SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
DATAKEY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DATAKEY, INC.
-----------------------
NOTICE OF ANNUAL MEETING
to be held on May 31, 2000
-----------------------
TO THE SHAREHOLDERS OF DATAKEY, INC.:
The Annual Meeting of the Shareholders of Datakey, Inc., a Minnesota
corporation (the "Company"), will be held on Wednesday, May 31, 2000, at 3:30
p.m., Minneapolis time, at the Radisson Plaza Hotel, 35 South 7th Street,
Minneapolis, Minnesota, for the following purposes:
1. To set the number of directors to be elected at five (5).
2. To elect a Board of Directors to serve until the next annual
meeting of shareholders and until their successors are duly
elected and qualified.
3. To approve an amendment to the Company's Articles of
Incorporation, including an increase in the authorized shares
from 12,500,000 to 30,000,000.
4. To approve an increase in the number of shares reserved under
the Company's 1997 Stock Option Plan from 800,000 to 1,100,000
shares.
5. To ratify the appointment of McGladrey & Pullen, LLP as
independent auditors for the Company for the year ending
December 31, 2000.
6. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on April 4, 2000 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Annual Report for the year ended December 31, 1999 also
accompanies this Notice.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, please sign, date and return your proxy
with the reply envelope provided.
By Order of the Board of Directors,
Thomas R. King
Secretary
Burnsville, Minnesota
Dated: April 21, 2000
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
DATAKEY, INC.
-------------------------
PROXY STATEMENT
for
Annual Meeting of Shareholders
to be held on May 31, 2000
-------------------------
INTRODUCTION
Your proxy is solicited by the Board of Directors of Datakey, Inc. (the
"Company") for use at the Annual Meeting of Shareholders to be held on
Wednesday, May 31, 2000, at 3:30 p.m., at the Radisson Plaza Hotel, 35 South 7th
Street, Minneapolis, Minnesota, and at any adjournment thereof, for the purposes
set forth in the Notice of Annual Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling and mailing proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the Annual Meeting by giving written notice of such revocation to the
Secretary of the Company. The enclosed proxy, when properly signed and returned
to the Company, will be voted by the proxy holders at the Annual Meeting as
directed therein. Proxies which are signed by shareholders but which lack any
such specification will be voted in favor of the proposals set forth in the
Notice of Annual Meeting and in favor of the number and slate of directors
proposed by the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company entitled to vote shall
constitute a quorum for the transaction of business. If a shareholder abstains
from voting as to any matter, then the shares held by such shareholder shall be
deemed present at the meeting for purposes of determining a quorum and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal. If
a broker returns a "non-vote" proxy, indicating a lack of voting instructions by
the beneficial holder and a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum but
shall not be deemed to be represented at the meeting for purposes of calculating
the vote with respect to such matter.
The mailing address of the offices of the Company is 407 West Travelers
Trail, Burnsville, Minnesota 55337. The Company expects that the Notice of
Annual Meeting, Proxy Statement, form of proxy, and Annual Report to
Shareholders will first be mailed to shareholders on or about April 21, 2000.
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders entitled to notice of and to vote at the Annual Meeting
and any adjournment thereof are shareholders of record at the close of business
on April 4, 2000. Persons who are not shareholders of record on such date will
not be allowed to vote at the Annual Meeting. At the close of business on April
4, 2000, there were 8,024,379 shares of common stock, par value $.05 per share,
and 150,000 shares of convertible preferred stock issued and outstanding. The
holders of common stock and convertible preferred stock are entitled to one vote
for each share held and may vote on each matter to be voted upon at the Annual
Meeting. Holders of the capital stock are not entitled to cumulate their votes
for the election of directors.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the number of shares of the Company's
common stock and convertible preferred stock beneficially owned by (i) each
director and nominee for election to the Board of Directors of the Company; (ii)
each of the named executive officers in the Summary Compensation Table; (iii)
all directors and executive officers as a group; and (iv) to the best of the
Company's knowledge, all beneficial owners of more than 5% of the outstanding
shares of each class of the Company's stock as of April 4, 2000. Unless
otherwise indicated, the shareholders listed in the table have sole voting and
investment power with respect to the shares indicated.
Common Stock(2) Convertible
Name (and Address Preferred Stock
of 5% Owners) or Percent Percent
Identity of Group(1) Shares of Class Shares of Class
-------------------- ---------- --------- --------- --------
Carl P. Boecher 107,500 (3) 1.3% -- --
Gary R. Holland 60,700 (4) * -- --
Terrence W. Glarner 24,600 (5) * -- --
Thomas R. King 20,950 (6) * -- --
Eugene W. Courtney 30,000 (7) * -- --
Alan G. Shuler 70,267 (8) * -- --
Michael L. Sorensen 46,600 (9) * -- --
Norwest Equity Partners V 640,516 (10) 7.8% 150,000 100%
Perkins Capital 1,660,204 (11) 19.6% -- --
Management, Inc.
Raymond A. Lipkin 681,000 (12) 8.2% -- --
David B. Johnson 484,632 (13) 5.9%
All Directors and 387,264 (14) 4.6% -- --
Executive Officers as
a Group (9 persons)
- ---------------------------
* Less than 1% of the outstanding shares of common stock.
(1) The addresses of the more than 5% holders are: Norwest Equity Partners
V - Norwest Center, Sixth & Marquette, Minneapolis, MN 55479; Perkins
Capital Management, Inc. - 730 East Lake Street, Wayzata, MN
55391-1769; Raymond A. Lipkin - 161 Ferndale Avenue S., Wayzata, MN
55391; and David B. Johnson - 5500 Wayzata Boulevard, Suite 800,
Minneapolis, MN 55416.
