As filed with the Securities and Exchange Commission on March 27, 2000
Registration No. 333-______
================================================================================
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)
-----------------------------------------------------------------------
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 800,000 shares $12.375 $9,900,000 $2,613.60
$0.05 per share)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common Stock (par value 880,000 shares(2) $12.375 $10,890,000 $2,874.96
$0.05 per share)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
TOTAL 1,680,000 shares $20,790,000 $5,488.56
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</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 March 24, 2000, as reported by the Nasdaq SmallCap Market.
(2) Represents shares issuable to Selling Shareholders upon the exercise of
warrants and then offered for resale pursuant to this registration,
including warrants to purchase 800,000 shares at $5.00 per share and
warrants to purchase 80,000 shares at $5.50 per share.
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.
1,680,000 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale of up to 1,680,000 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
$12,000), 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 March 24,
2000 was $12.4375 per share.
The Shares are comprised of 800,000 shares of Common Stock and
five-year warrants to purchase an aggregate of 800,000 shares of the Company's
Common Stock with an exercise price of $5.00 per share issued by the Company to
certain investors on February 11 and February 15, 2000 in a private offering. As
part of the financing, the Company also issued to its agent five-year warrants
to purchase an aggregate of 80,000 shares of Common Stock at an exercise price
of $5.50. The warrants issued to the investors and the agent are referred to
herein as the "Warrants."
-----------------------------------------------------------------------
The Common Stock offered by this Prospectus is speculative and involves
a high degree of risk. See "Risk Factors" beginning on page 4.
-----------------------------------------------------------------------
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 April __, 2000.
<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 document filed by the Company with the Commission is
hereby incorporated by reference in this Prospectus and shall be deemed to be a
part thereof:
The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999.
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.
<PAGE>
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
32,768,000 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.
In 1997, the Company 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 $2,289,000 and $2,909,000 in 1998
and 1999, respectively, related primarily to the development of its information
security products. The Company expects material additional losses to continue
through 2000. The Company's ability to achieve profitability depends on
significantly increasing sales of its information security products, and based
on financial results to date, 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 directly depends on the success of its information security
(Information Security Solutions or ISS) 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 lie 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 significantly 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. 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, no assurances exist that Datakey's products will ultimately
receive satisfactory customer acceptance or that investments already made and
additional investments planned for 2000 will result in an acceptable financial
return.
4. Need for additional capital: Even though the Company raised $5,500,000
pursuant to its October 1999 and February 2000 private offerings and an
additional $1,065,565 from the exercise of outstanding warrants since January 1,
2000, the Company may require additional capital later 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.
5. Volatility of Stock Price: The market price of the Company's Common Stock
has appreciated substantially since November 1, 1999, rising from $1.00 per
share to $16.813 per share on March 14, 2000. The Company is not aware of any
<PAGE>
particular event or circumstance which might account for this increase, although
it is aware that technology companies are currently deemed to be attractive
investments. However, any unfavorable disclosure relating to the Company's
development or marketing of its ISS product line, product effectiveness,
competition, as well as other matters would likely materially adversely impact
the market price of the Company's Common Stock.
6. 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 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.
7. 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.
8. 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.
9. 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, as well as enhancements to
current products, will cause operational inefficiencies, increased development
costs and reduced revenues and may affect customer acceptance.
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 the Company's products
offer.
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 as
of March 16, 2000, 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 Owned Number of Owned
---------------------------------------- Shares After
Warrant Offered Offering
Name Shares Shares(1) Total(2) Hereby(2) (3)
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Robert G. Allison 81,000 38,129 119,129 20,000 1.1%
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
John Altmann 2,500 2,500 5,000 5,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Gary R. Archambault &
Karen L. Archambault JT 9,000 15,000 24,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Steven J. Bateman 10,000 10,000 20,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Shirley A. Baxter, Trustee, FBO Shirley A.
Baxter Rev. Trust U/A Dtd 7/03/96 10,000 9,129 19,129 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Kenneth G. Benson 7,500 7,500 15,000 15,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Gary A. Bergren 37,000 17,000 54,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Aaron Boxer, Trustee, Aaron Boxer
Rev. Trust U/A Dtd 8/1/89 100,000 100,000 200,000 200,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Pamela L. Brown, Trustee, FBO Pamela L.
Brown Trust U/A Dtd 9/16/88 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Craig L. Campbell 27,500 11,629 39,129 15,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Elizabeth H. Confer 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Ogden W. Confer 10,000 10,000 20,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Kenneth L. Cutler & Linda Cutler JT 13,112 10,000 23,112 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Catherine Reid Day IRA, First Trust
National Association Trustee 9,000 5,000 14,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Charles E. Dolsky 25,020 5,000 30,020 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
Bradley A. Erickson IRA 37,900 36,129 74,029 16,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Robert E. Flynn IRA, First Trust
National Association Trustee 11,000 20,000 31,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Luther O. Forde 45,020 10,000 55,020 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Dennis D. Gonyea 40,000 10,000 50,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Dorothy J. Hoel 20,000 30,000 50,000 12,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Betty L. Johnson (4) 40,000 40,000 80,000 80,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Brian R. Johnson & Jennifer Johnson JT 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
David B. Johnson Family Foundation (4) 100,000 100,000 200,000 200,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Gary Kohler 10,000 15,168 25,168 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Raymond A. Lipkin (5) 415,000 256,000 671,000 192,000 5.3%
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Sol Menche & Rochelle Menche JT 60,000 140,000 200,000 120,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Jon Nelson & Paula Nelson JT 2,500 2,500 5,000 5,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Perkins Capital Management, Inc. Profit
Sharing Plan & Trust U/A Dtd12/15/86,
Richard W. Perkins, Trustee 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
Daniel S. Perkins IRA (6) 27,300 11,529 38,829 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Perkins Foundation 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Perkins and Partners, Inc. Profit Sharing
Plan & Trust U/A Dtd 10/19/76 5,000 5,000 10,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
Patrice M. Perkins IRA (6) 25,300 9,529 34,829 6,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Richard C. Perkins 10,000 10,000 20,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
Richard C. Perkins IRA 64,000 48,129 112,129 40,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
James G. Peters IRA 14,000 6,000 20,000 12,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
David H. Potter IRA 14,000 6,000 20,000 12,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Pyramid Partners, L.P. 251,078 64,559 315,637 100,000 2.4%
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Pyramid Trading Limited Partnership 80,000 80,000 160,000 160,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Jeffrey D. Rahm & Susan D. Rahm JT 11,500 7,500 19,000 15,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
David E. Riviere 2,500 5,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
USB Piper Jaffray as Custodian FBO
Harold Roitenberg IRA 10,000 10,000 20,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Angeline A. Schnobrich 25,020 5,000 30,020 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Sterling Supply, Inc. Profit Sharing Plan
Trust Dtd 12/27/67, Jay Norelius & Neil
Norelius Trustees 9,000 5,000 14,000 10,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Thomas C. Tsatsos IRA, First Trust
National Association Trustee 7,500 7,500 15,000 15,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Jeff Walker 5,000 5,000 10,000 10,000 *
- ----------------------------------------------- ------------ ------------- ------------- --------------- -------------
Shawn P. Weinand 17,000 10,000 27,000 20,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
David M. Westrum, Trustee U/A 6/01/97,
David M. Westrum Rev. Living Trust 31,500 35,629 67,129 15,000 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Miller, Johnson & Kuehn, Incorporated 31,700 26,062 57,762 21,062 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
David B. Johnson (4)(7) 115,955 25,905 141,860 15,802 1.4%
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Paul R. Kuehn (7) 39,654 25,904 65,558 15,802 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Joseph D. Leach 8,175 18,555 26,730 16,800 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Eldon C. Miller (7) 15,934 8,645 24,579 5,267 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
Stanley D. Rahm (7) 15,934 8,645 24,579 5,267 *
- ------------------------------------------------ ------------ ------------- ------------- --------------- -------------
</TABLE>
* Less than 1.0%.
