-----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, Sh3bm9825TYVTn85JhRCXrUqhxbjONcbgEzYxxfiunDaR1c94RFARUrkKrC1q7e1 wjC/2quaPC0ly2hQakhDAA== 0000914190-00-000172.txt : 20000517 0000914190-00-000172.hdr.sgml : 20000517 ACCESSION NUMBER: 0000914190-00-000172 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000515 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-11447 FILM NUMBER: 636477 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 10QSB 1 FORM 10-QSB FOR FIRST QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) QUARTERY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2000 Commission File Number 0-11447 DATAKEY, INC. (Exact name of small business issuer as specified in its charter) MINNESOTA 41-1291472 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 407 WEST TRAVELERS TRAIL, BURNSVILLE, MN 55337 Issuer's telephone number: (612) 890-6850 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 X No ___ APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the issuer's common equity, as of May 15, 2000 is 8,124,379 Transitional Small Business Disclosure Format (check One): Yes No X PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
April 1, December 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,916,041 $ 344,922 Trade receivables, less allowance for doubtful accounts of $26,000 1,173,758 1,474,480 Inventories 1,381,674 1,328,991 Prepaid and other 4,860 29,981 ---------- ---------- Total current assets 7,476,333 3,178,374 ---------- ---------- OTHER ASSETS Prepaid licenses and patents at cost less amortization 617,468 668,036 of $420,383 and $364,832 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost Production tooling 1,291,593 1,306,260 Equipment 2,851,961 2,768,214 Furniture and fixtures 313,439 317,103 Leasehold improvements 278,371 278,371 4,735,364 4,669,948 Less accumulated depreciation (3,999,606) (3,917,996) ---------- ---------- 735,758 751,952 ---------- ---------- $ 8,829,559 $ 4,598,362 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 675,591 $ 803,887 Accrued compensation 308,848 197,335 Accrued expenses-other 25,384 97,144 ---------- ---------- Total current liabilities 1,009,823 1,098,366 ---------- ---------- SHAREHOLDERS' EQUITY Convertible preferred stock, voting, stated value $2.50 per share; authorized 400,000 shares; issued and outstanding 150,000 375,000 375,000 Common stock, par value $.05 per share; authorized 10,000,000 shares; issued and outstanding 8,024,379 in 2000 and 6,322,285 in 1999 401,219 316,114 Additional paid-in capital 13,444,446 8,501,543 Accumulated deficit (6,400,929) (5,692,661) ---------- ---------- 7,819,736 3,499,996 ---------- ---------- $8,829,559 $4,598,362 ========== ==========
See Notes to Consolidated Financial Statements 2 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended April 1, April 3, 2000 1999 ----------- ----------- Revenue $ 1,773,377 $ 1,359,982 Cost of goods sold 1,087,680 793,989 ----------- ----------- Gross Profit 685,697 565,993 Operating expenses: Research, development and engineering 633,849 477,182 Marketing and sales 540,184 589,409 General and administrative 257,057 230,481 ----------- ----------- Total operating expenses 1,431,090 1,297,072 ----------- ----------- Operating loss (745,393) (731,079) Interest income 37,130 4,619 ----------- ----------- Loss before income taxes (708,263) (726,460) Income tax expense 0 0 ----------- ----------- Net loss ($ 708,263) ($ 726,460) ----------- ----------- Net loss attributable to common stockholders: Net loss (708,263) (726,460) Preferred stock dividends 0 (24,350) Net loss attributable to common stockholders ($ 708,263) ($ 750,810) ----------- ----------- Basic and diluted loss per share ($ 0.10) ($ 0.24) ----------- ----------- Weighted average number of common shares outstanding 7,304,433 3,089,053 =========== ===========
See Notes to Consolidated Financial Statements 3 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended April 1, April 3, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net loss ($708,263) ($726,460) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 81,610 107,213 Amortization 55,551 21,143 Change in assets and liabilities (Increase) decrease: Trade receivables 300,722 194,186 Inventories (52,683) (106,029) Prepaid expenses and other 25,121 (46,508) Prepaid license fees and patent (4,988) (7,420) Increase (decrease) in: Accounts payable (128,296) (14,362) Accrued expenses 39,753 126,406 ----------- ----------- Net cash used in operating activities (391,473) (451,831) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of tooling and equipment (65,416) (35,529) ----------- ----------- Net cash provided by(used in) investing activities (65,416) (35,529) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of common stock 5,028,008 29,000 ----------- ----------- Net cash provided by financing activities 5,028,008 29,000 ----------- ----------- Increase(decrease) in cash and cash equivalents 4,571,119 (458,360) CASH AND CASH EQUIVALENTS Beginning 344,922 853,827 ----------- ----------- Ending $4,916,041 $395,467 ----------- ----------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Preferred stock dividend accrual 0 16,160 Preferred stock dividend converted to common stock 0 8,190 Conversion of preferred stock to common 0 151,520 ----------- ----------- $0 $175,870 =========== ===========