<PAGE>
(2) Under the rules of the Securities and Exchange Commission, shares not
actually outstanding are nevertheless deemed to be beneficially owned
by a person if such person has the right to acquire the shares within
60 days. Pursuant to such SEC rules, shares deemed beneficially owned
by virtue of a person's right to acquire them are also treated as
outstanding when calculating the percent of class owned by such person
and when determining the percentage owned by a group.
(3) Includes 91,500 shares which may be purchased by Mr. Boecher upon
exercise of currently exercisable options.
(4) Includes 60,000 shares which may be purchased by Mr. Holland upon
exercise of currently exercisable options and 700 shares held by Mr.
Holland's wife as custodian for their daughter.
(5) Includes 20,000 shares which may be purchased by Mr. Glarner upon
exercise of currently exercisable options.
(6) Includes 10,000 shares which may be purchased by Mr. King upon exercise
of currently exercisable options.
(7) Includes 5,000 shares owned jointly by Mr. Courtney and his spouse and
25,000 shares which may be purchased by Mr. Courtney upon exercise of
currently exercisable options.
(8) Includes 53,267 shares which may be purchased by Mr. Shuler upon
exercise of currently exercisable options.
(9) Includes 38,600 shares which may be purchased by Mr. Sorensen upon
exercise of currently exercisable options.
(10) Includes 150,000 shares which may be purchased by Norwest Equity
Partners V ("Norwest Equity"), a limited partnership, upon conversion
of convertible preferred stock. Norwest Equity has sole voting and
investment power over the shares it holds; Itasca Partners V, L.L.P.
("Itasca") is the general partner of Norwest Equity, and Daniel J.
Haggerty, John E. Lindahl and George J. Still Jr. are the general
partners of Itasca, all of whom may be deemed to beneficially own the
shares held by Norwest Equity. The Company has relied on information
contained in a Schedule 13D filed by Norwest Equity, Itasca and Messrs.
Haggerty, Lindahl and Still with the Securities and Exchange Commission
on April 11, 1997.
(11) Represents shares, including 464,207 shares which may be purchased upon
currently exercisable warrants, held for clients of Perkins Capital
Management, Inc. ("Perkins"). Perkins has sole power to dispose or
direct the disposition of all of the shares. Perkins has sole power to
vote or direct the vote for 391,997 of the shares and has no power to
vote or direct the vote of the remaining shares. The Company has relied
on information contained in a Schedule 13G Amendment dated January 31,
2000 on file with the Securities and Exchange Commission and updated
information received from Perkins.
<PAGE>
(12) Includes 256,000 shares which may be purchased by Mr. Lipkin upon
exercise of currently exercisable warrants and 10,000 shares held by
Mr. Lipkin's daughter, which shares Mr. Lipkin has dispositive power
and shared voting power. The Company has relied on information
contained in a Schedule 13G Amendment dated as of February 11, 2000 on
file with the Securities and Exchange Commission and other information
known by the Company.
(13) Includes (i) 25,905 shares which may be purchased by Mr. Johnson upon
exercise of currently exercisable warrants; (ii) 200,000 shares held by
the David B. Johnson Foundation, of which 100,000 shares may be
purchased upon exercise of a currently exercisable warrant; (iii)
80,000 shares held by Mr. Johnson's wife, of which 40,000 shares may be
purchased upon exercise of a currently exercisable warrant; and (iv)
62,772 shares held by Miller, Johnson & Kuehn, Incorporated, of which
26,072 shares may be purchased upon exercise of currently exercisable
warrants. Mr. Johnson is a principal of Miller, Johnson & Kuehn.
(14) Includes 321,014 shares which may be purchased by the current executive
officers and directors upon exercise of currently exercisable options
and warrants.
DETERMINATION OF NUMBER AND ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors to be
elected for the ensuing year shall be determined by the shareholders at each
meeting. The Board of Directors recommends that the number of directors to be
elected at the 2000 Annual Meeting be set at five (5).
Subject to approval by the shareholders of that recommendation, five
(5) directors will be elected at the Annual Meeting, each to serve until the
next annual meeting of shareholders and until a successor has been elected and
qualified.
All of the nominees are members of the present Board of Directors. In
connection with the Company's November 1, 1995 agreement with Mr. Holland for
consulting services, the Board agreed to appoint Mr. Holland to the Board, which
agreement was terminated in June 1997.
Pursuant to the terms of a stock purchase agreement, Norwest Equity
Partners V ("Norwest Equity") has the right to designate an individual for one
directorship on the Company's Board of Directors. As of the date of this proxy
statement, Norwest Equity has not advised the Company that it intends to
designate an individual as a nominee for election as a director at the 2000
Annual Meeting.
If, prior to the Annual Meeting, it should become known to the Board of
Directors that any one of the following individuals will be unable or unwilling
to serve as a director after the Annual Meeting, the proxies will be voted for
such substitute nominee as may be selected by the Board of Directors.
Alternatively, the proxies may, at the discretion of the Board of Directors, be
voted for such fewer number of nominees. The Board of Directors has no reason to
believe that any of the nominees will be unable or unwilling to serve.
Under applicable Minnesota law, approval of the proposals to set the
number of directors at five (5) and to elect the nominees to the Board of
Directors requires the affirmative vote of the holders of the greater of (i) a
<PAGE>
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter, or (ii) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
Names, Principal Occupations for the Past Five Years and
Selected Other Information Concerning Nominees for Directors
<TABLE>
<CAPTION>
Director
Name Principal Occupation Since Age
- ---- -------------------- ------- ---
<S> <C> <C> <C>
Carl P. Boecher President and Chief Executive Officer of 1997 57
the Company
Gary R. Holland President and Chief Executive Officer of 1995 58
Fargo Electronics, Inc.
