exv10w22



 




Exhibit
10.22





Execution Version




ASSET PURCHASE AGREEMENT




between




SCM MICROSYSTEMS, INC.,




as the Seller




and




KUDELSKI S.A.,




as the Buyer




Dated as of April 5, 2006




 









 










TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	ARTICLE I PURCHASE AND SALE	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 1.1
	 	Purchase and Sale of Assets
	 	 	1	 
	 

	 	Section 1.2
	 	Excluded Assets
	 	 	2	 
	 

	 	Section 1.3
	 	Assumed Liabilities
	 	 	3	 
	 

	 	Section 1.4
	 	Excluded Liabilities
	 	 	4	 
	 

	 	Section 1.5
	 	Consents to Certain Assignments
	 	 	4	 
	 

	 	Section 1.6
	 	Consideration
	 	 	5	 
	 

	 	Section 1.7
	 	Allocation of Purchase Price
	 	 	5	 
	 

	 	Section 1.8
	 	Closing
	 	 	6	 
	 

	 	Section 1.9
	 	Transfer of Business Employees
	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 2.1
	 	Organization
	 	 	7	 
	 

	 	Section 2.2
	 	Authority
	 	 	7	 
	 

	 	Section 2.3
	 	No Conflict; Required Filings and Consents
	 	 	8	 
	 

	 	Section 2.4
	 	Absence of Certain Changes or Events
	 	 	8	 
	 

	 	Section 2.5
	 	Compliance with Law; Permits
	 	 	8	 
	 

	 	Section 2.6
	 	Litigation
	 	 	9	 
	 

	 	Section 2.7
	 	Employee Plans
	 	 	9	 
	 

	 	Section 2.8
	 	Labor and Employment Matters
	 	 	9	 
	 

	 	Section 2.9
	 	Property
	 	 	9	 
	 

	 	Section 2.10
	 	Intellectual Property
	 	 	10	 
	 

	 	Section 2.11
	 	Taxes
	 	 	11	 
	 

	 	Section 2.12
	 	Material Contracts
	 	 	11	 
	 

	 	Section 2.13
	 	Inventory
	 	 	12	 
	 

	 	Section 2.14
	 	Subsidies
	 	 	12	 
	 

	 	Section 2.15
	 	Brokers
	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 3.1
	 	Organization
	 	 	12	 
	 

	 	Section 3.2
	 	Authority
	 	 	12	 
	 

	 	Section 3.3
	 	No Conflict; Required Filings and Consents
	 	 	13	 
	 

	 	Section 3.4
	 	Financing
	 	 	13	 
	 

	 	Section 3.5
	 	Brokers
	 	 	13	 
	 

	 	Section 3.6
	 	No Knowledge of Breaches
	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV COVENANTS	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 4.1
	 	Conduct of Business Prior to the Closing
	 	 	14	 
	 

	 	Section 4.2
	 	Covenants Regarding Information
	 	 	14	 
	 

	 	Section 4.3
	 	Update of Disclosure Schedules; Knowledge of Breach
	 	 	14	 
	 

	 	Section 4.4
	 	Notification of Certain Matters
	 	 	15	 
	 

	 	Section 4.5
	 	Confidentiality
	 	 	15	 
	 

	 	Section 4.6
	 	Consents and Filings; Further Assurances
	 	 	15	 
	 

	 	Section 4.7
	 	Release of Guarantees
	 	 	15	 






i









 





TABLE OF CONTENTS

(Continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 

	 	Section 4.8
	 	Corporate Name
	 	 	16	 
	 

	 	Section 4.9
	 	Refunds and Remittances
	 	 	16	 
	 

	 	Section 4.10
	 	Joint and Several Liability
	 	 	17	 
	 

	 	Section 4.11
	 	Public Announcements
	 	 	17	 
	 

	 	Section 4.12
	 	Conditional Access Module Agreements
	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V TAX MATTERS	 	 	18	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 5.1
	 	Cooperation
	 	 	18	 
	 

	 	Section 5.2
	 	Allocation of taxes
	 	 	18	 
	 

	 	Section 5.3
	 	Sales and Use Taxes
	 	 	19	 
	 

	 	Section 5.4
	 	Other Taxes
	 	 	19	 
	 

	 	Section 5.5
	 	Tax Certificates
	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI CONDITIONS TO CLOSING	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 6.1
	 	General Conditions
	 	 	20	 
	 

