EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is dated as of December 10, 2008,
by and between Hirsch Electronics Corporation, a California corporation (the
“Company”), SCM Microsystems, Inc., a Delaware corporation (“Parent”) and
Mr. Larry Midland (the “Employee”).

WHEREAS, Parent, the Company and certain other parties thereto have entered into
that certain Agreement and Plan of Merger dated as of December 10, 2008 (the
“Merger Agreement”), pursuant to which, among other things, through a two-step
merger the Company will become a wholly-owned subsidiary of Parent and be
transformed into a new Delaware limited liability company (together as used
herein, the “Merger”).

WHEREAS, as an inducement for and a condition to Parent agreeing to enter into
the Merger Agreement and in consideration of the transactions contemplated by
the Merger Agreement, concurrently with the execution of the Merger Agreement,
Employee and the Company have agreed to enter into this Agreement which will set
forth the terms of Employee’s employment by the Company.

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

1. Effective Date. This Agreement shall automatically and immediately become
effective at, and not before, the Effective Time, as such term is defined in the
Merger Agreement. Notwithstanding any other provision of this Agreement, if the
Merger Agreement is terminated, this Agreement shall not become effective, shall
have no force or effect, and shall be null and void.

2. Employment; Employment Period; Position; Duties.

a. The Company hereby agrees to employ Employee, and Employee hereby accepts
such employment with the Company, in each case, on the terms and subject to the
conditions hereinafter set forth. Subject to any earlier termination of
Employee’s employment as provided herein, Employee’s employment hereunder shall
be for an initial term commencing at the Effective Time and ending on the third
(3rd) anniversary of the Effective Time (the “Employment Period”). Beginning on
the third (3rd) anniversary and continuing on each anniversary thereafter, the
employment agreement shall automatically extend for a period of one (1) year,
subject to any termination of Employee’s employment as provided herein.

b. Employee shall serve as the Company’s President as well as Executive Vice
President at the Parent, being part of the Executive Management Team of the
Parent, and shall report directly to the Parent’s CEO (the “Reporting Officer”).
Employee shall also serve in such other capacities as may be requested from time
to time by the Reporting Officer and/or the Board of Directors of the Parent
(the “Board”) or a duly authorized committee thereof. Employee shall perform
such duties as are customarily associated with his position and as reasonably
required by the Reporting Officer. Employee shall also render such other
services for the Parent or the Company and each of its subsidiaries and
affiliated entities as the Parent or the Company may from time to time request
that are generally commensurate with such Employee’s titles. Employee agrees to
serve the Parent and the Company faithfully and perform such duties and services
using his best efforts and abilities. Employee agrees to devote his full-time
attention and energies exclusively to the business of the Parent and the Company
and the performance of his duties and services, and to act at all times in the
best interests of the Parent and the Company. Employee agrees to conduct himself
at all times in a business-like and professional manner as appropriate for a
person in Employee’s position and to represent the Parent and the Company in all
respects in a manner that comports with sound business judgment in the highest
ethical standards. Employee will be subject to and abide by the policies and
procedures of the Parent and the Company, as adopted and revised by the Parent
or the Company, as the case may be, from time to time. Employee shall be subject
to the direction of the Parent and the Company, who shall retain full control
over the means and methods by which Employee performs his duties and the above
services and of the place(s) at which all such duties and services are rendered.
Employee’s principal place of employment shall be at the Company’s offices in
Santa Ana, California.

3. Compensation; Benefits.

a. Base Salary. As compensation for services rendered to the Parent and the
Company, Employee shall be entitled to a base salary at the annual rate of
$250,000 (two hundred and fifty thousand dollars), payable by the Company in
accordance with the regular payroll practices of the Company for its employees.
Employee shall be eligible to such merit increases in Employee’s base salary, if
any, as may be determined from time to time in the sole discretion of the Board.
Employee’s annual base salary rate, as in effect from time to time, is
hereinafter referred to as the “Base Salary.”

b. Bonus. Employee shall be eligible to receive an annual target based variable
bonus, of up to 80% of the Employee’s annual base salary, based upon the
achievement of personal performance targets established by the Parent’s Board of
Directors in consultation with Employee, and the overall success of the Company.
Any bonus would be subject to the terms and conditions of the Parent’s MBO Bonus
Program, as the same may be amended from time to time, and the Employee’s
continuing employment. The achievement of the performance and other target would
be determined and any resulting bonus would be payable on a quarterly basis (up
to a maximum bonus of 10% of the Employee’s annual base salary per quarter as
well as up to a maximum of 40% at year end). A copy of the Parent’s MBO Bonus
Program as currently in effect is attached hereto as Exhibit A.

