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Taser addresses some of criticism aimed at it

Taser International Inc., the stun-gun maker whose safety claims are being investigated by the Securities and Exchange Commission, issued a letter Tuesday defending $105.8-million in stock sales last year by the family that has run the business.

A review by the Associated Press of company filings with the SEC also shows that Taser paid $205,509 last year to lease airplanes owned by the family and that it has a 15-year lease to pay $1,556 a month for use of another plane, a Cessna 414, owned by family member Thomas Smith, the company's president.

Such arrangements are rare in the business world.

"If the company has an honest-to-goodness need for a plane, there's a very liquid commercial market," said David Yermack, a finance professor at New York University's Stern School of Business. "There's no need to lease it from executives. It compromises the independence and objectivity of everyone involved."

In a letter to shareholders Tuesday defending the Smiths' stock sales, Taser also said that it may see delays in orders as law enforcement agencies test and evaluate stun guns made by competitors.

Taser's shares dropped $5.95, or 29.7 percent, to close at $14.10 in Tuesday trading on the Nasdaq Stock Market, down from a year-high price of $33.45 on Dec. 30.

In one week in November after an announcement that Taser stun guns had been approved by the federal government for use on domestic flights, three family members sold shares worth $54.6-million.

Their sales came at the end of a banner year for Taser, with revenues from sales to law enforcement, corrections and other agencies growing 150 percent.

But as the company's stock price climbed, the human rights group Amnesty International and various news organizations published reports raising questions about the safety of the stun guns.

The Arizona Republic has found 84 cases of death after a Taser strike since 1999, with 11 cases in which medical examiners said Tasers were a cause, were a contributing factor or could not be ruled out in a death. Amnesty said stun guns were linked to more than 70 deaths over a four-year period and urged law enforcement agencies to suspend their use.

The so-called nonlethal weapons temporarily paralyze people with a 50,000-volt jolt delivered by two barbed darts whose current can penetrate clothing. Tasers have a range of up to 21 feet and can also shock on contact.

The nation's leading stun gun company said in its June quarterly report that it does not believe there is a "causal link between the use of a Taser device and a death of a suspect other than the general stress of the physical exertion during Taser stimulation, which is similar to athletic type exertions and is comparable to or less than the stress of other available physical restraint procedures."

The SEC and the Arizona attorney general said Friday that they are looking into claims Taser has made about safety studies for its stun guns. The SEC is also reviewing a $1.5-million sale by Taser on Dec. 31 to a firearms distributor that some analysts have questioned because it appears to inflate sales to meet annual projections.

"We understand these inquiries may not be resolved quickly and that there is no basis upon which to set a timeline for expected completion," the company said in its letter to shareholders.

Three shareholder suits were filed against the company this week, charging that it withheld material information.

In its defense of the insider stock sales, the company said that Phillips Smith, who retired as company chairman on Dec. 31, "sold the majority of his Taser stock as part of his retirement transition."

His sons Thomas Smith, the company president and Patrick Smith, its chief executive, sold an average of 22 percent of their Taser stock to diversify their holdings, the letter said.

"We still retain a significant position in Taser International, which at year-end comprised a significant majority of our personal assets," said the letter, signed by Patrick and Thomas Smith. "Hence, we feel that the rumors about us "bailing out' are not fair, nor accurate."

The top insider seller has been Phillips Smith, who sold $48.3-million in company stock in 2004. Patrick Smith sold $29.6-million in company stock last year, while Thomas sold $27.9-million.

Insider sales records, filed with the SEC, show that the Smiths bought stock at low prices available to them under their options packages, and, in some cases sold it either the same day or the day after. For instance, Thomas Smith bought 40,000 shares for 65 cents a share on Nov. 9 and sold 40,000 shares the same day for $54.06 a share.

Insider selling is perfectly legal unless the sellers have information that could affect the stock price but is not publicly available.

The company also defended its payments to lease planes from the Smiths. For the nine months ended Sept. 30, the company paid $142,705 to Four Futures Corp., which is wholly owned by Thomas Smith, for plane charters. Four Futures owns a Cessna 412C and a Cessna 501, according to the Civil Aviation Registry.

The monthly lease agreement with Thomas Smith for company use of a Cessna he owned was filed separately, in the company's annual report.

Taser also paid $62,804 in the first nine months of 2004 to Thundervolt LLC, which is owned by Patrick and Phillips Smith, for use of an aircraft. Thundervolt owns a Gulfstream G-1159A jet, according to the Civil Aviation Registry.

"The one thing it's important to note is the rates we're paying to these two companies are really less than what we feel we'd be paying to outside third parties," said Dan Behrendt, the company's chief financial officer.

The deals were approved by the board of directors of the audit committee, Behrendt said. None of the Smiths sit on the three-member committee. He said past use of the jets was so insignificant it didn't merit reporting.

Taser International was founded by Thomas and Patrick Smith in 1993 and went public in May 2001. The value of its outstanding shares Tuesday was about $874-million.