	 	Section 6.2
	 	Conditions to Obligations of the Seller
	 	 	21	 
	 

	 	Section 6.3
	 	Conditions to Obligations of the Buyer
	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII TERMINATION	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 7.1
	 	Termination
	 	 	22	 
	 

	 	Section 7.2
	 	Effect of Termination
	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII GENERAL PROVISIONS	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 8.1
	 	Nonsurvival of Representations, Warranties and Covenants
	 	 	23	 
	 

	 	Section 8.2
	 	Fees and Expenses
	 	 	23	 
	 

	 	Section 8.3
	 	Amendment and Modification
	 	 	24	 
	 

	 	Section 8.4
	 	Waiver
	 	 	24	 
	 

	 	Section 8.5
	 	Notices
	 	 	24	 
	 

	 	Section 8.6
	 	Interpretation
	 	 	25	 
	 

	 	Section 8.7
	 	Entire Agreement
	 	 	25	 
	 

	 	Section 8.8
	 	No Third-Party Beneficiaries
	 	 	25	 
	 

	 	Section 8.9
	 	Governing Law
	 	 	25	 
	 

	 	Section 8.10
	 	Submission to Jurisdiction
	 	 	25	 
	 

	 	Section 8.11
	 	Disclosure Generally
	 	 	26	 
	 

	 	Section 8.12
	 	Personal Liability
	 	 	26	 
	 

	 	Section 8.13
	 	Assignment; Successors
	 	 	26	 
	 

	 	Section 8.14
	 	Severability
	 	 	26	 
	 

	 	Section 8.15
	 	Waiver of Jury Trial
	 	 	26	 
	 

	 	Section 8.16
	 	Counterparts
	 	 	26	 
	 

	 	Section 8.17
	 	No Consequential Damages
	 	 	26	 
	 

	 	Section 8.18
	 	Disclaimer of Implied Warranties
	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IX DEFINITIONS	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 9.1
	 	Certain Defined Terms
	 	 	27	 






ii









 








Exhibits




	 	 	 	 	 
	Exhibit A

	 	-
	 	Disclosure Schedules
	Exhibit B

	 	-
	 	Bill of Sale and Assignment and Assumption Agreement
	Exhibit C

	 	-
	 	French Assets Purchase Agreement
	Exhibit D

	 	-
	 	French Real Property Purchase Agreement
	Exhibit E

	 	-
	 	German Transfer and Assumption Agreement
	Exhibit F

	 	-
	 	IP Transfer Agreements
	Exhibit G

	 	-
	 	License Agreement
	Exhibit H

	 	-
	 	Singapore Transfer and Assumption Agreement
	Exhibit I

	 	-
	 	Robert Schneider Non-Compete Agreement






Asset Purchase Agreement Schedules




	 	 	 	 	 
	Schedule 1.1(a)

	 	-
	 	Contracts
	Schedule 1.1(c)

	 	-
	 	Business Intellectual Property
	Schedule 1.1(d)

	 	-
	 	Tangible Personal Property
	Schedule 1.1(e)

	 	-
	 	Inventory
	Schedule 1.1(f)

	 	-
	 	Permits
	Schedule 1.1(h)

	 	-
	 	Prepaid Expenses and Security Deposits
	Schedule 1.2(c)

	 	-
	 	Excluded Trademarks
	Schedule 1.2(j)

	 	-
	 	Licensed Intellectual Property
	Schedule 1.3

	 	-
	 	Assumed Liabilities
	Schedule 1.4

	 	-
	 	Excluded Liabilities
	Schedule 1.5

	 	-
	 	Required Consents
	Schedule 1.6

	 	-
	 	Casper Chip Testing Procedures
	Schedule 1.7

	 	-
	 	Purchase Price Allocation
	Schedule 1.9

	 	-
	 	Business Employees
	Schedule 4.7

	 	-
	 	Guarantees
	Schedule 9.1(m)

	 	-
	 	Knowledge






Disclosure Schedules




Disclosure Schedules attached hereto as Exhibit A.





iv









 








ASSET PURCHASE AGREEMENT




     ASSET PURCHASE AGREEMENT,
 dated as of April 5, 2006 (this “Agreement”), between SCM
Microsystems, Inc., a Delaware corporation (the “Seller”), and Kudelski S.A., a corporation
organized under the laws of Switzerland (together with its Subsidiaries which will purchase the
Transferred Assets and assume the Assumed Liabilities, the “Buyer”).



RECITALS




     A. The Seller is engaged in the business of designing, developing, manufacturing selling and
supporting software, silicon and conditional access module products relating to digital television
security solutions at various locations around the world (the “Business”).