c. Stock Options. Upon the Effective Time, the Employee shall be eligible to
participate in Parent’s Stock Option Plan. It is anticipated that the Employee
will receive a one-time grant of a non-qualified stock option to purchase 40,000
(forty thousand) shares of the Parent’s common stock, subject to the terms and
conditions of the Parent’s Stock Option Plan. Any such grant is subject to
approval by the Parent’s Board of Directors. A copy of the Parent’s Stock Option
Plan as currently in effect is attached hereto as Exhibit B.

d. Other Employee Benefits. Employee shall be eligible to receive or participate
in any incentive, retirement, vacation, sick or family leave, reimbursement for
travel and entertainment expenses, health and insurance or other benefits of the
Company, as in effect from time to time, on the same basis as other employees of
the Company occupying positions with responsibility and salary comparable to
that of Employee, but in any event not materially inferior to the benefits the
Employee enjoyed as an employee of the Company prior to the Merger. The Company
may at any time and from time to time change, amend, modify or completely
eliminate any such plans, programs and benefits available to its employees and
Employee’s participation in any such plans, programs and benefits shall not
affect such right of the Company; Employee agrees and acknowledges that he shall
have no vested rights under or to participate in any such plans, programs and
benefits except as expressly provided under the terms thereof.

4. Termination of Employment. Employee’s employment with the Company or any of
its subsidiaries or affiliated entities may be terminated by Company at any time
and for any or no reason. Employee will be required to give the Company three
(3) months advance written notice of any resignation of Employee’s employment.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 4 shall exclusively govern Employee’s rights upon termination of
employment with the Company and any of its subsidiaries or affiliates entities
for Cause, death or Disability or any other reason.

a. By the Company For Cause; Resignation by Employee. Employee’s employment may
be terminated by the Company for Cause at any time. For purposes of this
Agreement, “Cause” shall mean: (i) unsatisfactory performance in any material
respect of Employee’s duties, services or responsibilities (as generally
described in this Agreement) as reasonably determined by the Board, provided
that the Company has given Employee written notice specifying the unsatisfactory
performance of his duties and responsibilities and a reasonable opportunity to
cure, and Executive has failed to cure such deficiencies; (ii) a material breach
by Employee of any of his obligations hereunder which remains uncured after the
lapse of thirty (30) days following the date that the Company has given Employee
written notice thereof; (iii) a breach by Employee of his duty not to engage in
any transaction that represents, directly or indirectly, self-dealing with the
Company or any of its subsidiaries or affiliated entities which has not been
approved by a majority of the disinterested directors of the Board or of the
terms of his employment; (iv) any act of intentional dishonesty, willful
misconduct, embezzlement, intentional fraud or similar conduct involving the
Company or any of its subsidiaries or affiliated entities; (v) the conviction or
the plea of nolo contendere or the equivalent in respect of a felony involving
moral turpitude; or (vi) intentional, malicious infliction of any damage of a
material nature to any property of the Company or any of its subsidiaries or
affiliated entities. If Employee’s employment is terminated by the Company for
Cause or by Employee for any reason, Employee shall be entitled to receive
following the date of such termination: (A) the Base Salary through the date of
termination; (B) reimbursement for any unreimbursed business expenses properly
incurred by Employee in accordance with Company policy prior to the date of
Employee’s termination; and (C) any earned but unpaid benefits, if any, through
the date of termination in accordance with the applicable employee benefit plan
of the Company (the amounts described in clauses (A) through (C) of this
Section 4(a), reduced by any amounts owed by Employee to the Company, being
referred to as the “Accrued Rights”). In addition, except as may otherwise be
expressly provided in any plan, agreement or other instrument that governs the
terms of any stock option or other incentive compensation, all unvested stock
options and other incentive compensation shall immediately be cancelled and
forfeited. Following such termination of Employee’s employment by the Company
for Cause or by Employee for any reason, except as set forth in this
Section 4(a), Employee shall have no further rights to any compensation or
benefits from the Company or any of its subsidiaries or affiliated entities
under this Agreement or otherwise.

