-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NuoJLBu5v8ct113HRns9Xu1iY5pDUOtEmBLfFyE/jtxT0b0DiGWpmxb8OCmZDoW/ jSrXdCcKJy+rI1a2yRUUWQ== 0000914190-00-000142.txt : 20000424 0000914190-00-000142.hdr.sgml : 20000424 ACCESSION NUMBER: 0000914190-00-000142 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAKEY INC CENTRAL INDEX KEY: 0000704914 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 411291472 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-11447 FILM NUMBER: 606284 BUSINESS ADDRESS: STREET 1: 407 W TRAVELERS TRAIL CITY: BURNSVILLE STATE: MN ZIP: 55337 BUSINESS PHONE: 6128906850 MAIL ADDRESS: STREET 1: 407 WEST TRAVELERS TRAIL CITY: BURNSVILLE STATE: MN ZIP: 55337 DEF 14A 1 DEFINITIVE PROXY MATERIALS SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ____) Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12 DATAKEY, INC. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing: 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: DATAKEY, INC. ----------------------- NOTICE OF ANNUAL MEETING to be held on May 31, 2000 ----------------------- TO THE SHAREHOLDERS OF DATAKEY, INC.: The Annual Meeting of the Shareholders of Datakey, Inc., a Minnesota corporation (the "Company"), will be held on Wednesday, May 31, 2000, at 3:30 p.m., Minneapolis time, at the Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota, for the following purposes: 1. To set the number of directors to be elected at five (5). 2. To elect a Board of Directors to serve until the next annual meeting of shareholders and until their successors are duly elected and qualified. 3. To approve an amendment to the Company's Articles of Incorporation, including an increase in the authorized shares from 12,500,000 to 30,000,000. 4. To approve an increase in the number of shares reserved under the Company's 1997 Stock Option Plan from 800,000 to 1,100,000 shares. 5. To ratify the appointment of McGladrey & Pullen, LLP as independent auditors for the Company for the year ending December 31, 2000. 6. To transact such other business as may properly come before the meeting. Shareholders of record at the close of business on April 4, 2000 are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. Your attention is directed to the Proxy Statement accompanying this Notice for a more complete statement of matters to be considered at the Annual Meeting. A copy of the Annual Report for the year ended December 31, 1999 also accompanies this Notice. You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please sign, date and return your proxy with the reply envelope provided. By Order of the Board of Directors, Thomas R. King Secretary Burnsville, Minnesota Dated: April 21, 2000 PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. DATAKEY, INC. ------------------------- PROXY STATEMENT for Annual Meeting of Shareholders to be held on May 31, 2000 ------------------------- INTRODUCTION Your proxy is solicited by the Board of Directors of Datakey, Inc. (the "Company") for use at the Annual Meeting of Shareholders to be held on Wednesday, May 31, 2000, at 3:30 p.m., at the Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota, and at any adjournment thereof, for the purposes set forth in the Notice of Annual Meeting. The cost of soliciting proxies, including the cost of preparing, assembling and mailing proxies and soliciting material, as well as the cost of forwarding such material to the beneficial owners of stock, will be borne by the Company. Directors, officers and regular employees of the Company may, without compensation other than their regular compensation, solicit proxies personally or by telephone. Any shareholder giving a proxy may revoke it at any time prior to its use at the Annual Meeting by giving written notice of such revocation to the Secretary of the Company. The enclosed proxy, when properly signed and returned to the Company, will be voted by the proxy holders at the Annual Meeting as directed therein. Proxies which are signed by shareholders but which lack any such specification will be voted in favor of the proposals set forth in the Notice of Annual Meeting and in favor of the number and slate of directors proposed by the Board of Directors and listed herein. The presence at the Annual Meeting in person or by proxy of the holders of a majority of the outstanding shares of the Company entitled to vote shall constitute a quorum for the transaction of business. If a shareholder abstains from voting as to any matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to such matter, but shall not be deemed to have been voted in favor of such matter. An abstention as to any proposal will therefore have the same effect as a vote against the proposal. If a broker returns a "non-vote" proxy, indicating a lack of voting instructions by the beneficial holder and a lack of discretionary authority on the part of the broker to vote on a particular matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to such matter. The mailing address of the offices of the Company is 407 West Travelers Trail, Burnsville, Minnesota 55337. The Company expects that the Notice of Annual Meeting, Proxy Statement, form of proxy, and Annual Report to Shareholders will first be mailed to shareholders on or about April 21, 2000. OUTSTANDING SHARES AND VOTING RIGHTS Shareholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof are shareholders of record at the close of business on April 4, 2000. Persons who are not shareholders of record on such date will not be allowed to vote at the Annual Meeting. At the close of business on April 4, 2000, there were 8,024,379 shares of common stock, par value $.05 per share, and 150,000 shares of convertible preferred stock issued and outstanding. The holders of common stock and convertible preferred stock are entitled to one vote for each share held and may vote on each matter to be voted upon at the Annual Meeting. Holders of the capital stock are not entitled to cumulate their votes for the election of directors. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS The following table sets forth the number of shares of the Company's common stock and convertible preferred stock beneficially owned by (i) each director and nominee for election to the Board of Directors of the Company; (ii) each of the named executive officers in the Summary Compensation Table; (iii) all directors and executive officers as a group; and (iv) to the best of the Company's knowledge, all beneficial owners of more than 5% of the outstanding shares of each class of the Company's stock as of April 4, 2000. