BKF Capital Group, Inc. (BKFG) today released an open letter to shareholders of Qualstar Corporation (NASDAQ—QBAK) in advance of a Special Meeting of Shareholders on June 20, 2012 to remove and replace the Qualstar Board. In the letter, BKF accuses Qualstar of stalling on the production of accounting records, which BKF believes are relevant to shareholder assessment of the performance of the Board in advance of the Special Meeting, and questions whether the Qualstar Board is trying to hide information from shareholders. BKF also challenges the Board’s characterization of the new CEO that it selected, who has never served in a chief executive capacity, as a “turnaround specialist.”
The full text of the letter follows.
June 13, 2012
Dear Fellow Qualstar Shareholders:
The Special Meeting of Shareholders to remove and replace the Board of Qualstar Corporation will be held on June 20, 2012. If you have not already done so,
please promptly return your GOLD proxy card to vote FOR the proposals of BKF Capital Group, Inc. to remove and replace the Board
, so that the BKF slate of nominees may begin to return value to shareholders.
It would seem that the current Board members have already given shareholders sufficient reasons to remove them from office — the destruction of the Company’s share value, the decline in operating performance, the outsized compensation of the new CEO, the distortions and half-truths regarding the BKF slate. But this Board keeps adding more.
Stalling on BKF’s Demand to Inspect Accounting Books and Records
BKF exercised its right under California law to demand inspection of Qualstar's accounting books and records, including the following items:
Qualstar has stalled in the production of these accounting records.
- compensation and expense reimbursement to directors and officers;
- payments for aircraft owned by directors and officers;
- legal services performed by the law firm of one of the directors;
- investment advice paid for by the Company; and
- executive recruitment and compensation consultants.
BKF asked for these materials because we believed they are relevant to the shareholder’ assessment of the performance of the Board in advance of the Special Meeting. Qualstar’s legal counsel (who is also a director of the Company) refused to provide the records on a timely basis and threatened that it would take longer for BKF to obtain a court ordered inspection of these documents than waiting for Qualstar to comply. Because the Board is dragging its feet in the production of these materials, we have to ask:
Does the Board have something to hide? Is there financial information or payments to management that the Board does not want shareholders to know with sufficient time to affect the vote at the Special Meeting?
Mr. Firestone, the Purported Turnaround Specialist
On June 12
, the Company issued a press release announcing, “Turnaround Specialist Engaged Full Time To Grow Qualstar Investment.” And just who is this “turnaround specialist?” Board member Lawrence Firestone, whom BKF is seeking to remove. Now, when we think of someone as a turnaround specialist, we think of a CEO type or a Chief Restructuring Officer, someone who runs the show and call the shots, not a CFO who keeps the books. Mr. Firestone’s primary experience, and all his experience in the last 12 years has been as a CFO — he has not in fact been at the helm of
turnaround situation. But if you really want to appreciate how this Board is trying to mislead you, consider this statement in the release:
[Mr. Firestone g]rew Advanced Energy Industries from a market capitalization of $500 million to over $1.1 billion in two years.