-----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, ALT0AtgO50SomqDd3VWxejsSjlDoELOjNWl+bTLbRvIwBm1cZHVcUgUztm30dL3i dF+iJ60r1hkTvG6k7mIVGA== 0000914190-99-000202.txt : 19990517 0000914190-99-000202.hdr.sgml : 19990517 ACCESSION NUMBER: 0000914190-99-000202 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990514 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: 99622886 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 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 3, 1999 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 14, 1999, is 3,111,249. 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 3, December 31, 1999 1998 ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 395,467 $ 853,827 Trade receivables, less allowance for doubtful accounts of $30,000 665,450 859,636 Inventories 1,113,977 1,007,948 Prepaid and other 102,744 56,237 ----------- ----------- Total current assets 2,277,638 2,777,648 ----------- ----------- OTHER ASSETS Prepaid licenses at cost less amortization 543,159 554,425 of $106,972 and $95,705 Patents at cost, less amortization of $143,694 and $133,818 117,600 120,056 ----------- ----------- 660,759 674,481 ----------- ----------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost Production tooling 1,245,089 1,251,857 Equipment 3,054,481 3,012,184 Furniture and fixtures 304,853 304,853 Leasehold improvements 286,916 286,916 ----------- ----------- 4,891,339 4,855,810 Less accumulated depreciation (3,878,872) (3,771,659) ----------- ----------- 1,012,467 1,084,151 ----------- ----------- $ 3,950,864 $ 4,536,280 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 421,511 $ 435,873 Accrued severance obligation 32,550 10,687 Accrued expenses 322,729 218,186 Accrued dividends 83,183 67,023 ----------- ----------- Total current liabilities 859,973 731,769 ----------- ----------- 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 Series A convertible preferred stock, voting, 8% cumulative, liquidation value $15.80 per share plus accrued dividends, authorized 150,000 shares; issued and outstanding 74,367 in 1999 and 83,957 in 1998 1,174,999 1,326,519 Common stock, par value $.05 per share; authorized 10,000,000 shares; issued and outstanding 3,111,259 in 1999 and 3,045,704 in 1998 155,563 152,285 Additional paid-in capital 4,979,097 4,793,665 Accumulated deficit (3,593,768) (2,842,958) ----------- ----------- 3,090,891 3,804,511 ----------- ----------- $ 3,950,864 $ 4,536,280 =========== ===========
See Notes to Consolidated Financial Statements 2 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended April 3, April 4, 1999 1998 ----------- ----------- Revenue $ 1,359,982 $ 1,483,555 Cost of goods sold 793,989 890,090 ----------- ----------- Gross Profit 565,993 593,465 Operating expenses: Research, development and engineering 477,182 399,123 Marketing and sales 589,409 476,157 General and administrative 230,481 212,316 ----------- ----------- Total operating expenses 1,297,072 1,087,596 ----------- ----------- Operating loss (731,079) (494,131) Interest income 4,619 11,541 ----------- ----------- Loss before income taxes (726,460) (482,590) Income tax expense 0 0 ----------- ----------- Net loss ($ 726,460) ($ 482,590) =========== =========== Net loss attributable to common stockholders: Net loss (726,460) (482,590) Preferred stock dividends (24,350) 0 ----------- ----------- Net loss attibutable to common stockholders ($ 750,810) ($ 482,590) =========== =========== Basic and diluted loss per share ($ 0.24) ($ 0.17) =========== =========== Weighted average number of common shares outstanding 3,089,053 2,887,235 =========== ===========
See Notes to Consolidated Financial Statements 3 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended April 3, April 4, 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ($ 726,460) ($ 482,590) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 107,213 123,351 Amortization 21,143 11,435 Change in assets and liabilities (Increase) decrease: Trade receivables 194,186 (260,742) Inventories (106,029) (86,919) Prepaid expenses and other (46,508) (21,127) Prepaid license fees 0 2,900 Increase (decrease) in: Accounts payable (14,362) 126,129 Accrued expenses 104,543 (2,356) Accrued severance 21,863 (66,772) ----------- ----------- Net cash used in operating activities (444,411) (656,691) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of tooling and equipment (35,529) (21,158) Patent costs (7,420) (12,418) ----------- ----------- Net cash provided by(used in) investing activities (42,949) (33,576) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of common stock 29,000 0 ----------- ----------- Net cash provided by financing activities 29,000 0 ----------- ----------- Increase(decrease) in cash and cash equivalents (458,360) (690,267) CASH AND CASH EQUIVALENTS Beginning 853,827 1,305,392 ----------- ----------- Ending $ 395,467 $ 615,125 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Preferred stock dividend accrual 16,160 0 Preferred stock dividend converted to common stock 8,190 0 Conversion of preferred stock to common 151,520 0 ----------- ----------- $ 175,870 $ 0 =========== ===========
