EMPLOYMENT AGREEMENT


         This  Employment  Agreement  (the  "Agreement")  made and entered  into
effective as of the 1st day of January  1997,  by and between  Datakey,  Inc., a
Minnesota   corporation  (the  "Company"  or  "Datakey")  and  Carl  P.  Boecher
("Executive").


                                    RECITALS

         Carl P. Boecher joined the Company in January 1995 as Vice President of
Sales and Marketing.  He was appointed  President and Chief Executive Officer on
December 1, 1996. The parties desire to memorialize  their  relationship  in the
following Agreement.


                                    AGREEMENT

1.       Employment

         a. Datakey agrees to continue to employ  Executive on a full-time basis
as the President and Chief Executive  Officer ("CEO") of Datakey pursuant to the
terms and conditions hereof.

         b.   Executive   agrees  that  he  will,  at  all  times,   faithfully,
industriously,  and,  to the  best of his  abilities,  experience  and  talents,
continue to perform all the duties and responsibilities  that may be required of
him as President and CEO of Datakey.

2.       Term of Employment

         a.  Subject  to the terms and  conditions  hereof,  Executive  shall be
employed  for a term  ("Employment  Term")  commencing  on January 1, 1997,  and
terminating  on January 1, 1998,  unless  extended as set forth in Subsection 2b
below.

         b. This Agreement will be renewed  automatically after January 1, 1998,
for  additional  one-year  periods  unless  either  party  gives the other party
written  notice 30 days before  January 1, 1998 or 30 days before the end of any
one-year period thereafter of his or its intention to terminate the Agreement.

3.       Base Compensation

         As compensation for his services to Datakey, Executive shall be paid an
initial monthly salary of $10,000,  payable in accordance with Datakey's payment
periods.  Executive's  base  compensation  will be reviewed  on an annual  basis
throughout the term of this Agreement.

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4.       Incentive Compensation

         Executive  will be paid a target  bonus of 30% of his base salary which
will be dependent on  attainment  of  performance  targets set by the  Company's
Compensation  Committee  by February 15, 1997.  In addition,  Executive  will be
eligible to  participate  in any long-term  incentive plan approved by Datakey's
Board of Directors.

5.       Other Benefits

         a.  Vacation.  Executive  will receive four weeks of vacation for every
twelve months of  employment.  Unused  vacation may not be carried over from one
year to the next.  Datakey will pay Executive for any earned and unused vacation
upon termination.

         b. Automobile  Allowance.  During the term of this  Agreement,  Datakey
will pay Executive $500 per month to be applied toward his automobile expenses.

         c. Stock  Options.  Executive has been granted the following  incentive
stock  options:  (i) 50,000  shares at an exercise  price of $3.50 per share and
(ii) 25,000  shares at an exercise  price of $3.00 per share.  Both options have
been or will be  memorialized  in  Stock  Option  Agreements  and  will  contain
standard terms and conditions, including vesting.

         d.  Miscellaneous.  During the term of this  Agreement,  Executive will
receive such other benefits which are provided by Datakey to other officers as a
group.

6.       Termination

         Notwithstanding  Section 2 above,  the Employment Term or any extension
thereof shall terminate upon the happening of any of the following events:

         a.       Mutual  written  agreement  between the Board of  Directors of
                  Datakey and Executive to terminate his employment.

         b.       Executive's death.

         c.       Executive's  disability  defined  as  physically  or  mentally
                  unable  to  perform   as  CEO  with  or   without   reasonable
                  accommodation for a period of six consecutive months, or

         d.       For cause (as  defined  below)  upon  written  notice from the
                  Board of  Directors  specifying  the nature of the cause.  For
                  purposes of this Agreement,  "cause" shall include  commission
                  of any  felony,  gross  misdemeanor,  or any act of  fraud  or
                  dishonesty in connection with the affairs of Datakey.


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         e.       By either party with or without cause upon thirty days written
                  notice to the other.

7.       Payment Upon Termination of Employment For Cause

         If  Executive  is  terminated  for cause as defined in Section 6 above,
Executive shall not be eligible to receive any severance  benefits.  The date of
termination  under this Section 7 shall be on the day the notice of  termination
for cause is given and Executive shall be entitled to no additional compensation
past the date of such notice.

