently reached in excess of 25%. It is not uncommon for large investors to turn activist and push for changes to narrow the discount. The recommendations often range from tender offers to liquidations, designed to unlock value.

Instead of taking these actions, the Mexico Fund instead opted to issue new shares in a rights offering! Unfortunately, there was not enough liquidity in the stock’s market and shares dropped even lower as a result of the excess supply. Meanwhile, the company has lowered its quarterly cash dividends and reduced its share repurchasing plans in moves that also damaged shareholder value.

Mexico Fund issued 5,021,908 shares through their rights offering at a significant discount to net asset value, while it was only authorized to repurchase 2,956,814 shares through its in-kind share repurchase program. Things are made even worse by a dividend reinvestment program that also continues to issue shares and contribute to the fund’s oversized nature.

City of London finished their letter with a threat:

"City of London continues to hold the belief that the Board needs to immediately address the problem of excess supply in order to significantly and permanently reduce the discount at which the Fund's shares trade to net asset value back much closer to parity. If the Board's objective in proposing to eliminate the in-kind repurchase is to more effectively reduce the Fund's trading discount, then City of London suggests the Board inform shareholders openly and publicly of their intentions. While we have no present plans or proposals on the issue, we may look to act in the future if the Board does not demonstrate the necessary commitment to managing this Fund."

In the end, if City of London is successful, Mexico Fund may be a stock worth watching for investors when it returns to net asset value.

American Apparel Inc. (AMEX: APP) Chairman and CEO Dov Charney purchased 855,000 shares of stock on Thursday and Friday with a value of around $2.67 million, according to Form 4 filings with the SEC. The move was not only the first time the executive has purchased shares of his own company, but also comes just days after the company struck a refinancing deal to potentially sell shares for $2.00 each.

The teen apparel company was in danger of default not long ago, until it secured $80 million in capital from private equity firm Lion Capital LLP. However, the capital injection came at a high cost that gave the hedge fund the rights (or warrants) to purchase 18% of the company for just $2.00 per share. The price was well below the average trading price of the stock, but investors saw it as a necessary evil.

Some experts are mixed on the true purpose of the insider purchase, however. Some believe that it was a positive sign for the company or a signal to investors that he still has faith. However, others believe that it was a purchase to maintain his ownership stake, which stands at 53.7% after the purchase. Regardless, investors look the news in good heart and sent shares more than 4% higher on the day.

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Wilshire Enterprises (AMEX: WOC) shareholders will have to wait another week before hearing the results of their proxy contest. The company filed a Schedule 14A filing with the SEC indicating that they would adjourn the annual meeting until Monday, March 30, 2009 at 1:00 p.m. Eastern Standard Time. The meeting will determine whether Full Value will overtake the board and liquidate the company.

Many investors view the delay as a last-second desperate tactic by management to save their jobs. The company has already spent thousands of dollars in color brochures and other materials designed to convince shareholders to vote in their favor. Meanwhile, many other shareholders have even reported receiving calls at home from management looking for votes on Yahoo! Finance.

The one thing that is certain is that Full Value has agreed to conduct a tender offer at $2.00 per share upon victory, which represents a substantial premium to today’s $1.15 share price. Meanwhile, management has been criticized not only by Full Value, but also independent proxy advisory firms, for not taking any meaningful actions to turn the company around.

Whether or not the company gets sold or not remains to be seen, but shareholders will now have to wait a bit longer to find out.

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Target Corporation (NYSE: TGT) shares opened sharply higher amid a broad market rally on the Treasury’s new plan to buy up toxic assets. However, investors have another good reason to be happy after looking at a Form 4 filing with the SEC. Executive Officer Gregg Steinhafel purchased 150,000 shares on March 18th at an average price of $30.35 per share. However, is this a real sign of confidence or something else entirely?

Insider purchases have typically been a sign of confidence in the target company. However, there is some speculation that this and future purchases by insiders may be intended to acquire votes against Bill Ackman, who announced his proxy contest just a day earlier in a Schedule 13D filing with the SEC. The billionaire activist proposed his TIP REIT plan a few months ago, but met strong resistance from the board of directors.

Ackman nominated five individuals to the company’s board at Target’s 2009 annual meeting. The nominees include William Ackman, Michael Ashner, James Donald, Ronald Gibson, and Richard Vague. All of these nominees appear well qualified for the job, while Ackman’s plan, if instated, may be an effective way to unlock value in the depressed retailer. Either way, this is definitely a situation worth watching for shareholders and investors!

