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May 1, 2014

2014 Q1 Partnership Letter

Dear Partner,
Our net performance for Q1 was -0.2% vs. indices of: 1.5% Barclay Hedge Fund Index, 1.1% Russell 2000
and 1.8% S&P 500. Aron and I have been ramping up our new partnership together this quarter and it
has been something of a transition quarter to get our processes all in place.
We recruited a fantastic new board member at InfuSystem in Gregg Lehman and I announced I would be
stepping back from my Executive duties and changing my role to non-Executive Chairman. The company
has transitioned well past the activist chapter and is now solidly both feet into growth mode under Eric
Steens capable leadership. We also welcomed a number of new investors to the fund including several
of the smartest fund managers I know. We intend to tap them as resources as we build our investment
process and business.
A Unique Environment
Todays market poses a challenging environment, one that we are uniquely equipped to handle given
our idea sourcing and research software platform that we built over the last year. Overall valuations
during the 2000 Great Bubble were higher than today but they were concentrated in large-cap stocks.
Today, there are no large asset classes unaffected by the supply/demand balance favoring cheap capital
and low returns: all asset classes are expensive.
An interesting recent quantitative study showed that the median stock (which is less affected by say the
largest 100 out of 10,000 stocks being wildly overvalued as in 2000) is at an all-time high valuation
EVER. To make stock picking even more difficult, dispersion is at an all-time low meaning the range of
EV/EBITDA multiples is narrower than ever. These two combined means that there is virtually nothing
that is obviously cheap in the market.
We have been aware of this trend for some time and started solving it starting in 2010. First using an
entrepreneurial approach to activism and building value within underperforming companies. Then,
after this experience gave the necessary depth, we began to systematize (checklist + automation)
these insights and built a software platform to source ideas and optimize allocation of our most scarce
resource: time.
I actually dont believe the current environment is cyclical but rather is the result of structural changes.
Value investing has become hugely popular and simple stock data is widely accessible. This is the
reason why obviously cheap stocks are bid up and dispersion is at all-time lows. If the reason for an
investor buying a stock is solely based on its valuation multiple, newly popular smart beta funds will
express this thesis in a much more refined and accurate way across many similar stocks with less risk
those investors are librarians in an age of Google.
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So, as with all evolutionary progress, the key problem is understanding how to get one step ahead of the
current environment. If the multiples of earnings are all clustering around the mean and discovering
low multiples has been completely commoditized, then the differentiator moves deeper: what causes
the earnings to change in a nonobvious (e.g. not just a stable growth rate) way and how do you find
those causes? This requires a depth of business understanding that purely statistical methods are too
rudimentary to achieve.
As an insider of half a dozen public companies since 2010, we are a lot more familiar with the subtle
differentiating elements: InfuSystem has now increased its EBITDA by roughly 50% from when we
became involved late 2011 and the stock has tripled. There was no stock screen that could distill the
events in the boardroom that led to Eric Steen being hired as CEO vs some other candidate that may
have resulted in a totally different outcome. However, there are subtle clues around the situation that it
would have been an interesting place to look and the stock didnt increase until well after the actions
had taken place that were responsible for the increased earnings.

Another Healthcare Transformation Story
Hooper Holmes is a 100 year old company that provides life and wellness insurance services. Your
parents or grandparents might have gone to an old HH brick and mortar location on Main Street to get
their health checkup (height, weight, cholesterol, blood pressure) before their life policy became
effective.
Warren Buffett says that if management finds itself in a chronically leaky boat, you're better off finding a
new vessel than to keep bailing. It took Hooper over a decade of losses but management finally threw
in the towel and sold the structurally declining brick and mortar business August 2013.
The "New Hooper" is now focused on the health & wellness market, an area with big tailwinds thanks to
new ObamaCare incentives for employers to keep their workforce healthy and out of the healthcare
system. The first step to improving health is measuring it, but with big companies that have dozens or
hundreds of locations and thousands of employees, coordinating annual check-ups including blood
draws is not easy. This is where Hooper comes in - their national network of thousands of nurses, a
captive lab, and coordination know-how makes it easy for big companies to offer wellness programs to
their employees.
The stock doesn't look cheap on trailing metrics - which show losses - otherwise you wouldn't be able to
buy it at today's discount prices. That said, we look for tangible indications today that value will be
apparent to all tomorrow (or 1-3 years from now more specifically) and the stock will increase
accordingly.
1) EV/Sales of approximately 0.8X ($19mm EV / $23mm revs) vs. numerous historical transaction comps
at 2X EV/Sales
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2) 25% historical annual revenue growth CAGR for the remaining segment (with only 2 sales people and
nominal management attention as it had been a secondary business historically)
3) A new CEO and now focused management project wellness revenue will grow 25-40% CAGR over the
next 4-6 years
4) New CEO Henry Dubois as a Change of Control provision in his employment contract of 2X comp (at
the high end of market) and 2mm options at $0.50/share which align his interests with an ultimate
buyout
In short, Hooper Holmes has transitioned from a failing turnaround into a focused company growing the
top line at 25%+ per year and trades for less than 1/3 of its ultimate buy-out multiple. We acquired our
position shortly after the main asset sale and the dominoes causing fundamental business change had
already begun falling.