b. Disability or Death. Employee’s employment shall terminate upon Employee’s
death and may be terminated by the Company if Employee becomes (in the good
faith judgment of the Board) physically or mentally incapacitated and is
therefore unable for a period of three (3) consecutive months or for an
aggregate of six (6) months in any twelve (12) consecutive month period to
perform Employee’s duties (such incapacity is hereinafter referred to as
“Disability”). Upon termination of Employee’s employment hereunder by reason of
his Disability or death, Employee or Employee’s estate (as the case may be)
shall be entitled to receive the Accrued Rights following the date of such
termination. Employee’s rights with respect to any stock option or other
incentive compensation shall be determined by the terms of any plan, agreement
or other instrument that governs the terms of any such stock options or other
incentive compensation. Following Employee’s termination of employment due to
death or Disability, except as set forth in this Section 4(b), Employee shall
have no further rights to any compensation or benefits from the Company or any
of its subsidiaries or affiliated entities under this Agreement or otherwise.

c. By the Company Without Cause. Employee’s employment may be terminated by the
Company at any time without Cause. If Employee’s employment is terminated by the
Company without Cause (other than by reason of death or Disability), Employee
shall be entitled to receive: (i) the Accrued Rights following the date of such
termination; and (ii) subject to Employee’s execution (within thirty (30) days
following the date of termination) and non-revocation of a release of claims in
favor of the Company in a form provided by the Company (which release excludes
from its scope claims under any continuing right under any benefit or stock
option plan or agreement), a payment equal to the amount of Employee’s then
current Base Salary that would have been payable over a six (6) month period
following the date of such termination, payable monthly in accordance with the
Company’s normal payment schedule and practices beginning on the next regular
payroll distribution after the date that the release of claims becomes
irrevocable, and all previously granted unvested options shall cease vesting
upon the date of such termination. Following Employee’s termination of
employment by the Company without Cause (other than by reason of Employee’s
death or Disability), except as set forth in this Section 4(c), Employee shall
have no further rights to any compensation or benefits from the Company or any
of its subsidiaries or affiliated entities under this Agreement or otherwise.

d. By the Employee For Good Reason. Employee’s employment may be terminated by
the Employee for Good Reason (as hereinafter defined). For purposes of this
Agreement, “Good Reason” shall mean the occurrence of any of the following
without the Employee’s prior written consent: (i) a material reduction of
Employee’s duties, position, job titles, or responsibilities; (ii) a reduction
of Employee’s base salary or total compensation package; (iii) Employee being
forced to relocate; or (iv) the Company requires Employee to perform illegal or
fraudulent acts. However, none of the foregoing events or conditions shall
constitute Good Reason unless: (x) the Employee delivers to the Parent a written
notice identifying in reasonable detail the act or acts constituting “Good
Reason” and his intention to so terminate his employment (a “Notice of Good
Reason”), within fifteen (15) days following the Employee’s knowledge of the
circumstances constituting “Good Reason;” (y) the Parent or the Company, as the
case may be, does not reverse or otherwise cure the event or condition within
fifteen (15) days after the date that the Notice of Good Reason is delivered;
and (z) the Employee resigns his employment no earlier than five (5) and no
later than fifteen (15) days following the expiration of that cure period. If
the Employee terminates his employment for Good Reason(other than by reason of
death or Disability), Employee shall be entitled to receive: (i) the Accrued
Rights following the date of such termination; and (ii) subject to Employee’s
execution (within thirty (30) days following the date of termination) and
non-revocation of a release of claims in favor of the Company in a form provided
by the Company (which release excludes from its scope claims under any
continuing right under any benefit or stock option plan or agreement), a payment
equal to the amount of Employee’s then current Base Salary that would have been
payable over a three (3) month period following the date of such termination,
payable monthly in accordance with the Company’s normal payment schedule and
practices beginning on the next regular payroll distribution after the date that
the release of claims becomes irrevocable, and all previously granted unvested
options shall cease vesting upon the date of such termination. Following
Employee’s termination of employment by the Employee for Good Reason(other than
by reason of death or Disability), except as set forth in this Section 4(d),
Employee shall have no further rights to any compensation or benefits from the
Company or any of its subsidiaries or affiliated entities under this Agreement
or otherwise.

e. Company Property. Upon any termination of Employee’s employment with the
Company or any of its subsidiaries or affiliated entities, or earlier upon
request, Employee shall promptly return to the Company all property of the
Company or any of its subsidiaries or affiliated entities in Employee’s
possession and deliver to the Company all copies of all correspondence,
documents, data and other materials belonging to or containing proprietary
information of the Company or any of its subsidiaries or affiliated entities.

f. Section 409A Provisions.