Terrence W. Glarner President of West Concord Ventures, Inc. 1992 57
Thomas R. King Shareholder of Fredrikson & Byron, P.A., 1980 59
Attorneys at Law
Eugene W. Courtney Chief Executive Officer of RSI Systems, 1995 64
Inc.
</TABLE>
Mr. Boecher has served as President and Chief Executive Officer of the
Company since December 1996. Mr. Boecher served as Vice President of Marketing
and Sales of the Company from January 1995 until December 1996. From May 1990 to
November 1994, Mr. Boecher served as Senior Vice President and Executive
Director of Business Development of DRS Military Systems, a division of
Diagnostic/Retrieval Systems in Oakland, New Jersey, a supplier of high
technology optical, data storage, processing and display and
simulation/stimulation systems and products. From 1971 to 1990, Mr. Boecher
served in several marketing positions with the Defense Systems Division of
Unisys Corporation, a supplier of data processing systems, products and
services, in St. Paul, Minnesota, most recently holding the position of
Executive Director, Product Marketing.
Mr. Holland currently serves as President and Chief Executive Officer
of Fargo Electronics, Inc., a company that manufactures photo card equipment and
products and provides related services, which company he joined in June 1997 as
General Manager. In addition, Mr. Holland has provided consulting services as
President of Decision Processes International of Minnesota, Inc. since February
1996 and as the Managing Partner of Holland & Associates since June 1992. From
1982 until 1992, Mr. Holland was President and Chief Executive Officer of
DataCard Corporation, a manufacturer of credit card equipment, products and
services. Mr. Holland has served as Chairman of the Company's Board of Directors
since November 1995. Mr. Holland also serves as a director of Check Technology
Corporation and Fargo Electronics, Inc.
Mr. Glarner has served as President of West Concord Ventures, Inc., a
venture capital firm, since February 1993. Mr. Glarner also serves as a
consultant to Norwest Venture Capital Management, Inc., an entity affiliated
with Norwest Growth Fund, Inc. From 1976 to January 1993, he was employed by
North Star Ventures, Inc., serving as President from February 1988 to January
1993. Prior to 1976, Mr. Glarner was Vice President of Dain Bosworth (n/k/a Dain
Rauscher). Mr. Glarner also serves as a director of FSI International, Inc.,
Aetrium, Inc., CIMA Labs Inc. and Premis Corporation.
<PAGE>
Mr. King has been engaged in the private practice of law in
Minneapolis, Minnesota since 1965. He is a shareholder of the law firm of
Fredrikson & Byron, P.A., which serves as general counsel to the Company. Mr.
King has served as Secretary to the Company since 1980. Mr. King also serves as
a director of Sunrise Resources, Inc., a company which provides lease financing
for capital equipment.
Mr. Courtney has served as Chief Executive Officer of RSI Systems,
Inc., a company that designs, manufactures and distributes videoconferencing
systems, since October 1999. From December 1998 until October 1999, Mr. Courtney
provided independent consulting services. Mr. Courtney served as Chief Executive
Officer of HEI, Inc., a company which designs and manufactures microelectronics,
from 1990 until December 1998. Mr. Courtney also served as HEI's President from
1990 to July 1998, and he served as HEI's Executive Vice President from 1988 to
1990.
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all the Company's executive officers and the
position each holds are listed below.
Name Position Age
- ------------ --------------------------------- ---
Carl P. Boecher President and Chief Executive Officer 57
Alan G. Shuler Vice President and Chief Financial Officer 53
Michael L. Sorensen Vice President and General Manager, 54
Electronic Products
Timothy L. Russell Vice President and General Manager, 39
Information Security Solutions
Colleen M. Kulhanek Vice President of Corporate Marketing 34
See "Election of Directors" (Proposal #2) for Carl P. Boecher's
biography.
Alan G. Shuler has served as Vice President and Chief Financial Officer
of the Company since June 1992. From August 1991 to May 1992, Mr. Shuler served
as Vice President and Chief Financial Officer of Astrocom Corporation, a St.
Paul, Minnesota manufacturer of data communication equipment. From January 1988
through December 1990, Mr. Shuler was Senior Vice President and Chief Financial
Officer of FSI International, Inc., a Chaska, Minnesota manufacturer of
semiconductor equipment.
Michael L. Sorensen has served as Vice President and General Manager,
Electronic Products since November 1997. Mr. Sorensen joined the Company in
April 1997 as Vice President of Operations. From February 1995 to March 1997,
Mr. Sorensen served as Vice President of Operations for Despatch Industries, a
custom oven and furnace company, prior to which he provided consulting services
to Despatch, beginning in October 1994. From April 1992 to September 1994, Mr.
Sorensen was the Plant Manager of J. B. Martin Company, Inc., a manufacturer of
<PAGE>
three-dimensional fabrics located in Leesville, South Carolina. Prior to April
1992, Mr. Sorensen served in various engineering and operations positions with
United Engineers and Constructors, Inc., BASF Structural Materials, Inc.,
Celanese Corporation, Abbott Laboratories and Corning Glass Works.
Timothy L. Russell has served as Vice President and General Manager,
Information Security Solutions, of the Company since August 1999. From August
1994 to August 1999, Mr. Russell served in various senior management positions,
most recently as Vice President, Channel Sales, for Secure Computing
Corporation, an information security company. Prior to 1994, Mr. Russell held
various management and software engineering positions at Ceridian/Control Data.
