Microsoft agrees to pay for Stac's technology

REDMOND, WASH. — REDMOND, Wash. -- Ending months of bitter legal wrangling, Microsoft Corp. agreed yesterday to license a key software technology from Stac Electronics and said it will spend $39.9 million to buy 4 percent of Stac's convertible preferred stock.

Conceding the superiority of Stac's technology, the Redmond, Wash.-based software giant said it will pay Stac royalties of $1 million a month during the next 43 months. Further, Microsoft's preferred stock investment can be converted at $9 a share to 4.44 million Stac common shares, or a 15 percent stake.


Stac shares closed up $1.50, or about 32 percent, at $6.625, on trading of 1.4 million shares, about 10 times its three-month average daily volume.

Microsoft shares closed down 87.5 cents, at $52.625, on volume that was slightly heavier than normal.


For Microsoft, which earlier this year was found to have infringed on Stac's patents, the actions yesterday represent a way to continue to use Stac's data-compression technology and avoid a costly worldwide recall of millions of copies of its software.

The move is a victory for the small Carlsbad, Calif.-based Stac Electronics, which is one of the few companies to have taken on Microsoft and won.

"We were battle-weary," said Gary Clow, Stac's chairman and chief executive said in a teleconference with reporters and analysts.

The company, which had revenue of $37 million in 1993, has spent almost $9 million in legal costs during the last year or so. Stac's technology first attracted the attention of Microsoft Chairman Bill Gates at a computer trade show in 1991.

Mr. Clow, who has on various occasions accused Microsoft of stealing Stac's technology and called it the bane of independent software developers, now says he is glad to be sitting across the table from Microsoft.

Microsoft's stake in Stac is limited to 20 percent, and Microsoft's equity participation isn't a prelude to a buyout of the company, said John Witzel, Stac chief financial officer.

Microsoft and Stac also agreed to cross-license, or license each other's current disk compression patents, as well as any future disk compression patents either company receives in the next five years.

In addition, Stac will receive a license to Microsoft's technology preloaded in MS-DOS 6, the basic system software used to run most personal computers, and Microsoft will receive the right to license Stac's existing patents unrelated to disk compression, as well as any new patents that Stac receives in the next five years.


"This agreement means our customers, resellers and [original equipment manufacturers] worldwide can sell and use all versions of MS-DOS without concern," said Paul Maritz, senior vice president of Microsoft's systems division.

Stac's compression technology helps double the storage capacity on the hard disks of personal computers.