As filed with the Securities and Exchange Commission on November 15, 1999
Registration No. 333-________
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DATAKEY, INC.
(Name of Registrant as specified in its Charter)
Minnesota 41-1291472
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Datakey, Inc.
407 West Travelers Trail
Burnsville, Minnesota 55337
(612) 890-6850
(Address and Telephone Number of Registrant's Principal Executive Offices)
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Alan G. Shuler, CFO
Datakey, Inc.
407 West Travelers Trail
Burnsville, Minnesota 55337
(612) 890-6850
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Elizabeth McGraw Reiskytl, Esq.
Fredrikson & Byron, P.A.
900 Second Avenue South, Suite 1100
Minneapolis, Minnesota 55402
(612) 347-7000
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions and other factors and as Selling Shareholders
shall determine.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box:
If any of the securities being registered on this form to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box:
If this Form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered per Unit (1) Price (1) Registration Fee
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock (par value 429,978 $1.65625 $712,151.06 $197.98
$0.05 per share)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
TOTAL 429,978 shares $197.98
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
(the "Act") and based upon the average of the high and low sale prices for
such stock on November 11, 1999, as reported by the Nasdaq SmallCap
Market.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commissions, acting pursuant to aforesaid
Section 8(a), may determine.
<PAGE>
PROSPECTUS
DATAKEY, INC.
429,978 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale of up to 429,978 shares
of Common Stock (the "Shares"), par value $.05 per share, of Datakey, Inc., a
Minnesota corporation (the "Company" or "Datakey"), that may be offered and sold
from time to time by the shareholders described herein under "Selling
Shareholders" (the "Selling Shareholders") or by pledgees, donees, transferees,
or other successors in interest that receive such shares as a gift,
distribution, or other non-sale related transfer. The Selling Shareholders may
offer their Shares from time to time through or to brokers or dealers in the
over-the-counter market at market prices prevailing at the time of sale or in
one or more negotiated transactions at prices acceptable to the Selling
Shareholders. The Company will not receive any proceeds from the sale of Shares
by the Selling Shareholders.
See "Plan of Distribution."
The Company will bear all expenses of the offering (estimated at
$7,210), except that the Selling Shareholders will pay any applicable
underwriter's commissions and expenses, brokerage fees or transfer taxes, as
well as any fees and disbursements of counsel and experts for the Selling
Shareholders.
The Shares may be sold from time to time in transactions on the Nasdaq
SmallCap Market at the market prices then prevailing, in privately negotiated
transactions or otherwise. In connection with any sales, the Selling
Shareholders and any brokers and dealers participating in such sales may be
deemed to be "underwriters" within the meaning of the Securities Act. See "Plan
of Distribution."
Datakey's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol of "DKEY." The closing sale price of the Common Stock on November 11,
1999 was $1.5625 per share.
The Shares are comprised of 429,978 shares of Common Stock issued by
the Company to certain investors on November 11, 1999 pursuant to a letter
agreement dated October 29, 1999 between the Company and the Selling
Shareholders. A copy of such agreement is filed as Exhibit 10.1 to the Form S-3
Registration Statement of which this is a part.
The Common Stock offered by this Prospectus is speculative and
involves a high degree of risk. See "Risk Factors" beginning on page 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1999.
<PAGE>
No dealer, salesman or any other person is authorized to give any
information or to make any representations, other then those contained or
incorporated by reference in this Prospectus, in connection with the offering
contemplated hereby, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the registered securities to which it relates or
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained or incorporated by reference herein is
correct as of any time subsequent to its date.
AVAILABLE INFORMATION
Prior to this Offering, the Company has been subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. The Company has filed with the Washington, D.C. Office of the
Commission a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the sale of the Shares.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Shares, reference is made to the Registration
Statement, including the exhibits thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement and the Company's Exchange Act reports,
proxy statements and other information may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of all or any part of such material may be obtained upon
payment of the prescribed fees from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Registration
Statement and the Company Exchange Act filings may also be accessed through the
Commission's Web site (http://www.sec.gov). The Company's Common Stock is
currently listed on the Nasdaq SmallCap Market under the symbol "DKEY."