(1) Includes an aggregate of (i) 488,275 shares that may be purchased by
certain Selling Shareholders upon exercise of warrants issued in May
1998 and October 1999, which shares are not being offered hereby, and
(ii) 880,000 shares that may be purchased by the Selling Shareholders
upon exercise of warrants issued in February 2000, which shares are
being offered hereby.
<PAGE>
(2) The above numbers assume that the Selling Shareholders will exercise
the Warrants for cash. If the Selling Shareholders use the cashless
exercise alternative, the actual number of shares of Common Stock
issued will be fewer, depending on the market value of the underlying
shares of Common Stock immediately prior to exercise.
(3) The percentage of shares beneficially owned by each Selling Shareholder
is based on 8,887,879 shares of Common Stock outstanding, including
8,007,879 shares outstanding as of March 16, 2000 and 880,000 shares
to be outstanding if all February 2000 warrants are exercised. Assumes
the sale of all the Shares being offered hereby.
(4) The shares shown for each of Betty Johnson, David B. Johnson and the
David B. Johnson Family Foundation, respectively, each of whom is a
Selling Shareholder, are not included in the holdings of the others
even though each may be deemed to beneficially own all of the shares.
Betty Johnson and David Johnson are married.
(5) Includes 10,000 shares owned by Mr. Lipkin's daughter for which he has
dispositive power and shares voting power.
(6) Includes 6,300 shares and a warrant to purchase 6,529 shares held
jointly by Daniel Perkins and Patrice Perkins, husband and wife. Shares
held in individual trusts are included in the respective holdings.
(7) Does not include the shares held by Miller, Johnson & Kuehn,
Incorporated ("MJK"), a Selling Shareholder. David Johnson, Paul Kuehn,
Stanley Rahm and Eldon Miller are principals of MJK and may be deemed
to beneficially own such shares.
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) one year 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 11,000,000 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 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 are, and
the shares of Common Stock offered hereby will be, 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.
<PAGE>
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, 1999 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.
TABLE OF CONTENTS
Page
Available Information 2
Documents Incorporated By Reference 2
Company Summary 3
Risk Factors 4
Use of Proceeds 5
Selling Shareholders 6
Plan of Distribution 9
Description of Securities 9
Legal Matters 9
Experts 9
<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 $5,500.00
Legal Fees and Expenses 2,000.00
Accounting Fees and Expenses 2,000.00
Printing 500.00
Miscellaneous 2,000.00
==========
Total Expenses $12,000.00
==========
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.
(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.
<PAGE>
(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 March 27, 2000.
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, Chief Executive March 27, 2000
Carl P. Boecher Officer and Director
/s/ Alan G. Shuler Vice President and Chief March 27, 2000
Alan G. Shuler Financial Officer
/s/ Thomas R. King Director and Secretary March 27, 2000
Thomas R. King
/s/ Terrence W. Glarner Director March 27, 2000
Terrence W. Glarner
Director
Gary R. Holland
/s/ Eugene W. Courtney Director March 27, 2000
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, 1999)
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 Stock Purchase Agreement dated February 11, 2000 between the Company
and certain investors
10.2 Registration Rights Agreement dated February 11, 2000 between the
Company and certain investors.
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)
March 27, 2000
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 1,680,000 shares of Common Stock of
the Company by persons who are currently holders of Common Stock of the Company
(the "Shares") or who may become such holders upon exercise of outstanding
warrants (the "Warrants").
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 the Warrants;
4. The Warrants; and.
5. 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 or, upon exercise in accordance
with the terms and conditions of the Warrants, will be 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/ Robert K. Ranum
Robert K. Ranum, Vice President
STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of the 11th day of February,
2000, between Datakey, Inc., a Minnesota corporation (the "Company") and each of
the persons listed on Schedule 1 to this Agreement (the "Investors"). Reference
to any exhibits herein refers to the exhibits included in the Company's offering
materials dated February 3, 2000 (the "Offering Materials").
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged by the Company and each of the Investors, the Company
and the Investors agree as follows:
1. Sale and Purchase of Securities. Subject to the terms and conditions
hereof, the Company agrees to sell to each Investor at the Closing (as defined
herein), and each Investor severally agrees to purchase from the Company at the
Closing, that number of shares of the Company's Common Stock (the "Shares") set
forth opposite each Investor's name on Schedule 1 at a purchase price of five
dollars ($5.00) per share, together with a five-year warrant in the form
attached hereto as Exhibit A (the "Warrant") to purchase that number of Shares
of the Company's Common Stock set forth on Schedule 1 at an exercise price of
five dollars ($5.00) per share. The Shares and the Warrants are referred to
herein collectively as the "Securities."
2. Closing. The closing shall take place at the offices of Fredrikson &
Byron, P.A., Minneapolis, Minnesota 55402, at 1:00 p.m., Minneapolis time, on
Friday, February 11th, 2000 (the "Closing") and/or at such other place or time
as may be mutually acceptable to the Investors and the Company. At the Closing,
subject to the satisfaction of the conditions in Section 6 below, the Company
will deliver to each Investor a certificate representing the Shares purchased by
such Investor, together with a Warrant representing the right to purchase that
number of shares of Common Stock of the Company set forth opposite each
Investor's name on Schedule 1, against payment of the purchase price therefor by
certified check or wire transfer to the Company in the amounts set forth after
their respective names in Schedule 1 hereto.
3. Representations and Warranties by the Company. To induce each
Investor to enter into this Agreement and to purchase the number of Securities
set forth after his or its name on Schedule 1, the Company hereby represents and
warrants to each Investor that:
3.1 Organization, Standing, Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, and has the requisite corporate power and authority to own
its properties and to carry on its business in all material respects as it is
now being conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all states or jurisdictions in which the
ownership or lease of its property or the conduct of its business requires such
qualification and the failure to be so qualified would have a materially adverse
effect on the Company's business.