8.       Payment Upon  Termination  of Employment  Without Cause or  Termination
         Upon Failure to Renew Agreement

         a. If Executive is terminated  without cause or terminated  for failure
of Datakey to renew Agreement, Executive shall receive a severance payment equal
to his base compensation  payable for twelve months in accordance with Datakey's
payment periods  beginning on the 10th day of the first month following the last
month of employment.

         b. The payments  provided for under this Section 8 shall,  in the event
of Executive's death,  continue and shall be payable to his wife if she survives
or, if not, to his estate.

         c. The  Company  will also  expend up to $6,000 to be  applied  only to
outplacement counseling of Executive's choice. Payments will be made directly to
the outplacement counselor.

         d. The Company will  continue to provide to  Executive  and his covered
dependents  access  to  medical  and  health  coverage  under  its plans as they
currently exist or may hereafter be amended at company  subsidized  rates during
the  twelve-month  severance pay period.  Thereafter,  Executive and his covered
dependents  will be entitled to elect to  continue  coverage  under COBRA to the
extent it is  available.  Coverage by the Company or under COBRA will end on the
earlier of Executive's  obtaining new employment  which gives him the ability to
provide medical and health insurance coverage for himself and his family through
his new employer, or the failure to pay any premium when due.

9.       Nondisclosure

         Except by  written  permission  from  Datakey,  Executive  shall  never
disclose or use any trade secrets,  sales  projections,  formulations,  customer
lists or information, product specifications or information, credit information,
production  know-how,  research and development  plans or other  information not
generally known to the public ("Confidential  Information")  acquired or learned
by Executive during the course,  and on account,  of his employment,  whether or
not developed by Executive,  except as such disclosure or use may be required by

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his duties to Datakey,  and then only in strict  accordance with his obligations
of service and loyalty thereto. Upon termination of employment, Executive agrees
to deliver to Datakey all Confidential Information.

10.      Noncompetition

         a. For a period of one (1) year after the end of the Employment Term or
any  extension  thereof  or after  termination  of  employment  for any  reason,
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);

         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  10  anywhere  in  the  United  States.
Therefore,  Executive  agrees that the  covenants  contained  in this Section 10
shall apply to all portions of, and throughout, the United States; and

         c. To the extent any  provision  of this Section 10 shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision  and this Section 10 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 10 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  10 be given the  construction  which
renders  its  provisions  valid  and  enforceable  to the  maximum  extent  (not
exceeding its expressed terms) possible under applicable laws.

         d. Executive and Datakey acknowledge that the noncompetition  provision
of this Section 10 is enforceable  against Executive under Minnesota law only if
it is supported by independent  consideration because Executive is entering into
this  noncompetition  agreement  after having already  accepted  employment with
Datakey.   Executive  specifically  acknowledges  and  agrees  that  Datakey  is
providing  him  adequate  independent   consideration  for  this  noncompetition
provision  by way of this  Agreement,  including  but not limited to the term of
employment  (Section 2),  increased  base  compensation  (Section 3),  increased
incentive  compensation  (Section 4), and one-year  severance  upon  termination
(Section 8).

11.      Specific Performance

         Executive acknowledges that a breach of this Employment Agreement would
cause  Datakey  irreparable  injury and damage  which  could not be  remedied or


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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.

12.      Miscellaneous

         a. Waiver by Datakey of a breach of any provision of this  Agreement by
Executive shall not operate or be construed as a waiver of any subsequent breach
by Executive.

         b. This  Agreement  shall be binding  upon and inure to the  benefit of
Datakey,  its successors and assigns, and as to Executive,  his heirs,  personal
representatives, estate, legatees and assigns.

         c. This Agreement  constitutes the entire agreement between the parties
hereto  with  respect to the  subject  matter  hereof and  supersedes  all prior
agreements whether written or oral relating hereto.

         d. This Agreement  shall be governed by and construed under the laws of
the State of Minnesota.


         IN WITNESS  WHEREOF,  the parties have hereto  executed this Employment
Agreement effective as of the day and year first above written.

                                       DATAKEY, INC.



                                       /s/ Gary R. Holland
                                       By:  Gary Holland, Chairman of the Board



                                       /s/ Carl P. Boecher
                                       Carl P. Boecher, Executive




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