Document:

exv10w4

 

Exhibit 10.4

DATAKEY, INC.

NONQUALIFIED STOCK OPTION AGREEMENT

     THIS AGREEMENT, made effective as of this 23rd day of February 2004, by
and between DATAKEY, INC., a Minnesota corporation (the “Company”), and DAVID
A. FESTE (“Optionee”).

W I T N E S S E T H:

     WHEREAS, Optionee on the date hereof is a key employee of the Company; and

     WHEREAS, to induce the Optionee to further the Optionee’s efforts in its
behalf, the Company desires to grant to the Optionee a nonqualified stock
option to purchase shares of its Common Stock, which option shall be granted
outside of the Company’s 1997 Stock Option Plan; and

     WHEREAS, the Administrator has authorized the grant of a nonqualified
stock option to Optionee and has determined that, as of the effective date of
this Agreement, the fair market value of the Company’s Common Stock is $0.79
per share;

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:

     1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the “Date of Grant”), the right and option (the “Option”) to
purchase all or portions of an aggregate of One Hundred Thousand (100,000)
shares of Common Stock at a per share price of $0.79 on the terms and
conditions set forth herein, subject to adjustment pursuant to Paragraph 4
below. This Option is a nonqualified stock option and will not be treated as
an incentive stock option, as defined under Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the “Code”), and
the regulations thereunder.

     2. Duration and Exercisability.

            a. The term during which this Option may be exercised shall terminate on
February 22, 2014, except as otherwise provided in Paragraphs 2(b) through 2(e)
below. This Option shall become exercisable according to the following
schedule:

	 	 	 	 	 
	Vesting Date
	 	Number of Shares

	February 23, 2005
	 	 	33,333	 
	February 23, 2006
	 	 	33,333	 
	February 23, 2007
	 	 	33,334	 

 

 

Exhibit 10.4

Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option’s termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.

            b. Change of Control. Upon a “transaction” or “change of control
transaction” (as those terms are defined in Paragraph 4(b) below), this Option
shall become immediately exercisable.

            c. Termination of Employment (other than Disability or Death). If
Optionee ceases to be an employee of the Company or any Subsidiary for any
reason other than because of disability or death, this Option shall completely
terminate on the earlier of (i) the close of business on the three-month
anniversary date of the termination of employment, and (ii) the expiration date
of this Option stated in Paragraph 2(a) above. In such period following such
termination of employment, this Option shall be exercisable only to the extent
the Option was exercisable on the vesting date immediately preceding the date
on which Optionee’s employment with the Company or Subsidiary terminated, but
had not previously been exercised. To the extent this Option was not
exercisable upon termination of employment, or if Optionee does not exercise
the Option within the time specified in this Paragraph 2(c), all rights of
Optionee under this Option shall be forfeited.

            d. Disability. If Optionee ceases to be an employee of the Company or any
Subsidiary because of disability (as such term is defined in Code Section
22(e)(3), or any successor provision), this Option shall completely terminate
on the earlier of (i) the close of business on the twelve-month anniversary
date of the termination of employment, and (ii) the expiration date under this
Option stated in Paragraph 2(a) above. In such period following termination of
employment, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding the termination of
employment. If Optionee does not exercise the Option within the time specified
in this Paragraph 2(d), all rights of Optionee under this Option shall be
forfeited.

            e. Death. In the event of Optionee’s death, this Option shall terminate
on the earlier of (i) the close of business on the twelve-month anniversary
date of the date of Optionee’s death, and (ii) the expiration date of this
Option stated in Paragraph 2(a) above. In such period following Optionee’s
death, this Option may be exercised by the person or persons to whom Optionee’s
rights under this Option shall have passed by Optionee’s will or by the laws of
descent and distribution only to the extent the Option was exercisable on the
vesting date immediately preceding the date of Optionee’s death. If such
person or persons fail to exercise this Option within the time specified in
this Paragraph 2(e), all rights under this Option shall be forfeited.