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Hawk Corporation (AMEX: HWK) may see some more buying if one large shareholder gets its wish. Gamco Investors, which owns more than 10% of the company, requested that the company remove its poison pill provisions to allow it to purchase more than 15% of the company in a Schedule 13D filing with the SEC. The move would pave the way for future investment from Gamco, but may also open the door to unwanted hostile actions if not done properly.

The move to purchase more shares of Hawk Corporation comes despite negative sentiment by management. The company noted during its 2008 earnings release that its record results were driven by the first three quarters and the impact of the recession began to hit in the fourth quarter. As a result, the company reduced its guidance by 26% to 33% for 2009. The company also took proactive actions by cutting costs, controlling discretionary spending, reducing its headcount and freezing pay levels.

Hawk Corporation is a supplier of friction products for industrial, aerospace, agricultural and performance applications. Through its subsidiaries, the Company operates in the friction products segment. Its friction products include parts for brakes, clutches and transmissions used in construction and mining vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and general aviation. The friction products are made principally from formulations and designs of composite materials and metal powders.

Wilshire Enterprises Inc. (AMEX: WOC) shareholders have been presented with two conflicting stories throughout this lengthy proxy battle. Management believes that Full Value’s fire-sale of assets would not fetch a fair premium in today’s markets. Meanwhile, Full Value believes that management simply wants to entrench itself for another year and continue draining the company’s capital.

Shareholders confused by conflicting stories often turn to independent proxy firms to make decisions. In this case, the three leading independent proxy firms, Proxy Governance, Inc., Institutional Shareholder Services Inc., a wholly-owned subsidiary of RiskMetrics Group, Inc., and Glass Lewis and Co, have each recommended that shareholders vote on Full Value’s green proxy cards for the annual meeting.

“We are pleased that all three of the leading independent proxy advisory services have seen the need for change at Wilshire Enterprises,” said Full Value’s Phillip Goldstein. “If we prevail at the annual meeting, we intend to seek a court order to permit us to conduct a cash tender offer at $2 per share which is about 65% above Wilshire’s recent market price.”

Currently, Wilshire Enterprises is priced at just $1.17 per share, which suggests that many do not believe Full Value’s nominees will win. However, with the recommendations of three proxy firms, the hedge fund may have a shot at gaining the board seats that it needs to implement its plan. This could mean substantial opportunity for investors willing to take the risk.

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Canada Superior Energy Inc. (AMEX: SNG) is facing a somewhat heated battle with one of its largest shareholders. A huge Caribbean natural gas find has Palo Alto Investors seeking to help the company finance its Block 5(C) gas find. However, the company has already agreed to sell a share in the find to raise cash to support itself.

The natural gas find could contain as much as four trillion cubic feet of natural gas, which would amount to roughly one-tenth of Alberta’s gas reserves. However, the company fell into bankruptcy protection after it ran out of Monday, which led to Canadian Western Bank to call on its $45 million loan to the company a month ago.

Canadian Superior subsequently announced plans to sell a 25% shares of its 45% stake in the gas find to cover the costs. However, Palo Alto wants the company to consider other alternatives as it sees the current transaction a “fire sale” that would not achieve an adequate value for the property. The hedge fund also offered $60 million of financing at a 15% interest rate.

What was Canadian Superior’s response? Here’s what they sent (revealed in a Schedule 13D filing with the SEC):

Mr. Andersson-please quit continuing screwing us around! In case you do not know it we and industry are experiencing the worst economic times in modern history. Your actions do nothing positive for the Company and essentially amount to grandstanding.The SNG Board has unanimously, with extensive legal advise ,chosen a monitization program for the benefit of the Company and shareholders.We are represented by legal council and you and your lawyers, if you are professional ,should direct your concerns to our lawyers.P.S.You will have full opportunity at the SNG annual meeting to express your concerns that has now been called.

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DWS RREEF Real Estate Fund II Inc. (AMEX: SRO) may not be the most popular stock in the market with only 123,000 shares traded daily and a share price of just $0.34, but at least one investor has taken a keen interest in the company. The Susan L. Ciciora Trust, which owns a 5.05% stake, made several proposals to the board in a Schedule 13D filing with the SEC.

The Susan L. Ciciora Trust believes that SRO’s performance over the past year has been more than appalling as it lost 93.5% of its market value, which far exceeds any other market indices for similarly situated funds. As a result, the trust recommended that the board immediately Deutsche Investment Management and reinstate a new management team to make wiser decisions.

