STEC Responds to Balch Hill, Potomac Capital

STEC Responds to Balch Hill, Potomac Capital

Strategic Plan to Maximize Shareholder Value Underway Contrasts With Activist
Shareholders' Proposal That Could Derail STEC's Path to Recovery

SANTA ANA, Calif., March 20, 2013 (GLOBE NEWSWIRE) -- In a letter to
shareholders, Kevin C. Daly, Ph.D., chairman of the Board of STEC, Inc.,
(Nasdaq:STEC), a leading global provider of solid-state storage solutions,
reiterated confidence in, and commitment to, STEC's new business strategy, and
updated shareholders on discussions with Balch Hill and Potomac Capital.

The full text of the letter follows:

  Dear Fellow Shareholders,

  The enterprise solid-state storage market has both grown and changed
  dramatically since STEC essentially invented it more than a decade ago. Over
  that period of time, STEC has invested in the technology, the infrastructure
  and, most importantly, the people necessary to continue driving cutting
  edge, flash-based storage technology for this evolving market.

  Over the past several years, STEC has continued to invest in core
  technologies that are critical for its OEM business, and more recently the
  company has invested in the expertise and the infrastructure necessary to
  extend its reach beyond the OEM market and penetrate the enterprise space as
  quickly and deeply as possible. This is all intended to drive greater market
  share and increase the value of STEC for you, our shareholders.

  Over the past four months, STEC has been aggressively moving forward to
  implement a new business plan and market strategy that is focused on
  diversifying the company's reach, domestically and globally, by adding a
  solid mix of channel partners and direct enterprise and vertical sales and
  sales support expertise to our existing OEM distribution model.An essential
  element of this strategy is transforming STEC from a component supplier into
  a storage solutions provider.

  While this transition will take time, we have already seen significant
  results.In particular, we saw our first direct customer in the enterprise
  space already account for more than 10% of our revenues during the second
  half of 2012.Our goal is to derive approximately one half of our total
  revenues from enterprise sales by the fourth quarter of 2013.

  We have made substantial progress toward that goal.We have initiated, and
  continue tohave, numerous engagements with large enterprise customers
  across our targeted vertical markets including the federal government, oil &
  gas, financial services, cloud/content, and telecommunications.This is a
  testament to both a well-conceived plan and to an enhanced sales and
  marketing team with extensive direct enterprise and application expertise.
  All told, the actions we have taken give us growing confidence that STEC is
  well-positioned to execute its strategy for 2013 and beyond.

  Underlying this, of course, is STEC's technology expertise and longevity in
  the market that are driven by our dedicated employees, our core
  technologies, and our notable intellectual property assets, which include 48
  issued patents and an additional 88 patent applications that are pending.

  Our Board and management have been dedicated to both the strategic formation
  and the disciplined execution of our business to maximize shareholder
  value.Our STEC team includes highly qualified, engaged individuals who are
  committed to serving the best interests of the company and our shareholders.

  At this stage in the company's transformation, we believe it is imperative
  that we maintain leadership continuity and stability.We are therefore
  disappointed that activist investors Balch Hill and Potomac Capital chose to
  pursue a costly and time-consuming proxy contest, despite the considerable
  efforts of the STEC Board and management to reach an accord in the best
  interests of the company and all shareholders that was acceptable to both
  parties.Our Board is always open to constructive dialogue with all of our
  shareholders and we have been more than willing to give Balch Hill and
  Potomac Capital reasonable representation on the Board so that we can
  evaluate and potentially benefit from any meritorious ideas they may have to
  share.To that end, we engaged in good-faith discussions with Balch Hill and
  Potomac Capital.But to cede full, or even majority, control of the Board –
  particularly at this critical juncture – is both unreasonable and not in the
  best interest of STEC or its shareholders.

  In their most recent letter sent on March 18, 2013, Balch Hill and Potomac
  Capital made grandiose claims about re-directing the company and righting
  all perceived wrongs, but with little indication of how that would be
  achieved.These activists also claim that the SEC investigation discredited
  the organization, yet fails to recognize that the company and Mark Moshayedi
  were cleared by the SEC in July 2011, and Manouch Moshayedi has stepped down
  from his CEO role and is focusing on vigorously fighting the allegations
  against him.

  Despite the activists' rhetoric to the contrary, we strongly believe STEC is
  turning a major corner in our plan to regain momentum in our business and
  that their agenda is misguided.Worse, to implement an abrupt change in
  strategy at this time would undermine the progress we are making and, in our
  view, ultimately result in a major set-back of our plan to continue creating
  shareholder value.

  The activists' assertions overlook the considerable successes our existing
  Board and management team have already achieved, such as:

    *Being the industry's first company to deploy solid-state storage on a
      large scale in enterprise systems
    *Pioneering two-terabyte solid-state drives (SSDs) with the two most
      in-demand interfaces
    *Penetrating new, highly promising vertical markets through STEC's
      solutions-focused structure
    *Leading early SSD caching software with EnhanceIO™
    *Innovating application optimization through object abstractions (e.g.
      flash object store) and other advanced technologies
    *Having SSDs incorporated into the world's most sophisticated storage

  This type of success is not achieved without a skilled and dedicated
  leadership team. In order to further bolster this team, we have added
  high-caliber enterprise professionals to our ranks, including former senior
  leadership at NetApp, EMC and other blue-chip storage companies. These
  people are at the core of STEC's transformation and bring decades of
  experience and knowledge regarding how best to approach the opportunities of
  the industry.

