2013 Q3 Client Letter

October 2, 2013

Dear Twinleaf Account Holder:

Outperformance continued in Q3 2013 with client account gains ranging from 12% to 19% in the quarter. On a blended basis, Twinleaf posted a 12.7% rise in Q3, net of management fees. Key performance drivers were some of our larger positions, including Marchex (+21%), Crown Media (+25%) and Envivio (+51%). Year to date, Twinleaf accounts are +45% with the help of two M&A take-outs, though smallish positions both.

By comparison, the S&P 500 was +5.2% in Q3 and +19.8% YTD; the DJIA was +2.1% in Q3 and +17.6% YTD; Nasdaq was +11.2% in Q3 and +26.1% YTD and Russell 2000 was +10.2% in Q3 and +27.7% YTD.

While stocks in our small-cap universe are clearly not as inexpensive as they were twelve or even six months ago, we are very comfortable with the presence of our core group of 14 portfolio companies across heavily invested client accounts. Our adherence to a value discipline means that only in Q3 did a couple of our companies reach a double digit Enterprise Value/EBITDA multiple and we view those as likely M&A targets in the next year. The great majority of our names remain reasonably valued, all with some favorable combination of mid-single
digit multiples, EBITDA growth, hidden assets to be harvested, prior losses to tax-shield future profits, a commitment to debt repayment that will boost equity value, corporate stock repurchases, perhaps a significant short position in the stock and the possibility that we wake up one day to an M&A bid for one of our companies at a 30% premium to market value. These are the types of appreciation catalysts that we spend our days looking for.

An example of a company that recently entered Twinleaf client accounts has the following profile: telecom services sector, 4x EV/EBITDA 
significant net-cash position that may allow a return of capital to shareholders in 2014, impressive new management highly incentivized with equity ownership, misunderstood by investors and the presence of a significant short position in the name. We recently met with the management team and came away enthusiastic that the company nicely fits our investment criteria. Since we’re still building client positions in the stock, we’ll reveal the company’s identity in a future correspondence.

We welcome new Twinleaf account holders who came aboard in Q3 and thank all of our clients for their support.

Regards,



Spencer Grimes         Fred Pickering





Twinleaf Management LLC
131 Brookwood Lane New Canaan, CT 06840
203-644-4290
www.TwinleafManagement.com