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June 10, 2013 /PRNewswire/ -- Balch Hill Partners, L.P., a
Delaware limited partnership, together with its affiliates, with approximately 9.9% of the outstanding common stock of STEC, Inc., a
California corporation (the "Company"), announced today that they have delivered an open letter to shareholders of the Company.
The full text of the letter is included below:
BALCH HILL CAPITAL, LLC
2778 Green Street
San Francisco, CA 94123
June 10, 2013
Dear Fellow STEC Shareholder,
CHANGE IS NEEDED AT STECVote the GOLD Proxy Card Today to Support Our Highly-Qualified and Experienced Nominees to Rebuild Shareholder Value
Balch Hill Partners, L.P., a
Delaware limited partnership (together with its affiliates, "
Balch Hill"), currently owns approximately 9.9% of the outstanding common stock of STEC, Inc. ("STEC" or the "Company"), making us the largest
independent shareholder of the Company. We are seeking your support on the
GOLD proxy card to elect our slate of three highly qualified and independent candidates -
Clark Masters and
Eric Singer, to replace three of STEC's eight director nominees to the Board of Directors (the "Board") at the Company's 2013 Annual Meeting of Shareholders to be held on
July 12, 2013 (the "Annual Meeting"). We are pursuing this action because since 2009, the current Board has overseen a dramatic deterioration of the Company's stock price and operating and financial performance. During this time, we believe the Board has failed to anticipate market share losses, has failed to understand the cause of such market share losses, has responded with a misguided business strategy, and has failed to hold its senior management accountable for this dismal performance. We also believe that the Board has an abysmal corporate governance culture and in particular has failed to hold accountable its current and former CEOs,
Mark and Manouch Moshayedi, with respect to their questionable trading practices, even after the SEC commenced a formal enforcement action against
Manouch Moshayedi for insider trading.
Given our significant stake in the Company, our only goal is to increase shareholder value. We are not seeking control of the Board. We are seeking to improve the composition of the Board by electing directors who will bring much needed accountability and transparency to the Board.
Please support our efforts by signing, dating and returning your
GOLD proxy card in the envelope provided.
THE BOARD MUST BE HELD ACCOUNTABLE FOR OVERSEEING THE DESTRUCTION OF OVER $1.3 BILLION OF SHAREHOLDER VALUE
August 5, 2009,
Manouch and Mark Moshayedi sold
$279 million of STEC stock (or approximately 18% of the Company's outstanding stock) in a registered public offering approved by the then existing Board, at a price of
$31.00 per share. Three months later, on
November 3, 2009,
Manouch Moshayedi revealed on the Company's earnings conference call that the end-user demand of its largest customer was lower than expected, resulting in an unexpected inventory build up at that customer. STEC's shares closed the next day at
representing a one day drop of approximately 39%, and a decline of 54% from the $31.00 per share offering price at which the Moshayedis sold their stock. On
July 20, 2012, the
SEC formally charged Manouch Moshayedi with insider trading in connection with his 2009 sale of stock, alleging that not only did
Manouch Moshayedi know that its largest customer's true demand was lower than expected at the time of the offering, he also engaged in a fraudulent scheme to conceal the truth from the investing public. Since then, STEC's stock price has declined even further. On
June 7, 2013, STEC's shares closed at
an approximately 90% decline in the stock price since the Moshayedi stock sale in
August 2009, resulting in
the destruction of over $1.3 Billion in shareholder value.
In addition, as shown in the chart below, not only has the stock seen a precipitous decline over the past three and a half years, STEC has significantly underperformed against the NASDAQ composite and the S&P 500, which have rallied 75.6% and 66.3%, respectively, since
August 5, 2009.
THE BOARD MUST BE HELD ACCOUNTABLE FOR THE COMPANY'S POOR OPERATING AND FINANCIAL PERFORMANCEThe Results Speak For Themselves
The current Board and executive management team have presided over a massive loss of revenue and market share in the Company's core OEM enterprise SSD market, even as that market grows strongly.
Total revenue for the three months ended March 31, 2013 are down 56% from the same period a year ago and down 77% from the same period two years ago, despite significant increases in R&D spending . STEC has spent over $66 million in R&D for the year ended December 31, 2012, an over 68% increase since fiscal 2008, and only began to reduce its R&D spending after we filed our initial Schedule 13D and sent an open letter to the Board calling upon the Board to reduce its R&D spending or justify the expense to shareholders.
Revenues from sales to STEC's three largest customers in 2011 have declined by more than 84% in the first quarter of 2013, with revenues falling from $69 million in the first quarter of 2011 to less than $11 million in the first quarter of 2013, despite significant growth in the enterprise SSD market .