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Exhibit 10.5 LEASE EXTENSION AND SPACE REDUCTION AGREEMENT THIS LEASE EXTENSION AND SPACE REDUCTION AGREEMENT, made and entered into
this 5th day of April, 2004, by and between Kraus-Anderson, Incorporated, a
Minnesota corporation (hereinafter referred to as Landlord), and Datakey,
Inc., a Minnesota corporation (hereinafter referred to as Tenant); WITNESSETH THAT WHEREAS: A. Landlord is leasing to Tenant and Tenant is leasing from Landlord certain
premises commonly known as 401-413 West Travelers Trail, Burnsville, Minnesota
and located in Suite 201 through 207 of the Gateway Business Park, Phase II
(the Complex), pursuant to written Lease Agreement dated June 3, 1987, as
amended by First Amendment To Lease Agreement dated February 10, 1988, Second
Amendment To Lease Agreement dated December 23, 1988, Amendment No. 3 To Lease
Agreement dated February 13, 1992, Amendment No. 4 To Lease Agreement dated
April 1, 1992, Lease Amendment No. 5 dated December 17, 1996 and by Lease
Extension and Expansion Agreement dated April 19, 1999 (collectively referred
to as the Lease); Said premises consist of approximately 25,372square feet
of floor space as shown outlined in red and blue on Exhibit A attached hereto
(the Original Leased Premises); and B. WHEREAS, Landlord and Tenant desire to amend the Lease to redefine
Tenants space, with
Tenant surrendering a portion of the Original Leased Premises (the Surrendered
Premises); Said Surrendered Premises consist of approximately 13,485square
feet of floor space, and are shown outlined in blue upon Exhibit A attached
hereto; and C. WHEREAS, Landlord and Tenant desire to amend the Lease to lease Tenants
remaining space (the Retained Premises); Said Retained Premises consist of
approximately 11,887square feet of floor space, and are shown outlined in red
upon Exhibit A attached hereto; and D. WHEREAS, the parties hereto also desires to extend the term of the Lease by
a period of six (6) months and to amend certain other provisions thereof; NOW THEREFORE, in consideration of the mutual agreements herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby amend the Lease and agree as
follows:  1.
    
    ARTICLE 1, SECTION 2 - PREMISES AND TERM:The term of the Lease is hereby extended for an additional six (6) month
period, to commence on July 1, 2004 and to expire on December 31, 2004.2.
    
    ARTICLE 1, SECTION 1  LEASED PREMISES:  a)
    
    On or before June 30, 2004 , Tenant shall surrender the
Surrendered Premises to Landlord in good condition and repair, with
all of Tenants personal property removed therefrom, in accord with
Article 19 of the Lease.




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Exhibit 10.5  b)
    
    Beginning on July 1, 2004 (Reduction Date) and continuing
through the expiration date of December 31, 2004, as extended in
paragraph 1. above, Landlord shall continue to lease to Tenant and
Tenant shall continue to lease from Landlord that portion of the
Original Leased Premises outlined in red upon Exhibit A attached
hereto (the Retained Premises), in accordance with the terms of
the Lease, as amended hereby. Except as otherwise specifically
provided in this Amendment, Tenants lease of the Retained Premises
shall be upon the same terms and conditions as set forth in the
Lease, and the term Leased Premises shall be defined to mean the
Retained Premises consisting of approximately 11,887square feet of
space.c)
    
    Beginning on July 1, 2004, Tenant shall thereafter have no
liability for Tenant obligations which
accrue under this Lease with respect to the Surrendered Premises.  3.
    
    ARTICLE 6  UTILITIES:Tenant is liable for payment for all charges for utility services
provided to the Surrendered Premises through June 30, 2004. Beginning on
July 1, 2004 and continuing through the expiration date of December 31,
2004, Tenant shall continue to pay for charges for all utility services
provided to the Retained Premises, subject to the understandings set
forth on Exhibit B.4.
    
    ARTICLE 3 - BASE RENT AND ADDITIONAL RENT: a)
    
    Tenant shall be required to continue to pay to Landlord fixed annual
base rent in the amount of One Hundred Ninety Thousand Two Hundred Ninety
and no/100 Dollars ($190,290.00) for the Original Leased Premises,
payable monthly at Fifteen Thousand Eight Hundred Fifty Seven and 50/100
Dollars ($15,857.50) per month until June 30, 2004.b)
    
    Beginning on July 1, 2004 and continuing through December 31, 2004,
Tenant shall be required to pay to Landlord a fixed annual base rent in
the amount of Ninety Thousand Three Hundred Forty-one and 20/100 Dollars
($90,341.20) for the Retained Premises, payable monthly at Seven Thousand
Five Hundred Twenty-eight and 43/100 Dollars ($7,528.43) per month. 5.
    