(i) A termination of employment shall not be deemed to have occurred for
purposes of any provision of this Agreement providing for the payment of any
amounts or benefits upon or following a termination of employment unless such
termination is also a “separation from service” within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and,
for purposes of any such provision of this Agreement, references to a
“termination,” “termination of employment” or like terms shall mean “separation
from service.” If Employee is deemed on the date of termination to be a
“specified employee” within the meaning of that term under Section 409A(a)(2)(B)
of the Code, then with regard to any payment or the provision of any benefit
that is considered deferred compensation under Section 409A of the Code payable
on account of a “separation from service,” such payment or benefit shall be made
or provided at the date which is the earlier of (A) the expiration of the six
(6)-month period measured from the date of such “separation from service” of
Employee, and (B) the date of Employee’s death (the “Delay Period”). Upon the
expiration of the Delay Period, all payments and benefits delayed pursuant to
this paragraph (whether they would have otherwise been payable in a single sum
or in installments in the absence of such delay) shall be paid or reimbursed to
Employee in a lump sum as soon as administratively practicable, and any
remaining payments and benefits due under this Agreement shall be paid or
provided in accordance with the normal payment dates specified for them herein.

(ii) With regard to any provision herein that provides for reimbursement of
costs and expenses or in-kind benefits, except as permitted by Section 409A of
the Code, (A) the right to reimbursement or in-kind benefits shall not be
subject to liquidation or exchange for another benefit, (B) the amount of
expenses eligible for reimbursement, or in-kind benefits, provided during any
taxable year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other taxable year, provided that the
foregoing clause (B) shall not be violated without regard to expenses reimbursed
under any arrangement covered by Section 105(b) of the Code solely because such
expenses are subject to a limit related to the period the arrangement is in
effect and (C) such payments shall be made on or before the last day of
Employee’s taxable year following the taxable year in which the expense
occurred.

5. Restrictive Covenants.

a. Confidentiality. Employee acknowledges that Employee has signed and agrees to
be bound by all of the terms and conditions of that certain Non-Disclosure
Proprietary Information and Inventions Agreement (the “Proprietary Information
Agreement”), attached as Exhibit C to this Agreement, which agreement shall
remain in full force and effect at all times during and after the Employment
Period, and the terms of which shall apply with respect to the Company and its
subsidiaries and affiliated entities. Notwithstanding anything to the contrary
contained herein or in the Proprietary Information Agreement, neither this
Agreement or the Proprietary Information Agreement shall affect any of
Employee’s pre-existing obligations under any non-disclosure, non-competition or
proprietary information and inventions agreement or similar agreement between
Employee and the Company or any of its subsidiaries or affiliated entities.

b. Agreement Not to Compete/Non-Solicitation. Employee agrees that during the
Employment Period, Employee shall not, directly or indirectly:

(i) acquire or hold any interest in, manage, operate, join, control, or engage
or participate in any capacity in the financing, ownership, management,
operation or control of, be or become an officer, director, stockholder, owner,
co-owner, partner, trustee, consultant, or advisor to, contract or permit
Employee’s name or likeness to be used by, or be employed by, render or perform
services for or connected in any manner with, any third party, firm, company,
entity, person, business or other enterprise which is engaged in any line of
business in which the Company or any of its Subsidiaries or affiliated entities
or any of their respective successors or assigns is engaged or proposes to be
engaged during the Employment Period; provided, however, that such restriction
shall not apply to any ownership as a passive investment of less than 1% of the
outstanding shares of the capital stock of a publicly-held corporation if
(A) such shares are actively traded on the New York Stock Exchange or the Nasdaq
Global Market or similar market or exchange and (B) Employee is not otherwise
associated directly or indirectly with such corporation or any affiliate of such
corporation;

(ii) encourage, induce, recruit, hire, solicit or attempt to solicit or induce,
or take any other action which is intended to induce or encourage, or has the
effect of inducing or encouraging, any person who is a full-time, part-time or
temporary employee or contractor of the Company or any of its subsidiaries or
affiliated entities or who was an employee or contractor of the Company or any
of its subsidiaries or affiliated entities at any time during prior six-month
period, or encourage or otherwise cause any such employee or contractor to
terminate or alter his or her employment or other relationship, whether such
employment is pursuant to a written agreement, for a predetermined period, or is
at-will, with the Company or any of its subsidiaries or affiliated entities, or
to accept employment with or perform services for any third party, firm,
company, entity, person, business or other enterprise; or