<PAGE>
3.2 Authorization and Enforceability. The Company has full
legal power, right and authority to enter into this Agreement and the
Registration Rights Agreement among the Company and the Investors, the form of
which is attached hereto as Exhibit B (the "Registration Rights Agreement") and
to issue the Securities. This Agreement, the Registration Rights Agreement and
the Securities, have been duly authorized, executed and delivered on behalf of
the Company and are the valid and binding obligations of the Company,
enforceable in accordance with their respective terms and subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the rights of creditors generally, to the exercise of
judicial discretion as to the availability of equitable remedies such as
specific performance in injunction and subject, as to enforcement of the
indemnification provisions, to limitations under applicable securities laws. The
Securities when delivered pursuant to the terms of this Agreement will be
validly issued, fully paid and nonassessable.
3.3 Subsidiaries. The Company has one wholly owned subsidiary,
Datakey FSC.
3.4 Financial Statements. Included in the Offering Materials
are (a) the preliminary unaudited 1999 financial statements, (b) the Company's
annual report on Form 10-KSB for the year ended December 31, 1998, (c) the
Company's quarterly reports on Form 10-QSB for the quarters ended April 3, 1999,
July 3, 1999, and October 2, 1999 (d) the Company's Proxy Statement for the
Annual Meeting of Shareholders held in 1999, (e) the Company's 1998 Annual
Report, and (f) the Company's Forms 8-K dated June 21, 1999 and October 29,
1999. The financial statements included in such reports (i) are in accordance
with the books and records of the Company, (ii) present fairly the financial
condition of the Company at the balance sheet dates and the results of its
operations for the periods therein specified, subject, in the case of the April
3, 1999, July 3, 1999, and the October 2, 1999 financial statements, to normal
year-end adjustments, and (iii) have, in all material respects, been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods. Without limiting the generality of the
foregoing, the balance sheets included in such reports or notes thereto disclose
all of the debts, liabilities and obligations of any nature (whether absolute,
accrued or contingent and whether due or to become due) of the Company at
December 31, 1998, April 3, 1999, July 3, 1999, October 2, 1999, and December
31, 1999, which, individually, or in the aggregate, are material or which in
accordance with generally accepted accounting principles would be required to be
disclosed in such balance sheets, and includes appropriate reserves for all
taxes and other liabilities accrued as of such dates but not yet payable.
3.5 Tax Returns and Audits. All required federal, state and
local tax returns and appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid with respect
to such returns have been paid or due provision for the payment thereof has been
made. The Company is not delinquent in any material respect in the payment of
any such tax or in the payment of any assessment or governmental charge. The
Company has not received notice of any tax deficiency proposed or assessed
against it, and it has not executed any waiver of any statute of limitations on
the assessment or collection of any tax.
<PAGE>
3.6 Changes, Dividends, Etc. Except for the transactions
contemplated by this Agreement, since December 31, 1999, the Company has not:
(i) incurred any debts, obligations or liabilities, absolute, accrued or
contingent and whether due or to become due, except current liabilities incurred
in the ordinary course of business which (individually or in the aggregate) will
not materially and adversely affect the business, properties or prospects of the
Company; (ii) paid any obligation or liability other than, or discharged or
satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (iii) declared or
made any payment to or distribution to its shareholders as such, or purchased or
redeemed any of its shares of capital stock, or obligated itself to do so; (iv)
mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, except in the ordinary
course of business; (v) sold, transferred or leased any of its assets except in
the ordinary course of business; (vi) suffered any physical damage, destruction
or loss (whether or not covered by insurance) materially and adversely affecting
the tangible properties, business or prospects of the Company; (vii) encountered
any labor difficulties or labor union organizing activities; (viii) issued or
sold any shares of capital stock or other securities or granted any options
(other than to employees), warrants, or other purchase rights with respect
thereto other than pursuant to this Agreement; (ix) made any acquisition or
disposition of any material assets or became involved in any other material
transaction, other than for fair value in the ordinary course of business; (x)
materially increased the compensation payable, or to become payable, to any of
its directors or employees, or made any bonus payment or similar arrangement
with any directors or employees or increased the scope or nature of any fringe
benefits provided of its employees or directors; or (xi) agreed to do any of the
foregoing other than pursuant hereto. Except as otherwise disclosed in the
Offering Materials, there has been no material adverse change in the financial
condition, operations, results of operations or business of the Company since
December 31, 1999.
3.7 Title to Properties and Encumbrances. The Company has good
and marketable title to all of its properties and assets, except for property
disposed of in the ordinary course of business since December 31, 1999, which
properties and assets are not subject to any mortgage, pledge, lease, lien,
charge, security interest, encumbrance or restriction, except (a) those which
are shown and described on the December 31, 1999, balance sheet or the notes
thereto, (b) liens for taxes and assessments or other governmental charges or
levies not at the time due or in respect of which the validity thereof shall
currently be contested in good faith by appropriate proceedings, (c) statutory
liens that have arisen in the ordinary course of business, or (d) those which do
not materially affect the value of or interfere with the use made of such
properties and assets.
3.8 Conditions. The plant, offices and equipment of the
Company have been kept in good condition and repair in the ordinary course of
business.
3.9 Litigation; Governmental Proceedings. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, or its properties or business, and the Company
is not aware of any facts which are likely to result in or form the basis for
any such action, suit or other proceeding. The Company is not in default with
<PAGE>
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality with respect to which it is a party or is named as an
affected person, nor to the best of its knowledge is the Company in default with
respect to any other judgment, order or decree. The Company has not been
threatened with any action or proceeding under any business or zoning ordinance,
law or regulation.
3.10 Compliance With Applicable Laws or Other Instruments. To
the best of the Company's knowledge, the business and operations of the Company
have been and are being conducted in all material respects in accordance with
all applicable laws, rules and regulations of all governmental authorities.
3.11 Shares, Warrants and Warrant Shares. The Shares and
Warrants, when issued and paid for pursuant to the terms of this Agreement, will
be duly authorized, validly issued and outstanding, fully paid and nonassessable
and shall be free and clear of all pledges, liens, encumbrances and
restrictions, except securities restrictions as set forth in Section 4 hereof.
The Warrant Shares have been reserved for issuance and when issued upon exercise
of the Warrants, will be duly authorized, validly issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4.
