UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Mark One)

For the fiscal year ended December 31, 2005

OR

Commission file number 0-20634

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the Common Stock issued and outstanding and held by non-affiliates of the Registrant, based upon the closing price for the Common Stock on the NASDAQ National Market on June 30, 2005 was approximately $712,760,000. All executive officers and directors of the Registrant have been deemed, solely for the purpose of this calculation, to be “affiliates” of the Registrant. This determination of the affiliate status is not necessarily conclusive.

     The number of shares of the registrant’s Common Stock outstanding as of March 13, 2006 was 25,545,126.

 

SafeNet Inc. (the “Company”) is filing this Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2005 (this “Amendment”) to include the information required to be disclosed under Part III of the Form 10-K and to update the list of subsidiaries included in Exhibit 21. In connection with the filing of this Amendment and pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including certain currently dated certifications. This Amendment continues to speak as of the date of the original filing of the Form 10-K and the Company has not updated the disclosure in this Amendment to speak to any later date.

     Anthony A. Caputo, the Chairman and Chief Executive Officer of the Company, has served as the Chief Executive Officer since 1987 and a director of the Company since November 1986. He joined SafeNet in 1986 as an investor. In November of that year, he became a Director with additional marketing and management responsibilities. Mr. Caputo led the company’s IPO as SafeNet became a Nasdaq listed company in 1992. In 1993, Mr. Caputo was named Maryland’s High Tech Entrepreneur of the year and Baltimore’s Extraordinary Technology Advocate for 2003. He serves on the Governor’s Commission on the Development of Advanced Technology Business, a commission tasked with charting a framework for the revival of the hi-tech economy in Maryland. Mr. Caputo is a member of the State of Maryland Enterprise Venture Fund Advisory Board and serves on the Board of Directors for the American Electronics Association (AeA). Mr. Caputo holds a Bachelor of Arts degree in History and Political Science from Iona College. He has served as an officer in several publicly-held companies, including Interdigital Communications, Comshare, Inc., Value Software, now part of Computer Associates, Inc., and served as a director at Oleran Network Solutions, Inc.

     Thomas A. Brooks has served as a director of the Company since July 1998. Mr. Brooks held various executive positions with AT&T from 1991 through 1999. He retired from AT&T in 1999 and continues as a consultant to AT&T Government Markets. Mr. Brooks served 32 years as a U.S. Navy Intelligence officer, retiring from active military service as a Rear Admiral and Director of Naval Intelligence in 1991. In 1995, President Clinton appointed Mr. Brooks as one of three members of the Security Policy Advisory Board, where he served through the end of the Clinton Administration. From 1995 to 1997, Mr. Brooks was a member of the Defense Policy Board. He also serves on advisory boards for the Defense Intelligence Agency and the Office of Naval Intelligence. From 1999 to 2000, he was a member of the Federal Government Joint Security Commission. Mr. Brooks is a graduate of Fordham University, with a Master’s degree from Fairleigh Dickenson University. He has done post Master’s studies at George Washington University and the University of California and has published several articles on cryptography in various technical publications. He served on the Board of Directors of Navy Mutual Aid Association from 1995 to 2004 and also serves on the Board of Directors of several Intelligence professional associations.

     Andrew E. Clark has served as a director of the Company since 2001. He is Chairman and President of Wheatfield Ventures, LLC, a private equity firm concentrating on early stage investing within the technology sector. Mr. Clark sits on the Advisory Board of Spring Capital Partners, L.P., a small business investment company providing subordinated mezzanine debt financing in the Mid-Atlantic region, and is also a member of the board of directors of Howard Bancorp. From October 1997 through December 2000, Mr. Clark held various executive positions with Verio, Inc., including President of the eBusiness/ Custom Web Development and East Regional business units. Mr. Clark began his career as a professional at KPMG Peat Marwick. He received his B.S. degree in Accounting from Washington and Lee University and is a Certified Public Accountant in the State of Maryland.