(iii) interfere or attempt to interfere with existing relationships that may
exist between the Company or any of its subsidiaries or affiliated entities, or
any of their respective successors or assigns, and any of their respective
customers, suppliers, consultants, clients, licensees, licensors, landlords or
other business relations, or approach, contact, solicit, induce, request,
advise, recruit or otherwise encourage any existing or prospective customers,
suppliers, consultants, clients, licensees, licensors, landlords, strategic
partners or vendors, or other business relations of the Company or any of its
subsidiaries or affiliated entities to cease doing business or withdraw, curtail
or cancel or otherwise alter their business dealings or relationship with the
Company or any of its subsidiaries or affiliated entities (including by making
any negative or disparaging statements or communications about the Company or
any of its subsidiaries or affiliated entities), including on behalf of or to
move such business or relationship to, any third party, firm, company, entity,
person, business or other enterprise; provided, however, that notwithstanding
the foregoing, for purposes of this Agreement, the placement of general
advertisements which may be targeted to a particular geographic or technical
area but which are not targeted directly or indirectly towards employees of the
Company or any of its subsidiaries or affiliated entities or any of their
respective successors or assigns is engaged shall not be deemed to be a
solicitation under this Agreement.

(iv) Exceptions to this clause can only be approved by prior written approval of
the Parent’s Board of Director’s

c. During the Employment Period and following any termination of this Agreement,
Employee agrees not to make any public statements (whether written or oral and
whether to the media, any third party or otherwise), that are detrimental,
prejudicial, disparaging, libelous, slanderous or damaging to, or would
otherwise reflect negatively on the reputation of, the Company or any of its
subsidiaries or affiliated entities or any of their respective members,
officers, employees, representatives, counsel, affiliates, successors, assigns,
products or businesses. Employee further agrees that he will not act in any
manner that might interfere with the business or disparage the reputation of the
Company or any of its subsidiaries or affiliated entities or any of their
respective members, officers, employees, representatives, counsel or affiliates.
Nothing set forth in this Section 5(c) shall prohibit or limit in any way
Employee’s right to accurately and honestly respond as required or to cooperate
with any valid government, court or regulatory order or request.

d. Remedies. Employee acknowledges that in the event of breach or threatened
breach by Employee of any of the terms of this Section 5, the Company and its
subsidiaries and affiliated entities would suffer significant and irreparable
harm that can not be satisfactorily compensated in monetary terms, and that the
remedies at law available to the Company and its subsidiaries and affiliated
entities will otherwise be inadequate and, therefore, the Company and its
subsidiaries and affiliated entities shall be entitled, notwithstanding the
provisions of Section 10(e), to specific performance of this Agreement by
Employee, including the immediate ex parte issuance of a temporary, preliminary
and final injunction enjoining Employee from any such violation or threatened
violation of this Section 5, and to exercise such remedies cumulatively or in
conjunction with any and all other rights and remedies provided by law or in
equity and under this Agreement. Employee hereby acknowledges and agrees that
the Company shall not be required to post bond as a condition to obtaining or
exercising any such remedies, and Employee hereby waives any such requirement or
condition and the Employee agrees that he or she shall not plead adequacy of any
relief at law available to the Company or its successors or assigns (as
applicable) (including monetary damages) as a defense to any petition, claim or
motion for preliminary or final injunctive relief to enforce any provision of
this Agreement. Notwithstanding anything herein to the contrary, the Company may
terminate the payment of any amount or benefits payable to Employee under this
Agreement in the event of a breach of any of the covenants set forth in this
Section 5.

(i) In the event that the Employee or the Company or its successors or assigns
(as applicable) should contest the enforceability of any provision of this
Agreement in any court of competent jurisdiction, then any time period
associated with any such challenged provision shall be deemed suspended at the
time of filing the action in which such enforceability is contested. In the
event that the enforceability of any such provision is upheld by such court of
competent jurisdiction, all periods of appeal having expired thereon, then the
remaining portion of any such time period shall automatically thereafter once
again become effective. For purposes of this Agreement, the remaining portion of
any such time period shall be the difference between the full stated time period
in this Agreement relating to any such provision, less any time that Employee
complied with such provision prior to the filing of the aforesaid action and
less any time that Employee was restrained by temporary restraining order,
permanent injunction or similar order issued by any court of competent
jurisdiction from violating any such provision during the pendency of such
action or proceeding.