     B. The Seller wishes to sell to the Buyer, and the Buyer wishes to purchase from the Seller,
certain assets related to the Business, and, in connection therewith, the Buyer is willing to
assume certain liabilities and obligations of the Seller and its Affiliates relating to the
Business, all upon the terms and subject to the conditions set forth in this Agreement.



AGREEMENT




     In consideration of the foregoing and the mutual covenants and agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties agree as follows:



ARTICLE I

PURCHASE AND SALE




     Section 1.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions
of this Agreement, including, without limitation, the schedules and exhibits hereto, at the
Closing, the Seller shall, and shall cause its Subsidiaries to, sell, assign, transfer, convey and
deliver to the Buyer all of the Seller’s or such Subsidiary’s right, title and interest as of the
time of the Closing in, to and under the Transferred Assets, and the Buyer shall purchase, acquire,
accept and pay for the Transferred Assets. “Transferred Assets” shall mean all of the
Seller’s or any of its Subsidiaries’ right, title and interest in, to and under the following
enumerated assets (except to the extent they are Excluded Assets) as they exist at the time of the
Closing, as set forth in the schedules referenced below:



          (a) (i) all contracts, licenses, leases, customer and supplier agreements, purchase orders
(including purchase orders for Business inventory components and product assembly) and other
agreements listed on Schedule 1.1(a), and (ii) all other contracts, leases, customer and supplier
agreements, purchase orders and other agreements to which the Seller or any of its Subsidiaries is
a party or by which the Seller or any such Subsidiary is bound, in each case, that relate
exclusively to, in the ordinary course of business out of the operation of, the Business
(collectively, the “Contracts”);




          (b) the property known as 216 avenue du Serpolet, 13704 La Ciotat, France, together with the
Seller’s or any of its Subsidiaries’ right, title and interest in, to and under all




1









 







buildings,
improvements and fixtures thereon and all appurtenances thereto (the “Real Property”);




          (c) all patents and patent applications, registered trademarks or service marks and
applications to register any trademarks or service marks, copyrights, software and trade secrets,
in each case, owned by the Seller or any of its Subsidiaries that are listed on Schedule 1.1(c)
(the “Business Intellectual Property”);




          (d) all machinery, equipment, furniture, furnishings, parts, spare parts, vehicles and other
tangible personal property owned by the Seller or any of its Subsidiaries (i) that is listed on
Schedule 1.1(d) or (ii) that is used or held for use exclusively in the Business (collectively, the
“Tangible Personal Property”);




          (e) all raw materials, work-in-progress, finished goods, supplies, packaging materials and
other inventories owned by the Seller or any of its Subsidiaries that are listed in Schedule 1.1(e)
(the “Inventory”);




          (f) subject to Section 1.5 hereof, all Permits used or held for use by Seller or any of its
Subsidiaries exclusively in the Business that are listed on Schedule 1.1(f), to the extent that
such Permits are transferable to the Buyer (the “Business Permits”);




          (g) all personnel records (to the extent permitted by applicable law) related to the
Transferred Employees, customers’ and suppliers’ lists, sales and promotional literature and
manuals owned by the Seller or any of its Subsidiaries, in each case, relating exclusively to the
Business (the “Books and Records”); and




          (h) all prepaid expenses and security deposits relating exclusively to the Business that are
listed on Schedule 1.1(h).




     Section 1.2 Excluded Assets. Notwithstanding anything contained in Section 1.1 to the
contrary, neither the Seller nor any of its Subsidiaries is selling, assigning, transferring or
conveying, and the Buyer is not purchasing or acquiring, any assets other than those specifically
listed or described in Section 1.1 and, without limiting the generality of the foregoing, the term
“Transferred Assets” shall expressly exclude the following assets of the Seller and its
Subsidiaries, all of which shall be retained by the Seller or such Subsidiary (collectively, the
“Excluded Assets”):



          (a) all of the cash and cash equivalents of the Seller and its Subsidiaries and all accounts
receivable, notes receivable and other receivables due to the Seller or any of its Subsidiaries,
together with any unpaid interest or fees accrued thereon or other amounts due with respect
thereto;




          (b) the corporate books and records of internal corporate proceedings, accounting and
financial records, tax records, work papers and books and records of the Seller and its
Subsidiaries and any internal reports relating to the business activities of the Seller and its
Subsidiaries, other than those expressly included as Transferred Assets pursuant to Section
1.1(g);





2









 








          (c) all rights in the names and marks and any variation or derivation thereof listed in
Schedule 1.2(c);