 

 

Exhibit 10.4

     3. Manner of Exercise.

            a. General. The Option may be exercised only by Optionee (or other proper
party in the event of death or incapacity) subject to such administrative rules
as the Administrator may deem advisable, by delivering within the option period
written notice of exercise to the Company at its principal office. The notice
shall state the number of shares as to which the Option is being exercised and
shall be accompanied by payment in full of the option price for all shares
designated in the notice. The exercise of the Option shall be deemed effective
upon receipt of such notice by the Company and upon payment that complies with
the terms of this Agreement. The Option may be exercised with respect to any
number or all of the shares as to which it can then be exercised and, if
partially exercised, may be exercised as to the unexercised shares any number
of times during the option period as provided herein.

            b. Form of Payment. Payment of the option price by Optionee shall be in
the form of cash, personal check, certified check or previously acquired shares
of Common Stock of the Company, or any combination thereof. Any stock so
tendered as part of such payment shall be valued at its Fair Market Value. For
purposes of this Agreement, “previously acquired shares of Common Stock” shall
include shares of Common Stock that have been owned by Optionee for at least
six months at the time of exercise. “Fair Market Value” shall mean (i) the
reported closing price if such stock is reported by the Nasdaq Stock Market or
is listed upon an established stock exchange or exchanges; (ii) the reported
closing price or average of the closing “bid” and “asked” prices, whichever, if
such stock is quoted on the OTC Bulletin Board, National Quotation Bureau, Inc.
or any comparable reporting service; or (iii) if such stock is not publicly
traded, the per share value as determined by the Board, or the Committee, in
its sole discretion by applying principles of valuation with respect to all
such options.

            c. Stock Transfer Records. As soon as practicable after the effective
exercise of all or any part of the Option, Optionee shall be recorded on the
stock transfer books of the Company as the owner of the shares purchased, and
the Company shall deliver to Optionee one or more duly issued stock
certificates evidencing such ownership. All requisite original issue or
transfer documentary stamp taxes shall be paid by the Company.

     4. Recapitalization, Sale, Merger, Exchange or Liquidation.

            a. Recapitalization. In the event of an increase or decrease in the
number of shares of Common Stock resulting from a subdivision or consolidation
of shares or the payment of a stock dividend or any other increase or decrease
in the number of shares of Common Stock effected without receipt of
consideration by the Company, the number of shares of Option Stock and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect
to which the adjustment relates.

            b. Other. This Option shall become immediately exercisable, whether or
not it had become exercisable prior to the transaction or change of control, in
the event of :

 

 

Exhibit 10.4

                (i) an acquisition of the Company by a corporation, partnership, trust or
other entity not controlled by the Company through (a) the sale of
substantially all of the Company’s assets and the consequent discontinuance of
its business or (b) through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation (collectively referred to as a
“transaction”), or

                (ii) a change of control such that (a) any individual, partnership, trust
or other entity becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 30% or more of the combined
voting power of the Company’s outstanding securities ordinarily having the
right to vote at elections of directors of the Company, or (b) individuals who
constituted the Board of Directors of the Company on February 27, 1997 cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to such date whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors comprising the Board of Directors of
the Company on such date (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (b) considered as though such person were a member of the Board of
Directors of the Company on such date (collectively referred to as a “change of
control”).

In addition to the foregoing, in the event of such a transaction or change of
control, the Board may provide for one or more of the following:

                     (A) the cancellation of this Option to the extent not exercised prior to a
date specified by the Board (which date shall give Optionee a reasonable period
of time in which to exercise the Option prior to the effectiveness of such
transaction);

                     (B) that Optionee shall receive, with respect to each share of Option
Stock subject to this Option, as of the effective date of any such transaction,
cash in an amount equal to the excess of the Fair Market Value of such Option
Stock on the date immediately preceding the effective date of such transaction
over the exercise price per share of the Option; provided that the Board may,
in lieu of such cash payment, distribute to Optionee shares of stock of the
Company or shares of stock of any corporation succeeding the Company by reason
of such transaction, such shares having a value equal to the cash payment
herein; or

                     (C) continuance of this Option and provide to Optionee the right to
exercise this Option as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction.

 

 

Exhibit 10.4

The Board may restrict the rights of or
the applicability of this Paragraph 4
to the extent necessary to comply with Section 16(b) of the Securities Exchange Act of 1934, the
Internal Revenue Code or any other applicable law or regulation. The grant of
this Option shall not limit in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, exchange or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.