(ii) The rights and remedies of Company hereunder are not exclusive of or
limited by any other rights or remedies that Company may have, whether at law,
in equity, by contract or otherwise, all of which shall be cumulative (and not
alternative), and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy. Without limiting the generality of the
foregoing, the rights and remedies of Company hereunder, and the obligations and
liabilities of Employee hereunder, are in addition to their respective rights,
remedies, obligations and liabilities under the law of unfair competition,
misappropriation of trade secrets and the like. This Agreement does not limit
Employee’s obligations or the rights of Company (or any affiliate of Company)
under the terms of any other agreement between Employee and Company or any
affiliate of Company.

(iii) If Company, any of its Subsidiaries or affiliated entities or their
respective successors or assigns (as applicable) successfully, in whole or part,
asserts an action at law or in equity to enforce any of the terms of this
Agreement, then Company, its Subsidiaries or affiliated entities or its
successors or assigns (as applicable), shall be entitled to recover from
Employee all reasonable attorneys’ fees, costs, and necessary disbursements in
addition to any other relief to which it may be entitled. If Employee, his heirs
or assigns, successfully, in whole or part, assert an action at law or in equity
to enforce any of the terms of this Agreement, then Employee, his heirs or
assigns shall be entitled to recover from Company, any of its Subsidiaries or
affiliated entities or their respective successors or assigns (as applicable)
all reasonable attorneys’ fees, costs, and necessary disbursements in addition
to any other relief to which Employee may be entitled.

6. Company Options. Employee acknowledges and agrees that at the Effective Time,
any and all Company Options held by Employee as of the Effective Time will
automatically and without any action by Employee be terminated in accordance
with the terms and conditions of the Merger Agreement, notwithstanding anything
to the contrary that may be set forth in any plan, agreement or other instrument
that otherwise governs the terms of such Company Options.

7. Indemnification. The Articles of Incorporation or the Operating Agreement of
the Company, as the case may be, shall provide for indemnification of the
Employee to the maximum extent permitted by law. The Company shall maintain a
Directors’ and Officers’ insurance policy that is reasonably acceptable to the
Parent, with such amounts of coverage that is customary given the size and
business of the Company, and a premium that is commercially reasonable, for so
long as the Parent maintains such insurance for the benefit of the officers of
the Parent.

8. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed duly given (a) on the date of delivery if delivered
personally, or if by facsimile, upon written confirmation of receipt by
facsimile, (b) on the first (1st) Business Day following the date of dispatch if
delivered utilizing a recognized 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 third (3rd) Business Day
following the date of dispatch if delivered utilizing a recognized international
courier under circumstances in which such courier guarantees such delivery) or
(c) on the earlier of confirmed receipt or the fifth 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:

(i) If to Parent, to:

                             
SCM Microsystems, Inc. Oskar-Messter-Straße 13, 85737, Ismaning Germany
Attention: Felix Marx Facsimile: +49.89.9595.5170 with a copy (which shall not
constitute notice) to:
                   
Gibson, Dunn & Crutcher LLP 555 Mission Street, Suite 3000 San Francisco,
California 94105 Attention: Michael L. Reed Facsimile: 415.374.8459
  (ii)  
If to the Company:

Hirsch Electronics Corporation
1900-B Carnegie Ave.
Santa Ana, CA 92705
Attention: Secretary
Facsimile: 949.250.7372

(iii) if to Employee, to the address of Employee set forth on the signature page
hereto.

9. Taxation. The Company may withhold from any payments made to Employee under
the Agreement any and all federal, state, city, foreign or other applicable
taxes as shall be required pursuant to any applicable law, governmental
regulation or ruling.

10. Survival. Sections 1, 4, 5, 6, 7, 8, 9 and 10 of this Agreement shall
survive and remain in full force and effect following any termination of this
Agreement or Employees employment with the Company.