          (d) all of the bank accounts of the Seller and its Subsidiaries;




          (e) any interest in or right to any refund of or credit for taxes of any kind, whether or not
relating to the Business, the Transferred Assets, or the Assumed Liabilities, for, or applicable
to, any Pre-Closing Tax Period;




          (f) any insurance policies and rights, claims or causes of action thereunder, except those
policies, rights, claims or causes of action governed by French law which will be automatically
transferred to the Buyer;




          (g) all rights, claims and causes of action relating to any Excluded Asset or any Excluded
Liability;




          (h) all rights of the Seller and its Subsidiaries under this Agreement and the Ancillary
Agreements;




          (i) the capital stock owned by Seller and/or its Subsidiaries in each of Seller’s
Subsidiaries;




          (j) (i) the Casing Patents and other intellectual property listed on Schedule 1.2(j)
(collectively, the “Licensed Intellectual Property”), and with respect to which the parties
will enter into the License Agreement, and (ii) any and all other intellectual property of the
Seller that is not listed on, or referred to in, Schedule 1.1(c), including, without limitation,
the items identified in Section 1.2(c);




          (k) all St@rKeyÒ and mobile terrestrial receiver products comprised in the Inventory and
any agreements relating thereto; and




          (l) any leased real property.




     Section 1.3 Assumed Liabilities. In connection with the purchase and sale of the
Transferred Assets pursuant to this Agreement, at the Closing, the Buyer shall assume and pay,
discharge, perform or otherwise satisfy when due all liabilities and obligations set forth on
Schedule 1.3 (collectively, the “Assumed Liabilities”). Buyer further agrees to and shall
indemnify, defend and hold Seller and Seller’s Affiliates harmless for and against any and all
liabilities, burdens and obligations associated with such Assumed Liabilities and any claim, loss,
liability, damage or injury suffered by Seller or any of Seller’s Affiliates relating to the
Assumed Liabilities or arising out of any failure by Buyer to satisfy when due the liabilities,
burdens and obligations under, pursuant to, or relating to the Assumed Liabilities.



     The Buyer’s obligations under this Section 1.3 shall not be subject to offset or reduction by
reason of any actual or alleged breach of any representation, warranty or covenant or any other
obligation unrelated to this Agreement and the Ancillary Agreements. The Buyer agrees to reimburse
the Seller and its Affiliates, dollar for dollar, in the event that any Person offsets from any
amount such Person otherwise owes to the Seller or any of its Affiliates an amount that is (or



3









 




is
part of) an Assumed Liability. The Seller will provide notice to the Buyer of any such offset for
which the Seller or any of its Affiliates is entitled to be reimbursed by the Buyer pursuant to
this Section 1.3 as soon as reasonably practicable after Seller receives the same and the Buyer
shall pay the Seller or such Affiliate promptly following receipt of such notice.




     Section 1.4 Excluded Liabilities. Notwithstanding any other provision of this
Agreement to the contrary, the Buyer is not assuming, and the Seller and its Subsidiaries, as
applicable, shall pay, perform or otherwise satisfy when due, all liabilities and obligations of
Seller and its Subsidiaries that are not Assumed Liabilities, including those set forth on Schedule
1.4 (the “Excluded Liabilities”). Seller agrees to and shall indemnify, defend and hold
Buyer and Buyer’s Affiliates harmless for and against the obligation of Seller to pay and/or
reimburse the Buyer for the Seller’s Portion of the Transferred Employee Liabilities and the
Seller’s Portion of the Korean Rebates (each as defined in Schedule 1.4) and any claim, loss,
liability, damage or injury suffered by Buyer or any of Buyer’s Affiliates relating to the Seller’s
Portion of the Transferred Employee Liabilities and the Seller’s Portion of the Korean Rebates or
arising out of any failure by Seller to satisfy when due the Seller’s Portion of the Transferred
Employee Liabilities and the Seller’s Portion of the Korean Rebate.



     Section 1.5 Consents to Certain Assignments.