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment power with respect to the shares indicated. Common Stock(2) Convertible Name (and Address Preferred Stock of 5% Owners) or Percent Percent Identity of Group(1) Shares of Class Shares of Class -------------------- ---------- --------- --------- -------- Carl P. Boecher 107,500 (3) 1.3% -- -- Gary R. Holland 60,700 (4) * -- -- Terrence W. Glarner 24,600 (5) * -- -- Thomas R. King 20,950 (6) * -- -- Eugene W. Courtney 30,000 (7) * -- -- Alan G. Shuler 70,267 (8) * -- -- Michael L. Sorensen 46,600 (9) * -- -- Norwest Equity Partners V 640,516 (10) 7.8% 150,000 100% Perkins Capital 1,660,204 (11) 19.6% -- -- Management, Inc. Raymond A. Lipkin 681,000 (12) 8.2% -- -- David B. Johnson 484,632 (13) 5.9% All Directors and 387,264 (14) 4.6% -- -- Executive Officers as a Group (9 persons) - --------------------------- * Less than 1% of the outstanding shares of common stock. (1) The addresses of the more than 5% holders are: Norwest Equity Partners V - Norwest Center, Sixth & Marquette, Minneapolis, MN 55479; Perkins Capital Management, Inc. - 730 East Lake Street, Wayzata, MN 55391-1769; Raymond A. Lipkin - 161 Ferndale Avenue S., Wayzata, MN 55391; and David B. Johnson - 5500 Wayzata Boulevard, Suite 800, Minneapolis, MN 55416. (2) Under the rules of the Securities and Exchange Commission, shares not actually outstanding are nevertheless deemed to be beneficially owned by a person if such person has the right to acquire the shares within 60 days. Pursuant to such SEC rules, shares deemed beneficially owned by virtue of a person's right to acquire them are also treated as outstanding when calculating the percent of class owned by such person and when determining the percentage owned by a group. (3) Includes 91,500 shares which may be purchased by Mr. Boecher upon exercise of currently exercisable options. (4) Includes 60,000 shares which may be purchased by Mr. Holland upon exercise of currently exercisable options and 700 shares held by Mr. Holland's wife as custodian for their daughter. (5) Includes 20,000 shares which may be purchased by Mr. Glarner upon exercise of currently exercisable options. (6) Includes 10,000 shares which may be purchased by Mr. King upon exercise of currently exercisable options. (7) Includes 5,000 shares owned jointly by Mr. Courtney and his spouse and 25,000 shares which may be purchased by Mr. Courtney upon exercise of currently exercisable options. (8) Includes 53,267 shares which may be purchased by Mr. Shuler upon exercise of currently exercisable options. (9) Includes 38,600 shares which may be purchased by Mr. Sorensen upon exercise of currently exercisable options. (10) Includes 150,000 shares which may be purchased by Norwest Equity Partners V ("Norwest Equity"), a limited partnership, upon conversion of convertible preferred stock. Norwest Equity has sole voting and investment power over the shares it holds; Itasca Partners V, L.L.P. ("Itasca") is the general partner of Norwest Equity, and Daniel J. Haggerty, John E. Lindahl and George J. Still Jr. are the general partners of Itasca, all of whom may be deemed to beneficially own the shares held by Norwest Equity. The Company has relied on information contained in a Schedule 13D filed by Norwest Equity, Itasca and Messrs. Haggerty, Lindahl and Still with the Securities and Exchange Commission on April 11, 1997. (11) Represents shares, including 464,207 shares which may be purchased upon currently exercisable warrants, held for clients of Perkins Capital Management, Inc. ("Perkins"). Perkins has sole power to dispose or direct the disposition of all of the shares. Perkins has sole power to vote or direct the vote for 391,997 of the shares and has no power to vote or direct the vote of the remaining shares. The Company has relied on information contained in a Schedule 13G Amendment dated January 31, 2000 on file with the Securities and Exchange Commission and updated information received from Perkins. (12) Includes 256,000 shares which may be purchased by Mr. Lipkin upon exercise of currently exercisable warrants and 10,000 shares held by Mr. Lipkin's daughter, which shares Mr. Lipkin has dispositive power and shared voting power. The Company has relied on information contained in a Schedule 13G Amendment dated as of February 11, 2000 on file with the Securities and Exchange Commission and other information known by the Company. (13) Includes (i) 25,905 shares which may be purchased by Mr. Johnson upon exercise of currently exercisable warrants; (ii) 200,000 shares held by the David B. Johnson Foundation, of which 100,000 shares may be purchased upon exercise of a currently exercisable warrant; (iii) 80,000 shares held by Mr. Johnson's wife, of which 40,000 shares may be purchased upon exercise of a currently exercisable warrant; and (iv) 62,772 shares held by Miller, Johnson & Kuehn, Incorporated, of which 26,072 shares may be purchased upon exercise of currently exercisable warrants. Mr. Johnson is a principal of Miller, Johnson & Kuehn. (14) Includes 321,014 shares which may be purchased by the current executive officers and directors upon exercise of currently exercisable options and warrants. DETERMINATION OF NUMBER AND ELECTION OF DIRECTORS (Proposals #1 and #2) The Bylaws of the Company provide that the number of directors to be elected for the ensuing year shall be determined by the shareholders at each meeting. The Board of Directors recommends that the number of directors to be elected at the 2000 Annual Meeting be set at five (5). Subject to approval by the shareholders of that recommendation, five (5) directors will be elected at the Annual Meeting, each to serve until the next annual meeting of shareholders and until a successor has been elected and qualified. All of the nominees are members of the present Board of Directors. In connection with the Company's November 1, 1995 agreement with Mr. Holland for consulting services, the Board agreed to appoint Mr. Holland to the Board, which agreement was terminated in June 1997. Pursuant to the terms of a stock purchase agreement, Norwest Equity Partners V ("Norwest Equity") has the right to designate an individual for one directorship on the Company's Board of Directors. As of the date of this proxy statement, Norwest Equity has not advised the Company that it intends to designate an individual as a nominee for election as a director at the 2000 Annual Meeting. If, prior to the Annual Meeting, it should become known to the Board of Directors that any one of the following individuals will be unable or unwilling to serve as a director after the Annual Meeting, the proxies will be voted for such substitute nominee as may be selected by the Board of Directors. Alternatively, the proxies may, at the discretion of the Board of Directors, be voted for such fewer number of nominees. The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve. Under applicable Minnesota law, approval of the proposals to set the number of directors at five (5) and to elect the nominees to the Board of Directors requires the affirmative vote of the holders of the greater of (i) a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter, or (ii) a majority of the voting power of the minimum number of shares that would constitute a quorum for the transaction of business at the Annual Meeting. Names, Principal Occupations for the Past Five Years and Selected Other Information Concerning Nominees for Directors
Director Name Principal Occupation Since Age - ---- -------------------- ------- --- Carl P. Boecher President and Chief Executive Officer of 1997 57 the Company Gary R. Holland President and Chief Executive Officer of 1995 58 Fargo Electronics, Inc. Terrence W. Glarner President of West Concord Ventures, Inc. 1992 57 Thomas R. King Shareholder of Fredrikson & Byron, P.A., 1980 59 Attorneys at Law Eugene W. Courtney Chief Executive Officer of RSI Systems, 1995 64 Inc.