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 3, 1999, and December 31, 1998, and results of its operations and cash flows for the three-month period ended April 3, 1999, and April 4, 1998. 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 1998 Datakey, Inc. Annual Report and in Form 10-KSB for the year ended December 31, 1998. 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 Integrated Systems 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 Integrated Systems 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 3, 1999 ------------------- ------------------- ------------------- ------------------- EP ISS UNALLOCATED TOTAL ------------------- ------------------- ------------------- ------------------- Revenue.......................... $ 1,216,709 $ 143,273 $ - $ 1,359,982 Interest Income.................. - - 4,619 4,619 Depreciation and amortization.... 79,343 51,255 - 130,598 Segment profit (loss)............ 151,136 (882,215) 4,619 (726,460) Three Months Ended April 4, 1998 ------------------- ------------------- ------------------- ------------------- EP ISS UNALLOCATED TOTAL ------------------- ------------------- ------------------- ------------------- Revenue.......................... $ 1,365,294 $ 118,261 $ - $ 1,483,555 Interest Income.................. - - 11,541 11,541 Depreciation and amortization.... 108,513 29,965 - 138,478 Segment profit (loss)............ 201,677 (695,808) 11,541 (482,590) 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 3, 1999, decreased by $124,000, or 8 percent, compared to the comparable 1998 period. The decline in revenue is due to a suspension in shipments to two major Electronic Products (EP) customers during the first quarter of 1999, offset in part by an increase in shipments to other EP customers. Shipments to Information Security Systems (ISS) customers increased only marginally. One major EP customer has resumed shipments during the second quarter and now indicates their requirements for the year will exceed the total for 1998. Additionally, other EP customers are expected to increase shipments during 1999 and the Company expects to secure several new pilot programs in the ISS business units, as well as convert a number of pilot programs to production deployment phase during the balance of 1999. Should the Company be successful in arranging new ISS pilot programs and production deployments, as management currently expects, revenue in 1999 will exceed that achieved in 1998. GROSS PROFIT MARGIN - Gross profit as a percentage of revenue increased to 42 percent in the three-month period ended April 3, 1999, compared to 40 percent in the comparable 1998 period. The 1999 improvement in margin percentage is due to improved factory direct labor utilization, a reduction in scrap and yield loss, and a favorable product mix. The Company expects the gross profit margin as a percentage of revenue to remain at the current levels, or improve slightly, for the balance of 1999. OPERATING EXPENSES - Operating expense increased by $209,500, or 19 percent, in the three-month period ended April 3, 1999, compared to the comparable 1998 period. The increase is principally related to an increase of $113,000 in sales and marketing expense to continue advertising and promoting the Company's ISS product line. Other expense increases are primarily general inflationary increases in rent, corporate insurance, and salaries. The Company expects to continue spending on product promotional activities in 1999 at a rate that will trend upward on a quarterly basis. Spending on research, development, and engineering expenses and general and administrative expenses are expected to remain at about the level incurred in the first quarter. INTEREST INCOME - Interest income declined from $11,500 to $4,600, in the three-month period ended April 3, 1999, compared to the comparable 1998 period as proceeds from interest bearing accounts were utilized to fund new product development and product promotion activities. Interest income is expected to decline further in the second quarter of 1999, and the Company may incur interest expense from borrowing on the $1 million bank line of credit. FINANCIAL CONDITION - During the three-month period ended April 3, 1999, the Company had a decrease of $458,000 in cash and cash equivalents as compared to a decrease of $690,000 in the comparable 1998 period. The relative improvement in 1999 cash flow is primarily a result of a $260,000 reduction in working capital investment in accounts receivable, due to a reduction in revenue as compared to the comparable 1998 period. Datakey's balance sheet reflects $1,418,000 in working capital as of April 3, 1999, and a current assets to current liabilities ratio of 2.65 to 1. The Company expects to continue spending on R&D and on marketing and sales activities at an increased amount compared to 1998. Inventory and accounts receivable levels are expected to increase during the balance of 1999 to support the expected ramp-up in revenue from the Company's new information security products. The Company believes that in addition to its bank line of credit and cash flow from operations it likely will need to obtain additional equity financing to be able to fund its operations, and has engaged an investment banker to seek such financing. The Company's ability to obtain