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus and shall be deemed to be a
part thereof:
1. The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998;
2. The Company's Quarterly Report on Form 10-QSB for the quarter
ended April 3, 1999;
3. The Company's Form 8-K dated June 21, 1999.
4. The Company's Quarterly Report on Form 10-QSB for the quarter
ended July 3, 1999;
5. The Company's Form 8-K dated October 25, 1999; and
6. The Company's Form 8-K dated October 29, 1999.
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to Alan G. Shuler, Chief
Financial Officer, Datakey, Inc., 407 West Travelers Trail, Burnsville,
Minnesota 55337, telephone (612) 890-6850.
COMPANY SUMMARY
Datakey, Inc. was incorporated under the laws of the State of Minnesota
in 1976 under the name "The Systems Group, Inc." In 1980, the Company changed
its name to Datakey, Inc. The Company provides product, subsystem and system
solutions to record, store and transmit electronic information. Datakey also
manufactures and sells products and systems directed to the information security
market which enable user identification and authentication, secure data exchange
and information validation. It also provides OEM products, consisting of
proprietary memory keys, cards and other custom-shaped tokens that serve as a
convenient way to carry electronic information and are packaged to survive in
portable environments.
The Company's first portable memory products, consisting of an
electronic key and support electronics, were introduced in 1981 for applications
requiring convenient storage, transportation and management of information. The
Company's current products utilize semiconductor technology to provide a storage
device more versatile than conventional portable information products such as
keys, badges and magnetic stripe cards. The Company's current product line of
portable memory devices and associated interface products provide up to
16,384,000 bits of data storage which are used in a wide range of applications
including communications security, computer security, facility security, vending
and process control.
Each of the Company's portable memory systems consist of one or more
portable memory devices, access devices and, for certain models, interface
modules containing microprocessors. These components, together with the user's
processor-based equipment, function as an integrated system allowing
instantaneous processing of personalized data carried within a portable data
carrier. Through the incorporation of advanced semiconductor memory technology,
the Company's portable memory device is able to store and carry substantial
amounts of information. When the memory device is used in conjunction and with
the other components of the Company's system, information can be selectively
altered, added to or erased, as required, to effectively and reliably manage or
control a particular activity or transaction.
The Company has introduced end-user systems that utilize smart cards or
smart keys and are designed to provide advanced information security utilizing
digital signatures and encryption. These systems incorporate hardware and
software to provide a higher level of security than is obtainable with current
software only solutions.
The Company's principal executive offices are located at 407 West
Travelers Trail, Burnsville, Minnesota 55337, and its telephone number is (612)
890-6850.
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk. The Securities offered hereby should not be purchased by persons who
cannot afford the entire loss of their investment. Prospective investors should
carefully consider the following factors, in addition to the other information
presented in this Prospectus, in evaluating the Company and its businesses. This
Prospectus contains certain forward-looking statements. The Company's actual
results could differ materially from the results currently anticipated by
management of the Company in such forward-looking statements as a result of a
variety of factors, including, but not limited to, "Risk Factors" described
below, and elsewhere, in this Prospectus.
1. Losses: The Company incurred losses of $4,183,000 and $2,289,000 in 1997
and 1998, respectively, related primarily to the development of its information
security products. Additional losses total $2,295,000 through October 2, 1999,
and material losses will continue at least through the remainder of 1999. The
Company's ability to obtain profitability is dependent on significantly
increasing sales of its information security products, and there is no assurance
the Company will be successful in this regard.
2. Reliance on information security products: The Company's future growth and
profitability is to a significant extent dependent on the success of its
information security (Integrated System Solutions) products, which is subject to
all of the risks inherent in the establishment of any new business venture. The
Company's development, manufacture and distribution of its information security
products is consuming the majority of the Company's cash and is unprofitable.
Sales levels of such products are far below the Company's projections set at the
beginning of 1999, and there is no assurance that sales of ISS products will
ever be sufficient for the Company to attain profitability. If, for any reason,
the Company is unsuccessful in increasing the sales of its information security
products and attaining overall profitability, the Company's ability to continue
operations in its current form would be doubtful.
3. Risk of rapid technological change: In the information security market,
Datakey faces significant risks due to the rapid and continual changes in
available technology. Datakey's information security end-user products such as
SignaSURE CIP and SignaSURE ESS, will integrate hardware tokens with software
that provides a much higher level of security than software implementations
alone. Software only solutions may be developed in the future which could
provide this security. Such development could materially adversely affect
Datakey's business.