Mr. Boecher has served as President and Chief Executive Officer of the Company since December 1996. Mr. Boecher served as Vice President of Marketing and Sales of the Company from January 1995 until December 1996. From May 1990 to November 1994, Mr. Boecher served as Senior Vice President and Executive Director of Business Development of DRS Military Systems, a division of Diagnostic/Retrieval Systems in Oakland, New Jersey, a supplier of high technology optical, data storage, processing and display and simulation/stimulation systems and products. From 1971 to 1990, Mr. Boecher served in several marketing positions with the Defense Systems Division of Unisys Corporation, a supplier of data processing systems, products and services, in St. Paul, Minnesota, most recently holding the position of Executive Director, Product Marketing. Mr. Holland currently serves as President and Chief Executive Officer of Fargo Electronics, Inc., a company that manufactures photo card equipment and products and provides related services, which company he joined in June 1997 as General Manager. In addition, Mr. Holland has provided consulting services as President of Decision Processes International of Minnesota, Inc. since February 1996 and as the Managing Partner of Holland & Associates since June 1992. From 1982 until 1992, Mr. Holland was President and Chief Executive Officer of DataCard Corporation, a manufacturer of credit card equipment, products and services. Mr. Holland has served as Chairman of the Company's Board of Directors since November 1995. Mr. Holland also serves as a director of Check Technology Corporation and Fargo Electronics, Inc. Mr. Glarner has served as President of West Concord Ventures, Inc., a venture capital firm, since February 1993. Mr. Glarner also serves as a consultant to Norwest Venture Capital Management, Inc., an entity affiliated with Norwest Growth Fund, Inc. From 1976 to January 1993, he was employed by North Star Ventures, Inc., serving as President from February 1988 to January 1993. Prior to 1976, Mr. Glarner was Vice President of Dain Bosworth (n/k/a Dain Rauscher). Mr. Glarner also serves as a director of FSI International, Inc., Aetrium, Inc., CIMA Labs Inc. and Premis Corporation. Mr. King has been engaged in the private practice of law in Minneapolis, Minnesota since 1965. He is a shareholder of the law firm of Fredrikson & Byron, P.A., which serves as general counsel to the Company. Mr. King has served as Secretary to the Company since 1980. Mr. King also serves as a director of Sunrise Resources, Inc., a company which provides lease financing for capital equipment. Mr. Courtney has served as Chief Executive Officer of RSI Systems, Inc., a company that designs, manufactures and distributes videoconferencing systems, since October 1999. From December 1998 until October 1999, Mr. Courtney provided independent consulting services. Mr. Courtney served as Chief Executive Officer of HEI, Inc., a company which designs and manufactures microelectronics, from 1990 until December 1998. Mr. Courtney also served as HEI's President from 1990 to July 1998, and he served as HEI's Executive Vice President from 1988 to 1990. EXECUTIVE OFFICERS OF THE COMPANY The names and ages of all the Company's executive officers and the position each holds are listed below. Name Position Age - ------------ --------------------------------- --- Carl P. Boecher President and Chief Executive Officer 57 Alan G. Shuler Vice President and Chief Financial Officer 53 Michael L. Sorensen Vice President and General Manager, 54 Electronic Products Timothy L. Russell Vice President and General Manager, 39 Information Security Solutions Colleen M. Kulhanek Vice President of Corporate Marketing 34 See "Election of Directors" (Proposal #2) for Carl P. Boecher's biography. Alan G. Shuler has served as Vice President and Chief Financial Officer of the Company since June 1992. From August 1991 to May 1992, Mr. Shuler served as Vice President and Chief Financial Officer of Astrocom Corporation, a St. Paul, Minnesota manufacturer of data communication equipment. From January 1988 through December 1990, Mr. Shuler was Senior Vice President and Chief Financial Officer of FSI International, Inc., a Chaska, Minnesota manufacturer of semiconductor equipment. Michael L. Sorensen has served as Vice President and General Manager, Electronic Products since November 1997. Mr. Sorensen joined the Company in April 1997 as Vice President of Operations. From February 1995 to March 1997, Mr. Sorensen served as Vice President of Operations for Despatch Industries, a custom oven and furnace company, prior to which he provided consulting services to Despatch, beginning in October 1994. From April 1992 to September 1994, Mr. Sorensen was the Plant Manager of J. B. Martin Company, Inc., a manufacturer of three-dimensional fabrics located in Leesville, South Carolina. Prior to April 1992, Mr. Sorensen served in various engineering and operations positions with United Engineers and Constructors, Inc., BASF Structural Materials, Inc., Celanese Corporation, Abbott Laboratories and Corning Glass Works. Timothy L. Russell has served as Vice President and General Manager, Information Security Solutions, of the Company since August 1999. From August 1994 to August 1999, Mr. Russell served in various senior management positions, most recently as Vice President, Channel Sales, for Secure Computing Corporation, an information security company. Prior to 1994, Mr. Russell held various management and software engineering positions at Ceridian/Control Data. Colleen M. Kulhanek has served as Vice President of Corporate Marketing of the Company since April 2000. Ms. Kulhanek joined the Company in April 1999 as Director of Marketing. From June 1997 to April 1999, Ms. Kulhanek was Marketing Manager with LSC, Inc., a storage management software developer. From January 1996 to June 1997, Ms. Kulhanek was Marketing Manager with Secure Computing Corporation. SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE Based on the Company's review of copies of forms filed with the Securities and Exchange Commission or written representations from certain reporting persons that no Forms 5 were required for those persons, in compliance with Section 16(a) of the Securities Exchange Act of 1934, the Company believes that during fiscal year 1999, all officers, directors, and greater than ten-percent beneficial owners complied with the applicable filing requirements. BOARD AND COMMITTEE MEETINGS The Board of Directors held six meetings during 1999 and took action by unanimous written consent twice during 1999. No director attended less than 75% of the meetings of the Board and any committee of which the director was a member. The Company does not have a nominating committee. The Company has two standing committees, an Audit Committee and a Compensation and Stock Option Committee, which was formed on January 27, 1999 by combining the Compensation Committee and Stock Option Committee into one committee. The members of the Audit Committee are Terrence W. Glarner, Thomas R. King, Eugene W. Courtney and Gary R. Holland. The Audit Committee recommends to the Board of Directors the selection of independent accountants as well as the internal accounting controls of the Company. The Audit Committee met once during 1999. The members of the Compensation and Stock Option Committee are Terrence W. Glarner, Thomas R. King, Eugene W. Courtney and Gary R. Holland. This committee recommends to the Board of Directors from time to time the salaries to be paid to executive officers of the Company and any plan for additional compensation it deems appropriate and administers the Company's stock option plans. The Compensation and Stock Option Committee met twice during 1999. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth all cash compensation paid or to be paid by the Company, as well as certain other compensation paid or accrued, during each of the Company's last three fiscal years to the Chief Executive Officer during fiscal 1999 and to the other executive officers whose total annual salary and bonus paid or accrued during fiscal year 1999 exceeded $100,000.