          (a) Notwithstanding anything in this Agreement or any Ancillary Agreement to the contrary,
this Agreement and the Ancillary Agreements shall not constitute an agreement to sell, transfer or
assign any asset, agreement, Permit, claim or right or any benefit arising thereunder or resulting
therefrom if an assignment or attempted assignment thereof, without the consent of a Person, would
constitute a breach or other contravention under any agreement or applicable law to which the
Seller or any of its Subsidiaries is a party or by which it is bound. The Seller shall endeavor to
obtain the consents or waivers listed on Schedule 1.5, which has been mutually agreed to by Seller
and Buyer; provided that in no event shall Seller or any of its Subsidiaries be required to make
any payment to any Person or otherwise expend any amount in order for such Person to agree to grant
any such consent or waiver. The Buyer agrees that neither the Seller nor any of its Affiliates
shall have any liability to the Buyer arising out of or relating to the failure to obtain any
consent or waiver that may be required in connection with the transactions contemplated by this
Agreement or the Ancillary Agreements or because of any circumstances resulting therefrom. The
Buyer further agrees that no representation or warranty of the Seller herein shall be breached or
deemed breached and, except as set forth in Section 6.3(d), no condition shall be deemed not
satisfied, as a result of (i) the failure to obtain any consent or waiver or any circumstances
resulting therefrom, (ii) any suit, action, proceeding or investigation commenced or threatened by
or on behalf of any Person arising out of or relating to the failure to obtain any such consent or
waiver or any circumstances resulting therefrom, or (iii) any termination of a Contract that is a
Transferred Asset by a third party to such Contract in
the event such Contract grants such third party the right to terminate as a result of Seller
or any of its Subsidiaries entering into the transactions contemplated by this Agreement or the
Ancillary Agreements, or otherwise.




     (b) Without prejudice to the provisions of Sections 6.3 (d), if any such consent or waiver is
not obtained on or prior to Closing and, as a result thereof, the Buyer shall be prevented by a
third party from receiving the rights and benefits with respect to such Transferred



4









 




Asset intended
to be transferred hereunder, or if any transfer or assignment or attempted transfer or assignment
would adversely affect the rights of the Seller or any of its Subsidiaries thereunder so that the
Buyer would not in fact receive all such rights or the Seller or any of its Subsidiaries would
forfeit or otherwise lose the benefit of rights that the Seller or any of its Subsidiaries is
entitled to retain, the Seller and the Buyer shall cooperate in any lawful and commercially
reasonable arrangement, as the Seller and the Buyer shall agree, under which the Buyer would, to
the extent practicable, obtain the economic claims, rights and benefits under such asset and assume
the liabilities, economic burdens and obligations with respect thereto in accordance with this
Agreement, including, without limitation, by subcontracting, sublicensing or subleasing to the
Buyer; provided that all reasonable out-of-pocket expenses of such cooperation and related
actions shall be paid by the Buyer. The Seller shall pay to the Buyer when received all monies
received by the Seller or any of its Subsidiaries with respect to any such Transferred Asset or any
claim or right or any benefit arising thereunder and the Buyer shall indemnify and promptly pay the
Seller and its Affiliates for all liabilities, economic burdens and obligations of the Seller or
any of its Affiliates associated with such Transferred Asset or any claim or right or any benefit
arising thereunder.




     Section 1.6 Consideration. In full consideration for the sale, assignment, transfer,
conveyance and delivery of the Transferred Assets to the Buyer, at the Closing, the Buyer shall (a)
pay to the Seller an aggregate amount equal to Eleven Million United States Dollars (US$11,000,000)
(the “Purchase Price”) and (b) assume the Assumed Liabilities. The Purchase Price shall be
payable as follows:



          (i) on the Closing Date, Buyer shall pay to Seller by wire transfer to a bank account
designated in writing by the Seller, in immediately available funds in United States dollars, the
sum of Nine Million United States Dollars (US$9,000,000), and




          (ii) on the later of (A) the Closing Date and (B) the date two (2) weeks after the date of the
completion, in all material respects and consistent with reasonable engineering standards, of the
tests outlined in Section 7 of the procedures relating to the Casper Chip that are attached as
Schedule 1.6 and the release for production of the Casper Chip, Buyer shall pay to Seller by wire
transfer to a bank account designated in writing by the Seller, in immediately available funds in
United States dollars, an amount equal to (1) the sum of Two Million United States Dollars
(US$2,000,000) minus (2) the aggregate amount of all reasonable and documented out-of-pocket third
party expenses for coding, synthesis, simulation, verification, layout or mask changes that are
actually incurred by Buyer after the Closing Date and directly applicable to a respin/redesign
resulting in the re-manufacturing of engineering sample ASIC’s required to complete, after the
Closing Date, any of the procedures set forth on Schedule 1.6 that were not completed prior to the
Closing Date, and to enable a product that has substantially the same functionality as WorldCam.




