AMENDED AND RESTATED SETTLEMENT AGREEMENT

This AMENDED AND RESTATED SETTLEMENT AGREEMENT (this “Agreement”), dated as of
this 8th day of April, 2009, is made by and among HIRSCH ELECTRONICS
CORPORATION, a California corporation (“Hirsch”), SECURE KEYBOARDS, LTD., a
California limited partnership (“Keyboards”), and SECURE NETWORKS, LTD., a
California limited partnership (“Networks” and, together with Hirsch and
Keyboards, collectively, the “Parties”).

WHEREAS, the Parties previously entered into that certain settlement agreement
(the “1994 Settlement Agreement”), dated as of November 14, 1994, which provides
for, among other things, agreements among the Parties concerning royalty
payments from Hirsch to each of Keyboards and Networks. A copy of the 1994
Settlement Agreement is attached as Exhibit A hereto. The 1994 Settlement
Agreement included the following as background information:

  a)   Hirsch was founded in 1981 by Steve Hirsch, a young entrepreneur who had
invented a security technology, and Lawrence Midland (“Midland”), Howard Miller
(“Miller”), Robert Parsons (“Parsons”) and Luis Villalobos (“Villalobos”), who
provided the initial financing.

  i)   By late 1981, Steve Hirsch had begun preparation of a patent application,
and was seeking financing for Hirsch, which he had incorporated to exploit his
invention. After an unrelated private placement had failed to close, Villalobos
and Miller structured a financing (seed capital for Hirsch and an R&D
partnership to fund development of the technology) and rewrote the patent
application.

  ii)   Keyboards, the R&D partnership, bought all the rights to the technology
from Steve Hirsch, and then granted an exclusive license to Hirsch, and an
option to purchase the technology under certain conditions. “Technology” was
defined1 to include not just the original invention, but all associated and
future developments and products. Thus, Hirsch was the vehicle for exploiting
the Technology, and Keyboards, having provided the funds to develop the
Technology, was to receive payments through the year 2020 based on revenues from
the broadly defined Technology. Keyboards general partners deferred most of
their upside potential until after the limited partners received 125% of their
pre-tax investment, which for someone in the 50% bracket would be 2 1/2 times
their after-tax investment; thereafter limited partners receive approximately
20% of the royalties.

  iii)   Midland, Miller, Villalobos and GRFN (a California corporation formed
for that purpose) were the original general partners in Keyboards. Soon after
Keyboards’ formation, Parsons became a general partner; GRFN was subsequently
discontinued.

  iv)   Midland, Miller, Parsons and Villalobos provided seed capital to Hirsch
and provided guarantees with respect to obtaining the R&D financing. Midland and
Parsons subsequently raised $400,000 of capital from limited partners in
Keyboards.

  b)   Hirsch met all of the conditions, and exercised its option and purchased
the Technology from Keyboards. The terms of purchase called for payments2 to
Keyboards through the year 2020.

  c)   In 1985 and 1986 additional capital was raised to “finance the
development and marketing of various new security systems product lines which
will help drive the sales of the Digital Scrambler.”3

  i)   Parsons raised $550,000 in equity by selling shares of Hirsch stock to
private investors.

  ii)   Midland and Parsons as general partners formed Networks, and raised
$1,200,000 from limited partners, approximately half in 1985 and the balance in
1986.

  iii)   Two agreements were entered into between Hirsch and Networks: a written
agreement, relating to the 1985 portion of funding, which called for royalties
through the year 2005; and an oral agreement relating to the 1986 portion of
funding.

  d)   Hirsch wished to avoid paying royalties on the same revenue to both
Keyboards and Networks. To that end, in 1986 Hirsch and Keyboards executed an
agreement, which excluded from Keyboards royalty base, those “products developed
on funding from” Networks.

  e)   In 1994, a dispute arose among Keyboards, Hirsch and Networks as to the
royalties that have been paid and are to be paid. The parties contentions were
generally as follows:

  i)   Keyboards contended: (a) that even though all current and past Hirsch
revenues fall within the definition of “Technology”, Hirsch had incorrectly
excluded various revenues from Keyboards royalties; (b) that Hirsch had not been
paying royalties on software at the correct and higher rate;4 (c) that the sole
exception to Keyboards royalties had effectively expired since Hirsch no longer
sold “products developed on funding from” Networks; and (d) that while Hirsch’s
agreements with Networks may in effect require Hirsch to pay royalties to both
Keyboards and Networks, they cannot relieve Hirsch of its royalty obligations to
Keyboards.