Long Term Compensation ------------------------------------ Annual Compensation Awards Payouts ----------------------------------- ------------------------------------ Restricted LTIP All Other Name and Principal Fiscal Stock Payouts Compensation Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)(1) - ------------------------- ----- ---------- --------- --------- ---------- ------- --------- ------------ Carl P. Boecher 1999 133,893 9,180 1,780(1) -- 65,000 -- 3,869(2) President and Chief 1998 130,426 -- 1,796 -- 65,000 -- 3,069 Executive Officer 1997 120,637 -- 1,656 -- 15,000 -- 2,698 Alan G. Shuler 1999 112,046 3,469 1,551(1) -- 30,000 -- 2,218(2) Vice President and 1998 110,228 -- 1,352 -- 30,000 -- 2,805 Chief 1997 101,364 -- 1,261 -- 10,000 -- 2,586 Financial Officer Michael L. Sorensen 1999 109,177 3,791 1,867(1) -- 30,000 -- 3,950(2) Vice President and 1998 106,269 -- 1,945 -- 30,000 -- 2,616 General Manager, 1997 62,307 -- 476 -- 50,000 -- 722 Electronic Products
- ------------------------------ (1) Represents reimbursement for taxes on supplemental benefits. (2) Represents term insurance premium paid by the Company and 401(K) plan matching contributions. Option Grants During 1999 Fiscal Year The following table provides information regarding stock options granted during fiscal 1999 to the named executive officers in the Summary Compensation Table. The Company has not granted any stock appreciation rights.
Percent of Total Number of Shares Options Granted to Exercise or Underlying Options Employees Base Price Per Name Granted in Fiscal Year Share (1) Expiration Date - ---- ----------------------- -------------------- --------- --------------- Carl P. Boecher 15,000 (2) 5.2% $2.75 02/15/09 50,000 (3) 17.3% $1.50 12/01/09 Alan G. Shuler 10,000 (2) 3.5% $2.75 02/15/09 20,000 (4) 6.9% $1.50 12/01/09 Michael L. Sorensen 10,000 (2) 3.5% $2.75 02/15/09 20,000 (4) 6.9% $1.50 12/01/09 - ------------------
(1) The exercise price is equal to the fair market value of the common stock on the date of grant. (2) The option was granted on February 16, 1999 and will become exercisable in full on February 16, 2004, subject to acceleration if certain targets are met. (3) The option was granted on December 2, 1999 and will become exercisable to the extent of 16,667 shares on each of December 2, 2000 and December 2, 2001 and 16,666 shares on December 2, 2002. (4) The option was granted on December 2, 1999 and will become exercisable to the extent of 6,667 shares on each of December 2, 2000 and December 2, 2001 and 6,666 shares on December 2, 2002. Option Exercises During 1999 Fiscal Year and Fiscal Year-End Option Values The following table provides information as to options exercised by the named executive officers in the Summary Compensation Table during fiscal 1999 and the number and value of options at December 31, 1999. The Company has no outstanding stock appreciation rights.