4. Dependence on customer acceptance: While Datakey performs market research
and beta testing to determine the viability of its new products, actual user
acceptance will ultimately dictate the success of the marketing and sales
efforts of new products such as SignaSURE CIP and ESS. Based on the Company's
experience to date, there are no assurances that Datakey's products will
ultimately receive satisfactory customer acceptance or that investments already
made and additional investments planned for 1999 will result in an acceptable
financial return.
5. Dependence on Management and Technical Personnel: The Company's ability to
meet its projections for the Company's information security business depends
upon the efforts and abilities of its management team, its software engineers
and other technical personnel. The Company's inability to retain such highly
skilled persons due either to its current economic circumstances or the intense
competition faced in the market for such persons would substantially limit the
Company's ability to further its efforts in this new business venture.
<PAGE>
6. Possible Delisting of Common Stock from Nasdaq SmallCap Market: Issuers
listed on Nasdaq are subject to a rule requiring prior shareholder approval of
the issuance of securities in a non-public offering involving the sale or
issuance of Common Stock (or securities convertible into or exercisable for
common stock) equal to 20 percent or more of the outstanding common stock, if
such shares are sold for less than the market value of the stock. Shareholder
approval is also required if the issuance of securities will result in a change
of control of the Company. If Nasdaq regulators conclude that the October 1999
financing or such financing combined with the June 1999 private placement
(either before or after the issuances of securities described in recently filed
reports on Form 8-K) require such shareholder approval, and the Company is not
successful in obtaining an appropriate exemption from the shareholder approval
rule, the Company may likely face delisting from the Nasdaq SmallCap Market. If
the Company is delisted, trading, if any, in the Company's Common Stock may then
continue to be conducted in the non-Nasdaq over-the-counter market. As a result,
an investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of the Company's Common Stock. In addition,
the Company may be subject to other Securities and Exchange Commission rules
imposing various sales practice requirements on broker-dealers who sell such
securities, which may have an adverse effect on the ability of broker-dealers to
sell the Company's Common Stock and may affect the ability of purchasers in this
offering to sell the Company's Common Stock in the secondary market.
7. Need for additional capital: Even though the Company raised $1,500,000
pursuant to the October 1999 offering, the Company may require additional
capital in 2000, the amount of which will depend primarily on the sales levels
of the Company's information security products. To date, the Company has not
been able to accurately project future information security product sales, and
there is no assurance that its current sales projections will be met. If the
Company is not successful in significantly increasing the sales levels of its
integrated system solutions products in 2000, the Company may be forced at some
point in 2000 or thereafter to curtail or discontinue operations unless it was
then in a position to obtain the required additional capital. Such capital may
not be available on terms satisfactory to the Company, or at all.
8. Delays in product delivery schedules: Datakey's success depends to a
certain extent on its ability to meet its currently scheduled development
timetable. Delays in the release of new products will cause operational
inefficiencies, increased development costs and reduced revenues and may affect
customer acceptance.
9. Price competition: While Datakey believes that its strategy of providing
token-based product solutions at a price that is competitive with software-only
products is attainable, there are no assurances that competitive pressures will
not force the Company to accept reduced margins to compete in the future. Large
companies with significantly greater resources have recognized the need for
information security and will likely enter this market as competitors with much
greater financial resources. A portion of the end-user's product cost consists
of royalties and license fees, which would need to be re-negotiated in order to
maintain acceptable profit margins.
10. Risk of integrated information security products: Although the Company's
new products are designed to operate seamlessly with popular application
programs, new application programs that integrate information security into
their product could erode the future market for these Datakey products.
11. Dependence on new marketing and sales organization: The future revenue of
Datakey end-user systems is dependent on the success of a new and untested
marketing and direct sales organization.
12. Competition from other information transmission media: Corporate
utilization of the Internet and internal intranets dictate a need for
information security, but there are no assurances that other, more secure
information transmission media may not become available in the future that would
preclude the need for the type of information security provided by the Company's
products.
<PAGE>
13. Year 2000 Risks: The Company has been addressing the Year 2000 issue
internally as well as with key suppliers and customers, with the goal of
material compliance by December 1999. If such issues are not adequately resolved
by the Company or key third parties, the Company could experience a delay 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's financial condition and results of operations
will likely be materially adversely affected.
USE OF PROCEEDS
The Company is not selling any of the Shares and will not receive any
proceeds from the sale of the Shares by the Selling Shareholders.