     Shelley A. Harrison, has served a director of the Company since 1999. Since May 1, 2003 he has served as a part-time employee of the Company providing services as advisor to the CEO on corporate development and mergers and acquisitions. Dr. Harrison has been Chairman of SPACEHAB Inc. (NASDAQ: SPAB) since August 1993, and served as Chief Executive Officer from April 1996 to March 2003. Dr. Harrison co-founded and served as Chairman and Chief Executive Officer of Symbol Technologies Inc. (NYSE: SBL) from 1973 to 1982. Dr. Harrison is a founder and Managing General Partner of PolyVentures I & II, high-technology venture capital funds organized in 1987 and 1991, respectively. Dr. Harrison was a Member of Technical Staff at Bell Telephone Laboratories and a Professor of Electrical Sciences at the State University of New York at Stony Brook. Dr. Harrison holds a Ph.D. and Master of Science degree in Electrophysics from Polytechnic University and a Bachelor’s Degree of Electrical Engineering from New York University. Dr. Harrison is also a member of the Board of NetManage, Inc., as well as several private technology companies.

     Ira A. Hunt, Jr. has served as a director of the Company since December 1990. Mr. Hunt is a graduate of the U.S. Military Academy, West Point, New York. He served 33 years in various command and staff positions in the U.S. Army, retiring from active military service as a Major General in 1978. Subsequently, Mr. Hunt was President of Pacific Architects and Engineers in Los Angeles, California and a Vice President of Frank E. Basil, Inc. in Washington, D.C. He was a Freeman Fellow of the American Society of Civil Engineers. Mr. Hunt has a Master of Science degree in civil engineering from the Massachusetts Institute of Technology; a Master of Business Administration degree from the University of Detroit; a Doctor of the University degree from the University of Grenoble, France; and a Doctor of Business Administration degree from George Washington University. Mr. Hunt also serves on the Boards of Biometric Associates, Inc. and Gales Industries.

     Arthur L. Money was appointed to the Company’s Board of Directors on March 16, 2004. He was a director of Rainbow Technologies, Inc. from September 2002 until the consummation of the merger of the Company and Rainbow in March 2004. He is currently president of ALM Consulting, specializing in command control and communications, intelligence, signal processing, and information processing. Mr. Money is also a director of the following publicly traded companies: Silicon Graphics Inc. (OTC BB: SGID.OB), CACI International Inc. (NYSE: CAI), Essex Corp. (NASDAQ: KEYW), Intevac Inc. (NASDAQ: IVAC), Terremark Worldwide Inc. (AMEX: TWW), Intelli-Check Inc. (AMEX: IDN) and Federal Services Acquisition Corp. (OTC BB: FDSA). From 1999 to 2001, Mr. Money was the assistant secretary of defense (C3I) and Department of Defense CIO. Prior to 1999, Mr. Money served as the assistant secretary of the Air Force for Research, Development, and Acquisition, and was vice president and deputy general manager of TRW. Mr. Money graduated from the University of Santa Clara and San Jose State University where he earned his MSME and BSME, respectively. He has received distinguished public service awards from the U.S. Department of Defense (Bronze Palm), the U.S. Air Force, and the U.S. Navy.

     Walter W. Straub was appointed to the Company’s Board of Directors on March 16, 2004. A co-founder of Rainbow Technologies, Inc., Mr. Straub was a director of Rainbow from its inception in 1982 until the consummation of the merger of the Company and Rainbow in March 2004, and served as President and Chief Executive Officer of Rainbow from 1983 through March 2004. Since 1989, Mr. Straub has served as director of CAM Commerce Solutions, a manufacturer of computerized point of sale and inventory management systems. Mr. Straub received a BSEE and an MBA in Finance from Drexel University. In May 1993, Mr. Straub was elected to the Board of Trustees of Drexel University.

     Bruce R. Thaw has served as a director of the Company since December 1990. Since January 2000, Mr. Thaw has served as the President and Chief Executive Officer of Bulbtronics, Inc., a national distributor of technical and specialty light sources and related products to the medical, scientific, entertainment and industrial markets. Mr. Thaw is a practicing attorney and was admitted to the bar of the State of New York in 1978 and the California State Bar in 1983. From 1987 to 2000, Mr. Thaw served as general counsel to the Company. Mr. Thaw is also a director of Nastech Pharmaceutical Company, Inc. (NASDAQ: NSTK), a publicly-traded pharmaceutical company developing innovative products, for multiple therapeutic areas, based on proprietary molecular biology-based drug delivery technologies. Mr. Thaw holds a B.B.A. degree in banking and finance from Hofstra University and a J.D. degree from the Hofstra University School of Law.

