Pair will delay perks

SafeNet options frozen for review

October 24, 2006|By Stacey Hirsh | Stacey Hirsh,Sun Reporter

The top two SafeNet Inc. executives, who resigned last week as a result of a stock options investigation, have agreed not to cash in most of their options pending a determination of whether they were fired or resigned, a process that could take months.

Anthony A. Caputo, former chairman and chief executive of the Harford County encryption company, and Carole Argo, who was president, chief operating officer and acting chief financial officer, agreed not to exercise options that the company finds were improperly dated and for which it will have to take a charge, according to a SafeNet filing with the Securities and Exchange Commission. Only options granted Jan. 1, 2000, were excluded from the agreement.

The company's personnel committee has until March 29 to determine whether the executives' terminations were for cause, the document said. Depending on the outcome, the company will "attempt to reach agreement" on financial settlements with Caputo and Argo. SafeNet said that could include payments to the company from Caputo and Argo as well as from the company to the former executives.

On Jan. 1, 2000, Argo was granted 8,500 options, which were worth $13,090 at yesterday's closing price. The company could not say yesterday how many options were awarded to Caputo on that date. Options grant the recipient the right to buy a company's stock at a specified price.

The Belcamp company also said in the document filed late Friday that it had decided to repay a $250 million loan plus interest. The company said Citibank had demanded repayment because of SafeNet's delay in releasing its second-quarter results. SafeNet said contesting the bank's demand for immediate repayment would have been costly and the outcome uncertain.

"After all's said and done, we're going to have about $70 million in the bank, and we're generating cash," Gregg Lampf, the company's director of investor relations, said yesterday.

Sean Jackson, an analyst with Avondale Partners in Nashville, Tenn., who doesn't own SafeNet shares, said the loan repayment was expected. SafeNet borrowed the money with acquisitions in mind, and now the company is less focused on that. Jackson said he is not worried about SafeNet's fundamentals.

"The cash balance they will end up having is more than sufficient, considering they are generating cash right now," Jackson said.

SafeNet's disclosure about the loan repayment and the agreements with its two former top executives is the latest the company has made related to its continuing stock options investigation. The company is one of dozens of publicly traded companies that have come under federal scrutiny for possibly rigging option grants to make them more valuable.

Under investigation is whether the companies awarded options with an effective date earlier than when they were granted to take advantage of previous declines in the stock. The practice is illegal if it is not properly disclosed, accounted for and taxed.

SafeNet said in May that the U.S. attorney's office for the Southern District of New York had subpoenaed information about its stock option awards and that it had received an informal inquiry from the SEC. The company formed a special board committee to investigate, with the help of independent counsel and forensic accountants.

An examination of payments to Caputo shows a pattern of immediately exercisable grants of options at or near the bottom of short-term dips in the company's stock price, or at yearly lows.

From 2000 through 2005, SafeNet issued 691,600 options to Caputo and 295,000 to Argo, according to SEC documents. Caputo exercised 150,000 options worth $6.4 million and Argo exercised 58,500 options worth $1.2 million during that period, the documents show.

The company announced last week that Argo and Caputo had resigned as a result of the company's stock option investigation. Both will continue working at SafeNet until Dec. 31 to help with the management transition, according to the SEC filing.

Caputo will continue to be paid through the end of the year, SafeNet said in its SEC filing. He will also still receive health and other benefits, such as his company car, cell phone and BlackBerry. SafeNet will continue to pay Argo's salary and benefits and give her use of a company car through the end of the year, according to the document.

The SEC filing also disclosed employment agreements for Caputo and Argo's replacements:

Walter W. Straub, the new chairman and interim CEO, entered a six-month employment agreement with SafeNet that grants him a $450,000 annual salary and a bonus equal to at least half of that if the company meets certain goals. Caputo earned a $431,102 salary in 2005, and he did not receive a bonus that year, according to SEC documents. He received a 10 percent raise effective July 1, 2006.

Chris Fedde, SafeNet's new president and chief operating officer, entered a three-year agreement with SafeNet with a base salary of $250,000 and a bonus of at least 80 percent of that salary if the company meets certain goals. Argo earned $315,404 and did not receive a bonus in 2005, according to SEC documents.

John W. Frederick, the company's senior vice president, chief accounting officer and interim chief financial officer, also reached a three-year agreement with SafeNet for a $265,000 annual salary and a bonus of at least half of that if the company meets certain goals.

SafeNet said last week that it will hire an executive search firm to find a permanent CEO and CFO. Lampf said yesterday that Frederick could be named a permanent CFO but that it was too soon to say whether that would happen.

Shares of SafeNet closed at $22.04 yesterday, up $1.10.

stacey.hirsh@baltsun.com

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