See Notes to Consolidated Financial Statements 4 DATAKEY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GENERAL In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly Datakey's financial position as of April 1, 2000, and December 31, 1999, and results of its operations and cash flows for the three-month period ended April 1, 2000, and April 3, 1999. The adjustments that have been made are of a normal recurring nature. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in the 1999 Datakey, Inc. Annual Report and in Form 10-KSB for the year ended December 31, 1999. OPERATING SEGMENTS The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, for the year ended December 31, 1998. This statement requires public enterprises to report selected information about operating segments in annual and interim reports issued to shareholders. The adoption of this statement had no impact on the Company's financial condition or results of operations. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. The Company has two reportable segments: Electronic Products (EP) and Information Security Solutions (ISS). The Electronic Products segment produces and markets proprietary memory keys, cards, and other custom-shaped tokens that serve as a convenient way to carry electronic information. The Information Security Solutions segment produces and markets products for the information security market, which enable user identification and authentication, secure data exchange, and information validation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There are no intersegment transactions. The Company evaluates performance based on operating earnings of the respective segments.
Three Months Ended April 1, 2000 ------------------- ------------------- ------------------- ------------------- EP ISS UNALLOCATED TOTAL ------------------- ------------------- ------------------- ------------------- Revenue.......................... $1,314,582 $458,795 $1,773,377 Interest Income.................. 37,130 37,130 Depreciation and amortization.... 54,200 82,961 137,161 Segment profit (loss)............ 42,371 (787,764) 37,130 (708,263) Three Months Ended April 3, 1999 ------------------- ------------------- ------------------- ------------------- EP ISS UNALLOCATED TOTAL ------------------- ------------------- ------------------- ------------------- Revenue.......................... $ 1,216,709 $ 143,273 $ - $ 1,359,982 Interest Income.................. - - 4,619 4,619 Depreciation and amortization.... 84,275 44,081 - 128,356 Segment profit (loss)............ 151,136 (882,215) 4,619 (726,460)
The Company does not segregate total assets between its two segments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION DATAKEY, INC. AND SUBSIDIARY RESULTS OF OPERATIONS AND FIANANCIAL CONDITION RESULTS OF OPERATIONS REVENUE - Revenue for the three-month period ended April 1, 2000, increased by $413,000, or 30 percent, compared to the first quarter of 1999. Electronic Products revenue increased by 8% and ISS revenue increased by over 220%. Total revenue increased by 30% primarily due to a substantial increase in revenue in the ISS business unit. This increase relates to an increase in the number of pilot orders received during the quarter as well as a significant contribution from license revenue. The Company expects to ship additional units for new pilot programs, expand existing pilot programs while converting certain others to production programs and to grant additional licenses during the balance of 2000. Should the Company be successful in achieving the increase in pilot orders, the conversion to production units and the signing of additional license agreements as management currently expects, revenue in 2000 will exceed revenue in 1999. GROSS PROFIT MARGIN - Gross profit as a percentage of revenue of 39 percent in the three-month period ended April 1, 2000, compares to 42 percent for the same period of 1999. The reduction in margin percentage in the current quarter, as compared to 1999, is primarily the result of amortization which commenced in the quarter ended April 1, 2000, at $55,000 per quarter, of a prepaid license in the original amount of $439,000 which will expire in December 2001. The Company expects the gross profit margin percentage to trend up gradually during the year provided that the increase in revenue materializes as expected. OPERATING EXPENSES - Operating expense increased by $134,000, or 10 percent, in the three-month period ended April 1, 2000, when compared to the same period in1999. The increase principally relates to an increase of $157,000 in research and development expense to continue expanding and improving the Company's ISS product line. Sales and marketing expense declined during the quarter as a result of vacancies in sales positions now being filled. The Company expects to continue spending on product promotional