Two Economists Walk down the Street
An update on our garden weeding efforts. Odyssey Marine announced they received a contract to
salvage the SS Central America, one of the most valuable shipwrecks in history. The ship sank in 1857
and was untouched until 1987 when a highly charismatic Tommy Thompson raised $20 million from
investors in Columbus, Ohio to salvage the documented gold. Tommy raised the money and after
numerous trips, he successfully salvaged the vast majority of the documented gold: estimated at
$50mm worth, which is incidentally roughly equal to OMEXs cumulative revenue from non-related-
parties since inception. Then, like any good pirate, Tommy disappeared with all the gold, leaving
investors without a dime. He has been a fugitive of the law and his whereabouts are unknown. The
investment vehicle he used to raise the $20mm has been essentially in bankruptcy with no assets for
over a decade.
To rephrase a story about two economists walking down the street with differing views of the efficiency
of markets If you are walking down the street and see a year old lottery ticket, the odds of that ticket
being a winner is NOT 1 in a million (or whatever the lotterys statistical odds are). It is 1 in a million
TIMES the odds that a winning lottery ticket has been left unclaimed on a street where everyone can see
it for a year (call that also one in a million odds as it would have been highly publicized that there was in
fact an unclaimed winning ticket somewhere out there) = 1 in a Trillion odds.
Under the contract that it received after a competitive process, OMEX bears 100% of the cost to salvage
any remaining gold from the SS Central America and receives 45% of the recovery after its costs.
Nobody we spoke with related to the original case believed there could still be economically salvageable
treasure and if there were, presumably Tommy, with $50mm of untraceable currency (gold), a ship, and
knowledge of the vessel would have found it, but we shall see soon! We continue to believe that OMEX
will have to raise highly-dilutive equity or run out of cash and declare bankruptcy by this summer and
are short the stock.
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Moving Forward with a Change First Approach to Investing
The market has commoditized obvious value which most value investors like ourselves have found
painful to bear: our favored low-multiple stocks are nowhere to be found, making life challenging. We
believe that every challenge is an opportunity and rather than sit on the sidelines waiting for the
uncertain day for a 2009 to happen again, weve dug deeper. The opportunity is that if low multiples
rapidly get bid up by the market to become median multiples then flip it around: look for where the
earnings are about to grow, NOT the multiple like everyone else!
This isnt easy because multiples are so simple to search for while the underlying causes of business
change (good or bad) are tougher to look for: new management teams with good track records;
corporate transactions; inflections in R&D spending, etc. We spent 10 man-years building a system to
search for these catalysts first, then confirm the value (which is easier) second. We are extremely
excited about demonstrating our capabilities this year now that we have our infrastructure in place and
looking forward to more updates.
Its been a long journey to get here but I cant thank our early investors enough and thank you for your
support. Please email me at rmorris@mesoncapital.com or call at 607-279-5382 if you have any
questions or are interested in investing. As always, thank you for reading.


Sincerely,



Ryan J. Morris
President
Meson Capital LLC
Aron English
Director of Research
Meson Capital LLC



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in the matters described herein.
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(the Fund) or any affiliate thereof. Any such offer or solicitation will only be made to qualified
investors by means of a confidential private placement memorandum and only in those jurisdictions
where permitted by law.
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first page, are subject to change without notice, may not come to pass and do not represent a
recommendation or offer of any particular security, strategy or investment.
An investment in the fund is speculative and involves a high degree of risk. Opportunities for
withdrawal, redemption and transferability of interests are restricted, so investors may not have access
to capital when it is needed. There is no secondary market for the interests and none are expected to
develop. The fees and expenses charged in connection with this investment may be higher than the fees
and expenses of other investment alternatives and may offset profits. No assurance can be given that
the investment objective will be achieved or that an investor will receive a return of all or part of his or
her investment. Investment results may vary substantially over any given time period.
Results are compared to the performance of the S&P 500 Index for informational purposes only. The
Funds investment program does not mirror the S&P 500 Index and the volatility of the Funds
investment program may be materially different. The performance figures include the reinvestment of
any dividends and other earnings, unless otherwise noted. Past performance is not necessarily indicative
of future results. The holdings identified in this letter do not represent all of the securities purchased or
sold in the Fund.
Performance results for individual investors will be different from the performance results of Meson
Capital Partners LP depending on their timing of capital contributions and withdrawals. Meson Capital
Partners, LLC or affiliated entities (Meson) is not responsible for any liabilities resulting from errors
contained in this communication. Meson will not notify you of any errors that it identifies at a later date.