DWS RREEF Real Estate Fund II, Inc. (the Fund) is a closed-end diversified management investment company. The Fund may lend securities to financial institutions. The Fund concentrates its investments in real estate securities, including real estate investment trusts (REITs). The Fund invests in various sectors, including hotels, office, regional malls, apartments, shopping centers, healthcare, diversified, industrials, storage and specialty services.

Shares of DWS RREEF Real Estate Fund II rose $0.01, or 3.03%, to $0.34 in early trading.

GMX Resources Inc. (NASDAQ: GMXR) shares opened sharply higher after an activist investor hinted they may take future action to unlock value at the firm in a Schedule 13D/A filing with the SEC.

Here’s a copy of their letter to the board:

Centennial Energy Partners, L.L.C. is the largest shareholder of GMX Resources Inc. Through our various entities, we currently own a combined 2,848,571 shares, representing a 15.2% ownership position in GMX. In my view, we have had a positive, constructive and mutually supportive relationship for virtually the entire period since our initial share purchase.

We are concerned with the precipitous decline in GMX’s share price in recent weeks. In addition, we are concerned that without immediate actions by GMX’s Board of Directors, GMX will not be able to realize the value of its assets.

Based on the positive nature of our long-term relationship with you, your fellow directors and managers, we sincerely regret that we do not believe that GMX management has a specific plan to deliver an acceptable share price to GMX’s shareholders.

For that reason, we respectfully request that GMX’s Board of Directors begin a formal process to review the company’s strategic options, including the potential sale of the company. We look forward to a timely response to this letter.

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Kona Grill Inc. (NASDAQ: KONA) is facing a lot of shareholder pressure lately over its fund raising strategies. Here's one letter sent by activist hedge fund Mill Road Capital:

Dear Mark:

As a very large public shareholder in Kona Grill, I firmly believe that if insiders want to disregard the interests of outside public shareholders and operate the Company as if it were private, they should make an offer to all shareholders and take the Company private. If they choose not to do so, it is up to the Board to protect the collective interests of all outside shareholders against insider dominated, related party transactions.

Mill Road believes that the Board failed in its fiduciary obligations in December when it offered to sell shares to the Chairman’s father at concessionary prices in a non-competitive process. We believe this failure continues today as the Board finalizes another unfair and skewed process that will result in the Chairman’s father once again financing the Company in a manner that will grant him a considerable number of shares at a similarly discounted price.

In my letter addressed to you on February 20, 2009 and our subsequent meeting on February 26, 2009, I cited a continuing pattern of misrepresentations, irregularities and fiduciary breaches in the Company’s fundraising process. In both that letter and the follow-up meeting, I explicitly noted that the Company’s Chairman and CEO, Marcus Jundt, had told me on December 17, 2008 that his goal in this fundraising was to manage a “non-competitive process in which he and related parties could inject cheap and highly dilutive capital in the Company.” I further communicated a grave concern that the fundraising process was being structured to achieve these stated objectives.

Since our meeting, I have uncovered further irregularities in the fundraising process and I have also noted that the Company has steadfastly refused to take any action to address the fiduciary breaches that I communicated to you. The list of fiduciary breaches is both long and unconscionable. In my February 20th letter, I outlined eight material breaches associated with the Company’s December fundraising process. Since then, I note that our investigations have indicated that the Company has:

• Allowed Marcus Jundt to play a continuing role in the fundraising process and permitted him to speak to potential investors and outline the terms and timing of the fundraising, despite his vested interest in ensuring that related parties (his father, James Jundt and his friend and business partner, Richard Hauser) will lead the financing;
• Two Sound View Drive, Suite 300 — Greenwich, CT 06830 — (203) 987-3500
• Failed to hire independent counsel to advise the Special Committee and refused to allow an independent investment bank to guide the process;
• Neglected to follow-up with investors who previously solicited an interest in financing the Company;
• Selectively offered different terms and sent different term sheets to different investors;
• Failed to solicit at least one sizeable shareholder who was a known adversary of the Jundt family;
• And finally, as the share price declined and the financing became more dilutive, the Company withdrew all reasonable protections from potential note-holders, thus ensuring that only friends and related party insiders could comfortably participate in the financing.

Given this pattern of irregularities and fiduciary breaches, we have no confidence in the fairness of the fundraising process and believe that the Company is continuing to show little or no fiduciary regard for the best interests of non-related party shareholders. As such, we continue to have no interest in participating in this skewed fundraising process.