Colleen M. Kulhanek has served as Vice President of Corporate Marketing
of the Company since April 2000. Ms. Kulhanek joined the Company in April 1999
as Director of Marketing. From June 1997 to April 1999, Ms. Kulhanek was
Marketing Manager with LSC, Inc., a storage management software developer. From
January 1996 to June 1997, Ms. Kulhanek was Marketing Manager with Secure
Computing Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Based on the Company's review of copies of forms filed with the
Securities and Exchange Commission or written representations from certain
reporting persons that no Forms 5 were required for those persons, in compliance
with Section 16(a) of the Securities Exchange Act of 1934, the Company believes
that during fiscal year 1999, all officers, directors, and greater than
ten-percent beneficial owners complied with the applicable filing requirements.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held six meetings during 1999 and took action by
unanimous written consent twice during 1999. No director attended less than 75%
of the meetings of the Board and any committee of which the director was a
member. The Company does not have a nominating committee. The Company has two
standing committees, an Audit Committee and a Compensation and Stock Option
Committee, which was formed on January 27, 1999 by combining the Compensation
Committee and Stock Option Committee into one committee.
The members of the Audit Committee are Terrence W. Glarner, Thomas R.
King, Eugene W. Courtney and Gary R. Holland. The Audit Committee recommends to
the Board of Directors the selection of independent accountants as well as the
internal accounting controls of the Company. The Audit Committee met once
during 1999.
The members of the Compensation and Stock Option Committee are Terrence
W. Glarner, Thomas R. King, Eugene W. Courtney and Gary R. Holland. This
committee recommends to the Board of Directors from time to time the salaries to
be paid to executive officers of the Company and any plan for additional
compensation it deems appropriate and administers the Company's stock option
plans. The Compensation and Stock Option Committee met twice during 1999.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued, during
each of the Company's last three fiscal years to the Chief Executive Officer
during fiscal 1999 and to the other executive officers whose total annual salary
and bonus paid or accrued during fiscal year 1999 exceeded $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)(1)
- ------------------------- ----- ---------- --------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl P. Boecher 1999 133,893 9,180 1,780(1) -- 65,000 -- 3,869(2)
President and Chief 1998 130,426 -- 1,796 -- 65,000 -- 3,069
Executive Officer 1997 120,637 -- 1,656 -- 15,000 -- 2,698
Alan G. Shuler 1999 112,046 3,469 1,551(1) -- 30,000 -- 2,218(2)
Vice President and 1998 110,228 -- 1,352 -- 30,000 -- 2,805
Chief 1997 101,364 -- 1,261 -- 10,000 -- 2,586
Financial Officer
Michael L. Sorensen 1999 109,177 3,791 1,867(1) -- 30,000 -- 3,950(2)
Vice President and 1998 106,269 -- 1,945 -- 30,000 -- 2,616
General Manager, 1997 62,307 -- 476 -- 50,000 -- 722
Electronic Products
</TABLE>
- ------------------------------
(1) Represents reimbursement for taxes on supplemental benefits.
(2) Represents term insurance premium paid by the Company and 401(K) plan
matching contributions.
Option Grants During 1999 Fiscal Year
The following table provides information regarding stock options
granted during fiscal 1999 to the named executive officers in the Summary
Compensation Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Percent of Total
Number of Shares Options Granted to Exercise or
Underlying Options Employees Base Price Per
Name Granted in Fiscal Year Share (1) Expiration Date
- ---- ----------------------- -------------------- --------- ---------------
<S> <C> <C> <C> <C>
Carl P. Boecher 15,000 (2) 5.2% $2.75 02/15/09
50,000 (3) 17.3% $1.50 12/01/09
Alan G. Shuler 10,000 (2) 3.5% $2.75 02/15/09
20,000 (4) 6.9% $1.50 12/01/09
Michael L. Sorensen 10,000 (2) 3.5% $2.75 02/15/09
20,000 (4) 6.9% $1.50 12/01/09
- ------------------
</TABLE>
(1) The exercise price is equal to the fair market value of the common
stock on the date of grant.
(2) The option was granted on February 16, 1999 and will become exercisable
in full on February 16, 2004, subject to acceleration if certain
targets are met.
<PAGE>
(3) The option was granted on December 2, 1999 and will become exercisable
to the extent of 16,667 shares on each of December 2, 2000 and December
2, 2001 and 16,666 shares on December 2, 2002.
(4) The option was granted on December 2, 1999 and will become exercisable
to the extent of 6,667 shares on each of December 2, 2000 and December
2, 2001 and 6,666 shares on December 2, 2002.
Option Exercises During 1999 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
named executive officers in the Summary Compensation Table during fiscal 1999
and the number and value of options at December 31, 1999. The Company has no
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, 1999 December 31, 1999
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
- ----------------- ------------ ---------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Carl P. Boecher -- -- 91,50 exercisable $4,700 exercisable
128,500 unexercisable $93,790 unexercisable
Alan G. Shuler -- -- 71,600 exercisable $0 exercisable
63,400 unexercisable $40,020 unexercisable
Michael L. Sorensen -- -- 30,600 exercisable $0 exercisable
79,400 unexercisable $62,528 unexercisable
</TABLE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $3.188, the closing sale price for the Company's
common stock at December 31, 1999 as quoted on the Nasdaq SmallCap
Market, multiplied by the number of shares underlying the option.
Compensation of Directors
Directors' Fees. The Chairman of the Board, Mr. Holland, currently
receives a $7,500 annual retainer, and all other independent Board members
receive a $2,500 annual retainer. Each independent Board member also receives
$1,000 for attendance at each meeting of the Board of Directors and $500 for
attendance at each committee meeting.
