BKF Capital Terminates Offer to Control Qualstar

Qualstar Corporation commented on the announcement by BKF Capital Group, Inc., an entity controlled by Steven N. Bronson, that it was abruptly terminating its unsolicited partial tender offer to purchase up to 3,000,000 shares of Qualstar’s common stock, or approximately 24.5% of Qualstar’s outstanding shares, for $1.65 per share in cash.

Had the tender offer been completed and fully subscribed, BKF Capital and Mr. Bronson would have collectively owned approximately 43.2% of Qualstar’s outstanding shares.

As BKF Capital indicated in its Schedule TO, one of the purposes of its unsolicited partial tender offer was to obtain a "controlling influence" over Qualstar.

This is not the first time that BKF Capital and its controlling shareholder, Bronson, have failed in their attempt to gain control of Qualstar without paying shareholders an appropriate control premium.

Last June, BKF Capital and Bronson failed in their efforts to replace the entire membership of the Qualstar board with their ‘hand-picked’ nominees.

In addition, BKF Capital and Bronson have notified Qualstar that they will pursue another proxy contest to replace the entire Qualstar board with their hand-picked nominees at this year’s annual shareholder meeting.

As such, shareholders can expect to be faced with yet another attempt by BKF Capital and Bronson to take control of Qualstar without paying shareholders any premium for such control.

In the weeks ahead, Qualstar intends to communicate further with its shareholders with respect to the choices that will be before them at this year’s annual shareholders meeting.

Lawrence D. Firestone, Qualstar president and CFO, said: "As we continue to execute our strategic turnaround plan for Qualstar, with positive results already reported, Mr. Bronson and BKF Capital have once again caused us a needless and wasteful distraction. In first commencing their ill-advised partial tender offer and then abruptly terminating it, they have forced our board and management team to devote significant resources – including management time and shareholder money – to protect the interests of ALL shareholders, when these resources could have been better devoted to our ongoing efforts to transform Qualstar. We remain committed to transforming and refocusing Qualstar on its growing core storage and power supply businesses and, accordingly, driving sustainable revenue, profitable growth and increasing returns for ALL shareholders."

On the evening of February 11, 2013, BKF Capital filed with the U.S. Securities and Exchange Commission an amendment to its Tender Offer Statement on Schedule TO terminating its partial tender offer. The termination of the tender offer occurred just hours before Qualstar was planning to file its Solicitation / Recommendation Statement on Schedule 14D-9 which would have contained its board’s recommendation to shareholders as to whether to tender their shares into BKF Capital’s offer and the reasons for such recommendation. While the tender offer’s termination eliminated the need for the Qualstar board to make a recommendation or file a Schedule 14D-9 with the SEC, shareholders should be aware that it is the unanimous view of the Qualstar board, after careful review and consideration, and in consultation with its financial and legal advisors, that BKF Capital’s unsolicited partial tender offer was inadequate and was not in the best interests of Qualstar and all of its shareholders.

In reaching its view that BKF Capital’s unsolicited partial tender offer was not in the best interests of all Qualstar shareholders, the Qualstar board considered numerous factors, including, but not limited to, the following:

• The Qualstar board’s belief that the continued implementation of Qualstar’s strategic plan, under the leadership of its new president and CEO, Lawrence D. Firestone, will generate greater value for shareholders than would have been realized by BKF Capital’s partial tender offer. The Qualstar board took into account the swift and decisive actions that have been taken under Qualstar’s new leadership to: transform Qualstar’s value proposition from being a manufacturing-based company to a more nimble, lower overhead company focused on engineering and sales; enhance its prospects for growth and value creation; and create a platform for long-term growth, sustainable profitability, market leadership and increasing returns for investors. The Qualstar board also took into consideration that, as a result of the efforts spearheaded by its new leadership, less than two fiscal quarters into the implementation of Qualstar’s refocused strategy, Qualstar has made significant and substantial progress and is starting to realize the benefits of many of the actions that its new leadership has implemented to transform and refocus Qualstar;
• The Qualstar board’s belief that BKF Capital’s partial tender offer was inadequate, and, in not paying shareholders an appropriate control premium for their shares, did not provide full and fair value for ALL outstanding Qualstar shares. As BKF Capital noted in its Schedule TO, the offer price represented the price at which it was willing to purchase shares and not an assessment of the shares’ value. BKF Capital also indicated that it arrived at the offer price with the intention of making a profit from the ownership of the shares and that its objective was to establish the lowest price that might be acceptable to shareholders;
• The Qualstar board’s belief that BKF Capital’s partial tender offer was opportunistically timed to (i) take advantage of Qualstar’s depressed stock price which is at historically low levels, and (ii) allow BKF Capital to acquire shares of Qualstar at an inadequate price before the market recognizes Qualstar’s potential for growth and value creation as Qualstar, under its new leadership, continues to implement a strategic plan for transforming Qualstar;
• That the Qualstar board had received the opinion of Needham & Company, LLC, Qualstar’s financial advisor, that as of February 11, 2013 and subject to and based on the assumptions, qualifications and other considerations set forth in its opinion, BKF Capital’s offer price was inadequate, from a financial point of view, to Qualstar’s shareholders (other than BKF Capital and its affiliates);
• The Qualstar board’s belief that BKF Capital’s partial tender offer as a partial bid was structurally and inherently coercive; and
• BKF Capital’s partial tender offer was subject to numerous conditions, which created significant uncertainty about whether the offer would be consummated and a number of the conditions gave BKF Capital wide latitude not to consummate its tender offer.

Needham & Company, LLC is acting as financial advisor to Qualstar and Stradling Yocca Carlson & Rauth, P.C. and Alston & Bird LLP are acting as legal advisors to Qualstar.