3.12 Securities Laws. Based in part upon the representations
of the Investors, no consent, authorization, approval, permit or order of or
filing with any governmental or regulatory authority is required under current
laws and regulations in connection with the execution and delivery of this
Agreement or the offer, issuance, sale or delivery of the Shares, Warrants or
Warrant Shares, other than the qualification thereof, if required, under
applicable state securities laws, which qualification has been or will be
effected as a condition of these sales. The Company has not, directly or through
an agent, offered the Securities or any similar securities for sale to, or
solicited any offers to acquire such securities from, persons other than the
Investors and other accredited investors. Under the circumstances contemplated
by this Agreement, the offer, issuance, sale and delivery of the Shares,
Warrants or Warrant Shares will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements of the
federal Securities Act of 1933, as amended (the "Securities Act"). The Company
has filed all reports or other documentation that it is required to file by the
federal Securities Exchange Act of 1934, as amended, any rules or regulations
promulgated thereunder, the applicable rules and regulations of the National
Association of Securities Dealers ("NASD") and all applicable state securities
laws, and the information contained in such reports or other documents did not
make any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
3.13 Patents and Other Intangible Rights. To the best of its
knowledge, the Company (a) owns or has the exclusive right to use, free and
clear of all material liens, claims and restrictions, all patents, trademarks,
service marks, trade names, copyrights, licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person under or with respect to any of the foregoing, (b) is not obligated
<PAGE>
or under any liability whatsoever to make any payments of a material nature by
way of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trademark, trade name, copyright or other intangible
asset, with respect to the use thereof or in connection with the conduct of its
business or otherwise, (c) owns or has the unrestricted right to use all trade
secrets, including know-how, customer lists, inventions, designs, processes,
computer programs and technical data necessary to the development, operation and
sale of all products and services sold or proposed to be sold by it, free and
clear of any rights, liens or claims of others, and (d) is not using any
confidential information or trade secrets of others.
3.14 Capital Stock. At the date hereof, the Company is
authorized by its articles of incorporation to issue 12,500,000 shares of
capital stock, which consists of the following: (a) 11,000,000 shares of common
stock, $.05 par value, of which there are outstanding 7,001,827 shares, (b)
400,000 shares of Convertible Preferred Stock, of which there are outstanding
150,000 shares, (c) 150,000 shares of Series A Convertible Preferred Stock, of
which there are none outstanding, and (d) 950,000 undesignated shares. All of
the outstanding shares of the Company were duly authorized, validly issued and
are fully paid and nonassessable. Other than with regard to the outstanding
Convertible Preferred Stock and Series A Convertible Preferred Stock, or as
otherwise disclosed on Exhibit 3.14, there are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or nature
whatever, other than this Agreement, under which the Company is obligated to
issue any securities of any kind representing an ownership interest in the
Company. All outstanding securities of the Company have been issued in full
compliance with or an exemption or exemptions from the registration and
prospectus delivery requirements of the Securities Act and from the regulation
and qualification requirements of all applicable state securities laws.
3.15 License and Approvals. The Company has all licenses,
certificates, permits and other approvals from governmental and regulatory
authorities necessary for the conduct of its business as it is currently being
conducted and as proposed to be conducted except those which would not have a
material adverse effect or the Company if not obtained.
3.16 Defaults. The Company is not in breach, default or
violation of, and the execution of this Agreement and the Registration Rights
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in any breach of, any of the terms
or conditions of, or constitute a default or violation under, (i) the Articles
of Incorporation, as amended, or Bylaws, as amended, of the Company, (ii) any
indenture, agreement or other instrument to which the Company is now a party, or
(iii) to the best of the Company's knowledge, any law or any order, rule or
regulation applicable to the Company of any court or of any federal or state
regulatory body or administrative agency having jurisdiction over the Company or
its property.
3.17 Insurance Coverage. There are in full force policies of
insurance issued by insurers of recognized responsibility insuring the Company
and its properties and business against such losses and risks, and in such
amounts, as in the Company's best judgment, after advice from its insurance
broker, are acceptable for the nature and extent of such business and its
resources.
<PAGE>
3.18 No Brokers or Finders. Except for Miller, Johnson &
Kuehn, Incorporated, which is assisting the Company in the transactions
contemplated by this Agreement, no person, firm or corporation has or will have,
as a result of any act or omission of the Company, any right, interest or valid
claim against the Company or any Investor for any commission, fee or other
compensation as a finder or broker in connection with the transactions
contemplated by this Agreement. The Company will indemnify and hold each of the
Investors harmless against any and all liability with respect to any such
commission, fee or other compensation which may be payable or determined to be
payable in connection with the transactions contemplated by this Agreement.
3.19 Disclosure. The Company has not knowingly withheld from
the Investors any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or warranty
in this Agreement or in any certificate, schedule or other document furnished or
to be furnished to any Investor pursuant hereto or in connection with the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated herein or therein or necessary to make the statements herein or
therein not misleading.
3.20 Reporting. The Company is subject to the reporting
requirements of the Securities Act and the Exchange Act and (i) has timely filed
all reports and statements required to be filed thereunder in the 12-month
period prior to the date hereof, and (ii) each report and statement was true and
complete in all material respects when filed.
4. Representations of the Investors. Each Investor represents for
itself that:
4.1 Investment Intent. The Securities being acquired by such
Investor are being purchased for investment for such Investor's own account and
not with the view to, or for resale in connection with, any distribution or
public offering thereof. Such Investor understands that the Securities have not
been registered under the Securities Act or any state securities laws by reason
of their contemplated issuance in transactions exempt from the registration
requirements of the Securities Act and applicable state securities laws, and
that the reliance of the Company and others upon these exemptions is predicated
in part upon this representation by each Investors. Such Investor further
understands that the Securities may not be transferred or resold without (i)
registration under the Securities Act and any applicable state securities laws,
or (ii) an exemption from the requirements of the Securities Act and applicable
state securities laws.
Such Investor understands that an exemption from such
registration is presently available pursuant to Rule 144 promulgated under the
Securities Act by the Securities and Exchange Commission (the "Commission") but
that in any event an Investor may not sell any securities pursuant to Rule 144
prior to the expiration of a one-year period after such Investor has acquired
such securities. Such Investor understands that any sales pursuant to Rule 144
can be made only in full compliance with the provisions of Rule 144.
<PAGE>
4.2 Location of Principal Office, Qualification as an
Accredited Investor, Etc. The state in which such Investor's principal office
(or domicile, if such Investor is an individual) is located is the state set
forth in such Investor's address on Schedule 1. Unless otherwise indicated on
such Investor's signature page to this Agreement, such Investor qualifies as an
"accredited investor" for purposes of Regulation D promulgated under the
Securities Act for the reasons specified after such investor's name on such
signature page. Such Investor acknowledges that the Company has made available
to such Investor at a reasonable time prior to the execution of this Agreement
the opportunity to ask questions and receive answers concerning the business and
affairs of the Company and the terms and conditions of the sale of securities
contemplated by this Agreement and to obtain any additional information (which
the Company possesses or can acquire without unreasonable effort or expense) as
may be necessary to verify the accuracy of information furnished to such
Investor. Such Investor (a) is able to bear the loss of its entire investment in
the Shares without any material adverse effect on its business, operations or
prospects, and (b) has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
to be made by it pursuant to this Agreement.