We note with no surprise that the Company’s supposed “fair process” has yielded a result consistent with Marcus Jundt’s stated intention: insiders (James Jundt and Richard Hauser) are providing over 90 percent of the financing with James Jundt “coincidentally” providing the exact same sum that he intended to provide in the earlier non-competitive process.

Mill Road, as a stockholder of Kona Grill, formally demands that the Board of Directors cease pursuing the unfair and skewed financing process currently underway and implement a new, fair process run by independent advisors designed to produce the best financial terms for the Company.

I reiterate once more that if any fundraising is closed as a result of this obviously skewed process, Mill Road reserves the right to pursue any and all remedies against the Company and personally against its management and Board of Directors.

Once again, and in the very strongest terms, I urge you not to put the Company at further risk by finalizing this ill-conceived, shareholder unfriendly, insider dominated financing.

Nobel Learning Communities, Inc. (NASDAQ: NLCI) shareholders woke up to a bit of a surprise after Knowledge Learning Corporation proposed to acquire the company for $13.50 per share in cash. The proposal is the first formal communication from the competitor since its unsolicited expression of interest in pursuing an acquisition at $17 per share in cash on in September. And not many are happy with the dramatically lower price...

According to the letter:

As you know, in a letter dated September 22, 2008 Knowledge Learning Corporation (KLC) expressed an interest in pursuing a strategic business combination with Nobel Learning Communities, Inc. (Nobel). Subsequently, Nobel announced a process to explore the potential sale of the company and thus invited bids for Nobel. This letter supersedes our September 22, 2008 letter.

KLC is prepared to pursue a transaction to acquire all of the outstanding shares of Nobel’s common stock for $13.50 per share in cash. Our proposed transaction is subject to a) the parties negotiating and entering into a mutually acceptable merger agreement with customary representations, warranties, covenants and conditions; b) execution of mutually agreeable employment agreements with certain members of Nobel’s senior management team and acknowledgement of continued employment by a substantial number of other key employees; c) receipt of all applicable governmental and third party approvals; d) approval by our Board of Directors of the agreements referred to above; e) termination of Nobel’s rights plan; and f) approval of the shareholders and Board of Nobel. Our proposed transaction is not subject to a financing condition. Our proposal assumes that other than as described in Nobel’s most recent Form 10-K, there are no shares or options outstanding or other outstanding securities or interests convertible into Nobel shares.

In formulating this proposal, we have taken into account the following factors since our original offer:
1) We have analyzed publicly available information, including the last two Nobel earnings reports and investor calls, and noted the continued enrollment declines;
2) We have visited a number of Nobel’s schools and have had the opportunity to see and better understand the implementation of Links to Learn and Learning without Walls, as well as Nobel’s “cluster” strategy of its preschool and K+ footprint; and
3) We have considered the dramatically worsening economy and an assessment of its impact and potential future impact on Nobel’s business. In the last six months, the Dow and the NASDAQ have each dropped approximately 40% and 3.2 million additional jobs have been lost, with unemployment now at 8.1%. This has had an unprecedented impact on valuations of companies.

We continue to be prepared to quickly move forward to effect a definitive merger agreement.

We remain confident that a combination of our businesses would benefit the shareholders and employees of both of our companies. Please understand that this offer will be null and void in the event it is not accepted by March 19, 2009. We look forward to your definitive response by that date.

The company responded by saying:

We are extremely disappointed at Knowledge Learning Corporation's letter, especially since we had numerous school tours and meetings with its representatives, we extended at Knowledge Learning Corporation's request on more than one occasion the time frame for submitting proposals which we had communicated to it and other interested parties, and this is the first we have heard that it was severely reducing its proposed price. This is particularly disconcerting to us since Knowledge Learning Corporation declined our repeated offers to share with it material non-public information about our Company in order to enable it to better understand our strategy, prospects and value. Although we clearly recognize the impact of the weak economy on the capital markets and our business, we continue to perform at the top end of our industry and remain optimistic about our ability to execute our strategic plans and to deliver long-term value to our stockholders as an independent company.

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State Bancorp (NASDAQ: STBC) directors may be in for a change-up if one large shareholder gets its way. PL Capital Group owns a large stake in the company and submitted the following letter to the board:

As each of you know, the PL Capital Group previously submitted a shareholder proposal respecting the stock ownership guidelines of State Bancorp, Inc. (the Company), for inclusion in the Company’s proxy for the upcoming 2009 Annual Meeting.  In addition to the shareholder proposal, we suggested several other corporate governance improvements that we believe the Board of Directors should adopt, including reducing the size of the board and declassifying the board.