     Section 1.7 Allocation of Purchase Price. The Purchase Price shall be allocated among
the Transferred Assets in a manner to be finally agreed upon by the parties at or prior to Closing,
which shall be substantially as set forth in Schedule 1.7. Buyer and Seller shall report the
purchase and sale of the Transferred Assets in accordance with such allocation for all tax purposes
in all relevant jurisdictions (including, without limitation, the filing of the forms



5









 







prescribed
under Section 1060 of the Internal Revenue Code of 1986 and Treasury Regulations promulgated
thereunder).



     Section 1.8 Closing.



          (a) The sale and purchase of the Transferred Assets and the assumption of the Assumed
Liabilities contemplated by this Agreement shall take place at a closing (the “Closing”) to
be held at the offices of Gibson, Dunn & Crutcher LLP, Paris, France, on the third Business Day
following the satisfaction or, to the extent permitted by applicable law, waiver of all conditions
to the obligations of the parties set forth in Article VI (other than such conditions as may, by
their terms, only be satisfied at the Closing or on the Closing Date), or at such other place or at
such other time or on such other date as the Seller and the Buyer mutually may agree in writing.
The day on which the Closing takes place is referred to as the “Closing Date”.




          (b) At the Closing, the Seller shall deliver or cause to be delivered to the Buyer the
following documents:




               (i) duly executed originals of each of the Ancillary Agreements;



               (ii) a duly executed certificate of the secretary of the Seller in customary form;



               (iii) a duly executed certificate of an executive officer of the Seller pursuant to Section
6.3(a); and



               (iv) copies of the settlement agreements entered into with, or written objections received
from, any Excluded Employee as of the Closing Date.



          (c) At the Closing, the Buyer shall deliver or cause to be delivered to the Seller the
following documents:




               (i) duly executed originals of each of the Ancillary Agreements;



               (ii) a duly executed certificate of the secretary of the Buyer in customary form; and



               (iii) a duly executed certificate of an executive officer of the Buyer pursuant to Section
6.2(a).



     Section 1.9 Transfer of Business Employees.



          (a) Schedule 1.9 contains a list (divided into Singapore, France and Germany) of the
individuals employed by the Seller or its Subsidiaries immediately prior to the Closing Date whose
duties relate primarily to the operations of the Business, regardless of the company payroll on
which such individuals are listed, and whose employment contracts are governed by Singapore, French
or German law, respectively, hereinafter referred to as the “Singapore Business Employees,”
“French Business Employees” and “German Business Employees,” respectively, and,
together, the “Business Employees”). Each of the Business Employees is




6









 







intended to be
transferred to the Buyer in accordance with the process and procedures set forth on Schedule 1.9.
Schedule 1.9 also contains a list of four employees whose employment contracts are governed by
German law and who could claim that their respective duties relate primarily to the operations of
the Business and that they are assigned to the Business, but with respect to whom the Buyer has
indicated that it does not wish to retain (the “Excluded GBEs”). To the extent that any
Business Employee or Excluded GBE is actually transferred to the Buyer as of the Closing Date, such
Business Employee or Excluded GBE shall be referred to as a “Transferred Employee.” To the
extent that any Business Employee or Excluded GBE effectively objects to being transferred to the
Buyer as of the Closing Date in accordance with applicable law and is not in fact transferred to
the Buyer as of the Closing Date, such Business Employee or Excluded GBE shall be referred to as an
“Excluded Employee.”




          (b) To the extent an Excluded Liability relates to any Transferred Employee (a
“Transferred Employee Liability”), the Seller agrees to and shall indemnify, defend and
hold Buyer and its Affiliates harmless for and against any and all liabilities, burdens and
obligations associated with such Transferred Employee Liability and any claim, loss, liability,
damage or injury suffered by Buyer or any of its Affiliates relating to such Transferred Employee
Liability or arising out of any failure by Seller or its Subsidiaries to satisfy when due the
Transferred Employee Liability. To the extent that the Buyer is required to make and makes a
payment to a Transferred Employee or any Governmental Authority that constitutes a Transferred
Employee Liability, the Seller shall promptly reimburse the Buyer for any such amount actually paid
by Buyer or its Affiliates.




ARTICLE II

REPRESENTATIONS AND WARRANTIES

OF THE SELLER




     Except as set forth in and subject to the Disclosure Schedules attached hereto as Exhibit
A (collectively, the “Disclosure Schedules”), the Seller hereby represents and warrants
to the Buyer as follows:



     Section 2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware and has all necessary
corporate power and authority to own, lease and/or operate the Transferred Assets and to carry on
the Business as it is now being conducted.



