SafeNet reprices stock options for 3 ex-executives

March 29, 2007|By Stacey Hirsh | Stacey Hirsh,Sun reporter

SafeNet Inc., the Harford County technology company under federal investigation for its stock option grants, has repriced options for three of the company's former top executives, according to a regulatory filing with the Securities and Exchange Commission.

Options from 2001 through 2005 were repriced for Anthony A. Caputo, former chairman and chief executive; Carole D. Argo, who was president, chief operating officer and acting chief financial officer; and former chief financial officer Ken Mueller, according to the filing.

The options were all repriced higher because they were "determined by the company to have been issued at a discount," this week's filing said. The changes "were made to mitigate the tax effects of the issuance of discounted options," it said.

Options give the recipient the right to buy shares at a set price, called the strike price, which is normally the stock's price the day the grant is awarded.

The bigger the difference between the strike price and the stock price when the option is exercised, the greater the gain.

SafeNet is one of dozens of companies being investigated for possibly changing the date of option awards to coincide with stock prices that are lower than they were on the date of the grant. The practice is illegal if it's not disclosed and properly accounted for.

SafeNet's repricing lowers the options' potential worth, in some cases by millions of dollars. For instance, 100,000 options issued to Caputo at a strike price of $21.70 were repriced to $30.55 - a total difference of $885,000. Correcting the options price of all of Caputo's shares that are listed in the SEC filing reduced their potential value by $2.74 million.

Repricing Argo's shares listed in the filing make them worth $1.04 million less than their original value; for Mueller, $769,250 less.

The repricing moves SafeNet a step closer to resolving issues involving its options grants.

"We still have the restatements to complete as they relate to the stock options, so the matter's not fully addressed yet, but there are a number of steps that need to be taken and this is one of them," said Gregg Lampf, SafeNet's director of investor relations.

The new share price was determined based on the company's analysis of what the correct date should be that the options were issued, and then adjusting the price based on that date, Lampf said.

"Part of the effort is looking at the documents and the records that exist and making some determinations based on all of that analysis to determine if there was a mismatch of sorts and, if so, what the corrective action should be," Lampf said.

SafeNet announced in September that it would have to revise financial statements from 2000 through March 31, 2006, because the accounting of some options grants used "incorrect measurement dates under applicable accounting rules in effect at the time."

The investigation led to the resignations in October of Caputo and Argo. Mueller had resigned more than six months earlier.

With its internal investigation continuing and the threat of being delisted by Nasdaq hanging over it, SafeNet announced plans this month to be acquired by California private equity firm Vector Capital for about $634 million.

The acquisition hinges on the tendering of 78 percent of SafeNet's shares. Analysts and some investors have expressed concerns that the $28.75 per share sale price is too low.

If SafeNet is acquired by Vector Capital, the Belcamp encryption technology company would become private and the backdating and other issues it has struggled with in recent months would be out of the public eye.

In January, SafeNet filed documents with the SEC repricing shares for several of its board members.

If Caputo, Argo and Mueller choose to exercise their options, they must do so between the end of July and mid-September, according to the SEC filing. If SafeNet goes private before then through a sale to Vector Capital at $28.75 per share, all options with a strike price above $28.75 would disappear, Lampf said.

Any options with a strike price below the $28.75 per share sale price - for the former executives and all other shareholders - are exercisable once the deal closes, Lampf said.

Caputo drew a salary of $472,500 last year and was not awarded any options, according to the SEC filing. Argo's salary was $330,000, and she was granted $625,979 worth of options. Mueller drew a salary of $81,442 last year and was awarded options valued at $1.26 million.

Walter W. Straub, SafeNet's interim chief executive, was paid $93,462 and was awarded options valued at $646,428. Chief Financial Officer John Frederick's salary was $120,365, plus a $90,000 bonus and options worth $35,361, according to the SEC filing.

Shares of SafeNet closed at $28.36 yesterday, down 22 cents.

stacey.hirsh@baltsun.com

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