4.3 Acts and Proceedings. This Agreement has been duly
authorized by all necessary action on the part of such Investor, has been duly
executed and delivered by such Investor, and is a valid and binding agreement of
such Investor.
4.4 No Brokers or Finders. Except for Miller, Johnson & Kuehn,
Incorporated, which is assisting the Company in the transactions contemplated by
this Agreement, no person, firm or corporation has or will have, as a result of
any act or omission by such Investor, any right, interest or valid claim against
the Company for any commission, fee or other compensation as a finder or broker,
or in any similar capacity, in connection with the transactions contemplated by
this Agreement. Such Investor will indemnify and hold the Company harmless
against any and all liability with respect to any such commission, fee or other
compensation which may be payable or determined to be payable as a result of the
actions of such Investor in connection with the transactions contemplated by
this Agreement.
4.5 Exculpation Among Investors. Such Investor acknowledges
that in making his or its decision to invest in the Company, he or it is not
relying on any other Investor or upon any person, firm or company, other than
the Company and its officers, employees and/or directors. Such Investor agrees
that no other Investor, nor the partners, employees, officers or controlling
persons of any other Investor shall be liable for any actions taken by such
Investor, or omitted to be taken by such Investor, in connection with such
investment.
4.6 Legends. It is understood that the certificates evidencing
the Shares may bear legends required by applicable federal and state securities
laws as well as the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933 AND APPLICABLE STATE SECURITIES LAWS. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT DATED FEBRUARY
11, 2000, AMONG DATAKEY, INC. AND CERTAIN OTHER SIGNATORIES
THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
5. Conditions of Each Investor's Obligation. The obligation to purchase
and pay for the Securities which each Investor has agreed to purchase on the
closing date is subject to the fulfillment prior to or on the closing date of
the conditions set forth in this Article 5.
5.1 Representations and Warranties. The representations and
warranties of the Company under this Agreement shall be true in all material
respects as of the closing date with the same effect as though made on and as of
the closing date.
5.2 Compliance with Agreement. The Company shall have
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with prior to or as of the closing date.
5.3 Certificate of Officers. The Company shall have delivered
to Miller, Johnson & Kuehn, Incorporated a certificate, dated the closing date,
executed by the President and the senior financial officers of the Company and
certifying to the satisfaction of the conditions specified in Sections 5.1 and
5.2.
5.4 Opinion of the Company's Counsel. The Company shall have
delivered to Miller, Johnson & Kuehn, Incorporated an opinion of Fredrikson &
Byron, P.A., counsel for the Company, dated the closing date, to the effect
that:
(a) The Company is a corporation duly organized and
validly existing in good standing under the laws of the state
of its incorporation, and has the corporate power and
authority to own and hold the properties owned and leased by
it and to carry on the business in which it is engaged. The
Company has the corporate power and authority to enter into
this Agreement, to issue and sell the Shares, Warrants and the
Warrant Shares and to carry out the provisions of this
Agreement.
(b) This Agreement has been duly authorized, executed
and delivered by the Company, and is the legal, valid and
binding agreement of the Company and is enforceable against
the Company in accordance with its terms, subject, as to the
enforcement of remedies, to limitations under applicable
<PAGE>
bankruptcy, insolvency, moratorium, reorganization, and other
laws affecting the rights of creditors generally and to
judicial limitations on the enforcement of the remedy of
specific performance and other equitable remedies.
(c) The Securities being purchased on the closing
date have been duly authorized, validly issued and delivered
by the Company, are fully paid and nonassessable, and are
entitled to the rights, preferences and provisions of the
Company's articles of incorporation and the benefits of the
provisions of this Agreement applicable thereto. The
certificates evidencing the Shares and the Warrants are in
valid and sufficient form.
(d) All corporate proceedings required by law or by
the provisions of this Agreement to be taken by the Board of
Directors and shareholders of the Company on or prior to such
closing date in connection with the execution and delivery of
this Agreement, the offer, issuance and sale of the Securities
and the consummation of the transactions contemplated by this
Agreement, have been duly and validly taken.
(e) The Company is authorized by its articles of
incorporation to issue 12,500,000 shares of capital stock,
which consists of the following: (a) 11,000,000 shares of
common stock, $.05 par value, of which there are outstanding
7,001,827 shares, (b) 400,000 shares of Convertible Preferred
Stock, of which there are outstanding 150,000 shares, (c)
150,000 shares of Series A Convertible Preferred Stock, of
which there are none outstanding, and (d) 950,000 undesignated
shares. All shares outstanding immediately prior to the
closing date have been duly authorized and validly issued.
Except for the Common Stock, the Convertible Preferred Stock
and the Series A Convertible Preferred Stock, the Company has
no other authorized series or class of capital stock and, to
the best of such counsel's knowledge and without any special
inquiry into this matter, has no outstanding options, warrants
or other rights to acquire securities of the Company, other
than as disclosed in Exhibit B.
(f) The requisite number of Warrant Shares have been
validly authorized and reserved for issuance upon exercise of
the Warrants, and when issued upon such exercise, will be
authorized, validly issued and outstanding, fully paid and
nonassessable. To the best of such counsel's knowledge, except
for with regard to the outstanding shares of Stock, no
security holder of the Company is entitled to preemptive or
similar rights as a result of the execution or delivery of
this Agreement or the issuance of the Shares, Warrants, or
Warrant Shares.
(g) Assuming the accuracy of the representations made
by the Investors in their Acceptances and Section 4 hereof,
the offer, sale, issuance and delivery of the Securities to
the Investors under the circumstances contemplated by this
Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act and all applicable
state securities laws.
<PAGE>
(h) Except for matters disclosed as part of Exhibit
B, such counsel has no knowledge of any litigation, proceeding
or governmental investigation pending or threatened against
the Company or its properties or business.
(i) Nothing has come to the attention of counsel
which would lead counsel to reasonably believe that the
Company's business and operations are not being conducted in
all material respects in compliance with applicable laws,
rules, and regulations.
5.5 Supporting Documents. Miller, Johnson & Kuehn,
Incorporated, as representatives for each investor, shall have received the
following:
(a) A copy of resolutions of the Board of Directors
of the Company certified by the Secretary of the Company
authorizing and approving the execution, delivery and
performance of this Agreement and issuance of the Securities;
(b) A certificate of incumbency executed by the
Secretary of the Company certifying the names, titles and
signatures of the officers authorized to execute this
Agreement and further certifying that the articles of
incorporation and bylaws of the Company delivered to legal
counsel for the Investors at the time of the execution of this
Agreement have been validly adopted and have not been amended
or modified;
(c) The certificates contemplated by Section 5.3
above; and
(d) Such additional supporting documentation and
other information with respect to the transactions
contemplated hereby as legal counsel for the Investors may
reasonably request.
5.6 Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws for the lawful execution and delivery of this Agreement
and the offer, sale, issuance and delivery of the Securities to the Investors at
the closing shall have been obtained.
