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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DATAKEY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
DATAKEY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 3, April 4,
1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
DATAKEY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 3, April 4,
1999 1998
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended April 3, 1999
------------------- ------------------- ------------------- -------------------
EP ISS UNALLOCATED TOTAL
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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)
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 395,467
<SECURITIES> 0
<RECEIVABLES> 695,450
<ALLOWANCES> 30,000
<INVENTORY> 1,113,977
<CURRENT-ASSETS> 2,277,638
<PP&E> 4,891,339
<DEPRECIATION> 3,878,872
<TOTAL-ASSETS> 3,950,864
<CURRENT-LIABILITIES> 859,973
<BONDS> 0
0
1,549,999
<COMMON> 155,563
<OTHER-SE> 1,385,329
<TOTAL-LIABILITY-AND-EQUITY> 3,950,864
<SALES> 1,359,982
<TOTAL-REVENUES> 1,359,982
<CGS> 793,989
<TOTAL-COSTS> 793,989
<OTHER-EXPENSES> 1,297,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (726,460)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (726,460)
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</TABLE>