  ii)   Networks contended: (a) that its agreements with Hirsch were intended to
provide royalties not just on the products that were directly developed from
that funding, but also on products that evolved from them; (b) that otherwise
the limited partners could not recoup, much less obtain a return on, their
investment; (c) that its 1986 oral agreement with Hirsch had extended royalty
payments to the year 2011; and (d) that while Hirsch’s agreements with Keyboards
may in effect require Hirsch to pay royalties to both Keyboards and Networks,
they cannot relieve Hirsch of its royalty obligations to Networks.

  iii)   Hirsch contended: (a) that Hirsch never intended to pay royalties to
both Keyboards and Networks on the same products; (b) that paying 14% to 28%
royalty to Keyboards on software would seriously impair Hirsch’s margins on
software sales; (c) that Hirsch had interpreted its obligations to Keyboards and
Networks not just based on the language in the agreements, but also based on
what it understood to be the intent of those agreements, as well as what it
believed to be equitable to the parties; (d) that Hirsch had been computing the
revenues for Networks royalties based on a “remoteness dilution” basis;5
(e) that Hirsch may have understated its royalty obligations to Keyboards, but
if so, any error was in good faith; (f) that Hirsch was forced into making
difficult and- sometimes arbitrary decisions as to what portion of revenues are
subject to royalties to which of the partnerships, and (g) that the royalty
agreements hampered6 Hirsch’s ability to price and configure products; and

  f)   Each of the parties agreed:

  i)   That litigation to resolve these issues would be expensive, time
consuming, distracting, and harmful to the business goals of the parties.

  ii)   That there was reasonable risk that if contested, some or all of the
contentions in its interest could have been rejected and that, some or all of
the contentions against its interest could have been upheld.

  iii)   That including all Hirsch revenues in the base for royalties, and
apportioning that base between Keyboards and Networks on fixed percentages,
eliminates the underlying factors that led to, and was a reasonable compromise
for, their dispute.

  iv)   That rather than incur the risks of litigation, it was preferable to
settle the dispute as set forth in the 1994 Settlement Agreement;

WHEREAS, on December 10, 2008, Parsons and Midland, as two of the four general
partners of Keyboards, delivered a letter of understanding to SCM Microsystems,
Inc. (“SCM”), as amended and restated on January 30, 2009 (the “Keyboards Letter
of Understanding”), which was intended to clarify the interpretation of the 1994
Settlement Agreement following the proposed merger (the “Merger”) of SCM and
Hirsch contemplated by the Agreement and Plan of Merger, dated December 10,
2008, by and among Hirsch, SCM, and the other parties named therein (the “Merger
Agreement”). A copy of the Keyboards Letter of Understanding, which was not
signed by the other two general partners of Keyboards, is attached as Exhibit B
hereto;

WHEREAS, in connection with or as a result of the Merger and the other
transactions contemplated by the Merger Agreement, SCM, Hirsch, certain
subsidiaries of Hirsch and/or certain officers, directors and shareholders of
Hirsch and/or its subsidiaries entered into or will enter into Ancillary
Agreements (as defined in the Merger Agreement) and certain other agreements and
understandings and deliver or will deliver certain certificates, documents or
other instruments (any and all such Ancillary Agreements, agreements,
certificates, documents or other instruments together, the “Merger Documents”);

WHEREAS, Messrs. Parsons and Midland, as the two general partners of Networks,
delivered a letter of understanding to SCM that was substantially similar to the
Keyboards Letter of Understanding and was also amended and restated on
January 30, 2009 (the “Networks Letter of Understanding” and, collectively with
the Keyboards Letter of Understanding, the “Letters of Understanding”). A copy
of the Networks Letter of Understanding is attached as Exhibit C hereto;

WHEREAS, Keyboards and two of its general partners has initiated litigation in
Los Angeles Superior Court (Case No. SC102226), against Hirsch, SCM and certain
officers and directors of SCM alleging claims arising out of the 1994 Settlement
Agreement, the Keyboards Letter of Understanding and the Merger;

WHEREAS, concurrently with the execution of this Agreement, SCM, Hirsch,
Keyboards, and Networks, are entering into a settlement agreement (the “2009
Settlement Agreement,” in substantially the form attached as Exhibit D hereto)
to settle and resolve any and all claims, disputes, issues or matters that exist
or could exist between them with respect to the Keyboards Claim, so as to avoid
the cost and expense of further proceedings;