On January 27, 2009 we met telephonically with the members of the Nominating and Governance Committee to discuss our proposal and suggestions.  We appreciate the Committee members’ willingness to meet with us and listen to our concerns and suggestions.  We also listened to the concerns and suggestions of the Committee.

We also considered the following items before reaching the decisions noted later in this letter:

• Q4 and Full Year 2008 Earnings:  Subsequent to our meeting with the Nominating and Governance Committee, the Company reported its results for the quarter and year ended December 31, 2008.  The results were, to quote President and CEO Thomas M. O’Brien in the Company’s press release, “both disappointing and plainly unacceptable.”
• TARP Capital Purchase Program:  On December 10, 2008 the Company announced the sale to the U.S. Treasury of $37 million in preferred stock and ten year warrants to purchase 465,569 shares of common stock for $11.87 per common share.  Among other things this capital comes at a significant cost to shareholders in the form of foregoing the possibility of increased dividends and stock buybacks, long term dilution from the common stock warrants, and increased carrying costs from the non-tax deductible preferred dividend.
• 66% Reduction in Dividend:  The Board recently reduced the quarterly dividend to $0.05 per share, a decrease from $0.10 per share in late 2008 and $0.15 in prior periods.
• Recent Sale of Stock by a Director:  On February 4, 2009 Director Suzanne Rueck sold 6,000 shares of common stock of the Company.  While we don’t know the circumstances behind the sale, it is contrary to the purpose of our shareholder proposal on increased stock ownership, and comes less than a week after we had a long discussion with the Nominating and Governance Committee of the Board about Directors increasing their commitment to ownership of the Company, not decreasing it.  We did note and appreciate the recent insider purchases by Messrs. Wilks and Christman.
• Reduced Earnings Estimates:  The only analyst covering the Company, Sandler O’Neill, recently cut their 2009 and 2010 earnings estimates to $0.66 and $0.88, respectively.
• 68% Stock Price Decline:  The Company’s stock price has declined 28% since December 31, 2008, after declining 25% in 2008 and 32% in 2007.  Since the stock peaked on February 20, 2007 at $22.19, the stock has declined 68% through February 11, 2009.
• Prior Concerns and Accountability:  We are not going to repeat all of the concerns we raised in 2006-2008, but they are significant.  We believe that the incumbent directors have not yet been held fully accountable for the prior problems incurred by the Company.
  

It is for these reasons that we are not prepared to withdraw or modify the terms of the shareholder proposal we previously submitted.  We plan to actively solicit the support of fellow shareholders to pass this proposal, to the extent allowed by the proxy rules of the Securities and Exchange Commission (SEC).  If the Board adopts a stock ownership policy in line with our proposal we will withdraw our proposal before the Annual Meeting.

We also reiterate our previous request to the Board to declassify and allow for annual elections.  It is our understanding that a shareholder has submitted a shareholder proposal covering this matter.  While we will fully review that proposal once it is publicly filed, we plan to vote for the proposal to declassify the board if it is presented to shareholders.

For all of the reasons noted above, and consistent with our previously stated request to shrink the size of the Board, we are also planning to run an active campaign, to the extent allowed by SEC rules and regulations, to encourage fellow shareholders to withhold votes for two of the Company’s candidates for election to the Board of Directors at the upcoming Annual Meeting.  It is our understanding that four directors are currently included in the Class of 2009 (Messrs. Christman, Liaw, Simons and Katsoulis).  If these four individuals are presented to shareholders for election at the 2009 Annual Meeting, we plan to actively solicit fellow shareholders to withhold votes for two of the following three Directors:  Messrs. Christman, Liaw and Simons.  We have not yet made the decision which one of those three we will support.  We plan to support Mr. Katsoulis based upon his significant prior banking experience and recent arrival on the Board.

We strongly suggest that the Board reduce the size of the Class of 2009 from four directors to two, prior to the issuance of the Company proxy and the 2009 Annual Meeting.  This will avoid a public contest that may be expensive, divisive and distracting.  It will also evidence the Board’s commitment to accountability and shareholder value.