Value of Number of Unexercised Unexercised In-the-Money Options at Options at Shares December 31, 1999 December 31, 1999 Acquired Value Exercisable/ Exercisable/ Name on Exercise Realized Unexercisable Unexercisable(1) - ----------------- ------------ ---------- --------------------- --------------------- Carl P. Boecher -- -- 91,50 exercisable $4,700 exercisable 128,500 unexercisable $93,790 unexercisable Alan G. Shuler -- -- 71,600 exercisable $0 exercisable 63,400 unexercisable $40,020 unexercisable Michael L. Sorensen -- -- 30,600 exercisable $0 exercisable 79,400 unexercisable $62,528 unexercisable
(1) Value is calculated on the basis of the difference between the option exercise price and $3.188, the closing sale price for the Company's common stock at December 31, 1999 as quoted on the Nasdaq SmallCap Market, multiplied by the number of shares underlying the option. Compensation of Directors Directors' Fees. The Chairman of the Board, Mr. Holland, currently receives a $7,500 annual retainer, and all other independent Board members receive a $2,500 annual retainer. Each independent Board member also receives $1,000 for attendance at each meeting of the Board of Directors and $500 for attendance at each committee meeting. Stock Option Grants to Non-Employee Directors. The 1997 Stock Option Plan provides for automatic option grants to each director who is not an employee of the Company (a "Non-Employee Director"). Upon initial election, a Non-Employee Director receives an automatic grant of a nonqualified option to purchase 15,000 shares of the common stock at an option price per share equal to 100% of the fair market value of the common stock on the date of such election, which option becomes exercisable to the extent of 3,000 shares immediately and on each of the first four anniversaries of the date of grant. Each Non-Employee Director who is re-elected as a director of the Company or whose term of office continues after a meeting of shareholders at which directors are elected shall, as of the date of such re-election or shareholder meeting, automatically be granted an immediately exercisable nonqualified option to purchase 2,500 shares of the common stock at an option price per share equal to 100% of the fair market value of the common stock on the date of such re-election or shareholder meeting. No director shall receive more than one option to purchase 2,500 shares pursuant to the formula plan in any one fiscal year. All options granted pursuant to these provisions shall expire on the earlier of (i) three months after the optionee ceases to be a director (except by death) and (ii) ten years after the date of grant. Notwithstanding the foregoing, in the event of the death of a Non-Employee Director, any option granted to such Non-Employee Director pursuant to this formula plan may be exercised at any time within six months of the death of such Non-Employee Director or on the date on which the option, by its terms expires, whichever is earlier. Employment Contracts and Termination of Employment Arrangements The Company entered into a one-year employment agreement dated January 1, 1999 with Carl P. Boecher, the Company's President and Chief Executive Officer. The agreement automatically renews for successive one-year terms unless terminated by either party. The agreement has been automatically renewed for a current one-year term with an annual base salary of $150,000. The agreement provides for the payment of a monthly car allowance, and Mr. Boecher currently receives $600 per month. The agreement does not provide for a bonus, but Mr. Boecher is eligible to participate in the Company's Management Incentive Plan. The agreement may be terminated with or without cause by either the Company or Mr. Boecher 30 days prior to the end of a term. If Mr. Boecher's employment is terminated (i) by the Company without cause or by nonrenewal of the agreement, (ii) by death or (iii) by disability, he is entitled to a severance payment equal to his base monthly salary for 12 months and to continued medical and dental coverage during such period. If Mr. Boecher is terminated or resigns within 12 months of a change of control of the Company, he will receive his base monthly compensation and medical and dental coverage for 24 months. Mr. Boecher has agreed not to compete with the Company for a period of one year after termination of his employment if terminated without cause or upon failure to renew, and for two years if terminated for cause or voluntary resignation or within 12 months of a change of control of the Company. The Company entered into a one-year employment agreement effective as of January 1, 1999 with Alan G. Shuler, the Company's Vice President and Chief Financial Officer. The agreement automatically renews for successive one-year terms if a termination notice is not given by either party. The agreement has been automatically renewed for a current one-year term with a $122,500 annual base salary. The agreement provides for the payment of a monthly car allowance, and Mr. Shuler currently receives $500. The agreement does not provide for a bonus; however, Mr. Shuler is eligible to participate in the Company's Management Incentive Plan. The agreement may be terminated with or without cause by either the Company or Mr. Shuler 30 days prior to the end of a term. If Mr. Shuler's employment is terminated by the Company without cause or upon failure to renew, he is entitled to his monthly base salary for six months. If Mr. Shuler's employment is terminated within 12 months of a change of control, or if he resigns within 12 months of a change of control because of diminution of either position responsibilities or remuneration, Mr. Shuler shall receive a severance payment equal to his annual salary in effect at the time of the change of control, payable in 12 monthly installments, and medical and dental coverage at the Company's subsidized rates. Mr. Shuler has agreed not to compete with the Company during his employment and during the time in which he is paid severance pursuant to the agreement and for six months after termination if terminated without cause or upon failure to renew. The Company entered into a one-year employment agreement effective as of January 1, 1999 with Michael L. Sorensen, the Company's Vice President and General Manager, Electronic Products. The agreement automatically renews for successive one-year terms if a termination notice is not given by either party. The agreement has been automatically renewed for a current one-year term with a $120,000 annual base salary. The agreement provides for the payment of a monthly car allowance, and Mr. Sorensen currently receives $500. The agreement does not provide for a bonus; however, Mr. Sorensen is eligible to participate in the Company's Management Incentive Plan. The agreement may be terminated with or without cause by either the Company or Mr. Sorensen 30 days prior to the end of a term. If Mr. Sorensen's employment is terminated by the Company without cause or upon failure to renew, he is entitled to his monthly base salary for six months. If Mr. Sorensen's employment is terminated within 12 months of a change of control, or if he resigns within 12 months of a change of control because of diminution of either position responsibilities or remuneration, Mr. Sorensen shall receive a severance payment equal to his annual salary in effect at the time of the change of control, payable in 12 monthly installments, and medical and dental coverage at the Company's subsidized rates. Mr. Sorensen has agreed not to compete with the Company during his employment and during the time in which he is paid severance pursuant to the agreement and for six months after termination if terminated without cause or upon failure to renew. AMENDMENT TO ARTICLES OF INCORPORATION (Proposal #3) On March 28, 2000, the Board of Directors unanimously approved an amendment to the Company's Articles of Incorporation to (i) eliminate all references in the Articles to Series A preferred stock and (ii) increase the authorized shares from 12,500,000, consisting