WHEREAS, the Parties desire to simplify and clarify the royalty arrangement
provided for by the 1994 Settlement Agreement, and to replace and supersede such
royalty arrangement with a new, definitive installment payment schedule as set
forth herein;

WHEREAS, the Parties desire to amend and restate the 1994 Settlement Agreement
in its entirety with this Agreement, which will supersede and replace the 1994
Settlement Agreement in all respects;

WHEREAS, the Parties further desire for this Agreement to supersede and replace
the Letters of Understanding, and for the Letters of Understanding to terminate
and be of no further force or effect as of the Effective Time of the Merger (as
such term is defined in the Merger Agreement, the “Effective Time”); and

WHEREAS, Section 9 of the 1994 Settlement Agreement provides that the 1994
Settlement Agreement may not be amended unless such amendment is executed in
writing by all of the Parties thereto, including all four of the general
partners of Keyboards and the two general partners of Networks.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, and for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Amendment; Effective Time; Term. This Agreement amends and restates in its
entirety the 1994 Settlement Agreement. This Agreement shall be effective and
binding on the Parties hereto as of the date hereof, except that Sections 2 and
3 of this Agreement shall automatically and immediately become effective at, and
not before, the Effective Time. Notwithstanding any other provision of this
Agreement, if the Merger Agreement is terminated prior to its Effective Time,
this Agreement shall terminate, shall have no force or effect, and shall be null
and void. In addition, effective as of the Effective Time, the Letters of
Understanding shall terminate and be of no further force or effect.

2. Payments to Keyboards and Networks. In full satisfaction of any and all
obligations of Hirsch under the 1994 Settlement Agreement, including without
limitation, in lieu of any and all payments, royalty or otherwise, based on the
revenue, Technology (as defined above) or assets of Hirsch thereunder, Hirsch
agrees to and shall make certain payments to Keyboards and Networks as follows:

a. Initial Payment Period. For the period from January 1, 2009 to December 31,
2009 (the “Initial Payment Period”), Hirsch shall pay Keyboards and Networks,
collectively, an aggregate amount equal to (i) Nine Hundred and Eighty-Six
Thousand Dollars ($986,000) less (ii) the amount of any payments that Hirsch
makes to Keyboards or Networks prior to the Effective Time under or in
connection the 1994 Settlement Agreement with respect to the period of
January 1, 2009 to December 31, 2009 (the “Initial Payment”).

b. Subsequent Payment Periods. For the period from January 1, 2010 to
December 31, 2010, Hirsch shall pay Keyboards and Networks, collectively, an
aggregate amount equal to (i) Nine Hundred and Eighty-Six Thousand Dollars
($986,000), multiplied by (ii) an inflation rate equal to one (1) plus the
Consumer Price Index Inflation Percentage, if positive, for the prior calendar
year (in this case, the period from January 1, 2009 to December 31, 2009), and,
subject to Section 3 hereof, for each calendar year period thereafter until and
including the calendar year period of January 1, 2020 to December 31, 2020 (such
payment periods, together with the Initial Payment Period, the “Payment
Periods”), Hirsch shall pay Keyboards and Networks, collectively, an aggregate
amount equal to (i) the aggregate payment amount for the prior Payment Period,
multiplied by (ii) an inflation rate equal to one (1) plus the Consumer Price
Index Inflation Percentage, if positive, for the prior calendar year, plus
(iii) for the January 1, 2020 to December 31, 2020 Payment Period only, an
amount equal to $126,492 (such payments, together with the Initial Payment, the
“Periodic Payments”). As used herein, the “Consumer Price Index Inflation
Percentage” means the annual Consumer Price Index-All Urban Consumers, U.S. City
Average, All Items, Not Seasonally Adjusted, published by the United States
Department of Labor, Bureau of Labor Statistics and published on the website
http://www.bls.gov/CPI for the applicable calendar year/Payment Period.7 For
illustrative purposes only, a sample calculation of the Periodic Payments due
for each Payment Period is set forth on Schedule I attached hereto.

c. Payment Dates. The Periodic Payments required by Hirsch hereunder for any
Payment Period shall be made quarterly in equal amounts and shall be due and
payable on April 30, July 31, October 31 of such Payment Period and January 31
of the following Payment Period (or, if any such dates do not fall on a Business
Day, on the next Business Day thereafter); provided, however, that if the
Effective Time occurs after April 30, 2009, the Initial Payment shall be paid in
its entirety in three equal amounts on July 31, 2009, October 31, 2009, and
January 31, 2010. Unless Hirsch shall elect to exercise the Lumpsum Option, the
last Periodic Payment by Hirsch shall be made on January 31, 2021. As used
herein, “Business Day” means any day that is not a Saturday, Sunday, or other
day on which national banks or banks in Santa Ana, California or Germany are
authorized or required to close.