We also suggest that the Board and management pursue a merger partner that would pay a premium for the Company and create a stronger company for State Bancorp’s customers, shareholders and employees.  Such a transaction is likely to restore some or all of the significant loss of shareholder value incurred by shareholders and would allow the Company to work with a strong partner as it faces the challenges and opportunities of 2009 and beyond.  While the Company’s financial advisors are likely aware of the potential acquirers of, or merger partners for, the Company, we note that on a recent conference call held to discuss merger opportunities and other items, the CEO of Valley Bancorp noted that Valley’s ideal opportunity was a $1.0 to $2.0 billion in assets commercial bank.  When asked about geographic preferences, he specifically noted expansion into Nassau County.  In our opinion, there are other potential acquirers of, or merger partners for, the Company that might pursue a transaction if they were approached by the Company.

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MI Developments Inc. (NYSE: MIM) may face some pressure from at least one activist investor. Hotchkis Wiley Capital Management owns an 11% stake in the company and expressed its concern about insider dealings with the company. To this end, the hedge fund retained outside counsel to investigate whether claims should be asserted against directors in connection with these insider transactions.

Perhaps the most convincing evidence of corruption was presented in a letter by Greenlight Capital covering the company's proposed (but failed) reorganization plan:

We are writing in response to MI Developments Inc.’s (“MID”) reorganization plan that was announced in November 2008 (“Plan”). We have held shares of MID for almost six years. During that period, we have watched Mr. Frank Stronach continue to fund his interests in horses and gambling through MID. The majority of shareholders of MID do not support the use of MID’s valuable cash flows to fund Magna Entertainment Corp. (“MEC”). The Plan is just one more egregious attempt to further erode MID’s value.

On February 2, 2009, MEC announced that it had submitted an application for a Video Lottery Operation License in Maryland. Two days later, MEC announced that as part of the Plan, MID had funded MEC’s slot license application at Laurel Park to the tune of $28.5 million. The Plan also provides for MID to fund an additional $30 million for construction of a slot facility at Laurel Park. We are vehemently opposed to MID using its funds to make these additional gambling investments. MEC is relying on further funding from MID, which is subject to a shareholder vote that we, and other large shareholders, will vote against. We intend to contest the Plan every step of the way. No doubt other large shareholders will conduct their own analysis and reach the same conclusion.

Even more outrageous is the fact that the Plan contemplates that MEC convertible bondholders who are junior to the MEC debt held by MID will be paid in full in cash, whereas MID’s secured loans to MEC will be converted into shares of MEC equity. As for the value of that MEC equity, Mr. Stronach sold over 600,000 shares of that stock just prior to announcement of the proposed Plan. What does that tell you about the value of the MEC shares? In the second quarter of 2005, the carrying value of MID’s investment in MEC equity was $355 million. Those same shares are now worth under $2.5 million. We fully intend to hold the MID directors accountable for not protecting the value of MID’s secured loans to MEC.

Given that the Plan will not receive the required approval from the MID shareholders, we urge the MID Board to be mindful of its fiduciary duties and immediately halt its plan to go forward with what the term sheet calls the “Immediate Transactions” (the new loan to MEC and the extension of the maturity dates of the MEC loans).

Rather than burn more MID resources pursuing the Plan, the MID Board should start considering the interests of all of the MID shareholders rather than just Mr. Stronach. We once again urge the MID Board to consider the proposal to acquire the MEC loans made by Mr. Halsey Minor on October 2, 2008. Inconceivably, a full four months after the proposal was made public, we understand that the MID Board has continued to ignore Mr. Minor’s offer in utter disregard of its fiduciary duty. There is little doubt that selling the MEC loans to Mr. Minor would be a far better outcome for MID shareholders than the current proposal, and it would not require approval from Mr. Stronach or a shareholder vote. Were the Board to pursue that opportunity, it could arrange an auction between Mr. Minor and Mr. Stronach (or other third parties) to see who would allow MID to exit its MEC investment on the most favorable terms.

Instead, the MID Board would rather make additional loans to MEC, and then allow MEC to convert all of the loans into worthless MEC stock distributed to MID shareholders, rather than see MEC repay them or sell its loans or realize on its security. Choosing this Plan instead of pursuing an offer to sell the MEC loans for cash is an outrageous breach of the MID Board’s fiduciary duty and cannot be justified as a valid exercise of “business judgment” on even the most tortured analysis given the current dire financial situation at MEC.

We trust that the MID Board will be reminded of their duties, and will immediately abandon the Immediate Transactions and the ill-conceived Plan and pursue the offer made by Mr. Minor or other alternatives that are in the best interests of all of the MID shareholders. We are committed to ensuring that MID shareholders receive fair treatment and that you are held responsible for any failure to live up fully to your fiduciary duties.