of 11,000,000 common, 400,000 convertible preferred, 150,000 Series A preferred and 950,000 undesignated shares, to 30,000,000, consisting of 20,000,000 common, 400,000 convertible preferred and 9,600,000 undesignated shares (the "Amendment"). As of April 4, 2000, 8,024,379 shares of common stock were issued and outstanding, and 2,975,621 shares of common stock were authorized but unissued. Approximately 3,189,856 shares have been reserved for issuance pursuant to the Company's employee benefit plans, including the increased shares for the Company's 1997 Stock Option Plan in Proposal #4 below, 85,000 shares for the Company's 1994 Consultant Stock Option Plan, 85,000 shares for outstanding warrants and 150,000 shares for conversion of the outstanding convertible preferred shares. As of April 4, 2000, 150,000 of the 400,000 shares of convertible preferred were issued and outstanding and none of the 150,000 authorized shares of Series A preferred stock was outstanding. All previously issued shares of Series A preferred stock have been converted into shares of common stock. The Board desires to increase the number of authorized shares to provide sufficient shares for the increase of shares under the Company's 1997 Stock Option Plan as set forth in Proposal #4 below; to give the Board flexibility to declare stock dividends or stock splits at such times as the Board may deem appropriate; to give the Board flexibility to make acquisitions using stock; to adopt additional employee benefit plans or further increase the shares available under existing plans; to raise equity capital or to use the additional shares for other general corporate purposes. Other than the shares currently reserved for issuance as described above, the Board has not authorized the issuance of any additional shares, and there are no current agreements or commitments for the issuance of any additional shares. The Company's Articles of Incorporation permit the Board to establish from the undesignated shares, by resolution adopted and filed with the Secretary of State in the manner provided by law, one or more classes or series and to fix the relative rights and preferences of each such class or series, including the establishment of additional shares of common stock. These shares are available for issuance by the Board at such times and for such purposes as the Board may deem advisable without further action by the shareholders, except as may be required by law or regulatory authorities. In the event of a proposed merger, tender offer or other attempt to gain control of the Company of which the Board does not approve, the Company's Articles of Incorporation permit the Board to authorize the issuance of a series of stock with rights and preferences which could impede the completion of such a transaction. The Board will have the authority, for example, to adopt a shareholder rights plan or "poison pill" without additional shareholder approval. The Board has the authority to issue shares to purchasers who would support the Board in opposing a hostile takeover bid. The Board does not intend to issue any shares except on terms which the Board deems to be in the best interests of the Company and its then existing shareholders. Shareholders of the Company have no preemptive rights with respect the common stock of the Company. If this proposed Amendment is adopted, the additional authorized shares of common stock will be available for issuance from time to time at the discretion of the Board without further action by the shareholders, except where shareholder approval is required by law, regulatory authorities or to obtain favorable tax treatment for certain employee benefit plans. Although an increase in the authorized shares could, under certain circumstances, also be construed as having an anti-takeover effect (for example, by diluting the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company), the Company is not proposing the increase in authorized shares in response to any effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer or solicitation in opposition to management. Vote Required The Board of Directors recommends that the shareholders approve the Amendment to the Articles. Under applicable Minnesota law and the Company's Articles of Incorporation, approval of the Amendment as set forth above requires the affirmative vote of the holders of the greater of (i) a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter, or (ii) a majority of the voting power of the minimum number of shares that would constitute a quorum for the transaction of business at the Annual Meeting. APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES RESERVED UNDER THE COMPANY'S 1997 STOCK OPTION PLAN (Proposal #4) General On March 28, 2000, the Board of Directors amended the Company's 1997 Stock Option Plan (the "1997 Plan") to increase the shares reserved for issuance under the 1997 Plan from 800,000 to 1,100,000 shares. As of April 4, 2000, the Company had outstanding incentive and nonqualified options for the purchase of an aggregate of 702,248 shares of the Company's common stock with an average exercise price of $2.95 per share granted under the Company's 1997 Plan. Options to purchase 18,500 shares under the 1997 Plan have been exercised as of April 4, 2000. The increase of shares under the 1997 Plan is necessary to provide sufficient shares for future options. In addition, as of April 4, 2000, there were outstanding options to purchase an aggregate of 239,001 shares with a range of exercise prices of $3.00 to $7.25 under the Company's 1987 Stock Option Plan and 35,000 shares at $3.625 under the 1994 Consultant Stock Option Plan. The Board believes that granting fairly-priced stock options to employees and directors is an effective means to promote the future growth and development of the Company. Such options, among other things, increase employees' and directors' proprietary interest in the Company's success and enables the Company to attract and retain qualified personnel. The Board therefore recommends that all shareholders vote in favor of increasing the number of shares reserved under the 1997 Plan from 800,000 to 1,100,000 shares. Summary of 1997 Stock Option Plan A general description of the basic features of the 1997 Plan is presented below, but such description is qualified in its entirety by reference to the full text of the 1997 Plan, a copy of which may be obtained without charge upon written request to Alan G. Shuler, the Company's Chief Financial Officer. Purpose. The purpose of the 1997 Plan is to promote the success of the Company by facilitating the employment and retention of competent personnel and by furnishing incentive to directors, officers and employees of the Company and consultants and advisors to the Company, upon whose efforts the success of the Company will depend to a large degree. Term. Incentive stock options may be granted pursuant to the 1997 Plan during a period of ten (10) years from the date the 1997 Plan was adopted by the Board of Directors (until February 27, 2007), and nonqualified stock options may be granted until the 1997 Plan is discontinued or terminated by the Board of Directors. Administration. With the exception of the stock options automatically issued to Non-Employee Directors as described below, the 1997 Plan is administered by the Board of Directors or the Stock Option Committee of the Board of Directors, all of the members of which are "non-employee directors" under Rule 16b-3 of the Securities Exchange Act of 1934 (collectively referred to as the "Administrator"). The 1997 Plan gives broad powers to the Administrator to administer and interpret the 1997 Plan, including the authority to select the individuals to be granted options and to prescribe the particular form and conditions of each option granted. Eligibility. All employees of the Company or any subsidiary are eligible to receive incentive stock options pursuant to the 1997 Plan. All employees, officers and directors of and consultants and advisors to the Company or any subsidiary are eligible to