d. Division of Payments Between Keyboards and Networks. The aggregate Periodic
Payments made by Hirsch hereunder shall be apportioned between Keyboards and
Networks in accordance with the following table, and the final payment to
Networks on January 31, 2012 shall satisfy the complete obligation of Hirsch to
Networks:

         
Payment Period
  Networks Percentage of
Periodic Payment   Keyboards Percentage of
Periodic Payment
 
       
January 1, 2009 to
December 31, 2009
  18.9711%

  81.0289%

 
       
January 1, 2010 to
December 31, 2010
  16.4919%

  83.5081%

 
       
January 1, 2011 to
December 31, 2011
  13.9834%

  86.0166%

 
       
January 1, 2012 to
December 31, 2012 and
for each Payment Period
thereafter*
  0.00%

  100.00%

 
       

• Keyboards shall receive 100% of any Periodic Payment for any “Payment Period”
after December 31, 2011.

3. Hirsch Buyout Option. Notwithstanding Section 2 hereof, at any time on or
after January 1, 2012, upon ten (10) days prior written notice (the “Lumpsum
Notice”) to Keyboards, Hirsch, and only Hirsch or its successors or assigns,
shall have the option (the “Lumpsum Option”) to elect, in its sole discretion,
to make a lumpsum payment (the “Lumpsum Payment”) to Keyboards in lieu of any
and all future Periodic Payments due Keyboards (and any unpaid portion thereof)
as described in Section 2 hereof. The Lumpsum Payment shall be in an aggregate
amount equal to the net present value of any remaining Periodic Payments
(including the net present value of any unpaid portion thereof), calculated
assuming (a) an inflation rate per annum of Four Percent (4%) substituted in
lieu of applying the Consumer Price Index Inflation Percentage for each
applicable Payment Period, and (b) a discount rate equal to Nine Percent (9%)
per annum, in each case adjusted proportionally for any portion of a full
calendar year. Any Lumpsum Payment shall be allocated solely to Keyboards and no
amount shall be payable to Networks. Following the payment of the Lumpsum
Payment by Hirsch, all of Hirsch’s obligations to Keyboards hereunder shall be
deemed satisfied in full. For illustrative purposes only, sample calculations of
the Lumpsum Payment for each calendar year is set forth on Schedule II attached
hereto.

4. Consent to the Merger. Each of Keyboards and Networks and each of their
respective general partners hereby acknowledges, agrees and consents to Hirsch’s
entry into the Merger Agreement and to the consummation of the transactions
contemplated thereby, including the Merger and hereby waives any right to
notice, review or comment that may exist or have existed under the 1994
Settlement Agreement in connection with the execution, delivery and performance
of the Merger Agreement, the Merger Documents or the consummation of the
transactions contemplated thereby. Each of Keyboards and Networks and each of
their respective general partners hereby waives any and all rights that they may
have under Chapter 13 of the California Corporations Code with respect to the
Merger, the Merger Agreement, the Merger Documents or the other transactions
contemplated thereby, and agrees to exchange any and all shares of Hirsch common
stock held by such parties for the merger consideration, consisting of a
combination of cash, shares of SCM common stock and warrants to purchase shares
of SCM common stock, as described in the Merger Agreement.

5. Authorization.

a. Keyboards and each of its general partners represents and warrants that
(i) it has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, (ii) the execution, delivery and performance
of this Agreement by Keyboards and each of its general partners has been duly
and validly authorized, and no other actions or proceedings by or on the part of
Keyboards or any of its general partners is necessary to authorize the
execution, delivery or performance of this Agreement, (iii) this Agreement has
been duly executed and delivered by Keyboards and each of its general partners
and (iv) this Agreement constitutes the legal, valid and binding obligations of
Keyboards and each of its general partners, enforceable against Keyboards and
each of its general partners in accordance with its respective terms, except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar Law now or hereafter in effect relating to creditors’ rights generally
and subject to general principles of equity.

b. Networks and each of its general partners represents and warrants that (i) it
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, (ii) the execution, delivery and performance
by Networks and each of its general partners of this Agreement has been duly and
validly authorized, and no other actions or proceedings by or on the part of
Networks or any of its general partners is necessary to authorize the execution,
delivery or performance of this Agreement, (iii) this Agreement has been duly
executed and delivered by Networks and each of its general partners and
(iv) this Agreement constitutes the legal, valid and binding obligations of
Networks and each of its general partners, enforceable against Networks and each
of its general partners in accordance with its respective terms, except as the
same may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar Law now or hereafter in effect relating to creditors’ rights generally
and subject to general principles of equity.

