exv10w1



 





Exhibit 10.1




EMPLOYMENT AGREEMENT




     This Employment Agreement made and entered into effective as of August 1,
2004, by and between Datakey, Inc., a Minnesota corporation (the “Company” or
“Datakey”), and David A. Feste (“Executive”).



RECITALS




     Executive has been named Vice President and Chief Financial Officer of
Datakey. The Company and the Executive desire 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 its Vice
President and Chief Financial Officer.



     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 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 August 1, 2004 and terminating on
July 31, 2005 unless extended as set forth in Subsection 2b below.



     b. This Agreement will be renewed automatically after July 31, 2005 for
additional one-year periods unless either party gives the other party written
notice 30 days before July 31, 2005, or 30 days before the end of any one-year
period thereafter, of his or its intention to terminate the Agreement.



3. Base Monthly Compensation




     As compensation for his services to Datakey, Executive shall be paid a
monthly salary of $11,250, plus salary increases, if any, 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 and
withholding practices.



4. Bonus




     Executive shall be eligible to participate in the Annual Incentive Plan,
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.



 









 





Exhibit 10.1




6. Termination




     a. Notwithstanding Section 2 above, the Employment Term, and 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 his employment;




(ii) Executive’s death;




(iii) Executive’s disability, defined as physically or mentally
unable to perform his duties as an officer of the Company for a
period of six consecutive months, as determined by a mutually
agreeable physician; 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, gross misdemeanor, or any act of fraud 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 July 31, 2005, or at the
end of any one-year extension, Executive shall not be entitled to receive his
agreed compensation for the balance of the term of this Agreement but shall
instead receive a severance payment equal to his base monthly compensation
payable for six months in accordance with Datakey’s payroll periods beginning
the first month following the last month of his employment term, plus quarterly
cash bonus payments for two quarters, payments equal to the average quarterly
bonus paid to Executive during the prior four quarters.



     b. Base compensation shall be deemed to be the amount of current
compensation on the date of termination reflected in the Company’s personnel
files, but, in any event, no less than $11,250 per month.



     c. 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.



     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 provided Executive
elects to continue coverage under COBRA. 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. In
addition, the supplemental life and disability insurance as listed on Exhibit A
will continue for six months at Company expense.



 









 





Exhibit 10.1




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 his 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, plus quarterly
bonus payments for four quarters, each quarterly payment equal to the average
quarterly bonus paid during the prior four quarters.



     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 his covered dependents will be entitled to elect to
continue coverage under COBRA, at his 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 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.
In addition, the supplemental life and disability insurance 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 his wife if she survives or, if
not, to his 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 his employment, whether or
not developed by Executive, except as such disclosure or use may be required by
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.



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;



 









 





Exhibit 10.1




     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 his 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 twelve months after termination
for any termination under Paragraphs 7, 8 or 9.



     b. Executive acknowledges that Datakey markets products throughout the
World and that Datakey would be harmed if Executive conducted any of the
activities described in this Section 13 anywhere in the World. Therefore,
Executive agrees that the covenants contained in this Section 13 shall apply to
all portions of, and throughout, the World.



     c. Executive acknowledges that if he fails to fulfill his 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, his heirs, personal
representatives, estate, legatees, and assigns.



 









 





Exhibit 10.1




     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/ Timothy L. Russell	 	 
	

	 	 	 	
 	 	 
	

	 	 	 	Timothy L. Russell, President & CEO	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ David A. Feste
	 	 	
 
	 	 	David A. Feste, Executive







 









 






Exhibit 10.1




EXHIBIT A

TO

EMPLOYMENT AGREEMENT DATED June 30, 2003




EXECUTIVE BENEFITS





	--	 	Group health, dental, life and disability insurance, 401K plan, 125 plan and other benefits as provided to all employees






	--	 	Four weeks of annual vacation; unused vacation cannot be carried over






	--	 	Sick leave as needed, up to 90 days at the discretion of the Board of Directors.






	--	 	Up to $6,000 to be applied to outplacement counseling of Executive’s choice and paid directly to the outplacement counselor