Suit claims SafeNet is being sold to shield directors

March 09, 2007|By Bloomberg News

WILMINGTON, Del. -- SafeNet Inc., the Harford County technology company under federal investigation, has been sued by a shareholder who charged that some directors agreed to sell the company to a private equity firm to avoid potential liabilities from backdating of stock options.

SafeNet, a maker of chips and software that encrypt data on computer networks, agreed to be acquired by Vector Capital Corp. for $634 million, or $28.75 a share, 1.6 percent higher than the stock's closing price last Friday.

"Why would the director-defendants cause the company to agree to a low-ball offer with virtually no premium?" Globis Capital Partners, a Tokyo venture-capital firm, asked in a complaint filed Wednesday in Delaware Chancery Court in Wilmington. Vector "will likely indemnify" some of the directors from options liabilities, Globis said.

SafeNet is among more than 200 companies that have reported federal or internal probes into options backdating. Stock options allow shares to be bought at a later date, usually at the market price the day of the grant. Backdating the options to days with lower prices yields a higher profit for holders.

SafeNet had no immediate comment on the lawsuit, spokeswoman Donna St. Germain said in an e-mail.

Burgundy Asset Management Ltd., one of SafeNet's largest investors with 1.1 million shares as of Dec. 31, said Monday that it was "very disappointed" with the Vector bid.

Globis said it owns more than 40,000 SafeNet shares, or 0.15 percent of the total outstanding. The firm asked a judge to stop the sale to Vector, order directors to account for "special benefits" tied to the deal, and award unspecified damages and legal fees.

SafeNet reported 2005 net income of $3.03 million on sales of $263.1 million. The Belcamp company, which has about 1,200 employees, gets half its revenue from the U.S. government. SafeNet said in September that it would have to revise financial statements from 2000 through March 31, 2006, because of improper accounting for options grants.

Shares of SafeNet fell 4 cents to $28.36 on the Nasdaq yesterday.

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