c. Hirsch represents and warrants that (i) it has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder,
(ii) the execution, delivery and performance by Hirsch of this Agreement has
been duly and validly authorized, and no other actions or proceedings by or on
the part of Hirsch is necessary to authorize the execution, delivery or
performance of this Agreement, (iii) this Agreement has been duly executed and
delivered by Hirsch, and (iv) this Agreement constitutes the legal, valid and
binding obligations of Hirsch, enforceable against Hirsch in accordance with its
respective terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Law now or hereafter in effect relating to
creditors’ rights generally and subject to general principles of equity.

6. Notice; Delivery.

a. All notices and other communications hereunder shall be in writing and shall
be deemed duly given (i) on the date of delivery if delivered personally, or if
delivered by facsimile, upon written confirmation of receipt by facsimile;
(ii) on the first (1st) Business Day following the date of dispatch if delivered
utilizing a next-day service by a recognized next-day courier under
circumstances in which such courier guarantees next-day delivery (except in the
case of overseas delivery, in which case notice shall be deemed duly given on
the fourth (4th) Business Day following the date of dispatch if delivered
utilizing an expedited service by a recognized international courier under
circumstances in which such courier guarantees such delivery); or (iii) on the
earlier of confirmed receipt or the fifth (5th) Business Day following the date
of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid (except in the case of overseas delivery, in which
case notice shall be deemed duly given on confirmed receipt if delivered by
registered or certified mail, return receipt requested, postage prepaid). All
notices hereunder shall be delivered to the addresses set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice. In addition, when giving any notice hereunder a party
shall also send a courtesy copy of such notice via e-mail to the party(ies) to
receive such notice at the e-mail addresses set forth below; provided, however,
that the failure to send, or the recipient’s failure to receive, such courtesy
copy via e-mail shall not invalidate or otherwise adversely effect in any way
the validity of such notice hereunder:

         
Hirsch Electronics Corporation
  copy:
President
  SCM Microsystems, Inc.
1900-B Carnegie Ave.,
  Oskar-Messter-Straße 13,
Santa Ana, CA 92705
  85737, Ismaning Germany
Facsimile: 949.250.7372
  Attention: Felix Marx
E-mail:
  Facsimile: +49.89.9595.5170
lmidland@hirschelectronics.com
  E-mail: FMarx@scmmicro.de
Secure Keyboards, Ltd.
  copy:
c/o Robert J. Parsons
  Lawrence W. Midland
110 Newport Center Drive
  1805 Jamaica Road
Suite 200
  Costa Mesa, CA 92626
Newport Beach, CA 92660
  Facsimile: 949.250.7372
Facsimile: 949.729.3196
  E-mail:
E-mail: parsons600@aol.com
  lmidland@hirschelectronics.com
copy:
  copy:
Howard Miller
  Luis Villalobos
13555 Bayliss Road
  4220 Park Newport, #410
Los Angeles, CA 90049
  Newport Beach, CA 92660
Facsimile: 213.481.1554
  Facsimile:
E-mail: hmiller@girardikeese.com
  E-mail: luvil@roadrunner.com
 
       
Secure Networks, Ltd.
  copy:
c/o Robert J. Parsons
  Lawrence W. Midland
110 Newport Center Drive
  1805 Jamaica Road
Suite 200
  Costa Mesa, CA 92626
Newport Beach, CA 92660
  Facsimile: 949.250.7372
Facsimile: 949.729.3196
  E-mail:
E-mail: parsons600@aol.com
  lmidland@hirschelectronics.com

b. As of the date hereof, the payment instructions for all payments due to
Keyboards and Networks under this Agreement are set forth on Schedule III
attached hereto. Keyboards and Networks, and their respective successors and
assigns may hereafter designate such other payment instructions by providing
written notice thereof (i) at least fifteen (15) Business Days before a payment
date, or (ii) within three (3) Business Days of receiving the Lumpsum Notice.