Stock Option Grants to Non-Employee Directors. The 1997 Stock Option
Plan provides for automatic option grants to each director who is not an
employee of the Company (a "Non-Employee Director"). Upon initial election, a
Non-Employee Director receives an automatic grant of a nonqualified option to
purchase 15,000 shares of the common stock at an option price per share equal to
100% of the fair market value of the common stock on the date of such election,
which option becomes exercisable to the extent of 3,000 shares immediately and
on each of the first four anniversaries of the date of grant. Each Non-Employee
Director who is re-elected as a director of the Company or whose term of office
<PAGE>
continues after a meeting of shareholders at which directors are elected shall,
as of the date of such re-election or shareholder meeting, automatically be
granted an immediately exercisable nonqualified option to purchase 2,500 shares
of the common stock at an option price per share equal to 100% of the fair
market value of the common stock on the date of such re-election or shareholder
meeting. No director shall receive more than one option to purchase 2,500 shares
pursuant to the formula plan in any one fiscal year. All options granted
pursuant to these provisions shall expire on the earlier of (i) three months
after the optionee ceases to be a director (except by death) and (ii) ten years
after the date of grant. Notwithstanding the foregoing, in the event of the
death of a Non-Employee Director, any option granted to such Non-Employee
Director pursuant to this formula plan may be exercised at any time within six
months of the death of such Non-Employee Director or on the date on which the
option, by its terms expires, whichever is earlier.
Employment Contracts and Termination of Employment Arrangements
The Company entered into a one-year employment agreement dated January
1, 1999 with Carl P. Boecher, the Company's President and Chief Executive
Officer. The agreement automatically renews for successive one-year terms unless
terminated by either party. The agreement has been automatically renewed for a
current one-year term with an annual base salary of $150,000. The agreement
provides for the payment of a monthly car allowance, and Mr. Boecher currently
receives $600 per month. The agreement does not provide for a bonus, but Mr.
Boecher is eligible to participate in the Company's Management Incentive Plan.
The agreement may be terminated with or without cause by either the Company or
Mr. Boecher 30 days prior to the end of a term. If Mr. Boecher's employment is
terminated (i) by the Company without cause or by nonrenewal of the agreement,
(ii) by death or (iii) by disability, he is entitled to a severance payment
equal to his base monthly salary for 12 months and to continued medical and
dental coverage during such period. If Mr. Boecher is terminated or resigns
within 12 months of a change of control of the Company, he will receive his base
monthly compensation and medical and dental coverage for 24 months. Mr. Boecher
has agreed not to compete with the Company for a period of one year after
termination of his employment if terminated without cause or upon failure to
renew, and for two years if terminated for cause or voluntary resignation or
within 12 months of a change of control of the Company.
The Company entered into a one-year employment agreement effective as
of January 1, 1999 with Alan G. Shuler, the Company's Vice President and
Chief Financial Officer. The agreement automatically renews for
successive one-year terms if a termination notice is not given by either party.
The agreement has been automatically renewed for a current one-year term with a
$122,500 annual base salary. The agreement provides for the payment of a monthly
car allowance, and Mr. Shuler currently receives $500. The agreement does not
provide for a bonus; however, Mr. Shuler is eligible to participate in the
Company's Management Incentive Plan. The agreement may be terminated with or
without cause by either the Company or Mr. Shuler 30 days prior to the end of
a term. If Mr. Shuler's employment is terminated by the Company without cause
or upon failure to renew, he is entitled to his monthly base salary for six
months. If Mr. Shuler's employment is terminated within 12 months of a change
of control, or if he resigns within 12 months of a change of control because of
diminution of either position responsibilities or remuneration, Mr. Shuler
shall receive a severance payment equal to his annual salary in effect at the
time of the change of control, payable in 12 monthly installments, and medical
and dental coverage at the Company's subsidized rates. Mr. Shuler has agreed
not to compete with the Company during his employment and during the time in
which he is paid severance pursuant to the agreement and for six months after
termination if terminated without cause or upon failure to renew.
<PAGE>
The Company entered into a one-year employment agreement effective as
of January 1, 1999 with Michael L. Sorensen, the Company's Vice President and
General Manager, Electronic Products. The agreement automatically renews for
successive one-year terms if a termination notice is not given by either party.
The agreement has been automatically renewed for a current one-year term with a
$120,000 annual base salary. The agreement provides for the payment of a monthly
car allowance, and Mr. Sorensen currently receives $500. The agreement does not
provide for a bonus; however, Mr. Sorensen is eligible to participate in the
Company's Management Incentive Plan. The agreement may be terminated with or
without cause by either the Company or Mr. Sorensen 30 days prior to the end of
a term. If Mr. Sorensen's employment is terminated by the Company without cause
or upon failure to renew, he is entitled to his monthly base salary for six
months. If Mr. Sorensen's employment is terminated within 12 months of a change
of control, or if he resigns within 12 months of a change of control because of
diminution of either position responsibilities or remuneration, Mr. Sorensen
shall receive a severance payment equal to his annual salary in effect at the
time of the change of control, payable in 12 monthly installments, and medical
and dental coverage at the Company's subsidized rates. Mr. Sorensen has agreed
not to compete with the Company during his employment and during the time in
which he is paid severance pursuant to the agreement and for six months after
termination if terminated without cause or upon failure to renew.