11. Miscellaneous.

a. Entire Agreement. Except as expressly set forth in Section 5(a), this
Agreement, together with the Proprietary Information Agreement, constitutes the
entire agreement, and supersede all prior written agreements, arrangements,
communications and understandings and all prior and contemporaneous oral
agreements, arrangements, communications and understandings among the parties
with respect to the subject matter hereof and thereof..

b. Amendment; Waiver. This Agreement may not be amended, modified or
supplemented in any manner, whether by course of conduct or otherwise, except by
an instrument in writing specifically designated as an amendment hereto, signed
on behalf of each of the parties hereto and Parent. Any agreement on the part of
a party to any waiver shall be valid only if set forth in a written instrument
executed and delivered by such party. No failure or delay of any party in
exercising any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, or any
course of conduct, preclude any other or further exercise thereof or the
exercise of any other right or power.

c. Binding Effect; Assignment. The rights and obligations of this Agreement
shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company’s business and properties. The Company may assign its rights
and delegate its obligations hereunder to any of its affiliates without the
consent of Employee, provided that Company remains ultimately liable for all of
Company’s obligations hereunder. Employee’s rights or obligations under this
Agreement may not be assigned by Employee.

d. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws and public policy (other than conflict of laws
principles) of the State of California applicable to contracts executed and to
be wholly performed within such state.

e. Dispute Resolution And Binding Arbitration. Employee and the Company agree
that in the event a dispute arises concerning or relating to this Agreement, or
to Employee’s employment with the Company, or any termination therefrom, all
such disputes shall be submitted to binding arbitration before an arbitrator
experienced in employment law. Said arbitration will be conducted in accordance
with the rules applicable to employment disputes of Judicial Arbitration and
Mediation Services (“JAMS”). The Company will be responsible for paying any
filing fees and costs of the arbitration proceeding itself (for example,
arbitrators’ fees, conference room, transcripts), but each party shall be
responsible for its own attorneys’ fees. The Company and Employee agree that
this promise to arbitrate covers any disputes that the Company may have against
Employee, or that Employee may have against the Company and all of its
affiliated entities and their directors, officers and Employees, arising out of
or relating to this Agreement, the employment relationship or termination of
employment, including any claims concerning the validity, interpretation, effect
or violation of this Agreement; violation of any federal, state, or local law;
any tort; and any other aspect of Employee’s compensation or employment. The
Company and Employee further agree that arbitration as provided in this Section
11(e) shall be the exclusive and binding remedy for any such dispute and will be
used instead of any court action, which is hereby expressly waived, except for
any request by either party hereto for temporary or preliminary injunctive
relief pending arbitration in accordance with applicable law, or an
administrative claim with an administrative agency. The Federal Arbitration Act
shall govern the interpretation and enforcement of such arbitration proceeding.
The arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of California, or federal law, if California law is
preempted. The arbitration shall be conducted in Los Angeles, California, unless
otherwise mutually agreed.

THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT BY AGREEING TO ARBITRATE,
THEY ARE WAIVING ANY RIGHT TO BRING AN ACTION AGAINST THE OTHER IN A COURT OF
LAW, EITHER STATE OR FEDERAL, AND ARE WAIVING THE RIGHT TO HAVE CLAIMS AND
DAMAGES, IF ANY, DETERMINED BY A JURY.

f. Severability. Whenever possible, each provision or portion of any provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law. Any provision of this Agreement which is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that any other
provisions of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. Notwithstanding the foregoing, if any provision of this Agreement
should be deemed invalid, illegal or unenforceable because its scope or duration
is considered excessive, such provision shall be modified so that the scope of
the provision is reduced only to the minimum extent necessary to render the
modified provision valid, legal and enforceable.

g. Employee Acknowledgment. Employee acknowledges that he has had the
opportunity to consult legal counsel in regard to this Agreement, that he has
read and understands this Agreement, that he is fully aware of its legal effect,
and that he has entered into it freely and voluntarily and based on his own
judgment and not on any representations, warranties or promises other than those
contained in this Agreement.

h. Further Assurances. Each of the parties agrees to execute, acknowledge,
deliver and perform, and cause to be executed, acknowledged, delivered and
performed, at any time and from time to time, as the case may be, all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably necessary to carry out the provisions or intent
of this Agreement.

i. Counterparts. This Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party. This Agreement may be executed by facsimile
signature and a facsimile signature shall constitute an original for all
purposes.

[Signature page follows]

IN WITNESS WHEREOF, the parties have duly executed this Agreement, or caused
this Agreement to be duly executed, as of the day and year first above written.

      SCM MICROSYSTEMS, INC. By:  
/s/ Felix Marx
   
 
   
Felix Marx
CEO & Director

    EMPLOYEE

/s/ Larry Midland

    Larry Midland

Address:

1805 Jamaica Road
Costa Mesa, CA 92626