7. Miscellaneous.

a. Assignment. Neither Hirsch, nor Keyboards or Networks, may assign any of
their respective rights, interests or obligations hereunder to any other person
(except by operation of law) without the prior written consent of Keyboards (in
the case of an assignment by Hirsch) or Hirsch (in the case of an assignment by
Keyboards or Networks); provided, however, that Hirsch may assign all or a
portion of its obligations hereunder to an affiliate of Hirsch, provided, that
no such transfer shall relieve Hirsch of any liability or obligation hereunder
except to the extent actually performed or satisfied by the assignee.

b. Further Assurances. Each party hereby covenants and agrees to execute and
deliver such further and other instruments, agreements and writings and do and
perform, and cause to be done and performed, such further and other acts and
things that may be necessary or desirable in order to give full effect to this
Agreement and every part of it.

c. Severability. In the event that any covenant, condition or other provision
herein contained is held to be invalid, void or illegal by any court of
competent jurisdiction, the same shall be deemed severable from the remainder of
the Agreement and shall in no way affect, impair or invalidate any other
covenant, condition or other provision herein contained. If such condition,
covenant or other provision shall be deemed invalid due to its scope or breadth,
such covenant, condition or other provision shall be deemed valid to the extent
of the scope or breadth permitted by law.

d. Entire Agreement. This Agreement, and the 2009 Settlement Agreement, sets
forth the entire agreement between and among the parties to these agreements
with respect to the subject matter hereof and supersedes any and all prior
agreements relating thereto, including without limitation the 1994 Settlement
Agreement and the Letters of Understanding; there are no other understandings or
agreements between or among the Parties with respect to the subject matter
hereof except as set forth herein. No term, condition or provision of the
Agreement may be modified, waived, or changed in any way except in writing,
executed with the same formalities hereof, by the Party to be charged with any
such modification, waiver, or change.

e. Governing Law. This Agreement will be construed pursuant to the laws of the
State of California (without regard to conflicts of law principles). For
purposes of any disputes arising out of or pertaining to this Agreement, the
Parties consent to non-exclusive personal jurisdiction in the federal and state
courts located in the County of Los Angeles, State of California.

f. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but which together shall constitute
one and the same instrument. Facsimile and .pdf copies of this Agreement shall
have the same force and effect as an original.

[Remainder of Page Intentionally Left Blank]IN WITNESS WHEREOF, this AMENDED AND
RESTATED SETTLEMENT AGREEMENT is to be effective as of the date first set forth
above.

 
HIRSCH ELECTRONICS CORPORATION

 
By: /s/ Lawrence W. Midland
 
Lawrence W. Midland,
President
SECURE NETWORKS, LTD.
A California limited partnership
By: /s/ Robert J. Parsons
 
Robert J. Parsons,
Managing and General Partner
By: /s/ Lawrence W. Midland
 
Lawrence W. Midland,
General Partner
SECURE KEYBOARDS, LTD.
A California limited partnership
By: /s/ Robert J. Parsons
 
Robert J. Parsons,
Managing and General Partner
By: /s/ Lawrence W. Midland
 
Lawrence W. Midland,
General Partner
By: /s/ Howard Miller
 
Howard Miller,
General Partner
By: /s/ Luis Villalobos
 
Luis Villalobos,
General Partner

1The 1986 agreement between Hirsch and Keyboards, recapping the original
agreement, included the following: “the ‘Technology’ means the patent and patent
applications and all associated knowhow, software, trademarks and tradenames and
all future developments, patent applications, patents, knowhow, software,
trademarks and tradenames.”

2These payments for the purchase are generally referred to herein as “royalties”
for simplicity; but their actual nature was installment payments for the sale of
the technology.

3From the 1986 agreement between Hirsch and Keyboards.

4The Purchase and Sale of Technology agreement between Hirsch and Keyboards,
calls for royalties of 14% to 28% for license and sub-license revenues, and
4.25% on all other revenues.

5Which meant that as a product evolved and became more remote from a product
directly “developed on funding from” Networks, Hirsch diluted its share of
revenues in computing Networks royalties; and that whenever a subsequent product
(such as SAM) departed sufficiently from a product “developed on funding from”
Networks, then Hirsch no longer deemed it subject to royalties to Networks.

6For example, if Hirsch incorporates a keypad into a product “developed on
funding from” Networks, then Hirsch would have to pay royalties to both
Keyboards and Networks; or if Hirsch throws-in software to close a major sale,
there is no clear way to decide how much of the revenue to impute to the
software.

7For example, for the January 1, 2008 to December 31, 2008 calendar year, the
Consumer Price Index Inflation Percentage would be equal to 3.8% and is found at
the following websites: http://www.bls.gov/cpi/cpid08av.pdf and
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data—tool=latest—numbers&ser
ies—id=CUUR0000SA0&output—view=pct—12mths.