AMENDMENT TO ARTICLES OF INCORPORATION
(Proposal #3)
On March 28, 2000, the Board of Directors unanimously approved an
amendment to the Company's Articles of Incorporation to (i) eliminate all
references in the Articles to Series A preferred stock and (ii) increase the
authorized shares from 12,500,000, consisting of 11,000,000 common, 400,000
convertible preferred, 150,000 Series A preferred and 950,000 undesignated
shares, to 30,000,000, consisting of 20,000,000 common, 400,000 convertible
preferred and 9,600,000 undesignated shares (the "Amendment").
As of April 4, 2000, 8,024,379 shares of common stock were issued and
outstanding, and 2,975,621 shares of common stock were authorized but unissued.
Approximately 3,189,856 shares have been reserved for issuance pursuant to the
Company's employee benefit plans, including the increased shares for the
Company's 1997 Stock Option Plan in Proposal #4 below, 85,000 shares for the
Company's 1994 Consultant Stock Option Plan, 85,000 shares for outstanding
warrants and 150,000 shares for conversion of the outstanding convertible
preferred shares.
As of April 4, 2000, 150,000 of the 400,000 shares of convertible
preferred were issued and outstanding and none of the 150,000 authorized shares
of Series A preferred stock was outstanding. All previously issued shares of
Series A preferred stock have been converted into shares of common stock.
The Board desires to increase the number of authorized shares to
provide sufficient shares for the increase of shares under the Company's 1997
Stock Option Plan as set forth in Proposal #4 below; to give the Board
flexibility to declare stock dividends or stock splits at such times as the
Board may deem appropriate; to give the Board flexibility to make acquisitions
using stock; to adopt additional employee benefit plans or further increase the
shares available under existing plans; to raise equity capital or to use the
additional shares for other general corporate purposes. Other than the shares
<PAGE>
currently reserved for issuance as described above, the Board has not authorized
the issuance of any additional shares, and there are no current agreements or
commitments for the issuance of any additional shares.
The Company's Articles of Incorporation permit the Board to establish
from the undesignated shares, by resolution adopted and filed with the Secretary
of State in the manner provided by law, one or more classes or series and to fix
the relative rights and preferences of each such class or series, including the
establishment of additional shares of common stock. These shares are available
for issuance by the Board at such times and for such purposes as the Board may
deem advisable without further action by the shareholders, except as may be
required by law or regulatory authorities.
In the event of a proposed merger, tender offer or other attempt to
gain control of the Company of which the Board does not approve, the Company's
Articles of Incorporation permit the Board to authorize the issuance of a series
of stock with rights and preferences which could impede the completion of such a
transaction. The Board will have the authority, for example, to adopt a
shareholder rights plan or "poison pill" without additional shareholder
approval. The Board has the authority to issue shares to purchasers who would
support the Board in opposing a hostile takeover bid. The Board does not intend
to issue any shares except on terms which the Board deems to be in the best
interests of the Company and its then existing shareholders.
Shareholders of the Company have no preemptive rights with respect the
common stock of the Company. If this proposed Amendment is adopted, the
additional authorized shares of common stock will be available for issuance from
time to time at the discretion of the Board without further action by the
shareholders, except where shareholder approval is required by law, regulatory
authorities or to obtain favorable tax treatment for certain employee benefit
plans. Although an increase in the authorized shares could, under certain
circumstances, also be construed as having an anti-takeover effect (for example,
by diluting the stock ownership of a person seeking to effect a change in the
composition of the Board of Directors or contemplating a tender offer or other
transaction for the combination of the Company with another company), the
Company is not proposing the increase in authorized shares in response to any
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer or solicitation in opposition to management.
Vote Required
The Board of Directors recommends that the shareholders approve the
Amendment to the Articles. Under applicable Minnesota law and the Company's
Articles of Incorporation, approval of the Amendment as set forth above requires
the affirmative vote of the holders of the greater of (i) a majority of the
voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
<PAGE>
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES
RESERVED UNDER THE COMPANY'S 1997 STOCK OPTION PLAN
(Proposal #4)
General
On March 28, 2000, the Board of Directors amended the Company's 1997
Stock Option Plan (the "1997 Plan") to increase the shares reserved for issuance
under the 1997 Plan from 800,000 to 1,100,000 shares. As of April 4, 2000, the
Company had outstanding incentive and nonqualified options for the purchase of
an aggregate of 702,248 shares of the Company's common stock with an average
exercise price of $2.95 per share granted under the Company's 1997 Plan. Options
to purchase 18,500 shares under the 1997 Plan have been exercised as of April 4,
2000. The increase of shares under the 1997 Plan is necessary to provide
sufficient shares for future options. In addition, as of April 4, 2000, there
were outstanding options to purchase an aggregate of 239,001 shares with a range
of exercise prices of $3.00 to $7.25 under the Company's 1987 Stock Option Plan
and 35,000 shares at $3.625 under the 1994 Consultant Stock Option Plan. The
Board believes that granting fairly-priced stock options to employees and
directors is an effective means to promote the future growth and development of
the Company. Such options, among other things, increase employees' and
directors' proprietary interest in the Company's success and enables the Company
to attract and retain qualified personnel. The Board therefore recommends that
all shareholders vote in favor of increasing the number of shares reserved under
the 1997 Plan from 800,000 to 1,100,000 shares.
<PAGE>
Summary of 1997 Stock Option Plan
A general description of the basic features of the 1997 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1997 Plan, a copy of which may be obtained without
charge upon written request to Alan G. Shuler, the Company's Chief Financial
Officer.