     Section 2.2 Authority. The Seller has full corporate power and authority to execute
and deliver this Agreement and each of the Ancillary Agreements to which it will be a party, to
perform its obligations hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by the Seller of this Agreement and each of the
Ancillary Agreements to which it will be a party and the consummation by the Seller of the
transactions contemplated hereby and thereby have been duly and validly authorized by all necessary
corporate action. This Agreement has been, and upon their execution each of the Ancillary
Agreements to which the Seller will be a party will have been, duly executed by the Seller. This
Agreement constitutes, and upon their execution and delivery each of the Ancillary Agreements to
which the Seller will be a party will constitute, the legal, valid and binding obligations of the
Seller, enforceable against the Seller in accordance with their respective terms,



7









 







except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ rights generally and by general principles of equity (regardless
of whether considered in a proceeding in equity or at law).



     Section 2.3 No Conflict; Required Filings and Consents.



          (a) The execution, delivery and performance by the Seller of this Agreement and each of the
Ancillary Agreements to which the Seller will be a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with or violate the certificate
of incorporation or bylaws of the Seller; (ii) conflict with or violate any law applicable to the
Seller, the Business or any of the Transferred Assets or by which the Seller, the Business or any
of the Transferred Assets may be bound or affected; or (iii) conflict with, result in any breach
of, constitute a default (or an event that, with notice or lapse of time or both, would become a
default) under, or require any consent of any Person pursuant to, any Contract; except, in the case
of clause (ii) or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or that arise as a result of any facts or circumstances relating to the
Buyer or any of its Affiliates.




          (b) The Seller or one of its Subsidiaries has consulted with the works council for its branch
in France and obtained the works council’s opinion with respect to the transactions contemplated by
this Agreement prior to the execution of this Agreement by Seller. Unless otherwise provided
herein, the Seller is not required to file, seek or obtain any notice, authorization, approval,
order, permit, consent or clearance of or with any United States or non-United States national,
supranational, federal, state, provincial, local or similar governmental, regulatory or
administrative authority, branch, agency or commission or any judicial or arbitral body (a
“Governmental Authority”) in connection with the execution, delivery and performance by the
Seller of this Agreement and each of the Ancillary Agreements to which the Seller will be a party
or the consummation of the transactions contemplated hereby or thereby, except for (i) filings made
or consents, approvals or authorizations obtained on or prior to the Closing, (ii) any filings
required to be made under any applicable antitrust or merger control laws, (iii) where failure to
obtain such consent, approval, authorization or action, or to make such filing or notification,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or (iv) as may be necessary as a result of any facts or circumstances
relating to the Buyer or any of its Affiliates.




     Section 2.4 Absence of Certain Changes or Events. Since January 1, 2006, there has
not occurred any Material Adverse Effect. The Buyer acknowledges that there may be disruption to
the operation of the Business solely as a result of (i) the announcement by the Seller of its
intention to sell the Business, (ii) the execution of this Agreement or the Ancillary Agreements,
including, without limitation, as a result of the identity of the Buyer, and (iii) the consummation
of the transactions contemplated hereby, and the Buyer agrees that any such disruptions do not and
shall not constitute a breach of this Section 2.4 or a Material Adverse Effect.



     Section 2.5 Compliance with Law; Permits. To the Knowledge of the Seller, the
Business is being conducted in material compliance with all applicable laws, except as would



8









 







not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The
Seller or its Subsidiaries are in possession of all permits, licenses, franchises, approvals,
certificates, consents, waivers, concessions, exemptions, orders, registrations, notices or other
authorizations of any Governmental Authority necessary for it to own, lease and operate the
Transferred Assets and to conduct the Business as currently conducted (the “Permits”),
except where the failure to have, or the suspension or cancellation of, any of the Permits would
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.



     Section 2.6 Litigation. As of the date hereof, there is no action, suit, arbitration
or proceeding by or before any Governmental Authority in connection with the Business pending, or
to the Knowledge of the Seller, threatened in writing that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or would affect the legality, validity or
enforceability of this Agreement or any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.



     Section 2.7 Employee Plans. Except for employee compensation and benefit plans
required under applicable law, Schedule 2.7 of the Disclosure Schedules sets forth all material
employee benefit and compensation plans, contracts, policies, programs and arrangements sponsored,
maintained or contributed to by the Seller or its Subsidiaries in connection with the Business in
effect as of the date hereof, including all pension, profit sharing, savings and thrift, bonus,
stock bonus, stock option or other cash or equity-based incentive or deferred compensation,
severance pay and medical and life insurance plans in which any of the Business Employees or their
dependents participate.



