Monday, October 23, 2006

Fuzzy Words

Nice move, SafeNet, Inc. You filed your 8-K at 5:30:03 Friday afternoon, just before the SEC scribes headed home to their caves. So your document spent the weekend near the very top of the “Latest Filings” page, where it attracted the attention of anyone too lazy to scroll down. Like me. It reminds me of that episode of Barney where the fatso dinosaur hides behind a skinny tree trunk and can’t understand how the kids found him. And to think you’re in the security business.

It’s last Wednesday’s news that SafeNet (SFNT) Chairman/CEO Anthony Caputo and President/COO Carole Argo resigned after a rather leisurely inquiry into options backdating. But the terms weren’t disclosed until Friday's 8-K filing. Michelle Leder at Footnoted has the highlights.

I know, everyone's sick of me whining about employment contracts that booby-trap the definition of firing for "Cause," making it impossible to dump a failed exec without paying the full severance package. But this time there’s a twist: SafeNet made a deal with Caputo that buys them till March to meditate on whether or not he was fired for Cause, and more or less freezes the severance negotiations in the meantime.

The board may have noticed that the definition of Cause in Caputo’s 2001 employment contract was inartfully drafted from his point of view. For example, it only requires a "neglectful" failure to perform his duties, rather than "gross negligence," the more popular formulation. And it includes the "commission of any act of fraud, theft or dishonesty," which is pretty loosey-goosey as these things go. This is just the kind of sloppy lawyering that makes a board think crazy thoughts, like that options backdating could be a legitimate reason to fire someone.

You’ll be happy to know the SafeNet board has learned from this unpleasant episode. What have they learned? To sign new employment agreements that put them in a far weaker position. Yes, the Cause definition in the new contracts, like the one with President/COO Chris Fedde, replaces "neglectful failure" with "grossly negligent failure." (And even that doesn’t count unless they give the guy written notice of the screw-up and he still won’t clean up his act.) Even better, merely committing acts of "fraud, theft or dishonesty" will no longer cut it as Cause. Fedde would have to be "found guilty" of committing them.

I’m convinced SafeNet’s board was holding hands around the conference table singing the Barney song when it approved the new contracts. Shall we all join in? (For you childless types, the tune is the same as This Old Man.)

I love you
You love me
We're a happy family
With a great big hug
And a kiss from me to you
Won't you say you love me too?

I’d adopt that as Proxyland’s national anthem, but I’m scared big furry Barney will come crashing through my window and sue me.

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