activities and on research, development, and engineering expenses in 2000 at a rate that will trend upward on a quarterly basis. Spending on general and administrative expenses are expected to remain at about the level incurred in the first quarter. INTEREST INCOME - Interest income increased from $4,620 to $37,130, for the three-month period ended April 1, 2000, compared to the first quarter of 1999 as the Company invested proceeds from a $4 million private equity placement in February 2000 and over $1 million from the exercise of warrants during the quarter in an interest bearing money market account. FINANCIAL CONDITION - During the three-month period ended April 1, 2000, the Company had an increase of $4,571,000 in cash and cash equivalents as compared to a decrease of $458,000 in the comparable 1999 period. The relative improvement in 2000 cash arose primarily from the sale of common stock in the February 2000 private equity placement and the exercise of warrants during the quarter. Datakey's balance sheet reflects $6,467,000 in working capital as of April 1, 2000, and a current assets to current liabilities ratio of 7.40 to 1. The Company expects to continue spending on R&D and on marketing and sales activities at an increased amount compared to 1999. Inventory and accounts receivable levels are expected to increase during the balance of 2000 to support the expected ramp-up in revenue from the Company's new information security products. The Company believes that its current working capital position in addition to it $1 million bank line of credit will provide sufficient funding for the balance of 2000. YEAR 2000 The Company has experienced no interruption in its business operations as a result of year 2000 issues related to its major software systems. The Company has, likewise, not been made aware of any year 2000 malfunctions in the embedded software contained in the products and systems sold by the Company. Should a problem come to light in the future the Company believes that, since nothing material has surfaced at this point, the cost to remedy any defects is likely to be insignificant. CAUTIONARY STATEMENTS The Management's Discussion and Analysis contains certain forward-looking statements relating primarily to expected new pilot programs, expansion and conversion to production of existing pilot programs, expected additional license revenue, and its ability to fund its operations in 2000. The statements are subject to certain risks and uncertainties, which could cause results to differ from those projected. These risks and uncertainties, in addition to those discussed above, include: (i) market acceptance of and demand for the Company's ISS products, (ii) the success of current pilot programs and customer demand to convert to production programs; (iii) the effectiveness of the Company's marketing and sales personnel (iv) the potential introduction of competitive products by companies with greater resources than that of the Company, and (v) the ability of the Company to manage its operations efficiently and without unexpected significant expenses. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 28, 2000, the Company sold 100,000 shares of common stock for $125,000 upon the exercise of a warrant held by an investor who acquired the warrant in connection with a private placement completed on October 29, 1999. The Company relied upon Section 4(2) of the Securities Act, which provides an exemption for transactions not involving a public offering. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Employment agreement effective April 1, 2000 between the Company and Colleen M. Kulhanek Exhibit 10.2 Management incentive bonus plan Exhibit 27 Financial Data Schedule (only filed with electronic copy) (b) The Company did not file a Form 8-K during the quarter ended April 1, 2000. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated May 15, 2000 Datakey, Inc. By: /s/ Carl P. Boecher Carl P. Boecher President & Chief Executive Officer (Principal Executive Officer) By: /s/ Alan G. Shuler Alan G. Shuler Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) Datakey, Inc. EXHIBIT INDEX TO FORM 10-QSB FOR QUARTER ENDED APRIL 1, 2000 EXHIBIT NO. DESCRIPTION *10.1 Employment agreement effective April 1, 2000 between the Company and Colleen M. Kulhanek *10.2 Management incentive bonus plan 27 Financial Data Schedule * Designates a management contract or compensatory plan or arrangement. EX-10.1 2 EMPLOYMENT AGREEMENT - KULHANEK EMPLOYMENT AGREEMENT This Employment Agreement made and entered into effective as of April 1, 2000, by and between Datakey, Inc., a Minnesota corporation (the "Company" or "Datakey"), and Colleen M. Kulhanek ("Executive"). RECITALS Executive has been appointed to serve as Vice President or Marketing of the Company as of the date hereof. The Company and the Executive are desirous that the Executive continue to serve the Company in this capacity under the following terms and conditions. AGREEMENT 1. Employment a. Datakey agrees to employ Executive on a full-time basis as the Vice President of Marketing. b. Executive agrees that she will, at all times, faithfully, industriously, and, to the best of her abilities, experience and talents, continue to perform all the duties and responsibilities that may be required of her as an officer of Datakey. 