5.7 Proceeding and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be satisfactory in
form and substance to legal counsel for the Investors.
5.8 Registration Rights Agreement. The Company, each Investor
and each of the parties listed on the signature page of Exhibit 5.8 shall enter
into the Registration Rights Agreement dated as of the Closing in the form
attached as Exhibit 5.8.
<PAGE>
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by that
Investor.
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investors shall have
delivered the purchase price as specified in Section 1.
7. Affirmative Covenants of the Company. The Company covenants and
agrees as follows:
7.1 Corporate Existence. The Company will maintain its
corporate existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or political subdivision
thereof and of any government authority where failure to so comply would have a
material adverse impact on the Company or its business or operations.
7.2 Books of Accounts and Reserves. The Company will keep
books of record and account in which full, true and correct entries are made of
all of its respective dealings, business and affairs, in accordance with
generally accepted accounting principles. The Company will employ certified
public accountants who are "independent" within the meaning of the accounting
regulations of the Commission.
7.3 Application of Proceeds. Unless otherwise approved by the
Investors, the net proceeds received by the Company from the sale of the Shares
on the closing date shall be used for the purposes set forth in the Use of
Proceeds section of the Offering Materials.
7.4 Filing of Reports. The Company will make timely filings of
such reports as are required to be filed by it with the Commission so that Rule
144 under the Securities Act or any successor provision thereto will be
available to the security holders of the Company who were otherwise able to take
advantage of the provisions of such Rule.
7.5 Patents and Other Intangible Rights. The Company will
apply for, or obtain assignments of, or licenses to use, all patents,
trademarks, trade names and copyrights which in the opinion of a prudent and
experienced businessperson operating in the industry in which the Company is
operating are desirable or necessary for the conduct and protection of the
business of the Company.
8. Miscellaneous.
8.1 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail:
<PAGE>
(a) if to any holder of any Shares addressed to such holder at
its address as shown on the books of the Company, or at such other
address as such holder may specify by written notice to the Company, or
(b) if to the Company at 407 West Travelers Trail, Burnsville,
MN 55337, Attention: President; or at such other address as the Company
may specify by written notice to the Investors;
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
8.2 Survival of Representations and Warranties, Etc. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Investors
or on their behalf, and the sale and purchase of the Shares and payment
therefor. All statements contained in any certificate, instrument or other
writing delivered by or on behalf of the Company pursuant to this Agreement
(other than legal opinions) at the closing shall constitute representations and
warranties by the Company hereunder.
8.3 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the holder or holders from time to time of any of the Shares;
provided, however, that a successor or assign of an Investor shall not be
regarded as an "Investor."
8.4 Headings. The headings of the articles and sections of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
8.5 Choice of Law. The laws of Minnesota shall govern the
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties hereunder.
8.6 Counterparts. This Agreement may be executed at different
times by different Investors and in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Notwithstanding any other section of this Agreement, the
execution of this Agreement on different dates by different Investors shall not
be deemed an amendment to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized representative and each of the Investors has an
executed acceptance form attached to this Agreement.
DATAKEY, INC.
By: /s/ Alan G. Shuler
Alan G. Shuler, Vice President and
Chief Financial Officer
INVESTOR
Signed by each investor of Schedule 1
<PAGE>
Schedule 1
Investor Shares Warrants
- ------------------------------------ ------- --------
Robert G. Allison 10,000 10,000
John Altmann 2,500 2,500
Gary R. Archambault & 5,000 5,000
Karen L. Archambault JTWROS
Steven J. Bateman 10,000 10,000
Shirley A. Baxter, TTEE 5,000 5,000
FBO Shirley A. Baxter Rev Trust u/a dtd 7/3/96
Kenneth G. Benson 7,500 7,500
Gary a. Bergren 5,000 5,000
Aaron Boxer TTEE 100,000 100,000
Aaron Boxer Rev Trust u/a dtd 8/1/89
Pamela L. Brown, Trustee, FBO 5,000 5,000
Pamela L. Brown Trust u/a dtd 9/16/88
Craig L. Campbell 7,500 7,500
Elizabeth H. Confer 5,000 5,000
Ogden W. Confer 10,000 10,000
Kenneth L. Cutler & Linda Cutler JTWROS 10,000 10,000
Catherine Reid Day IRA 5,000 5,000
First Trust National Association TTEE
Charles E. Dolsky 5,000 5,000
USB Piper Jaffray as Custodian 8,000 8,000
FBO Bradley A. Erickson IRA
Robert E. Flynn IRA 5,000 5,000
First Trust National Association TTEE
Luther O. Forde 10,000 10,000
Dennis D. Gonyea 10,000 10,000
Dorothy J. Hoel 6,000 6,000
Betty L. Johnson 40,000 40,000
Brian R. Johnson & Jennifer Johnson JTWROS 5,000 5,000
David B. Johnson Family Foundation 100,000 100,000
Gary Kohler 10,000 10,000
Sol Menche & Rochelle Menche JTWROS 60,000 60,000
Jon Nelson & Paula Nelson JTWROS 2,500 2,500
Perkins Capital Management, Inc. 5,000 5,000
Profit Sharing Plan & Trust UA dtd 12/15/86
Richard W. Perkins TTEE
USB Piper Jaffray as Custodian 5,000 5,000
FBO Daniel S. Perkins IRA
Perkins Foundation 5,000 5,000
Perkins and Partners 5,000 5,000
Profit Sharing Plan & Trust u/a dtd 10/19/76
Richard W. Perkins TTEE
USB Piper Jaffray as Custodian 3,000 3,000
FBO Patrice M. Perkins IRA
Richard C. Perkins 10,000 10,000
USB Piper Jaffray as Custodian 20,000 20,000
FBO Richard C. Perkins IRA
USB Piper Jaffray as Custodian 6,000 6,000
FBO James G. Peters IRA
USB Piper Jaffray as Custodian 6,000 6,000
FBO David H. Potter IRA
Pyramid Partners, L.P. 50,000 50,000
LIT Division of First Options 80,000 80,000
F/A/O Pyramid Trading Ltd Partnership
Jeffrey D. Rahm & Susan D. Rahm JTWROS 7,500 7,500
David E. Riviere 2,500 2,500
USB Piper Jaffray as Custodian 10,000 10,000
FBO Harold Roitenberg IRA
Angeline A. Schnobrich 5,000 5,000
Sterling Supply, Inc. Profit Sharing Plan Trust dtd 5,000 5,000
12/27/67, Jay & Neil Norelius TTEES
Thomas C. Tsatsos IRA 7,500 7,500
First Trust National Association TTEE
Jeff Walker 5,000 5,000
Shawn P. Weinand 10,000 10,000
David M. Westrum, TR UA 06/01/97, David M. Westrum 7,500 7,500
Revocable Living Trust
Raymond A. Lipkin 96,000 96,000
------- -------
TOTALS 800,000 800,000
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of the
11th day of February 2000, by and among Datakey, Inc., a Minnesota corporation
(the "Company") and the Investors listed on Schedule A attached hereto
(individually, an "Investor" and collectively, the Investors").