     5. Miscellaneous.

            a. Employment; Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to the continuance of employment by the Company
or any of its Subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares
have been issued to Optionee upon exercise of this Option. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities
or other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Paragraph 4
above.

            b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall
have determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee’s own account without a view to any
further distribution thereof and that such shares will be not transferred or
disposed of except in compliance with applicable state and federal securities
laws.

            c. Withholding Taxes. In order to permit the Company to comply with all
applicable federal or state income tax laws or regulations, the Company may
take such action as it deems appropriate to insure that, if necessary, all
applicable federal or state payroll, income or other taxes are withheld from
any amounts payable by the Company to Optionee. If the Company is unable to
withhold such federal and state taxes, for whatever reason, Optionee hereby
agrees to pay to the Company an amount equal to the amount the Company would
otherwise be required to withhold under federal or state law. Optionee may,
subject to the approval and discretion of the Administrator or such
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the
Company’s Common Stock having a fair market value equal to such obligations.

            d. Nontransferability. During the lifetime of Optionee, the accrued
Option shall be exercisable only by Optionee or by the Optionee’s guardian or
other legal representative, and shall not be assignable or transferable by
Optionee, in whole or in part, other than by will or by the laws of descent and
distribution.

 

 

Exhibit 10.4

            e. Lockup Period Limitation. Optionee agrees that in the event the
Company advises Optionee that it plans an underwritten public offering of its
Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the date of prospectus, Optionee will not sell or contract to
sell or grant an option to buy or otherwise dispose of this option or any of
the underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).

            f. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days’ prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee which is not exercised prior to or
contemporaneously with such public offering. Notice shall be deemed given when
delivered personally or when deposited in the United States mail, first class
postage prepaid and addressed to Optionee at the address of Optionee on file
with the Company.

            g. Accounting Compliance. Optionee agrees that, in the event of a “change
of control transaction” (as defined in Paragraph 2(b) above) and Optionee is an
“affiliate” of the Company or any Subsidiary (as defined in applicable legal
and accounting principles) at the time of such change of control transaction,
Optionee will comply with all requirements of Rule 145 of the Securities Act of
1933, as amended, and the requirements of such other legal or accounting
principles, and will execute any documents necessary to ensure such compliance.

            h. Stock Legend. If applicable, the Company may put an appropriate legend
on the certificates for any shares of Common Stock purchased by Optionee (or,
in the case of death, Optionee’s successors) to reflect the restrictions of
Paragraphs 5(b), 5(f), 5(g) and 5(h) of this Agreement.

            i. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 5(d) above.

            j. Arbitration. Any dispute arising out of or relating to this Agreement
or the alleged breach of it, or the making of this Agreement, including claims
of fraud in the inducement, shall be discussed between the disputing parties in
a good faith effort to arrive at a mutual settlement of any such controversy.
If, notwithstanding, such dispute cannot be resolved, such dispute shall be
settled by binding arbitration. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall be a retired state or federal judge or an attorney who has
practiced securities or business litigation for at least ten years.

 

 

Exhibit 10.4

If the parties cannot agree on an arbitrator within 20 days, any party may
request that the chief judge of the District Court for Hennepin County,
Minnesota, select an arbitrator. Arbitration will be conducted pursuant to the
provisions of this Agreement, and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement. Limited civil discovery shall be permitted for
the production of documents and taking of depositions. Unresolved discovery
disputes may be brought to the attention of the arbitrator who may dispose of
such dispute. The arbitrator shall have the authority to award any remedy or
relief that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded. The arbitrator may award
to the prevailing party, if any, as determined by the arbitrator, all of its
costs and fees, including the arbitrator’s fees, administrative fees, travel
expenses, out-of-pocket expenses and reasonable attorneys’ fees. Unless
otherwise agreed by the parties, the place of any arbitration proceedings shall
be Hennepin County, Minnesota.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.

	 	 	 	 	 
	 	DATAKEY, INC.

 	 
	 	By:  	/s/Timothy L. Russell
 	 
	 	 	Timothy L. Russell 	 
	 	 	President and Chief Executive Officer 	 
	 

COMPANY

	 	 	 	 	 
	 	 	 
	 	     /s/David A. Feste
 	 
	 	David A. Feste 	 

OPTIONEEexv10w5

 

	 	 	 	 	 

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 25,372 square 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 13,485 square
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 11,887 square 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.

 

 

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 11,887 square 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.

 

 

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 corporation
	 
	 	 	 	 
	By:

	 	/s/Philip F. Boelter

	By:	/s/David A. Feste

	 

	 	Philip F. Boelter, Executive
Vice President	 	 
	

	 	LANDLORD
	Its: Vice President and CFO
	

	 	 	 	TENANT

 

 

Exhibit 10.5

 

 

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.

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