<PAGE>
SELLING SHAREHOLDERS
Set forth below are the names of the Selling Shareholders, the number
of shares of Common Stock of the Company beneficially owned by each of them on
the date hereof, the number of shares offered hereby and the percentage of the
outstanding Common Stock to be owned if all the shares registered hereunder are
sold by the Selling Shareholders. The shares offered hereby shall be deemed to
include shares offered by any pledgee, donee, transferee or other successor in
interest of any of the Selling Shareholders listed below, provided that this
prospectus is amended or supplemented if required by applicable law.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Number of Shares % Owned After
Name Owned Offered Hereby Offering (1)
<S> <C> <C> <C>
Special Situations Private Equity Fund, L.P.(2) 749,184 338,479 7.1%
Special Situations Technology Fund, L.P. (2) 202,016 91,499 1.9%
</TABLE>
(1) The percentage of shares beneficially owned by each Selling Shareholder
is based on 5,791,772 shares of Common Stock outstanding as of the date
hereof. Assumes the sale of all the Shares being offered hereby.
(2) Special Situations Private Equity Fund, L.P. and Special Situations
Technology Fund, L.P. (the "Funds") may be deemed to be affiliates
because they are managed by investment advisers principally owned by
Mr. Austin W. Marxe and Mr. David M. Greenhouse, both of whom disclaim
beneficial ownership in such shares. Special Situations Cayman Fund,
L.P. is an affiliate of the Funds and owns 4,800 shares of Datakey
Common Stock not included in the table above.
The Selling Shareholders and the officers and directors of any of such
Selling Shareholders have not held any positions or office or had any other
material relationship with the Company or any of its affiliates within the past
three years.
The Company has agreed with the Selling Shareholders to file with the
Commission, under the Securities Act, a Registration Statement of which this
Prospectus forms a part, with respect to the resale of the Shares, and has
agreed to prepare and file such amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement effective until
the earlier of (i) five years from the effectiveness of the Registration
Statement, or (ii) the date on which all of the Shares have been sold.
<PAGE>
PLAN OF DISTRIBUTION
All or a portion of the Shares offered by the Selling Shareholders
hereby may be sold from time to time by the Selling Shareholders or by pledgees,
donees, transferees or other successors in interest. Such sales may be made in
the over-the-counter market or otherwise at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following means: (a)
ordinary brokerage or market making transactions and transactions in which the
broker or dealer solicits purchasers; (b) block trades in which the broker or
dealer so engaged will attempt to sell the Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; and
(c) purchases by a broker or dealer as principal and resales by such broker or
dealer for its account pursuant to this Prospectus. In effecting sales, brokers
or dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers will receive commissions or discounts
from the Selling Shareholders in amounts to be negotiated immediately prior to
the sale. Such brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In addition, any securities covered by this
Prospectus which qualify for sale pursuant to Rule 144 under the Act may be sold
under Rule 144 rather than pursuant to this Prospectus.
The Company and the Selling Shareholders have agreed to indemnify each
other against certain liabilities, including liabilities arising under the
Securities Act.
DESCRIPTION OF SECURITIES
The aggregate number of shares of stock which the Company has the
authority to issue is 12,500,000 shares, consisting of 10,000,000 shares of
Common Stock, par value $.05, 400,000 shares of Convertible Preferred Stock,
150,000 shares of Series A Convertible Cumulative Preferred Stock and 1,950,000
shares of undesignated shares. Holders of Common Stock have no cumulative voting
rights and no preemptive rights. Upon liquidation or dissolution, the holders of
Common Stock will be entitled to share ratably in all assets available for
distribution after the payment or provision for payment of all debts and
liabilities and subject to the rights of the holders of any preferred stock
which may be outstanding. Each share of Common Stock is entitled to dividends as
may from time to time be declared by the Board of Directors out of funds legally
available therefor. The shares of Common Stock are quoted on the Nasdaq SmallCap
Market under the symbol "DKEY." The outstanding shares of Common Stock,
including the shares of Common Stock offered hereby, are fully paid and
nonassessable.
LEGAL MATTERS
Certain legal matters associated with the Shares being offered hereby
will be passed upon for the Company by Fredrikson & Byron, P.A., Minneapolis,
Minnesota.