such financing may depend on the progress it makes in significantly increasing ISS product sales. There is no assurance that a significant increase in ISS sales will occur or that the Company will be able to obtain the required equity financing. Year 2000 The Company began addressing the Year 2000 issue in 1997 using a multi-step approach, including inventory and assessment, remediation and testing, and contingency planning. The Company, with the assistance of outside consultants, began by analyzing and testing its major internal software programs to determine the level of compliance with the changeover in Year 2000. At this point the Company believes all "mission critical" systems are either materially compliant or will be materially compliant by June 30, 1999, with minor software upgrades. The Company is currently seeking assurances from key suppliers and customers regarding their Year 2000 readiness. The Company has not yet completed this part of the assessment phase and cannot predict the outcomes of other companies' remediation efforts. The Company currently plans to substantially complete its Year 2000 compliance efforts by September 1999. The Company has also formed a team to develop contingency plans by September 30, 1999, in the event certain suppliers are unable to deliver critical parts and components in early 2000. At this time, the Company believes that its most reasonably likely worst case scenario is that the Company could experience delays in delivery of critical parts and supplies and/or key customers could experience a delay in delivery of needed Datakey parts. In the event that either of these scenarios occur, the Company expects that it would have a material adverse effect on the Company's financial condition and results of operations. The Company estimates that the total cost of efforts, in 1999, to make hardware and software Year 2000 compliant, will be approximately $20,000. CAUTIONARY STATEMENTS The Management's Discussion and Analysis contains certain forward-looking statements relating primarily to the introduction of the Company's information security products and the anticipated generation of significant revenue from such products and an increase in sales of its electronic products, and its ability to fund its operations in 1999. 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) the ability of the Company to successfully develop all of the new products under development and to control costs as necessary; (ii) the capability of the new products to function as currently anticipated; (iii) the potential introduction of competitive products by companies with greater resources than that of the Company, and (iv) market acceptance of the new products. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Employment agreement effective January 1, 1999 between the Company and Carl P. Boecher Exhibit 10.2 Employment agreement effective January 1, 1999 between the Company and Alan G. Shuler Exhibit 10.3 Employment agreement effective January 1, 1999 between the Company and Michael L. Sorensen Exhibit 27 Financial Data Schedule (only filed with electronic copy) (b) The Company was not required to and did not file a Form 8-K during the quarter ended April 3, 1999. 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 14, 1999 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 3, 1999 EXHIBIT NO. DESCRIPTION *10.1 Employment agreement effective January 1, 1999 between the Company and Carl P. Boecher *10.2 Employment agreement effective January 1, 1999 between the Company and Alan G. Shuler *10.3 Employment agreement effective January 1, 1999 between the Company and Michael L. Sorensen 27 Financial Data Schedule * Designates a management contract or compensatory plan or arrangement. EX-10.1 2 EMPLOYMENT AGREEMENT - CARL P. BOECHER EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") made and entered into effective as of January 1, 1999, by and between Datakey, Inc., a Minnesota corporation (the "Company" or "Datakey"), and Carl P. Boecher ("Executive"). RECITALS Carl P. Boecher joined the Company in January 1995 as Vice President of Sales and Marketing. He was appointed President and Chief Executive Officer on December 1, 1996 and has served in this capacity since that time. The parties desire to enter into a new Employment Agreement. AGREEMENT 1. Employment a. Datakey agrees to continue to employ Executive on a full-time basis as the President and Chief Executive Officer. b. Executive agrees that he will, at all times, faithfully, industriously, and, to the best of his abilities, experience and talents, continue to perform all the duties and responsibilities that may be required of him 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 January 1, 1999 and terminating on January 1, 2000, unless extended as set forth in Subsection 2b below. b. This Agreement will be renewed automatically after January 1, 2000 for additional one-year periods unless either party gives the other party written notice 30 days before January 1, 2000 or 30 days before the end of any one-year period thereafter of his or its intention to terminate the Agreement. 