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