  Of course, the competitive dynamics of this industry, as with any industry,
  are ever-changing, and we firmly believe that our highly experienced team is
  best-suited to continue this momentum and position the company for future
  success in this new business landscape.

  Balch Hill's proposed path reflects a fundamental misunderstanding of our
  business.Relying solely on success within the world of OEMs is highly
  risky. The competition is fierce, the qualification windows are long, and
  margins have become compressed. And while we fully intend to maintain our
  OEM relationships as a fulfillment channel to reach more end-users, we
  believe the growth behind our business is and will continue to be our
  non-OEM customers. We are starting to see end-customers influence the
  selection of drives available in OEM solutions. It is therefore important
  for STEC to enable end-customers with the knowledge they need to determine
  the best-of-breed, solid-state storage solutions for their high performance
  environments whether they are purchasing direct or through a requisite OEM

  Allowing activist hedge funds inexperienced in our industry to assume
  control of STEC's Board would in our view endanger the company and destroy
  shareholder value.

  In contrast to the dissident nominees, STEC's Board and management are
  highly experienced, with track records of building companies and creating
  shareholder value.They are focused on creating value for all STEC
  shareholders, and have a realistic plan for doing so.And since December 1,
  2012, founders Manouch Moshayedi and Mark Moshayedi have in the interest of
  cutting costs been working on behalf of STEC and its shareholders for $1 per
  year, a cost reduction for which the activists are disingenuously trying to
  take credit.

  We agree with Balch Hill and Potomac Capital that, "STEC has very valuable
  assets, including world class products and a strong balance sheet."The
  founders of this company, senior management, outstanding employees, and an
  experienced Board of Directors all had much to do with these successes
  earned to date, which is why we cannot agree with the reckless demand that
  so many mission-critical people be replaced immediately and without any
  attention to the role that these individuals play in managing the company.

  We appreciate the trust you have placed in STEC through your investment and
  will continue to ensure that trust endures as we lead the company into the

  On behalf of the STEC Board of Directors,

  Kevin C. Daly, Ph.D., Chairman

About STEC, Inc.

STEC, Inc. is a leading global provider of enterprise-class, solid-state
storage solutions designed for the ever-growing performance, reliability and
endurance requirements of today's advanced data centers.The industry's first
company to deploy solid-state drives (SSDs) into large-scale enterprise
environments, STEC offers the industry's widest range of solid-state storage
solutions, which protect critical information for major business and
government organizations worldwide. Headquartered in Santa Ana, California,
STEC also serves the embedded and military/aerospace markets with SSDs for
industrial and rugged environments. For more information, visit

For information about STEC and to subscribe to STEC's "Email Alerts" service,
please visit STEC's web site at, click on the blue
"Investors" tab at the top of the home page and then click "Email Alerts."

STEC and the STEC logo are either registered trademarks or trademarks of STEC,
Inc. in the United States and certain other countries.All other trademarks or
brand names referred to herein are the property of their respective owners.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995.This press release contains forward-looking statements that involve
risks and uncertainties, including, but not limited to, statements concerning
or related to management's business and market strategy plan for 2013 and
beyond; and matters to be presented at STEC's 2013 annual meeting of
shareholders.Such forward-looking statements are based on current
expectations and involve inherent risks and uncertainties, including factors
that could delay, divert or change any of them, and could cause actual
outcomes and results to differ materially from current expectations.Although
STEC believes that the forward-looking statements contained in this release
are reasonable, it can give no assurance that its expectations will be
fulfilled.Additional important factors which could cause actual results to
differ materially from those expressed or implied in the forward-looking
statements are detailed in filings with the Securities and Exchange Commission
made from time to time by STEC, including its Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K.Special
attention is directed to the portions of those documents entitled "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."The information contained in this press release is a
statement of STEC's present intention, belief or expectation.STEC may change
its intention, belief, or expectation, at any time and without notice, based
upon any changes in such factors, in STEC's assumptions or otherwise.Except
as required by law, STEC undertakes no obligation to release publicly any
revisions to any forward-looking statements to reflect events or circumstances
occurring after the date hereof, or to reflect the occurrence of unanticipated

Additional Information

STEC will prepare and file a proxy statement in connection with its 2013
Annual Meeting of Shareholders (the "2013 Annual Meeting"). When completed, a
proxy statement and a form of proxy will be mailed to shareholders. STEC's
shareholders are urged to read the proxy statement when available because it
will contain important information. Once filed with the SEC, a copy of the
proxy statement and other relevant documents will be available on the SEC's
website at and a copy may be obtained without charge upon
request (by mail or telephone) to STEC, Inc., Attn: Corporate Secretary, 3001
Daimler Street, Santa Ana, California 92705-5812, telephone: (949)476-1180,
or from the "Investor Relations" section of STEC's website,

STEC and certain of its directors and executive officers may be deemed to be
participants in the solicitation of proxies in connection with the election of
directors at the 2013 Annual Meeting. Information regarding STEC's directors
and executive officers, including their ownership of STEC common stock, can be
found in STEC's 2012 Annual Meeting proxy statement filed with the SEC on
April 3, 2012. Shareholders will be able to obtain additional information
regarding STEC's directors and executive officers, including their interests,
by reading STEC's2013 Annual Meeting proxy statement and other relevant
documents, when filed with the SEC.

CONTACT: Mitch Gellman
         Vice President of Investor Relations
         STEC, Inc.
         (949) 260-8328
         Jerry Steach
         Director, Public Relations
         STEC, Inc.
         (415) 222-9996

STEC, Inc.
Press spacebar to pause and continue. Press esc to stop.