Luckily, the reorganization plan was canceled, but there are still concerns out there about the company’s actions.

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Magna International Inc. (MGA)
Canterbury Park Holding Corporation (CPHC)

CLST Holdings, Inc. (OTC-BB: CLHI) shareholders have finally had enough with management and filed a lawsuit against the company. The complaint alleges that management orchestrated a scheme to cause the company to enter into a litany of self-dealing transactions intended for their own benefit and at the expense of the company and its shareholders. Shareholders are seeking a rescission of the transactions, disgorgement of all ill-gotten gains, and awards for compensatory and punitive damages.

The self-dealing transactions referred to in the complaint include:

• Selling off significant corporate operations at an unfair price while the defendants received millions in cash and other benefits.
• Acquiring several assets, some of which were owned by defendants, using tens of millions of dollars in company cash that was obtained through the liquidation of CLST’s operations as well as significant amounts of CLST stock that substantially increased the defendant’s control over the company.
• Implementing the 2008 Long Term Incentive Plan despite the company’s pending dissolution, and granting hundreds of thousands of shares of restricted stock to two of the defendants.
• Initiating a poison pill in the form of a shareholder rights plan that succeeded in averting a potential tender offer that was in the best interest of the company and its shareholders.
  

However, let’s take a look at the flip side of the coin. The hedge fund that brought forth this lawsuit attempted a tender offer at $0.25 per share before it was blocked by the company. Clearly, this is a huge premium over the current market price of $0.16 per share, but just how good of a deal is this for shareholders given the pending liquidation of the company?

Currently, CLST Holdings is trading at a valuation of just $3.78 million and has been approved for dissolution, whereby all assets will be distributed equally to shareholders. However, the company has some $9.75 million in cash on its books as of its last 10-K filing with the SEC. This equates to cash per share of $0.43 per share with many of the other liabilities being covered by the assets.

While financial conditions may have changed, it appears from their latest 10-K that $0.25 is a great deal for the hedge fund and a poor deal for shareholders. If this lawsuit is simply an attempt to reinstate the tender offer, then shareholders may have to re-evaluate their loyalties. However, it is also important to remember that it is possible for management to simply sit on the funds, draw a salary, and reduce this value further. So, the hedge fund could have a reasonable proposal in this case…

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Penwest Pharmaceuticals (NASDAQ: PPCO) shares are trading near their 52-week lows and some investors are growing restless. Tang Capital and Perceptive Life Sciences are two such shareholders that own a combined 40 percent of the troubled company. The investors expressed serious concerns about Penwest’s direction and believe the company should be liquidated to unlock value.

In a letter to the board, Tang Capital and Perceptive Life Sciences wrote:

We write to express serious concerns about the current direction of Penwest in the hope that you will take action before it becomes too late and we are forced to pursue other measures.  Specifically, for the reasons explained below, we ask that you stop wasting corporate assets and substantially wind down the Company’s operations so that we, the shareholders, may realize the full value of the Opana ER royalty income stream.  We also ask that you confirm that our January 12, 2009 notice that we intend to nominate 3 persons for election to the Board of Directors at the 2009 annual meeting complies with Penwest’s advanced notice bylaw provisions.  We request that you take these actions no later than March 10, 2009.

Penwest’s principal asset is its royalty earned on the sale of Opana ER by licensee Endo Pharmaceuticals. Opana ER was launched by Endo in 2006 and had 2008 net sales of approximately $140 million to $145 million, which is up 63 to 70 percent year-over-year. Net of the royalty holiday and development cost recoupments, Penwest will earn approximately $19 to $25 million in 2009 and $45 to $55 million in 2010, depending on sales growth.

The income stream from this asset is great, but a generic version of Opana ER is set to hit the market on or after July 15, 2011. Meanwhile, the company has spent $30 to $32 million in 200, or approximately 60 percent of its market capitalization, on the development of a new drug A0001. The problem is that only an estimated 11 percent of compounds in Phase I trials make it to market. Meanwhile, the capital markets have all but shut down for early-stage biopharmaceutical companies.

One equity analyst who provided coverage on the company recently wrote:

Lottery ticket strategy.  Management continues to manage for the pipedream (our opinion) that is referred to as A0001 (for mitochondrial diseases).  To run a whole company for a single product that is not even beyond proof of concept is a profound disservice to shareholders…The overhead is just too heavy to maintain this expensive endeavor.  Note that the PPCO management team has very little impact on the true share price driver (the Opana ER pain drug royalty stream - our opinion) beyond signing royalty checks (and management should not be given credit for its marketing success, again our opinion).