    ARTICLE 4, SECTION 4 - OPERATING COST ADJUSTMENT:Tenants Proportionate Share as that phrase is used in the Lease,
according to Article 4, Section 4 of the Lease, shall be decreased from
47.42% to 22.22% from the Reduction Date of July 1, 2004 through the
extended Lease term, ending on December 31, 2004.6.
    
    ARTICLE 8 - HEATING, VENTILATING AND AIR CONDITIONING SYSTEM REPAIRS:Landlord shall have Landlords contractor recheck the heating,
ventilating and air conditioning system (HVAC) serving the Retained
Premises and agrees to continue to keep and maintain the HVAC system in
good repair in accordance with the terms of the Lease. Landlord shall,
at all times, have access to the HVAC units, and may enter upon the
Retained Premises for the purpose of repairing and maintaining it.7.
    
    EARLY TERMINATION RIGHT:Notwithstanding anything herein to the contrary, either Landlord or
Tenant may elect to terminate this Lease effective at the end of any
calendar month by providing at least one full calendar month prior
written termination notice to the other party hereto.A party may not exercise its right to terminate this Lease if that party
is in default under this Lease on the date that the party attempts to
exercise such termination right.




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Exhibit 10.5  8.
    
    The expiration date of the term of the Lease, as set forth therein and as
amended hereby,
and all other conditions and covenants of the Lease shall apply with full
force and effect to Tenants lease of the Retained Premises. From and
after the Reduction Date, the phrase Leased Premises, as used in the
Lease, shall be construed to mean the Retained Premises outlined in red
on Exhibit A consisting of approximately 11,887 square feet of space.9.
    
    Except as herein specifically modified and amended, and as previously
amended on
February 10, 1988, December 23, 1988, February 13, 1992, April 1, 1992,
December 17, 1996,
and on April 19, 1999, the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Lease Extension
and Space Reduction Agreement as of the day and year first above written. KRAUS-ANDERSON, INCORPORATED

    DATAKEY, INC.a Minnesota corporation

    a Minnesota corporationBy:
    
    /s/Philip F. Boelter
    By:
    /s/David A. FestePhilip F. Boelter, Executive
Vice PresidentLANDLORD

    Its: Vice President and CFOTENANT




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Exhibit 10.5 (FLOR PLAN)




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Exhibit 10.5 EXHIBIT B
TO
LEASE EXTENSION AND SPACE REDUCTION AGREEMENT DATED Article 6 - Utilities The purpose of this Exhibit B is to describe the Tenant and Landlords
responsibilities with respect to certain utility charges billed to and payable
by the Tenant. It is agreed that through the Tenants period of occupancy, the
Tenant shall be responsible for payment of electric and natural gas charges for
the common usage of such utilities by the tenants of Suite 201 through 207 of
the Gateway Business Park, Phase II. Further, the Tenant and Datakey
Electronics, Inc. have previously agreed to share the cost of such utilities
accrued each calendar month through and including June 2004 based on the
presumption that Datakey Electronics, Inc. is financially responsible for
eighty percent (80%) of monthly electric usage charge billed to the Tenants
account number 27-1990-4 by Dakota Electric Association and fifty percent (50%)
of the monthly natural gas usage charge billed to the Tenants account number
060-006-653-400 by Center Point Energy. Furthermore, for each calendar month
after June 2004 and ending on the last day of the Tenants occupancy, the
Tenant shall continue to be responsible for payment of electric and natural gas
charges for the common usage of such utilities by the tenants of Suite 201
through 207 of the Gateway Business Park, Phase II. However, beginning July 1,
2004 and ending on the last day of the Landlords lease with Datakey
Electronics, Inc., the Landlord shall be financially responsible on an accrual
basis for eighty percent (80%) of the monthly electric usage charge billed to
the Tenants account number 27-1990-4 by Dakota Electric Association and fifty
percent (50%) of the monthly natural gas usage charge billed to the Tenants
account number 060-006-653-400 by Center Point Energy. For the period
beginning on the expiration date of the Landlords lease with Datakey
Electronics, Inc. and ending on December 31, 2004, the Landlord shall be
financially responsible on an accrual basis for a fair allocation of the
monthly electric usage charge billed to the Tenants account number 27-1990-4
by Dakota Electric Association and a fair allocation of the monthly natural gas
usage charge billed to the Tenants account number 060-006-653-400 by Center
Point Energy. The Landlord and Tenant shall mutually agree to method of fair
allocation based upon the Tenants prior usage of such utilities during the
preceding twelve months.