2. Term of Employment a. Subject to the terms and conditions hereof, Executive shall be employed for a term ("Employment Term") commencing on April 1, 2000 and terminating on April 1, 2001, unless extended as set forth in Subsection 2b below. b. This Agreement will be renewed automatically after April 1, 2001 for additional one-year periods unless either party gives the other party written notice 30 days before April 1, 2001 or 30 days before the end of any one-year period thereafter of her or its intention to terminate the Agreement. 3. Base Monthly Compensation As compensation for her services to Datakey, Executive shall be paid an annual salary of $104,000, subject to salary increases, if approved by the Board of Directors and documented in the Executive's personnel and/or payroll records, payable in accordance with Datakey's periodic payment periods. 4. Bonus Executive shall be eligible to participate in both the Annual Incentive Plan (AIP) and the Long-Term Incentive Plan or any other approved bonus plan. 5. Other Benefits During the term of this Agreement, Executive will be eligible to receive certain other benefits described in the attached Exhibit A, subject to such changes as Datakey may adopt from time to time for officers of the Company and salaried employees generally. 6. Termination a. Notwithstanding Section 2 above, the Employment Term or any extension thereof shall terminate upon the happening of any of the following events: (i) Mutual written agreement between the Board of Directors of Datakey and Executive to terminate her employment; (ii) Executive's death; (iii) Executive's disability, defined as physically or mentally unable to perform her duties as an officer of the Company for a period of six consecutive months; or (iv) For cause (as defined below) upon written notice from the Board of Directors specifying the nature of the cause. b. For purposes of this Agreement, "cause" shall include the commission of any felony, misdemeanor, or any act of fraud or dishonesty in connection with the affairs of Datakey. 7. Payment Upon Termination of Employment for Cause or Voluntary Resignation If Executive is terminated for cause or voluntarily resigns, Executive shall not be eligible to receive any severance benefits except as specifically agreed to at time of termination. The date of termination under this Section 7 shall be on the day the notice of termination for cause is given or 30 days from the date the notice of resignation is given. Executive shall be entitled to no additional compensation past the date of a notice of termination for cause or after 30 days from the notice of resignation. 8. Payment Upon Termination of Employment Without Cause or Termination Upon Failure to Renew a. If during the term of this Agreement Executive is terminated without cause, and without cause shall include death, disability or mutual agreement, or if the Company fails to renew the Agreement as of April 1, 2001, or at the end of any one-year extension, Executive shall not be entitled to receive her agreed compensation for the balance of the term of this Agreement but shall instead receive a severance payment equal to her base monthly compensation payable for six months in accordance with Datakey's payroll periods beginning the first month following the last month of her employment term. b. Base compensation shall be deemed to be the amount of current compensation or the date of termination reflected in the Company's personnel files but, in any event, no less than $104,000 per year. c. The payments provided for under this Section 8 shall, in the event of Executive's death, continue and shall be payable to her husband if he survives or, if not, to her estate. d. The Company will continue to provide medical and health coverage, under its plans as they currently exist or may hereafter be amended, at Company subsidized rates during the six-month severance pay period. Thereafter, Executive and her covered dependents will be entitled to elect to continue coverage under COBRA to the extent it is available. Coverage by the Company or under COBRA will end on the earlier of Executive's obtaining new employment, which gives her the ability to provide medical and health insurance coverage for herself and her family through her new employer, or the failure to pay any premium when due. In addition, the supplemental life and disability insurance and auto allowance as listed on Exhibit A will continue for six months at Company expense. 