The Board represents who?  Shareholders or management?  You decide.  In November 2008, the Board implemented a retention package that rewards management for a change of control (200% of salary and highest bonus since at the Company).  Jennifer Good took control as CEO in June 2006, and the stock has fallen from the $15-20/share range to currently under $2/share.  Why compensate this performance for a takeout that could be in the $5/share range?  Shareholders deserve a Board response to this question.  Ironically, the Company is getting rid of CFO Ben Palleiko, who is the one person we would have chosen to keep.

In the end, Tang Capital and Perceptive have invested more than $45 million in Penwest stock. Based on their review of SEC filings, the current officers and directors have invested almost no money in the company since 2003. In fact, they have sold more than $2.2 million in stock in addition to their $6.5 million in cash compensation.
So, if management and members of the board are truly committed to A0001, the shareholders suggested the company enter into a transaction with these insiders whereby Penwest grants them or an entity they create rights to A0001 and any follow-on compounds, free of charge, in return for spending reductions.

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GS Financial (NASDAQ: GSLA) directors may be in for a change after a large investor proposed its own slate of nominees to the board. Riggs Qualified and FJ Capital, which own a combined 12 percent stake in the firm, believes that the board has failed shareholders in several respects and nominated its own slate of directors to replace the existing board, in a Schedule 13D filing with the SEC.

Here’s a copy of the letter sent to the board:

We are writing you today to propose three alternative nominees for election as directors to GS Financial Corp.’s (the “Company’s”) Board of Directors (the “Board”) and to demand inclusion of the nominees in the Company’s 2009 Notice of Annual Meeting of Stockholders and Proxy Statement.  We do not take this action lightly.  We believe that the Board has failed the shareholders in several respects.  In 2005, the Board initiated a new business strategy to mirror that of other area banks.  Since early 2007, the value of the Company’s common stock has declined and, in 2008, the Company’s balance sheet equity decreased.  Despite the Company’s subpar performance and a decline in shareholder value and equity, the Board has continued to increase its compensation expense and, in 2008, declared dividends that exceeded Company net income, both of which we view as dangerous trends.  We believe that the Board should be held accountable for the Company’s performance and should begin to implement a more effective strategy to maximize shareholder value.

Accordingly, pursuant to Article 6.F of the Company’s Articles of Incorporation (the “Articles”), we hereby nominate ourselves, Martin S. Freidman, Donald C. Scott and Philip J. Timyan, for election to the board of directors at the Company’s 2009 Annual Meeting of Shareholders.  We believe that if elected as directors, we can help the Company reverse its current troubling trends and build future shareholder equity.

Annex A hereto sets forth the information regarding each of us as nominees, and as nominating shareholders, which is required to be included in this notice pursuant to Article 6.F of the Articles.  We have also attached as Annex B our consent to nomination and agreement to serve if elected.  Finally, Annex C sets forth completed Questionnaires providing any additional information required pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.

None of us is a party to any proceeding involving the Company, nor do we have any affiliation with or material interest in any person or entity having an interest materially adverse to the Company.  Together, we are the beneficial owners of approximately 264,092 shares, or 20.7%, of the Company’s common stock as of February 19, 2009.  Accordingly, we hereby represent that we are the holders of record of shares of the Company’s common stock entitled to vote at the 2009 Annual Meeting of Shareholders.

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Tarrant Apparel Group (NASDAQ: TAGS) shares more than doubled late last week after a large shareholder announced his support of the merger proposal with Sunrise Acquisition Company. Interim Chief Executive Gerard Guez will vote his 48.3% stake of common stock in favor of the merger. This development makes it very likely that the merger agreement will be consummated.

Under the terms of the merger agreement, upon consummation of the merger, all outstanding shares of Tarrant will be acquired by Sunrise for $0.85 per share in cash. The offer represents a 28.8% premium to the closing price of the company’s common stock on April 24, 2008, the day before the offer was made. It also represents a 129.7% premium to the closing price on February 26, 2009.

The transaction requires at least 66 2/3% majority shareholder vote, but the 48.3% vote in favor certainly helps the odds. In the meantime, this may be a stock worth watching for those merger arbitrage investors as the price remains at just $0.712 as of this writing.

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