3. Base Monthly Compensation As compensation for his services to Datakey, Executive shall be paid a monthly salary of $11,025, plus salary increases, if any, 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 his employment; (ii) Executive's death; (iii) Executive's disability, defined as physically or mentally unable to perform his 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 Agreement 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 January 1, 2000, or at the end of any one-year extension, Executive shall not be entitled to receive his agreed compensation for the balance of the term of this Agreement but shall instead receive a severance payment equal to his base monthly compensation payable for 12 months in accordance with Datakey's payroll periods beginning the first month following the last month of his 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 $11,025 per month. c. The payments provided for under this Section 8 shall, in the event of Executive's death, continue and shall be payable to his wife if she survives or, if not, to his 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 twelve-month severance pay period. Thereafter, Executive and his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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. 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 his base monthly compensation for a period of twenty-four 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 twenty-four month severance pay period, provided Executive elects to extend such medical and dental coverage under COBRA. Thereafter, Executive and his covered dependents will be entitled to elect to continue coverage under COBRA, at his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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 twenty-four 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 his wife if she survives or, if not, to his 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 his employment, whether or not developed by Executive, except as such disclosure or use may be required by his duties to Datakey, and then only in strict accordance with his 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 his 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) twelve months if the termination is without cause or upon failure to renew under Paragraph 8; or (ii) twenty-four months if the termination is for cause or voluntary resignation under Paragraph 7; or (iii) twenty-four 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 he fails to fulfill his 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, his 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. /s/ Gary Holland By: Gary Holland, Chairman of the Board /s/ Carl P. Boecher Carl P. Boecher, Executive EXHIBIT A TO EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 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 $300,000, based upon standard rates and underwriting decisions regarding medical history, paid 100% by the Company - -- Supplemental long-term disability insurance paying $5,000 per month based upon standard rates and underwriting decisions regarding medical history, paid 90% by the Company - -- Auto allowance of $600 per month - -- Vacation as required - -- 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 EMPLOYMENT AGREEMENT - ALAN SHULER EMPLOYMENT AGREEMENT This Employment Agreement made and entered into effective as of January 1 1999, by and between Datakey, Inc., a Minnesota corporation (the "Company" or "Datakey"), and Alan G. Shuler ("Executive"). RECITALS Alan G. Shuler has been the Vice President and Chief Financial Officer ("CFO") of the Company since June 1992. 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 continue to employ Executive on a full-time basis as the Vice President and Chief Financial officer. b. Executive agrees that he will, at all times, faithfully, industriously, and, to the best of his abilities, experience and talents, continue to perform all the duties and responsibilities that may be required of him 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 January 1, 1999 and terminating on January 1, 2000, unless extended as set forth in Subsection 2b below. b. This Agreement will be renewed automatically after January 1, 2000 for additional one-year periods unless either party gives the other party written notice 30 days before January 1, 2000 or 30 days before the end of any one-year period thereafter of his or its intention to terminate the Agreement. 3. Base Monthly Compensation As compensation for his services to Datakey, Executive shall be paid a monthly salary of $9,084, plus salary increases, if any, 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 his employment; (ii) Executive's death; (iii) Executive's disability, defined as physically or mentally unable to perform his 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 January 1, 2000, or at the end of any one-year extension, Executive shall not be entitled to receive his agreed compensation for the balance of the term of this Agreement but shall instead receive a severance payment equal to his base monthly compensation payable for six months in accordance with Datakey's payroll periods beginning the first month following the last month of his 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 $9,084 per month. c. The payments provided for under this