receive nonqualified stock options. As of April 4, 2000, the Company had approximately 53 employees, of which five are officers, and five directors who are not employees. Options. When an option is granted under the 1997 Plan, the Administrator, at its discretion, specifies the option price and the number of shares of Common Stock which may be purchased upon exercise of the option. The exercise price of an incentive stock option set by the Administrator may not be less than 100% of the fair market value of the Company's Common Stock, as that term is defined in the 1997 Plan. Unless otherwise determined by the Administrator, the exercise price of a nonqualified stock option will not be less than 100% of the fair market value on the date of grant; provided, however, that the exercise price may not be less than 85% of the fair market value on the date of grant. The period during which an option may be exercised and whether the option will be exercisable immediately, in stages, or otherwise is set by the Administrator. Generally, an incentive stock option may not be exercisable more than ten (10) years from the date of grant. Optionees may pay for shares upon exercise of options with cash, certified check or Common Stock of the Company valued at the stock's then "fair market value" as defined in the 1997 Plan. Each option granted under the 1997 Plan is generally nontransferable during the lifetime of the optionee; however, the Administrator may, in its sole discretion, permit the transfer of a nonqualified stock option to immediate family members or to certain family trusts or family partnerships. Generally, under the form of option agreement which the Administrator is currently using for options granted under the 1997 Plan, if the optionee's affiliation with the Company terminates before expiration of the option for reasons other than death or disability, the optionee has a right to exercise the option for three months after termination of such affiliation or until the option's original expiration date, whichever is earlier. If the termination is because of death or disability, the option typically is exercisable until its original stated expiration or until the 12-month anniversary of the optionee's death or disability, whichever is earlier. The Administrator may impose additional or alternative conditions and restrictions on the incentive or nonqualified stock options granted under the 1997 Plan; however, each incentive option must contain such limitations and restrictions upon its exercise as are necessary to ensure that the option will be an incentive stock option as defined under the Internal Revenue Code. Change of Control. In the event that (i) the Company is acquired through the sale of substantially all of its assets or through a merger or other transaction (a "Transaction"), (ii) after the effective date of the 1997 Plan a person or entity becomes the holder of 30% or more the Company's outstanding common stock, or (iii) individuals who constituted the Board on the effective date of the 1997 Plan ceased for any reason thereafter to constitute at least a majority of the Board of Directors (with exceptions for individuals who are nominated by the current Board of Directors), all outstanding options will become immediately exercisable in full and will remain exercisable during the remaining terms of such outstanding options, whether or not the participants to whom the options have been granted remain employees of the Company or a subsidiary. The acceleration of the exercisability of outstanding options may be limited, however, if the acquiring party seeks to account for a Transaction on a "pooling of interests" basis which would be precluded if such options are accelerated. The Board may also take certain additional actions, such as terminating the 1997 Plan, providing cash or stock valued at the amount equal to the excess of the fair market value of the stock over the exercise price, or allowing exercise of the options for stock of the succeeding company. Automatic Grants to Non-Employee Directors. The 1997 Plan provides for automatic option grants to each director who is not an employee of the Company (a "Non-Employee Director"). Each Non-Employee Director who is elected for the first time as a director shall automatically be granted a nonqualified option to purchase 15,000 shares of the common stock at an option price per share equal to 100% of the fair market value of the common stock on the date of the Non-Employee Director's initial election, which option is exercisable to the extent of 3,000 shares immediately and on each of the first four anniversaries of the date of grant. Each Non-Employee Director who is re-elected as a director of the Company or whose term of office continues after a meeting of shareholders at which directors are elected shall, as of the date of such re-election or shareholder meeting, automatically be granted an immediately exercisable nonqualified option to purchase 2,500 shares of the common stock at an option price per share equal to 100% of the fair market value of the common stock on the date of such re-election or shareholder meeting. No director shall receive more than one option to purchase 2,500 shares pursuant to the formula plan in any one fiscal year. All options granted pursuant to these provisions shall expire on the earlier of (i) three months after the optionee ceases to be a director (except by death) and (ii) ten (10) years after the date of grant. Notwithstanding the foregoing, in the event of the death of a Non-Employee Director, any option granted to such Non-Employee Director pursuant to this formula plan may be exercised at any time within six months of the death of such Non-Employee Director or on the date on which the option, by its terms expires, whichever is earlier. Amendment. The Board of Directors may from time to time suspend or discontinue the 1997 Plan or revise or amend it in any respect; provided, however, that no such revision or amendment may impair the terms and conditions of any outstanding option to the material detriment of the optionee without the consent of the optionee, except as authorized in the event of a sale, merger, consolidation or liquidation of the Company. The 1997 Plan may not be amended in any manner that will cause incentive stock options to fail to meet the requirements of Code Section 422, and may not be amended in any manner that will: (i) materially increase the number of shares subject to the 1997 Plan except as provided in the case of stock splits, consolidations, stock dividends or similar events; (ii) change the designation of the class of employees eligible to receive options; (iii) decrease the price at which options will be granted; or (iv) materially increase the benefits accruing to optionees under the 1997 Plan, without the approval of the shareholders, if such approval is required to comply with Code Section 422 or the requirements of Section 16(b) of the Act. The Board of Directors will equitably adjust the maximum number of shares of Common Stock reserved for issuance under the 1997 Plan, the number of shares covered by each outstanding option and the option price per share in the event of stock splits or consolidations, stock dividends or other transactions in which the Company receives no consideration. Generally, the Board of Directors may also provide for the protection of optionees in the event of a merger, liquidation or reorganization of the Company. Federal Income Tax Consequences of the 1997 Plan. Under present law, an optionee will not realize any taxable income on the date a nonqualified stock option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of the nonqualified stock option, however, the optionee will realize, in the year of exercise, ordinary income to the extent of the difference between the option price and the fair market value of the Company's Common Stock on the date of exercise. Upon the sale of the shares, any resulting gain or loss will be treated as capital gain or loss. The Company will be entitled to a tax deduction in its fiscal year in