RECITALS
A. The Investors and the Company have entered into that certain Stock
Purchase Agreement, dated February 11, 2000 (the "Purchase Agreement").
B. It is a condition to the transactions contemplated in the Purchase
Agreement that the Company provide the registration and other rights provided
herein and the parties hereto desire to provide for such rights on the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise noted, all capitalized terms used
herein shall have the meanings afforded them in the Purchase Agreement and the
Exhibits attached thereto.
2. Required Registration. Within 45 days of the Closing date (the "File
Date"), the Company shall file a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), in accordance with the provisions of
either Form S-1 or Form S-3, as required by the Securities and Exchange
Commission (the "Commission") covering (i) the resale of the Shares and (ii) the
issuance and resale of the Warrant Shares, and will use its best efforts to have
such Registration Statement become effective with the Commission as soon as
possible thereafter, and in any event, within 90 days of the date on which it is
filed. The Shares and the Warrants Shares are referred to herein as the
"Registrable Stock."
3. Registration - General Provisions. In connection with the
registration of the Registrable Stock under the Securities Act, the Company
will:
(a) prepare and file with the Commission a registration
statement with respect to the Registrable Stock, within 45 days of the Closing
date of the Purchase Agreement, and use its best efforts to cause such
registration statement to become effective within 90 days of the date it is
filed and keep the prospectus which is a part of such Registration Statement
current until the earlier of the date on which: (i) all Registrable Stock has
been sold, or (ii) one year after the date it is declared effective by the
Commission;
(b) prepare and file with the Commission such amendments to
such Registration Statement and supplements to the prospectus contained therein
as may be necessary to keep such Registration Statement effective for the period
required by Section 3(a) above;
<PAGE>
(c) provide the Investors' counsel with reasonable
opportunities to review and comment on, and otherwise participate in, the
preparation of such Registration Statement;
(d) furnish to the Investors participating in such
registration and to the underwriters of the securities being registered, if any,
such reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as the Investors and
underwriters may reasonably request in order to facilitate the public offering
of such securities;
(e) use its diligent, good faith efforts to register or
qualify the securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as the Investors may
reasonably request, except that the Company shall not for any purpose be
required to execute a general consent to service of process (which shall not
include a "Uniform Consent to Service of Process" or other similar consent to
service of process which relates only to actions or proceedings arising out of
or in connection with the sale of securities, or out of a violation of the laws
of the jurisdiction requesting such consent) or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified;
(f) notify the Investors, promptly after it shall receive
notice thereof, of the time when such Registration Statement has become
effective or a supplement to any prospectus forming a part of such Registration
Statement has been filed with the Commission;
(g) notify the Investors promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(h) prepare and file with the Commission, promptly upon the
request of the Investors, any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of counsel for the Investors (and
concurred in by counsel for the Company), is required under the Securities Act
or the rules and regulations promulgated thereunder in connection with the
distribution of the shares of the Company's common stock by the Investors;
(i) prepare and promptly file with the Commission and promptly
notify the Investors of the filing of such amendment or supplement to such
Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(j) advise the Investors, and the Investors' counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the effectiveness of
<PAGE>
such Registration Statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued;
(k) not file any amendment or supplement to such Registration
Statement or prospectus to which the Investors shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations promulgated thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any material liabilities under
any applicable federal or state law and such filing will not violate applicable
law; and
(l) at the request of the Investors, furnish on the effective
date of the Registration Statement and, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement: (i) opinions, dated such respective dates, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Investors making such request, covering such
matters as such underwriters or Investors may reasonably request, and (ii)
letters, dated such respective dates, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and to the
Investors, covering such matters as such underwriters or Investors may
reasonably request, in which letter such accountants shall state (without
limiting the generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and that in the
opinion of such accountants the financial statements and other financial data of
the Company included in the Registration Statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act.
4. Registration Expense. The Company shall pay all Registration
Expenses (as defined below) in connection with the inclusion of shares of the
Company's common stock in any Registration Statement, or application to register
or qualify such shares under state securities laws, filed by the Company
hereunder, other than as set forth herein. For purposes of this Agreement, the
term "Registration Expenses" means the filing fees payable to the Commission,
any state agency and the NASD; the fees and expenses of the Company's legal
counsel and independent certified public accountants in connection with the
preparation and filing of the Registration Statement (and all amendments and
supplements thereto) with the Commission; and all expenses relating to the
printing of the Registration Statement, prospectuses and various agreements
executed in connection with the Registration Statement. Notwithstanding the
foregoing, the Investors will pay the fees and expenses of any legal counsel the
Investors may engage, as well as the Investors' proportionate share of any
custodian fees or commission or discounts which may be payable to any
underwriter.
5. Penalty Payments. In the event that the Registration Statement
relating to the resale of the Registrable Stock is not (i) filed with the
Commission by the Company on or before the File Date, or (ii) declared effective
by the Commission within 120 days of the Closing date, then, the Company shall
pay the Investors the following amounts ("Penalty Payments"): (i) 1% of the
purchase price of the Stock (the "Purchase Price") paid by the Investors to the
<PAGE>
Company if (A) the Registration Statement is not filed with the Commission by
the File Date, and/or (B) the Registration Statement is not declared effective
by the Commission within 120 days of the Closing date, (ii) an additional 1% of
the Purchase Price if the Registration Statement is not declared effective by
the Commission within 150 days of the Closing date, and (iii) an additional 3%
of the Purchase Price for each 30-day period thereafter in which the
Registration Statement is not declared effective by the Commission. Penalties
for failure to file and/or to obtain effectiveness shall be cumulative. The
Company shall be liable to the Investor for a full 30-day period, determined in
accordance with the above schedule, regardless of by how many days it misses one
of the targeted filing or effective dates set forth above. All such Penalty
Payments shall be immediately payable by the Company to the Investors (on a pro
rata basis based on the number of shares of Stock purchased by each under the
Purchase Agreement) via wire transfer of immediately available funds by the
close of business on last day of each respective period set forth above.
6. Indemnification. With respect to the registration of the resale of
the shares of Registrable Stock:
(a) to the fullest extent permitted by law, the Company will indemnify
and hold harmless each Investor, the trustees, partners, officers, directors and
agents of each Investor, any underwriter (as defined in the Securities Act) for
such Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by the Registration Statement; and the Company will reimburse each such
Investor, trustee, partner, officer, director, agent, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 6 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished to
it expressly for use in connection with such registration by an Investor,
trustee, partner, officer, director, agent, underwriter or controlling person of
an Investor.