     The executive officers of the Company as of the date of this filing are set forth in the table below. All executive officers are appointed at the annual meeting or interim meetings of the Board of Directors. Each executive officer is appointed by the Board of Directors to hold office until his or her successor is duly appointed and qualified.

     Certain biographical information regarding the executive officers, except for Mr. Caputo (see above), is set forth below:

     Carole D. Argo served as Senior Vice President and CFO of SafeNet from 1999 until she was named President and COO in June of 2004, and is currently serving as interim CFO. Ms. Argo is responsible for the company’s day-to-day global operations. Her primary focus is executing the company’s growth strategy with a continuing role in merger and acquisition activity. As interim CFO, she is responsible for all accounting, finance, and treasury functions. Before joining SafeNet, Ms. Argo was chief financial officer of Optelecom, Inc., a publicly traded fiber optics company. Earlier, she spent eight years as vice president of finance and operations at Byk Gardner, an international color and appearance instrumentation company where she was responsible for worldwide manufacturing, product development, and financial operations. She also has seven years of public accounting experience with Deloitte & Touche as an audit manager. She received an executive Master of Business Administration from Loyola College of Maryland, a Bachelor of Science in Accounting from the University of Arizona, and is a Certified Public Accountant.

     Steve Lesem joined SafeNet in January of 2005 as Senior Vice President of Worldwide Sales, responsible for the company’s overall revenue and senior sales leadership across all business lines globally. Mr. Lesem has over 20 years of sales and marketing experience with large sales organizations. Prior to SafeNet, Mr. Lesem was an executive with BMC Software. His last position was Vice President, Asia Pacific. In this role he orchestrated the sales execution of channels and alliances, actively developed BMC Software business opportunities and investments in China, and managed all lines of business across Asia Pacific. Mr. Lesem previously served as Vice President, Worldwide Sales and Marketing for BMC’s Security Business Unit. He also held multiple senior level, executive sales and marketing positions at IBM including General Manager, PC Server Sales and Marketing for North America. Mr. Lesem holds a Bachelor of Science in Electrical Engineering from the University of Texas.

     Chris S. Fedde joined SafeNet in February 2001 as the Director of Corporate Product Management and Business Development. Since Mr. Fedde joined SafeNet, he has been a key contributor to building the company’s security presence in the Federal Government and the financial community. Since his appointment as Senior Vice President and General Manager of SafeNet’s Enterprise Security Division, the company has seen a significantly increased demand for the company’s technology solutions and managed services. Prior to coming to SafeNet, Mr. Fedde was Director of Secure Products at Harris Corporation, where he started the security business and led its growth into a business unit. Mr. Fedde was responsible for the general management of the custom ASIC security business and turnkey secure systems and managed the business development and engineering departments. The business was particularly successful with customers requiring very high levels of security, including the U.S. Government. Before his employment at Harris, Mr. Fedde was the Engineering Manager at Motorola, developing wireless two-way products for the global markets. He holds several patents related to wireless technologies. Mr. Fedde received a BSEE degree from the University of Iowa.

     The Audit Committee is composed of Andrew E. Clark, Thomas A. Brooks, Arthur L. Money and Ira A. Hunt, Jr. The Board of Directors has determined that Mr. Clark is an “audit committee financial expert,” as defined under Item 401 of Regulation S-K promulgated by the Securities and Exchange Commission. The Audit Committee is governed by a written charter approved by the Board of Directors. Each of the members of the Audit Committee is independent, as defined by the Nasdaq Rules and the rules promulgated by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002. The purpose of the Audit Committee is to oversee the financial reporting process, the internal audit function, the systems of internal accounting and financial controls, the performance of the Chief Financial Officer and the performance and independence of the Company’s independent registered public accounting firm, and to review and approve the plans for and results of the annual audit engagement. The Audit Committee recommends to the Board the appointment of a firm to serve as independent auditors, subject to ratification by the stockholders at the annual meeting.