EXPERTS
The consolidated financial statements incorporated in this prospectus
by reference from the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 have been audited by McGladrey & Pullen, LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
<PAGE>
TABLE OF CONTENTS
Page
Available Information 2
Documents Incorporated By Reference 2
Company Summary 3
Risk Factors 4
Use of Proceeds 6
Selling Shareholders 7
Plan of Distribution 8
Description of Securities 8
Legal Matters 8
Experts 8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this offering are as follows:
Securities and Exchange Commission Filing Fee $200
Legal Fees and Expenses 2,000
Accounting Fees and Expenses 4,000
Printing 500
Miscellaneous 500
==================
Total Expenses $7,210
==================
Item 15. Indemnification of Directors and Officers.
Section 302A.521 of the Minnesota Business Corporation Act provides
that a corporation shall indemnify any person who was or is threatened to be
made a party to any proceeding by reason of the former or present official
capacity of such person, against judgments, penalties and fines, including,
without limitation, excise taxes assessed against such person with respect to an
employee benefit plan, settlements and reasonable expenses, including attorneys'
fees and disbursements, incurred by such person in connection with the
proceeding, if, with respect to the acts or omissions of such person complained
of in the proceeding, such person has not been indemnified by another
organization or employee benefit plan for the same expenses with respect to the
same acts or omissions, acted in good faith, received no improper personal
benefit and Section 302A.255 (which pertains to director conflicts of interest),
if applicable, has been satisfied; in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and in the case of acts or
omissions by person in their official capacity for the corporation, reasonably
believed that the conduct was in the best interests of the corporation, or in
the case of acts or omissions by persons in their capacity for other
organizations, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Section 302A.521 also permits Minnesota corporations to amend their
Articles of Incorporation to limit or eliminate personal liability of directors
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty; however, forbids any limitation or elimination of director
liability for (i) a breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) corporate distributions which are either illegal or in
contravention of restrictions in the Articles, Bylaws or any agreement to which
the corporation is a party, (iv) violations of Minnesota securities laws, (v)
any transaction from which the director derived an improper personal benefit, or
(vi) any act or omission occurring prior to the effective date of the provision
in the corporation's Articles eliminating or limiting liability.
Article 6.1 of the Registrant's Restated Articles of Incorporation, as
amended, reads as follows:
<PAGE>
To the fullest extent permitted by the Minnesota Business Corporation
Act as the same exists or may hereafter be amended, a director of this
corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a
director.
The Company's Amended Bylaws provide for the indemnification of its
directors, officers, employees and agents in accordance with, and to the fullest
extent permitted by, Section 302A.521 of the Minnesota Business Corporation Act,
as amended from time to time.
Insofar as the indemnification of liabilities arising under the 1933
Act, as amended, may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions of its Restated Articles of
Incorporation, Restated Bylaws and the provisions of the Minnesota Business
Corporation Act, or otherwise, the Company has been advised by counsel that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act, as amended, and is, therefore,
unenforceable.
Item 16. Exhibits.
See Exhibit Index on page following signatures.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the registration
statement; and
(iii) Include any additional material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports file by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
<PAGE>
(2) That for determining liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Burnsville, State of Minnesota, on November 15, 1999.
Datakey, Inc.
By: /s/ Carl P. Boecher
Carl P. Boecher
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Alan G. Shuler
Alan G. Shuler
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Carl P.
Boecher and Alan G. Shuler, and each of them, as his or her true and lawful
attorney-in fact and agent, with full power and substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
Signatures Title Date
/s/ Carl P. Boecher President and Chief Executive November 15, 1999
Carl P. Boecher Officer
/s/ Alan G. Shuler Vice President and Chief November 15, 1999
Alan G. Shuler Financial Officer
/s/ Thomas R. King Director and Secretary November 15, 1999
Thomas R. King
/s/ Terrence W. Glarner Director November 15, 1999
Terrence W. Glarner
/s/ Gary R. Holland Director November 15, 1999
Gary R. Holland
/s/ Eugene W. Courtney Director November 15, 1999
Eugene W. Courtney
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
DATAKEY, INC.
EXHIBIT INDEX TO FORM S-3
Exhibit
Number Description
3.1 Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 to Form 10-KSB for fiscal year ended December
31, 1998)
4.1 Certificate of Designation of Series A Preferred Stock (included in
Articles of Incorporation--see Exhibit 3.1)
5.1 Opinion and Consent of Fredrikson & Byron, P.A.
10.1 Letter Agreement dated October 29, 1999 between and among Datakey,
Inc., Special Situations Private Equity Fund and Special Situations
Technology Fund.
23.1 Consent of McGladrey & Pullen, LLP
23.2 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
24.1 Powers of Attorney (included as part of the signature page hereto)
November 15, 1999
Datakey, Inc.