Purpose. The purpose of the 1997 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until February 27, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
Administration. With the exception of the stock options automatically
issued to Non-Employee Directors as described below, the 1997 Plan is
administered by the Board of Directors or the Stock Option Committee of the
Board of Directors, all of the members of which are "non-employee directors"
under Rule 16b-3 of the Securities Exchange Act of 1934 (collectively referred
to as the "Administrator"). The 1997 Plan gives broad powers to the
Administrator to administer and interpret the 1997 Plan, including the authority
to select the individuals to be granted options and to prescribe the particular
form and conditions of each option granted.
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1997 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options. As of
April 4, 2000, the Company had approximately 53 employees, of which five are
officers, and five directors who are not employees.
Options. When an option is granted under the 1997 Plan, the
Administrator, at its discretion, specifies the option price and the number of
shares of Common Stock which may be purchased upon exercise of the option. The
exercise price of an incentive stock option set by the Administrator may not be
less than 100% of the fair market value of the Company's Common Stock, as that
term is defined in the 1997 Plan. Unless otherwise determined by the
Administrator, the exercise price of a nonqualified stock option will not be
<PAGE>
less than 100% of the fair market value on the date of grant; provided, however,
that the exercise price may not be less than 85% of the fair market value on the
date of grant. The period during which an option may be exercised and whether
the option will be exercisable immediately, in stages, or otherwise is set by
the Administrator. Generally, an incentive stock option may not be exercisable
more than ten (10) years from the date of grant. Optionees may pay for shares
upon exercise of options with cash, certified check or Common Stock of the
Company valued at the stock's then "fair market value" as defined in the 1997
Plan. Each option granted under the 1997 Plan is generally nontransferable
during the lifetime of the optionee; however, the Administrator may, in its sole
discretion, permit the transfer of a nonqualified stock option to immediate
family members or to certain family trusts or family partnerships.
Generally, under the form of option agreement which the Administrator
is currently using for options granted under the 1997 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death or disability, the optionee has a right to exercise the
option for three months after termination of such affiliation or until the
option's original expiration date, whichever is earlier. If the termination is
because of death or disability, the option typically is exercisable until its
original stated expiration or until the 12-month anniversary of the optionee's
death or disability, whichever is earlier. The Administrator may impose
additional or alternative conditions and restrictions on the incentive or
nonqualified stock options granted under the 1997 Plan; however, each incentive
option must contain such limitations and restrictions upon its exercise as are
necessary to ensure that the option will be an incentive stock option as defined
under the Internal Revenue Code.
Change of Control. In the event that (i) the Company is acquired
through the sale of substantially all of its assets or through a merger or other
transaction (a "Transaction"), (ii) after the effective date of the 1997 Plan a
person or entity becomes the holder of 30% or more the Company's outstanding
common stock, or (iii) individuals who constituted the Board on the effective
date of the 1997 Plan ceased for any reason thereafter to constitute at least a
majority of the Board of Directors (with exceptions for individuals who are
nominated by the current Board of Directors), all outstanding options will
become immediately exercisable in full and will remain exercisable during the
remaining terms of such outstanding options, whether or not the participants to
whom the options have been granted remain employees of the Company or a
subsidiary. The acceleration of the exercisability of outstanding options may be
limited, however, if the acquiring party seeks to account for a Transaction on a
"pooling of interests" basis which would be precluded if such options are
accelerated. The Board may also take certain additional actions, such as
terminating the 1997 Plan, providing cash or stock valued at the amount equal to
the excess of the fair market value of the stock over the exercise price, or
allowing exercise of the options for stock of the succeeding company.
Automatic Grants to Non-Employee Directors. The 1997 Plan provides for
automatic option grants to each director who is not an employee of the Company
(a "Non-Employee Director"). Each Non-Employee Director who is elected for the
first time as a director shall automatically be granted a nonqualified option to
purchase 15,000 shares of the common stock at an option price per share equal to
100% of the fair market value of the common stock on the date of the
Non-Employee Director's initial election, which option is exercisable to the
extent of 3,000 shares immediately and on each of the first four anniversaries
of the date of grant. Each Non-Employee Director who is re-elected as a director
of the Company or whose term of office continues after a meeting of shareholders
at which directors are elected shall, as of the date of such re-election or
shareholder meeting, automatically be granted an immediately exercisable
nonqualified option to purchase 2,500 shares of the common stock at an option
price per share equal to 100% of the fair market value of the common stock on
the date of such re-election or shareholder meeting. No director shall receive
more than one option to purchase 2,500 shares pursuant to the formula plan in
<PAGE>
any one fiscal year. All options granted pursuant to these provisions shall
expire on the earlier of (i) three months after the optionee ceases to be a
director (except by death) and (ii) ten (10) years after the date of grant.
Notwithstanding the foregoing, in the event of the death of a Non-Employee
Director, any option granted to such Non-Employee Director pursuant to this
formula plan may be exercised at any time within six months of the death of such
Non-Employee Director or on the date on which the option, by its terms expires,
whichever is earlier.
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1997 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1997 Plan may not be amended in
any manner that will cause incentive stock options to fail to meet the
requirements of Code Section 422, and may not be amended in any manner that
will: (i) materially increase the number of shares subject to the 1997 Plan
except as provided in the case of stock splits, consolidations, stock dividends
or similar events; (ii) change the designation of the class of employees
eligible to receive options; (iii) decrease the price at which options will be
granted; or (iv) materially increase the benefits accruing to optionees under
the 1997 Plan, without the approval of the shareholders, if such approval is
required to comply with Code Section 422 or the requirements of Section 16(b) of
the Act.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the 1997 Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. Generally, the Board of
Directors may also provide for the protection of optionees in the event of a
merger, liquidation or reorganization of the Company.