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and directors, and persons who own more than 10% of the outstanding shares of Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on a review of the copies of such reports furnished to the Company and written representations from the executive officers and directors, the Company is aware of the following instances of noncompliance or late compliance with such filings during the fiscal year ended December 31, 2005 by its executive officers and directors: each of the directors of the Company (other than Mr. Caputo) failed to file a Form 4 to report the grant of stock options in August 2005 and each of the executive officers and Dr. Harrison failed to file a Form 4 to report the grant of stock options in September 2005. Each of the directors and executive officers of the Company subsequently filed Forms 5 containing the information required with respect to these grants of stock options.

     The Company has adopted a Code of Ethics that applies to all of its directors, officers and employees performing financial functions for the Company, including its chief executive officer, chief financial officer, controller and any person performing similar functions. The Company has made this Code of Ethics available on its website at www.safenetinvestor.com. The Company intends to disclose future amendments to the code of ethics, or waivers from the provisions of the code of ethics granted to the chief executive officer, chief financial officer, controller and any person performing similar functions on this website.

     The following table sets forth certain information regarding compensation paid by the Company during each of the Company’s last three fiscal years to (1) the Company’s Chief Executive Officer and (2) the other four most highly compensated executive officers of the Company whose aggregate cash compensation in fiscal year 2005 exceeded $100,000 (the “Named Executive Officers”):

     The table below sets forth certain information with respect to stock options for shares of the Company’s common stock granted during fiscal year 2005 to the Named Executive Officers under the Company’s employee stock option plans. The Company did not grant any stock appreciation rights in 2005.

     The table below sets forth certain information with respect to options for shares of the Company’s common stock exercised by the Named Executive Officers during fiscal year 2005 and with respect to options held by the Named Executive Officers at the end of fiscal year 2005.

     The Company pays a meeting fee of $4,500 to each non-employee director for each board meeting attended, up to $18,000 annually. No fees are paid for telephonic board meetings. Members of the Audit Committee receive an additional $1,250 ($2,500 for the chairman) per quarter and members of the Compensation Committee receive an additional $875 ($1,125 for the chairman) per quarter. The Company reimburses all directors for travel and other reasonable business expenses incurred in the performance of their services for the Company.

     After each annual meeting of stockholders, each non-employee director of the Company who attended at least 75% of the aggregate number of meetings of the Board during the previous calendar year and who stood for election at the preceding annual meeting is granted a stock option exercisable for 20,000 shares of common stock. The per share option price is the closing price on the grant date. The option has a ten-year term and is fully vested on the grant date.

     Newly appointed directors receive an initial stock option grant for 20,000 shares of Common Stock. The per share option price is the closing price on the grant date. The option has a ten-year term and is fully vested on the grant date.

     All directors are parties to change of control agreements that provide that all of such directors’ options shall become immediately exercisable upon a change of control, and that such options shall remain exercisable through their full term.

     In September 2004, the Company and Mr. Caputo entered into an amendment to his employment agreement, originally executed in December 2001. The amendment extended the term of the agreement until September 2007. Pursuant to the terms of the agreement as amended, Mr. Caputo is to receive an annual salary of $329,422 adjusted annually based on a review by the Compensation Committee and a cost of living increase of no less than 10% per year. Mr. Caputo is also entitled to incentive compensation targeted at no less than 100% of annual salary if the Company’s business objectives as set forth in the Company’s annual business plan are achieved. During the term of Mr. Caputo’s employment agreement the Company agrees to provide to Mr. Caputo the benefits of a fully funded $2 million dollar Variable Life Insurance Policy (the “Variable Life Insurance Policy”) under an endorsement form of split-dollar arrangement. Ownership of the policy will transfer to a family trust formed by Mr. Caputo at the termination of his employment by the Company without “cause” or by Mr. Caputo for “good reason” (as such terms are defined in the agreement) and may be purchased by the trust from the Company for amounts stated in the split-dollar arrangement for termination otherwise. Upon transfer of the Variable Life Insurance Policy, Mr. Caputo is entitled to receive an additional amount equal to any federal, state and local income and employment taxes (including any taxes, interest or penalties imposed with respect to such additional payment) payable by Mr. Caputo as a result of such transfer.