9. Termination of Employment or Resignation Within Twelve Months of a Change in Control a. If Employee's employment is terminated within twelve months of a Change of Control, or if Employee resigns within twelve months of a Change of Control because of a material diminution of position responsibilities or remuneration or relocation of 50 miles or more in work location, notwithstanding such termination or resignation, Employee shall receive her base monthly compensation for a period of twelve months in accordance with Datakey's payroll periods beginning the first month following Employee's termination or resignation in accordance with the Company's payroll periods. b. The Company will continue to provide medical and dental coverage, under its plans as they currently exist or may hereafter be amended, at Company subsidized rates during the twelve month severance pay period, provided Executive elects to extend such medical and dental coverage under COBRA. Thereafter, Executive and her covered dependents will be entitled to elect to continue coverage under COBRA, at her own expense, to the extent and for as long as it is available. Coverage by the Company or under COBRA will end on the earlier of Executive's obtaining new employment, which gives her the ability to provide medical and health insurance coverage for herself and her family through her new employer, or the failure to pay any premium when due. In addition, the supplemental life and disability insurance and auto allowance as listed on Exhibit A will continue for twelve months at Company expense. c. A Change in Control shall be deemed to have occurred if: (a) any person or entity not currently a shareholder of the Company becomes the beneficial owner of thirty-five percent (35%) or more of the Company's outstanding securities other than any institution, individual, individuals acting in concert, or entity owning thirty-five percent (35%) or more of the Company's outstanding securities as of the date of this Agreement; (b) the consummation of a merger or consolidation of the Company into or with any other corporation; (c) the consummation of a plan of complete liquidation of the Company; or (d) the consummation of the sale of substantially all of the Company's assets. d. The payments provided for under this Section 9 shall, in the event of Employee's death, continue and be payable to her husband if he survives or, if not, to her estate. 10. Nondisclosure Except by written permission from Datakey, Executive shall never disclose or use any trade secrets, sales projections, formulations, customer lists or information, product specifications or information, credit information, production know-how, research and development plans or other information not generally known to the public ("Confidential Information") acquired or learned by Executive during the course, and on account, of her employment, whether or not developed by Executive, except as such disclosure or use may be required by her duties to Datakey, and then only in strict accordance with her obligations of service and loyalty thereto. Upon termination of employment, Executive agrees to deliver to Datakey all Confidential Information. 11. Inventions Any invention, discovery, improvement, or idea, whether patentable or copyrightable or not, and whether or not shown or described in writing or reduced to practice ("Invention") shall be promptly and fully disclosed by Executive to the Company, and the Company will hold in trust for its sole right and benefit, any Invention that Executive, during the period of employment, and for one year thereafter, make, conceive, or reduce to practice or cause to be made, conceived, or reduced to practice, either alone or in conjunction with others, that: a. Relates to any subject matter pertaining to Executive's employment with the Company; b. Relates to or is directly or indirectly connected with the Company's business, products, projects, or Confidential Information; or c. Involves the use of any time, material, or facility of the Company's. Executive hereby assigns to the Company all of her right, title, and interest in and to all such Inventions and, upon the Company's request, shall execute, verify, and deliver to the Company such documents including, without limitation, assignments and applications for Letters Patent, and shall perform such other acts, including, without limitation, appearing as a witness in any action brought in connection with this Employment Agreement that is necessary to enable the Company to obtain the sole right, title, and benefit to all such Inventions. 12. Specific Performance Executive acknowledges that a breach of this Employment Agreement would cause Datakey irreparable injury and damage which could not be remedied or adequately compensated by damages at law; therefore, Executive expressly agrees that Datakey shall be entitled, in addition to any other remedies legally available, to injunctive and/or other equitable relief to prevent a breach of this Employment Agreement. 