which nonqualified stock options are exercised, equal to the amount of compensation required to be included as ordinary income by those optionees exercising such options. Incentive stock options granted pursuant to the 1997 Plan are intended to qualify for favorable tax treatment to the optionee under Code Section 422. Under Code Section 422, an employee realizes no taxable income when the incentive stock option is granted. If the employee has been an employee of the Company or any subsidiary at all times from the date of grant until three months before the date of exercise, the employee will realize no taxable income when the option is exercised. If the employee does not dispose of shares acquired upon exercise for a period of two years from the granting of the incentive stock option and one year after receipt of the shares, the employee may sell the shares and report any gain as capital gain. The Company will not be entitled to a tax deduction in connection with either the grant or exercise of an incentive stock option. If the employee should dispose of the shares prior to the expiration of the two-year or one-year periods described above, the employee will be deemed to have received compensation taxable as ordinary income in the year of the early sale in an amount equal to the lesser of (i) the difference between the fair market value of the Company's Common Stock on the date of exercise and the option price of the shares, or (ii) the difference between the sale price of the shares and the option price of shares. In the event of such an early sale, the Company will be entitled to a tax deduction equal to the amount recognized by the employee as ordinary income. The foregoing discussion ignores the impact of the alternative minimum tax, which may particularly be applicable to the year in which an incentive stock option is exercised. Plan Benefits. Because future grants of stock options are subject to the discretion of the Administrator, the future benefits under the 1997 Plan cannot be determined at this time, except for the automatic grants to Non-Employee Directors as set forth above. The table below shows the total number of shares underlying stock options that have been granted under the 1997 Plan as of April 4, 2000 to the named executive officers and the groups set forth. Shares of Common Stock Name and Position/Group Underlying Options Received - ------------------------------------------ --------------------------- Carl P. Boecher 145,000 President and Chief Executive Officer Alan G. Shuler 70,000 Vice President and Chief Financial Officer Michael L. Sorensen 110,000 Vice President and General Manager, Electronic Products Current Executive Officers 405,980 as a Group (5 persons) Current Directors who are not 30,000 Executive Officers as a Group (4 persons) Current Employees who are not 284,768 Executive Officers or Directors as a Group (48 persons) - ------------------- Vote Required. The Board of Directors recommends that the shareholders approve the increase of shares under the 1997 Plan from 800,000 to 1,100,000 shares. Under applicable Minnesota law, approval of the increase of shares under the 1997 Plan requires the affirmative vote of the holders of the greater of (i) a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter, or (ii) a majority of the voting power of the minimum number of shares that would constitute a quorum for the transaction of business at the Annual Meeting. RATIFICATION OF APPOINTMENT OF AUDITORS (Proposal #5) The Board of Directors recommends that the shareholders ratify the appointment of McGladrey & Pullen, LLP, as independent auditors for the Company for the year ending December 31, 2000. McGladrey & Pullen, LLP has served as independent auditors for the Company since 1980. McGladrey & Pullen, LLP provided services in connection with the audit of the financial statements of the Company for the year ended December 31, 1999, assistance with the Company's Annual Report submitted to the Securities and Exchange Commission on Form 10-KSB and quarterly reports filed with the Securities and Exchange Commission, and consultation on matters relating to accounting and financial reporting. Representatives of McGladrey & Pullen, LLP are expected to be present at the Annual Meeting and will be given an opportunity to make a statement if so desired and to respond to appropriate questions. SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING Proposals of shareholders intended to be presented at the annual meeting in the year 2001 must be submitted to the Company in appropriate written form on or before December 22, 2000 to be included in the Company's Proxy Statement and related Proxy for the 2001 meeting. Shareholder proposals intended to be presented at the annual meeting in 2001 but not be included in the proxy materials sent to shareholders will not be considered timely unless received by the Company on or before March 7, 2001. OTHER BUSINESS Management is not aware of any matters to be presented for action at the Annual Meeting, except matters discussed in the Proxy Statement. If any other matters properly come before the meeting, it is intended that the shares represented by proxies will be voted in accordance with the judgment of the persons voting the proxies. ANNUAL REPORT TO SHAREHOLDERS A copy of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999 accompanies this Notice of Annual Meeting and Proxy Statement. No part of such Annual Report is incorporated herein and no part thereof is to be considered proxy soliciting material. FORM 10-KSB THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-KSB UPON THE ADVANCE PAYMENT OF REASONABLE FEES RELATED TO THE COMPANY'S FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH REPORT AND/OR EXHIBIT(S) SHOULD BE DIRECTED TO SHAREHOLDER RELATIONS AT THE COMPANY'S PRINCIPAL ADDRESS. By Order of the Board of Directors Thomas R. King Secretary April 21, 2000 Datakey, Inc. ANNUAL MEETING OF SHAREHOLDERS Wednesday, May 31, 2000 3:30 p.m. Radisson Plaza Hotel 35 S. 7th Street Minneapolis, MN 55402 Datakey, Inc. 407 West Travelers Trail, Burnsville, Minnesota 55337 proxy - -------------------------------------------------------------------------------- This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 31, 2000. The shares of stock you hold in your account will be voted as you specify below. If no choice is specified, the proxy will be voted "FOR" Items 1, 2, 3, 4 and 5. By signing the proxy, you revoke all prior proxies and appoint Carl P. Boecher and Alan G. Shuler, and each of them, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. See reverse for voting instructions Please detach here The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4 and 5. 1. Set the number of directors at five (5). [ ] For [ ] Against [ ] Abstain 2. Elect directors: 01 Carl P. Boecher 04 Thomas R. King [ ] Vote FOR [ ] Vote WITHHELD 02 Gary R. Holland 05 Eugene W. Courtney all nominees from all nominees 03 Terrence W. Glarner (except as withheld below) ------------------------------------------- (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) ------------------------------------------- 3. Approve amendment to the Articles of Incorporation, including an [ ] For [ ] Against [ ] Abstain increase of authorized shares from 12,500,000 to 30,000,000. 4. Approve increase of shares under the 1997 Stock Option Plan [ ] For [ ] Against [ ] Abstain from 800,000 to 1,100,000. 5. Ratify the appointment of McGladrey & Pullen, LLP as independent For [ ] For [ ] Against [ ] Abstain Against Abstain auditors for the Company for the year ending December 31, 2000. 6. In their discretion, the proxies are authorized to vote upon such business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL. Address change? Mark box [ ] Dated: ________________________, 2000 Indicate changes below: ---------------------------------------- ---------------------------------------- Signature(s) in Box Please sign exactly as your name(s) appear on Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. -----END PRIVACY-ENHANCED MESSAGE-----