Section 8 shall, in the event of Executive's death, continue and shall be payable to his wife if she survives or, if not, to his 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 his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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 his 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 his covered dependents will be entitled to elect to continue coverage under COBRA, at his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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 his wife if she survives or, if not, to his 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 his employment, whether or not developed by Executive, except as such disclosure or use may be required by his duties to Datakey, and then only in strict accordance with his 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 his 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 he fails to fulfill his 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, his 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/ Alan G. Shuler Alan G. Shuler, Executive EXHIBIT A TO EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 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-10.3 4 EMPLOYMENT AGREEMENT - MICHAEL SORENSEN EMPLOYMENT AGREEMENT This Employment Agreement made and entered into effective as of January 1, 1999, by and between Datakey, Inc., a Minnesota corporation (the "Company" or "Datakey"), and Michael L. Sorensen ("Executive"). RECITALS Michael L. Sorensen joined the Company April 16, 1997 as Vice President of Operations and became the Vice President and General Manager, Electronic Products on October 20, 1997. 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 continue to employ Executive on a full-time basis as the Vice President and General Manager, Electronic Products. b. Executive agrees that he will, at all times, faithfully, industriously, and, to the best of his abilities, experience and talents, continue to perform all the duties and responsibilities that may be required of him 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 January 1, 1999 and terminating on January 1, 2000, unless extended as set forth in Subsection 2b below. b. This Agreement will be renewed automatically after January 1, 2000 for additional one-year periods unless either party gives the other party written notice 30 days before January 1, 2000 or 30 days before the end of any one-year period thereafter of his or its intention to terminate the Agreement. 3. Base Monthly Compensation As compensation for his services to Datakey, Executive shall be paid a monthly salary of $8,750, plus salary increases, if any, 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 his employment; (ii) Executive's death; (iii) Executive's disability, defined as physically or mentally unable to perform his 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 January 1, 2000, or at the end of any one-year extension, Executive shall not be entitled to receive his agreed compensation for the balance of the term of this Agreement but shall instead receive a severance payment equal to his base monthly compensation payable for six months in accordance with Datakey's payroll periods beginning the first month following the last month of his 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 $8,750.00 per month. c. The payments provided for under this Section 8 shall, in the event of Executive's death, continue and shall be payable to his wife if she survives or, if not, to his 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 his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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 his 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 his covered dependents will be entitled to elect to continue coverage under COBRA, at his 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 him the ability to provide medical and health insurance coverage for himself and his family through his 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 his wife if she survives or, if not, to his 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 his employment, whether or not developed by Executive, except as such disclosure or use may be required by his duties to Datakey, and then only in strict accordance with his 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 his 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 he fails to fulfill his 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, his 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/ Michael L. Sorensen Michael L. Sorensen, Executive EXHIBIT A TO EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 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 $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 or current policy rate of Company - -- 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-27 5 ART 5 FDS FOR 1ST QUARTER
5 1 U.S. Dollars 3-MOS DEC-31-1999 JAN-01-1999 APR-03-1999 1 395,467 0 695,450 30,000 1,113,977 2,277,638 4,891,339 3,878,872 3,950,864 859,973 0 0 1,549,999 155,563 1,385,329 3,950,864 1,359,982 1,359,982 793,989 793,989 1,297,072 0 0 0 0 (726,460) 0 0 0 (726,460) (.24) (.24)
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