     If the Company terminates Mr. Caputo’s employment without “cause” or if Mr. Caputo terminates for “good reason,” each as defined in the agreement, he is entitled to salary and target incentive compensation accrued through the termination date plus the lesser of (i) $600,000 or (ii) the balance of his compensation under the contract to the end of the agreement computed using the latest applicable salary rate. He is also entitled in that event to full funding of the Variable Life Insurance Policy. Additionally, if the Company terminates Mr. Caputo’s employment without cause or if he terminates for good reason, all stock options will become exercisable and will remain exercisable for a three-year period.

     In the event Mr. Caputo’s employment with the Company is terminated either by the Company without cause or by Mr. Caputo for good reason, within one year following the occurrence of a change in control, he is entitled to receive, in lieu of the severance payment otherwise payable, his annual salary multiplied by three, his then current target incentive compensation multiplied by three, the payment of all unpaid premiums which are required to fully fund the Variable Life Insurance Policy, and all of his stock options under Company plans shall be fully vested and exercisable and will remain exercisable for their full term. Also, if Mr. Caputo is subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) with respect to the payments or distributions in the nature of compensation made to him by the Company in connection with a change in control, he will be entitled to receive an additional amount so as to place him in the same after-tax position he would have been in had the excise tax not applied. If Mr. Caputo voluntarily terminates his employment then Mr. Caputo shall be entitled to receive accrued vacation in accordance with Company records and six months severance pay.

     In June 2004 the Company and Ms. Argo entered into an employment agreement for a term of five years. Pursuant to the terms of the agreement, Ms. Argo is to receive an annual salary of $275,000 adjusted annually based on a review by the Compensation Committee and a cost of living increase of no less than 10% per year. Ms. Argo is also entitled to incentive compensation targeted at no less than 100% of annual salary if the Company’s business objectives as set forth in the Company’s annual business plan are achieved.

     If the Company terminates Ms. Argo’s employment without “cause” or if Ms. Argo terminates for “good reason,” each as defined in the agreement, she is entitled to salary and target incentive compensation accrued through the termination date plus the lesser of (i) $550,000 or (ii) the balance of her compensation under the contract to the end of the agreement computed using the latest applicable salary rate. Additionally, if the Company terminates Ms. Argo’s employment without cause or if she terminates for good reason, all stock options will become exercisable and will remain exercisable for a three-year period.

     In the event Ms. Argo’s employment with the Company is terminated either by the Company without cause or by Ms. Argo for good reason, within one year following the occurrence of a change in control, she is entitled to receive, in lieu of the severance payment otherwise payable, her annual salary multiplied by three, her then current target incentive compensation multiplied by three, and all of her stock options under Company plans shall be fully vested and exercisable and will remain exercisable for their full term. Also, if Ms. Argo is subject to an excise tax under Section 4999 of the Code with respect to the payments or distributions in the nature of compensation made to her by the Company in connection with a change in control, she will be entitled to receive an additional amount so as to place her in the same after-tax position she would have been in had the excise tax not applied. If Ms. Argo voluntarily terminates her employment then she shall be entitled to receive accrued vacation in accordance with Company records and six months severance pay.

     In June 2004 the Company and Mr. Mueller entered into an employment agreement for a term of five years. Pursuant to the terms of the agreement, Mr. Mueller is to receive an annual salary of $275,000 adjusted annually based on a review by the Compensation Committee and a cost of living increase of no less than 10% per year. Mr. Mueller is also entitled to incentive compensation targeted at no less than 50% of annual salary if the Company’s business objectives as set forth in the Company’s annual business plan are achieved.

     If the Company terminates Mr. Mueller’s employment without “cause” or if Mr. Mueller terminates for “good reason,” each as defined in the agreement, he is entitled to salary and target incentive compensation accrued through the termination date plus the lesser of (i) $275,000 or (ii) the balance of his compensation under the contract to the end of the agreement computed using the latest applicable salary rate. Additionally, if the Company terminates Mr. Mueller’s employment without cause or if he terminates for good reason, all stock options will become exercisable and will remain exercisable for a three-year period.

