In the last month or so, three Maryland tech companies have filed to go, or went, public, with SafeNet Inc. -- the formerly troubled Harford County company -- being the latest yesterday.

Last month, BroadSoft Inc., a Gaithersburg company that sells Internet voice technology services to businesses, went public with a $67.5 million offering. KEYW Corp., a Hanover-based cyber security firm, also last month filed plans for a $100 million initial public offering.


If you've followed tech news in Maryland the last few years, you may remember SafeNet getting caught up in a stock options scandal back in 2006-07. They're largely past that now. Here's the full story:

SafeNet files $300 million public stock offering


Belcamp firm once embroiled in a stock options scandal is ready to return to Wall Street

By Gus G. Sentementes, The Baltimore Sun

Just a few years ago, SafeNet Inc., a Harford County technology firm, was wracked by a stock options scandal that sent its former chief financial officer to prison, tanked its stock price and eventually led to investors' taking the company private.

But on Monday, Belcamp-based SafeNet announced that it is ready to hit Wall Street again. The company disclosed in a filing with the Securities and Exchange Commission its plans to go public in a $300 million stock offering — one of the biggest IPOs by a Maryland company in years.

"SafeNet's business has undergone a transformation," said Donna St. Germain, a SafeNet spokeswoman. "By returning to the public markets, we can continue to build on that success."

The public stock offering signals a turnaround of fortune for SafeNet, whose former top executives faced criminal and civil probes beginning in 2006 for the backdating of stock options to inflate their value. During that period, the company was one of dozens of technology firms that were scrutinized by federal investigators for the way they handled stock options for executives.

With the federal probe behind it and having posted three years of revenue growth, SafeNet hopes to garner a piece of the federal government's multi-billion dollar spending on cybersecurity. The company, which is still unprofitable, notes in its SEC filing that "cyber attacks on the federal government have increased in volume and sophistication" and that "such attacks could be catastrophic to national security, defense, financial systems and critical infrastructure."

The company makes cybersecurity products for complex data networks and sees opportunities in both government and commercial markets, St. Germain said. Industry also has stepped up spending to protect digital assets and unauthorized breaches of information networks, notes SafeNet, which counts Johnson & Johnson and Citigroup among its clients.

In its filing Monday, SafeNet cited several market research reports that estimate various information technology security markets are poised for steady growth over the next three years. One study found that federal spending on cybersecurity applications would increase from $8.3 billion this year to $11.7 billion in 2014.

James Richardson, executive director of the Harford County Office of Economic Development, called SafeNet "a great corporate citizen" that will probably benefit from its location in the county. Richardson said that the military's base realignment and closure effort is shifting federal workers, contractors and new businesses to the county.

SafeNet, which lists the departments of Defense and Homeland Security as clients, likely already has relationships with Fort Meade and the National Security Agency in Anne Arundel County, he said.

"They're perfectly situated," Richardson said.

Nonetheless, SafeNet's executives will have to demonstrate to institutional and private investors that they fixed the management woes at the company, said Douglas M. Schmidt, chief executive of Chessiecap Securities Inc., a regional investment banking firm in Bethesda.

"They have to prove to the public buyers that the company is fixed and it has great growth potential," Schmidt said.

In recent years, SafeNet has been on a growth spurt, mainly through the acquisition of three firms. In early 2007, SafeNet had 1,040 workers. As of last month, it employed more than 1,600, including 230 at its Belcamp headquarters.

Revenue at SafeNet grew from $300 million in 2007 to $404 million last year, but the company posted losses during that period, including a $49.7 million loss last year, according to its filing with the SEC.

David Menlow, president of IPOfinancial.com, an investment research firm in Millburn, N.J., said that whether SafeNet's public offering attracts investors will depend on how cheaply the shares are priced and its future business prospects. At the moment, Menlow said, public offerings for technology companies are one of the few bright spots on Wall Street.

"The company has been losing money the last four years; that's not a story worth telling, unless there's going to be a dramatic turnaround," Menlow said.

Technology companies in Maryland are increasingly testing the public markets this year after fewer companies went public in the recent market downturn. Last month, BroadSoft Inc., a Gaithersburg company that sells Internet voice technology services to businesses, went public with a $67.5 million offering. KEYW Corp., a Hanover-based cyber security firm, also last month filed plans for a $100 million initial public offering.

SafeNet plans to use an unspecified portion of the money raised in the stock sale to repay part of more than $389 million in debt expected to come due over the next five years, according to its SEC filing. Other uses of the money could include funding organic growth strategies and additional acquisitions, according to St. Germain.

The number of shares to be offered and the price range have not yet been determined, according to the company. The company's parent, SafeNet Holding Corp., plans to list its stock on the Nasdaq stock market under the ticker SAFE.

The IPO would mark a new chapter for the company. Four years ago, SafeNet became embroiled in a stock options investigation, which led to the company to restate profits from 2000 to 2006.

Two top executives were forced to step down, including former chief executive Anthony A. Caputo and former president and chief financial officer Carole D. Argo. Argo pleaded guilty in a 2007 criminal case to federal securities fraud and received a six-month prison sentence.

During the probe, the Securities and Exchange Commission also brought civil charges against Caputo and four other former executives of SafeNet for backdating stock options, whch allows recipients to buy company stock at a price based on dates in the past when the share price was especially low. The SEC charges were settled in November, with Caputo and others assessed monetary penalties.

"It's all been resolved," St. Germain said about the stock options investigation.


SafeNet's options scandal triggered a class-action shareholder lawsuit in 2006, which was tentatively settled this month in exchange for a $25 million payment. The settlement is expected to be approved by a court in the next several months, SafeNet said.


SafeNet, which was founded as Information Resource Engineering Inc. in 1983, had been traded on Nasdaq from 1989 until 2007. In April of that year, Vector Capital, a San Francisco-based private equity investment firm, acquired SafeNet for $634 million, and took the company private.

Since then, according to the SEC filing, the company has taken steps to improve profitability and internal controls, including changes in the makeup of its board of directors and management. Mark A. Floyd became chief executive in July 2009.



SafeNet Timeline:

1983 — The company that later became known as SafeNet is founded by two security engineers in Timonium.

1992 — SafeNet goes public.

2001 — Carole D. Argo, a SafeNet executive, backdates stock option grants for herself, CEO Anthony A. Caputo and another individual, but never records a compensation expense — an illegal act.

May 2006 — SafeNet says it has received a federal subpoena and the SEC is inquiring about backdating.

October 2006 — Argo and Caputo resign.

April 2007 — Vector Capital, a San Francisco-based equity investment firm, bought SafeNet for $634 million and took it private.

July 2007 — Argo is indicted on charges of securities fraud and conspiracy. A month later, the SEC sues her.

October 2007 — Argo pleads guilty to one count of securities fraud and is later sentenced to six months in federal prison.

March 2009 — Acquired Aladdin Knowledge Systems Ltd, a data security firm -- the third company SafeNet bought over three-year period.

July 12, 2010 — Filed official SEC filing for proposed initial public offering potentially valued at $300 million

Company: SafeNet Inc.

Headquarters: Belcamp, Md.

Employees: 1,600 including 230 at headquarters

Industry: Cyber security and data and network protection

Major clients: U.S. Department of Defense, United Kingdom government, Netflix, Starbucks, Dell

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