407 West Travelers Trail
Burnsville, Minnesota 55337
RE: Registration Statement on Form S-3 - Exhibit 5.1
Gentlemen/Ladies:
We have acted as counsel for Datakey, Inc. (the "Company") in
connection with the Company's filing of a Registration Statement on Form S-3
(the "Registration Statement") relating to the registration under the Securities
Act of 1933 (the "Act") of an offering of 429,978 shares of Common Stock of the
Company by persons who are currently holders of Common Stock of the Company (the
"Shares").
In connection with rendering this opinion, we have reviewed the
following:
1. The Company's Restated Articles of Incorporation, as amended;
2. The Company's Bylaws, as amended;
3. Certain corporate resolutions, including resolutions of the
Company's Board of Directors pertaining to the issuance by the
Company of the Shares; and
4. The Registration Statement.
Based upon the foregoing and upon representations and information
provided by the Company, we hereby advise you that in our opinion:
1. The Company's Restated Articles of Incorporation validly
authorize the issuance of the Shares registered pursuant to
the Registration Statement.
2. The Shares to be sold by the selling shareholders named in the
Registration Statement are validly issued and outstanding,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" included in the Registration Statement and the related Prospectus.
Very truly yours,
FREDRIKSON & BYRON, P.A.
By /s/ Thomas R. King
Thomas R. King, Vice President
Fredrikson & Byron, P.A.
900 Second Ave. S., #1100
Minneapolis, MN 55402
Telephone: (612) 347-7000
Facsimile: (612) 347-7077
Datakey, Inc.
407 West Travelers Trail
Burnsville, MN 55337-2554
October 29, 1999
Mr. Austin Marxe
Special Situations
153 East 53rd Street, 51st Floor
New York, NY 10022
Dear Austin:
The purpose of this letter is to confirm our understanding with respect to the
conversion of outstanding shares of Series A Convertible Preferred Stock (the
"Preferred Stock"), with 58,544 shares held by Special Situations Private Equity
Fund, L.P. and 15,823 held by Special Situations Technology Fund, L.P.
(collectively referred to as the Special Situations Funds). In exchange for the
issuance of an aggregate of 940,000 shares of Common Stock to the Special
Situations Funds, the Special Situations Funds agree (i) to surrender all
outstanding shares of Preferred Stock, thereby releasing the Company of any
dividend obligations and antidilution adjustment, and (ii) to surrender all
warrants held by the Special Situations Funds to the Company, again forfeiting
any antidilution or other adjustments that may result due to Datakey's current
private placement described below or otherwise. As additional consideration for
the issuance of the Common Stock, the Special Situations Funds agree to execute
a waiver of any and all rights they have or might have to bring any action
against the Company and its affiliates, whether for damages or equitable
remedies, arising out of either their purchase of securities in the May 1998
offering or relating to Datakey's 1999 private offering of Common Stock and
warrants.
Datakey also agrees to register the 940,000 shares to be issued to the Special
Situations Funds either by filing, by November 15, 1999, an amendment to the
Form S-3 originally filed on June 12, 1998 or by filing a new registration
statement on Form S-3 to cover the resale of such shares.
You, as a representative of the Special Situations Funds, acknowledge that
Special Situations Funds are aware of the current private offering Datakey, Inc.
is conducting for up to $1,500,000 through the sale of Common Stock at $1.25 per
share, with each share accompanied by one warrant to purchase one share of
Common Stock at an exercise price of $1.25 per share. You also acknowledge on
behalf of Special Situations Funds that you have had an opportunity to review
documents, including the private placement memorandum relating thereto, or ask
any questions related to such offering. In addition, you agree that the issuance
of Common Stock pursuant to this letter agreement is contingent upon the closing
of a minimum of $750,000 pursuant to such private placement.
Please sign below to indicate agreement with the terms set forth in this letter.
Sincerely,
/s/ Carl Boecher
Carl Boecher
President and CEO
Special Situations Private Special Situations Technology
Equity Fund, L.P. Fund, L.P.
By /s/ Austin Marxe By /s/ Austin Marxe
Its Managing Director Its Managing Director
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report, dated February 5, 1999, which appears in
Item 7 of the annual report on Form 10-KSB of Datakey, Inc. and subsidiary for
the year ended December 31, 1998. We also consent to the reference to our Firm
under the caption "Experts" in the aforementioned Registration Statement.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
November 15, 1999