     In the event Mr. Mueller’s employment with the Company is terminated either by the Company without cause or by Mr. Mueller for good reason, within one year following the occurrence of a change in control, he is entitled to receive, in lieu of the severance payment otherwise payable, his annual salary multiplied by three, his then current target incentive compensation multiplied by three, and all of his stock options under Company plans shall be fully vested and exercisable and will remain exercisable for their full term. Also, if Mr. Mueller is subject to an excise tax under Section 4999 the Code with respect to the payments or distributions in the nature of compensation made to him by the Company in connection with a change in control, he will be entitled to receive an additional amount so as to place him in the same after-tax position he would have been in had the excise tax not applied. If Mr. Mueller voluntarily terminates his employment then he shall be entitled to receive accrued vacation in accordance with Company records and six months severance pay.

     In June 2005 the Company and Mr. Fedde entered into an employment agreement for a term of three years. Pursuant to the terms of the agreement, Mr. Fedde is to receive an annual salary of $250,000 adjusted annually based on a review by the Company’s President. Mr. Fedde is also entitled to incentive compensation targeted at no less than 80% of annual salary if certain business objectives as identified by the Company’s President are achieved.

     If the Company terminates Mr. Fedde’s employment without “cause” or if Mr. Fedde terminates for “good reason,” each as defined in the agreement, he is entitled to salary and target incentive compensation accrued through the termination date plus the lesser of (i) $250,000 or (ii) the balance of his compensation under the contract to the end of the agreement computed using the latest applicable salary rate.

     In the event Mr. Fedde’s employment with the Company is terminated either by the Company without cause or by Mr. Fedde for good reason, within one year following the occurrence of a change in control, he is entitled to receive, in lieu of the severance payment otherwise payable, his annual salary multiplied by three, his then current target incentive compensation multiplied by three, and all of his stock options under Company plans shall be fully vested and exercisable and will remain exercisable for their full term. Also, if Mr. Fedde is subject to an excise tax under Section 4999 the Code with respect to the payments or distributions in the nature of compensation made to him by the Company in connection with a change in control, he will be entitled to receive an additional amount so as to place him in the same after-tax position he would have been in had the excise tax not applied.

     Mr. Lesem’s employment offer letter provides for the payment of six months salary should the Company terminate his employment without cause. In addition, in April 2005, the Company and Mr. Lesem entered into a change in control agreement. This agreement provides that if there is a change in control of the Company and Mr. Lesem is terminated by the Company without “cause” or terminates his employment for “good reason” (as such terms are defined in the agreement) within one year after such change in control, then he is entitled to receive, in lieu of the severance payment otherwise payable, a lump sum payment equal to the sum of (i) twelve months of his then annual salary plus (ii) the greater of his then current target incentive compensation or the average of his incentive compensation for the three years prior to the year of his termination. Also, in the event of such termination, all of Mr. Lesem’s stock options under Company plans shall be fully vested and exercisable and will remain exercisable for their full term. If Mr. Lesem is subject to an excise tax under Section 4999 of the Code with respect to the payments or distributions in the nature of compensation made to him by the Company in connection with a change in control, he will be entitled to receive an additional amount so as to place him in the same after-tax position he would have been in had the excise tax not applied.

     The Compensation Committee for fiscal year 2005 was comprised of Bruce R. Thaw, Thomas A. Brooks and Arthur L. Money. No member of the Compensation Committee has ever been an employee or officer of the Company or any of its subsidiaries. None of the Company’s executive officers serves as a member of the compensation committee of any other entity that has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation Committee.

     The following table sets forth as of April 7, 2006 (unless otherwise specified) the beneficial ownership of the Company’s Common Stock by persons known to the Company to be beneficial owners of more than five percent of the outstanding shares of the Company’s common stock, each director, each of the Named Executive Officers (as defined under “Executive Compensation”) and by all executive officers and directors of the Company as a group.