Federal Income Tax Consequences of the 1997 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended
to qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
<PAGE>
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
Plan Benefits. Because future grants of stock options are subject to
the discretion of the Administrator, the future benefits under the 1997 Plan
cannot be determined at this time, except for the automatic grants to
Non-Employee Directors as set forth above. The table below shows the total
number of shares underlying stock options that have been granted under the 1997
Plan as of April 4, 2000 to the named executive officers and the groups set
forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received
- ------------------------------------------ ---------------------------
Carl P. Boecher 145,000
President and Chief Executive Officer
Alan G. Shuler 70,000
Vice President and Chief Financial Officer
Michael L. Sorensen 110,000
Vice President and General Manager,
Electronic Products
Current Executive Officers 405,980
as a Group (5 persons)
Current Directors who are not 30,000
Executive Officers as a Group (4 persons)
Current Employees who are not 284,768
Executive Officers or Directors
as a Group (48 persons)
- -------------------
Vote Required. The Board of Directors recommends that the shareholders
approve the increase of shares under the 1997 Plan from 800,000 to 1,100,000
shares. Under applicable Minnesota law, approval of the increase of shares under
the 1997 Plan requires the affirmative vote of the holders of the greater of (i)
a majority of the voting power of the shares represented in person or by proxy
at the Annual Meeting with authority to vote on such matter, or (ii) a majority
of the voting power of the minimum number of shares that would constitute a
quorum for the transaction of business at the Annual Meeting.
RATIFICATION OF APPOINTMENT OF AUDITORS
(Proposal #5)
The Board of Directors recommends that the shareholders ratify the
appointment of McGladrey & Pullen, LLP, as independent auditors for the Company
for the year ending December 31, 2000. McGladrey & Pullen, LLP has served as
independent auditors for the Company since 1980. McGladrey & Pullen, LLP
provided services in connection with the audit of the financial statements of
<PAGE>
the Company for the year ended December 31, 1999, assistance with the Company's
Annual Report submitted to the Securities and Exchange Commission on Form 10-KSB
and quarterly reports filed with the Securities and Exchange Commission, and
consultation on matters relating to accounting and financial reporting.
Representatives of McGladrey & Pullen, LLP are expected to be present
at the Annual Meeting and will be given an opportunity to make a statement if so
desired and to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the annual
meeting in the year 2001 must be submitted to the Company in appropriate written
form on or before December 22, 2000 to be included in the Company's Proxy
Statement and related Proxy for the 2001 meeting. Shareholder proposals intended
to be presented at the annual meeting in 2001 but not be included in the proxy
materials sent to shareholders will not be considered timely unless received by
the Company on or before March 7, 2001.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting, except matters discussed in the Proxy Statement. If any
other matters properly come before the meeting, it is intended that the shares
represented by proxies will be voted in accordance with the judgment of the
persons voting the proxies.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1999 accompanies this Notice of Annual Meeting and Proxy
Statement. No part of such Annual Report is incorporated herein and no part
thereof is to be considered proxy soliciting material.
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT
DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-KSB UPON THE ADVANCE PAYMENT OF
REASONABLE FEES RELATED TO THE COMPANY'S FURNISHING SUCH EXHIBIT(S). REQUESTS
FOR COPIES OF SUCH REPORT AND/OR EXHIBIT(S) SHOULD BE DIRECTED TO SHAREHOLDER
RELATIONS AT THE COMPANY'S PRINCIPAL ADDRESS.
By Order of the Board of Directors
Thomas R. King
Secretary
April 21, 2000
<PAGE>
Datakey, Inc.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 31, 2000
3:30 p.m.
Radisson Plaza Hotel
35 S. 7th Street
Minneapolis, MN 55402
Datakey, Inc.
407 West Travelers Trail, Burnsville, Minnesota 55337 proxy
- --------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 31, 2000.
The shares of stock you hold in your account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Items 1, 2, 3, 4 and 5.
By signing the proxy, you revoke all prior proxies and appoint Carl P. Boecher
and Alan G. Shuler, and each of them, with full power of substitution, to vote
your shares on the matters shown on the reverse side and any other matters which
may come before the Annual Meeting and all adjournments.
See reverse for voting instructions
<PAGE>
Please detach here
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4 and 5.
<TABLE>
<S><C>
1. Set the number of directors at five (5). [ ] For [ ] Against [ ] Abstain
2. Elect directors: 01 Carl P. Boecher 04 Thomas R. King [ ] Vote FOR [ ] Vote WITHHELD
02 Gary R. Holland 05 Eugene W. Courtney all nominees from all nominees
03 Terrence W. Glarner (except as withheld below)
-------------------------------------------
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
-------------------------------------------
3. Approve amendment to the Articles of Incorporation, including an [ ] For [ ] Against [ ] Abstain
increase of authorized shares from 12,500,000 to 30,000,000.
4. Approve increase of shares under the 1997 Stock Option Plan [ ] For [ ] Against [ ] Abstain
from 800,000 to 1,100,000.
5. Ratify the appointment of McGladrey & Pullen, LLP as independent For [ ] For [ ] Against [ ] Abstain
Against Abstain auditors for the Company for the year ending December 31,
2000.
6. In their discretion, the proxies are authorized to vote upon such business
as may properly come before the meeting.
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
Address change? Mark box [ ] Dated: ________________________, 2000
Indicate changes below:
----------------------------------------
----------------------------------------
Signature(s) in Box Please sign exactly as
your name(s) appear on Proxy. If held in
joint tenancy, all persons must sign.
Trustees, administrators, etc., should
include title and authority. Corporations
should provide full name of corporation and
title of authorized officer signing the
proxy.