13. Noncompetition a. Executive will not, directly or indirectly, alone or in any capacity with another legal entity, (i) engage in any activity that competes in any respect with Datakey, (ii) contact or in any way interfere or attempt to interfere with the relationship of Datakey with any current or potential customers of Datakey, or (iii) employ or attempt to employ any employee of Datakey (other than a former employee thereof after such employee has terminated employment with the Datakey), for the following periods: (i) six months if the termination is without cause or upon failure to renew under Paragraph 8; or (ii) twelve months if the termination is for cause or voluntary resignation under Paragraph 7; or (iii) twelve months if the termination is covered by Paragraph 9. b. Executive acknowledges that Datakey markets products throughout the United States and that Datakey would be harmed if Executive conducted any of the activities described in this Section 13 anywhere in the United States. Therefore, Executive agrees that the covenants contained in this Section 13 shall apply to all portions of, and throughout, the United States. c. Executive acknowledges that if she fails to fulfill her obligations under this Section 13, the damages to Datakey would be very difficult to determine. Therefore, in addition to any other rights or remedies available to Datakey at law, in equity, or by statute, Executive hereby consents to the specific enforcement of the provisions of this Section 13 by Datakey through an injunction or restraining order issued by the appropriate court. d. To the extent any provision of this Section 13 shall be invalid or unenforceable, it shall be considered deleted herefrom and the remainder of such provision and this Section 13 shall be unaffected and shall continue in full force and effect. In furtherance to and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by, any provision of this Section 13 be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which are validly and enforceably covered. Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that this Section 13 be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its expressed terms) possible under applicable laws. 14 Miscellaneous a. Waiver by Datakey of a breach of any provision of this Agreement by Executive shall not operate or be construed as a waiver of any subsequent breach by Executive. b. This Agreement shall be binding upon and inure to the benefit of Datakey, its successors and assigns, and as to Executive, her heirs, personal representatives, estate, legatees, and assigns. c. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements whether written or oral relating hereto. d. This Agreement shall be governed by and construed under the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have hereto executed this Employment Agreement effective as of the day and year first above written. DATAKEY, INC. By /s/ Carl P. Boecher Carl P. Boecher, President /s/ Colleen M. Kulhanek Colleen M. Kulhanek, Executive EXHIBIT A TO EMPLOYMENT AGREEMENT DATED APRIL 1, 2000 EXECUTIVE BENEFITS - -- Group health, dental, life and disability insurance, 401K plan, 125 plan and other benefits as provided to all employees - -- Supplemental life insurance in the amount of $200,000, based upon standard rates and underwriting decisions regarding medical history, paid 100% by the Company - -- Supplemental long-term disability insurance paying up to $4,000 per month based upon standard rates and underwriting decisions regarding medical history, paid 90% by the Company - -- Auto allowance of $500 per month - -- Four weeks of annual vacation; unused vacation cannot be carried over - -- Sick leave as needed, up to 90 days at the discretion of the CEO - -- Comprehensive annual physical examination at Park Nicollet Executive Health Center paid by the Company - -- Up to $6,000 to be applied only to outplacement counseling of Executive's choice and paid directly to the outplacement counselor EX-10.2 3 OFFICER INCENTIVE BONUS PLAN DATAKEY, INC. OFFICER INCENTIVE BONUS PLAN FOR 2000 The Officer Incentive Bonus Plan for 2000 approved by the Board of Directors of Datakey, Inc. is summarized as follows: INCENTIVE BONUSES The Incentive Bonus Plan for 2000 is based on revenue and profit performance. Except as set forth below, each executive officer of the Company is entitled to a quarterly bonus pursuant to the following: o The bonus incentive dollar amount per quarter is established at either .75% or 1.5% of the quarter-to-quarter revenue growth of a particular business unit or units. o The amount earned each quarter is doubled in profitable quarters. The profit/loss calculation will include accrued bonus amounts. The profitability determination will be made on the respective business unit or units. o Quarterly bonus payouts will be made in cash, Datakey stock or options. o In the event of a change in control or sale of a business unit or units, bonus amounts will be computed and paid throughout the year as if the approved business plan revenue and profitability goals have been met. The Vice President and General Manager of the Integrated Systems Solutions business unit is entitled to a minimum bonus of $20,000 per quarter for the first three quarters of 2000 provided revenue objectives are met. EX-27 4 ART 5 FDS FORM 10-QSB
5 1 U.S. Dollars 3-MOS DEC-31-2000 JAN-01-2000 APR-01-2000 1 4,916,041 0 1,199,758 26,000 1,381,674 7,476,333 4,735,364 3,999,606 8,829,559 1,009,823 0 0 375,000 401,219 7,043,517 7,819,736 1,773,377 1,773,377 1,087,680 1,087,680 1,431,090 0 0 (708,263) 0 (708,263) 0 0 0 (708,263) (0.10) (0.10)
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