     The Company has adopted a policy limiting each director and each executive officer to selling no more than 50% of such director’s or officer’s total holdings of Company stock and vested options during any year. Certain exceptions are available, including exceptions related to hardship and expiring options. Holdings are calculated as of the most recent annual meeting of stockholders.

     The table below sets forth certain information as of April 7, 2006 with respect to common stock of the Company authorized for issuance under the Company’s equity compensation plans. (1)

     The securities to be issued upon exercise of options under equity compensation plans not approved by stockholders reflect shares of common stock that were reserved for issuance under the former 2000 Non-Qualified Stock Option Plan (the “2000 Plan”). The 2000 Plan previously reserved 800,000 shares of common stock for issuance upon the exercise of non-qualified stock option awards. The 2000 Plan was amended and restated by the 2001 Omnibus Stock Plan, and in connection with such amendment and restatement, the number of shares that had been reserved for issuance under the 2000 Plan was reduced from 800,000 to 400,000.

     Effective May 1, 2003, the Company hired Shelley A. Harrison, a member of its Board of Directors, as a part-time employee to provide services relating to the Company’s Embedded Security Division, corporate development and business combination strategy. In consideration for such services, Dr. Harrison was compensated at a rate of $189,000 per year and was granted options for 50,000 shares of common stock at an exercise price equal to the price of the common stock on the date of grant, which options were fully vested on the date of grant. Dr. Harrison subsequently served as joint holder of the Office of President and Chief Operating Officer from December 2003 to June 2004. As further compensation for Dr. Harrison’s employment in those roles, Dr. Harrison was granted options for 50,000 shares of common stock at an exercise price equal to the price of the Common Stock on the date of grant, which options were fully vested on the date of grant. Effective January 1, 2006, the Company and Dr. Harrison entered into a new employment agreement, which describes Dr. Harrison’s role and compensation as Chief Corporate Development Officer. In this role, Dr. Harrison manages the Company’s mergers and acquisitions activities. Dr. Harrison is compensated at a rate of $250,000 per year, plus incentive compensation of up to 0.3% of prior twelve-month revenues of acquired companies, which may vary according to attainment of integration objectives. This incentive compensation is capped at $500,000 per year.

     Fees for audit services totaled $2,174,000 in 2005 and $2,041,000 in 2004, including fees associated with the annual audit of the Company’s consolidated financial statements and its internal control over financial reporting, the reviews of the Company’s quarterly reports on Form 10-Q, statutory audits required internationally, and review of SEC registration statements and related consents.

     Fees for audit-related services totaled $0 in 2005 and $33,000 in 2004. Audit-related services principally include due diligence in connection with acquisitions, audits in connection with proposed or consummated acquisitions and other consultations.

     Fees for tax services totaled $237,000 in 2005 and $373,000 in 2004. Major components of these fees included the following:

     Fees for all other services not included above totaled $0 in 2005 and $424,000 in 2004, principally including services rendered in connection with post-merger integration services.

Policy on Audit Committee Pre-Approval of Audit Services and Permissible Non-Audit Services of Independent Auditors

     The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services performed by the independent auditors. Prior to engagement of the independent auditors for the next year’s audit, the independent auditor provides the scope of the proposed audit and related fees for services expected to be rendered during that year within each of four categories of services to the Audit Committee for approval. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. The Audit Committee is also informed routinely as to the services actually provided by the independent auditor pursuant to this pre-approval process. The Audit Committee’s prior approval must be obtained before the scope or cost of pre-approved services is increased and if the need for other permissible non-audit services arises during the course of the year.

     In determining whether to pre-approve any given services, the Committee considers whether such services are consistent with the continued independence of the independent auditor under the SEC’s rules, whether the independent auditor is best positioned to provide the most effective and efficient service, whether the service might enhance the Company’s ability to manage or control risk or improve audit quality.

     The Audit Committee approved all audit and non-audit services provided by Ernst & Young LLP in 2005.

     The Audit Committee has delegated pre-approval authority to its Chairman to pre-approve services to be provided by the independent auditors between meetings. The Chairman must report any decisions to the Audit Committee at the next scheduled meeting.

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.