UPDATE: BKF Terminates Offer to Buy Qualstar Shares, Cites Adoption of Rights Plan

BKF Capital Group, Inc. today announced that it isterminating its offer to acquire up to 3,000,000 shares of QualstarCorporation (NASDAQ: QBAK) because of the recently announced adoption byQualstar of a shareholder rights plan. The adoption of the rights planeffectively makes it impossible to consummate the offer, since the acquisitionof shares in the offer would trigger the exercisability of the rights underthe plan.As disclosed in its offering materials, BKF is currently Qualstar's secondlargest shareholder. BKF commenced the offer to obtain a controlling influenceover the company and to improve the prospects for the election of itscandidates to the Qualstar board of directors at the company's 2013 annualmeeting of shareholders. BKF intends to pursue the election of its nominees atthe 2013 annual meeting of shareholders, so that shareholders can choosewhether they wish to replace the current board that continues to accumulatelosses and that is foreclosing from shareholders the opportunity to decide forthemselves whether to accept the BKF offer. Qualstar has never held its annualmeeting later than the last week of March, and BKF expects that the board willconvene the annual meeting this year no later than that.BKF has today filed an amendment to its Form TO with the Securities andExchange Commission to amend its offer by adding a condition that the rightsplan be either waived, withdrawn or terminated, so as to allow the BKF offerto be consummated. But because it is apparent that the Qualstar board has nointention of doing so, BKF is also terminating the offer. BKF does not,however, concede that the rights plan was validly adopted under Californialaw.Responding to the board's action to thwart BKF's tender offer and shareholderchoice, Steven Bronson, CEO and President of BKF made the following comments:“We are disappointed that Qualstar has decided to adopt a poison pill toprevent shareholders from deciding for themselves whether to accept the BKFoffer. BKF contemplated suing Qualstar over the rights plan. But we concludedthat a lawsuit would benefit the company's lawyers, but would not create valuefor shareholders. We therefore decided to withdraw our offer and focus ourefforts and money on replacing Qualstar's board at the next annual meeting.“We candidly stated in our offer materials that we were making the offer toobtain a controlling influence over the Company and to improve the prospectsfor election of our candidates at the 2013 annual meeting. We believe that theboard has adopted the rights plan to entrench itself and management, and thatshareholders should take account of this when it comes time to vote at theannual meeting.“We believe the board's action in adopting the rights plan is part of acontinuing pattern of Qualstar's lack of regard for shareholder interests,about which BKF is deeply concerned. In June 2012, BKF conducted a proxycontest to remove the incumbent board, including CEO Larry Firestone. Amajority of shareholders voting cast their ballots to oust the board andsupported the platform of BKF to return capital to the shareholders andexplore strategic options for the data storage business.“The board did not get the message. Instead of taking a hard strategic look atthe tape storage business, the board is continuing to throw money at it.(After subsequent analysis, BKF has come to the conclusion that unlessQualstar can align itself with a strategic partner that brings capital anddistribution channels to the table, it should exit the commoditized businessof the data storage space.) Instead of returning excess cash to shareholders,the board appears to be pursuing a veiled acquisition strategy.“The company touts a five year strategic plan, but continues to run at asubstantial loss. The company broadcasts its cost cutting measures, but doesnot flag for you the substantial shareholder dollars that Mr. Firestone isspending on lawyers, financial advisors, proxy solicitors, investor relationfirms, and recruiters.“Then there is Mr. Firestone's own compensation. By adopting the rights plan,the board is depriving shareholders of the opportunity to accept $1.65 fortheir shares, which represents a 16% premium to the 90 calendar day averagetrading price prior to the announcement of the BKF offer. Yet the board had noproblem in January of this year issuing Mr. Firestone 100,000 options at astrike price of $1.44 per share. The company had previously granted to Mr.Firestone 100,000 options at a price of $1.94 per share. Apparently, while theboard is unwilling to allow its shareholders to take advantage of an offered16% premium for their shares, it has no issue with rewarding its CEO for a 25%drop in the company's market value since he took office. The board also had noproblem awarding Mr. Firestone a severance package that, if valid, wouldrequire the company to pay Mr. Firestone over 5% of the company's liquidassets!“This board, including Mr. Firestone, has made virtually no investment in thecompany. In contrast, the interests of BKF are aligned directly with theinterests of all shareholders. BKF and I have invested approximately $3.8million in the company, and if it were not for the rights offering, BKF wouldhave committed up to an additional $5 million. We therefore look forward tothe support of shareholders at the 2013 annual meeting, where we will beseeking to replace the current board with BKF's nominees and at long lastprovide shareholders with a board that we believe will be representative ofshareholder interests.”