<PAGE>
(b) to the extent permitted by law, each Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Investor selling securities
under the Registration Statement or any of such other Investor's, trustees,
partners, directors or officers or any person who controls such Investor,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Investor, or trustee, partner, director, officer or controlling
person of such other Investor may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Investor and stated to be specifically for use in
connection with such registration; and each such Investor will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Investor, or trustee, partner,
officer, director or controlling person of such other Investor in connection
with investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there was such a Violation; provided,
however, that the indemnity agreement contained in this Section 6 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 6 exceed the gross proceeds from
the offering received by such Investor unless the Violation is the result of
fraud on the part of such Investor.
(c) promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action (including any governmental
action), such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party under this Section, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party; and provided further, that if there is more than one
indemnified party, the indemnifying party shall pay for the fees and expenses of
one counsel for any and all indemnified parties to be mutually agreed upon by
such indemnified parties, unless representation of an indemnified party by the
counsel retained by the other indemnified parties would be inappropriate due to
actual or potential differing interests between such indemnified parties. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section.
<PAGE>
(d) if the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act) shall
be entitled to contribution from any person or entity who shall not have been
guilty of such fraudulent misrepresentation.
(e) the obligation of the Company and the Investors under this
Section shall survive the completion of any offering for resale of shares of the
Registrable Stock in the Registration Statement, and otherwise.
7. Limitation on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of all of the Investors, enter into any agreement with any person or persons
providing for the granting to such holder of registration rights pari passu or
senior to those granted to Investors pursuant to this Agreement, or of
registration rights which might cause a reduction in the number of shares
includable by the Investors in any registration.
8. Miscellaneous.
(a) The Company shall not hereafter enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Investors in this Agreement.
(b) Except as otherwise provided herein, the provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to or departures from the provisions hereof may not be given or made
unless the Company has obtained the written consent of the Investors.
(c) All notices and other communications provided for or
permitted hereunder shall be made by hand delivery, telex, facsimile, overnight
courier or registered first-class mail:
(i) if to an Investor, at the address set forth on Schedule A
attached hereto;
(ii) if to the Company, at the address set forth in the
Purchase Agreement.
<PAGE>
All such notices and communications shall be deemed to have been duly given:
when delivered, if by hand, overnight courier or mail; when the appropriate
answer back is received, if by telex; when transmission is confirmed by the
sending unit, if by facsimile.
(d) This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one an the same agreement.
(e) The headings to this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving effect to the
principles of choice or conflict of law thereof. Each of the Company and the
Investors irrevocably consent to the exclusive jurisdiction of the United States
Federal courts and state courts, located in Hennepin County, Minnesota, in any
suit or proceeding relating to, based on or arising under this Agreement and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Investor to serve
process in any manner permitted by law.
(g) In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the Investors and the
Company shall be enforceable to the fullest extent permitted by law.
(h) The remedies provided for in this Agreement shall be
cumulative and in addition to all other remedies available, at law or in equity,
and nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
Company:
DATAKEY, INC.
By: /s/ Alan G. Shuler
Name: Alan G. Shuler
Title: Vice President and
Chief Financial Officer
Investors:
Signed by each investor on Schedule A
<PAGE>
SCHEDULE A
Investor Shares Warrants
- ------------------------------------ ------- --------
Robert G. Allison 10,000 10,000
John Altmann 2,500 2,500
Gary R. Archambault & 5,000 5,000
Karen L. Archambault JTWROS
Steven J. Bateman 10,000 10,000
Shirley A. Baxter, TTEE 5,000 5,000
FBO Shirley A. Baxter Rev Trust u/a dtd 7/3/96
Kenneth G. Benson 7,500 7,500
Gary a. Bergren 5,000 5,000
Aaron Boxer TTEE 100,000 100,000
Aaron Boxer Rev Trust u/a dtd 8/1/89
Pamela L. Brown, Trustee, FBO 5,000 5,000
Pamela L. Brown Trust u/a dtd 9/16/88
Craig L. Campbell 7,500 7,500
Elizabeth H. Confer 5,000 5,000
Ogden W. Confer 10,000 10,000
Kenneth L. Cutler & Linda Cutler JTWROS 10,000 10,000
Catherine Reid Day IRA 5,000 5,000
First Trust National Association TTEE
Charles E. Dolsky 5,000 5,000
USB Piper Jaffray as Custodian 8,000 8,000
FBO Bradley A. Erickson IRA
Robert E. Flynn IRA 5,000 5,000
First Trust National Association TTEE
Luther O. Forde 10,000 10,000
Dennis D. Gonyea 10,000 10,000
Dorothy J. Hoel 6,000 6,000
Betty L. Johnson 40,000 40,000
Brian R. Johnson & Jennifer Johnson JTWROS 5,000 5,000
David B. Johnson Family Foundation 100,000 100,000
Gary Kohler 10,000 10,000
Sol Menche & Rochelle Menche JTWROS 60,000 60,000
Jon Nelson & Paula Nelson JTWROS 2,500 2,500
Perkins Capital Management, Inc. 5,000 5,000
Profit Sharing Plan & Trust UA dtd 12/15/86
Richard W. Perkins TTEE
USB Piper Jaffray as Custodian 5,000 5,000
FBO Daniel S. Perkins IRA
Perkins Foundation 5,000 5,000
Perkins and Partners 5,000 5,000
Profit Sharing Plan & Trust u/a dtd 10/19/76
Richard W. Perkins TTEE
USB Piper Jaffray as Custodian 3,000 3,000
FBO Patrice M. Perkins IRA
Richard C. Perkins 10,000 10,000
USB Piper Jaffray as Custodian 20,000 20,000
FBO Richard C. Perkins IRA
USB Piper Jaffray as Custodian 6,000 6,000
FBO James G. Peters IRA
USB Piper Jaffray as Custodian 6,000 6,000
FBO David H. Potter IRA
Pyramid Partners, L.P. 50,000 50,000
LIT Division of First Options 80,000 80,000
F/A/O Pyramid Trading Ltd Partnership
Jeffrey D. Rahm & Susan D. Rahm JTWROS 7,500 7,500
David E. Riviere 2,500 2,500
USB Piper Jaffray as Custodian 10,000 10,000
FBO Harold Roitenberg IRA
Angeline A. Schnobrich 5,000 5,000
Sterling Supply, Inc. Profit Sharing Plan Trust dtd 5,000 5,000
12/27/67, Jay & Neil Norelius TTEES
Thomas C. Tsatsos IRA 7,500 7,500
First Trust National Association TTEE
Jeff Walker 5,000 5,000
Shawn P. Weinand 10,000 10,000
David M. Westrum, TR UA 06/01/97, David M. Westrum 7,500 7,500
Revocable Living Trust
Raymond A. Lipkin 96,000 96,000
------- -------
TOTALS 800,000 800,000
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 4, 2000, which appears in
Item 7 of the annual report on Form 10-KSB of Datakey, Inc. and subsidiary for
the year ended December 31, 1999. 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
March 27, 2000