     Section 2.8 Labor and Employment Matters. Other than amounts that are or will become
Assumed Liabilities, including, without limitation, accrued vacation and RTT Days (as defined in
Schedule 1.9), the Seller has paid or has caused its Subsidiaries to pay, as the case may be, all
salaries, reimbursement of expenses and other compensation and compensation related obligations to
which the Transferred Employees are entitled pursuant to applicable law and their employment
contracts that have become due and payable as of the date hereof, and the related social security
charges and taxes that have become due and payable as of the date hereof, and
will pay such amounts that become due and payable prior to the Closing Date. No written
employment contract of any of the Transferred Employees contains materially more favorable clauses,
including as regards severance indemnities, than those provided by applicable law or any applicable
collective bargaining agreements. Except as would not reasonably be expected to have a Material
Adverse Effect, (i) neither the Seller nor any of its Subsidiaries is in breach of, or default
under, any employment agreement with a Transferred Employee and (ii) all such employment agreements
are in full force and effect and are valid and binding on the Seller and/or its Subsidiaries (as
the case may be) and, to the Knowledge of the Seller, the applicable employee.



     Section 2.9 Property.



          (a) The Seller or one of its Subsidiaries is the sole owner of, and has valid title to, the
Real Property, which title is recorded on the relevant land registry (Conservation des
Hypothèques). Other than Permitted Encumbrances, the preemptive right provided by Article L. 211-1
of the French Code de l’Urbanisme and any other exception that is recorded on




9









 







the registry of the
Conservation des Hypothèques or would not reasonably be expected to have a Material Adverse Effect,
the Real Property is (i) free and clear of any charges, claims, attachment, mortgages, leases,
liens, pledges or security interests or restrictions of any kind, (ii) free of any specific
planning and zoning (urbanisme) measure or regulation which might materially affect the value of
the Real Property and (iii) not affected by any easement, contractual preemptive right, option or
similar right in favor of a third party, and Seller has not received any written notice of any
claim in this regard or that the Real Property is subject to any administrative or court action.
The Real Property has been maintained in the ordinary course of Seller’s or its Subsidiary’s
business. To the Knowledge of Seller, the Real Property does not qualify as a classified
installation (“installation classée”) for environmental purposes.




          (b) Schedule 1.1(d) of the Disclosure Schedules lists each piece of Tangible Personal Property
owned by the Seller or one of its Subsidiaries that is material to, and used exclusively in, the
Business. The Seller or one if its Subsidiaries has good and marketable title to all Tangible
Personal Property, free and clear of all charges, claims, mortgages, leases, liens, options,
pledges or security interests or other restrictions of any kind, other than Permitted Encumbrances
and any such exceptions that would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.




          (c) Subject to Section 2.4 and the fact that (i) the Business has not heretofore been
conducted by the Seller and its Subsidiaries separate and distinct from the other businesses of the
Seller and its Subsidiaries, (ii) the Buyer is only purchasing segregated assets from the Seller,
rather than a complete and separate company with all of its administration and operational
functions, information technology, accounting and other systems and infrastructure, (iii) the Buyer
does not intend to take and/or retain all of the employees of Seller and its Subsidiaries involved
in the Business, (iv) the intellectual property listed on Schedule 1.2(c) is an Excluded Asset, (v)
certain Permits, Contracts and other agreements and items may not be transferable or assignable by
the Seller to the Buyer, (vi) the Transferred Assets do not constitute all of the assets,
properties, agreements and other items that the Seller and its Subsidiaries used prior to the
Closing in the conduct of the Business, and (vii) the Buyer intends to conduct a portion of the
Business through the CAM Agreements and may instruct the Seller to transfer certain of the
Contracts to third parties, and assuming that (1) the Buyer has all of the necessary
administration and operational functions, information technology systems, infrastructure and
employees in place at Closing and (2) no customer, employee, supplier or other Person terminates or
modifies its business or other relationship with the Business and there is no other change with
respect to the Business or the industry in which the Business operates, the Transferred Assets,
taken together with the Licensed Intellectual Property, are sufficient to enable the Buyer to
continue to operate the Business after the Closing Date, in all material respects, in the same
manner in which it was conducted by the Seller prior to the Closing Date.




     Section 2.10 Intellectual Property. The Seller or one of its Subsidiaries holds sole
title to the Business Intellectual Property, free from any encumbrance, lien, pledge or security
interest, other than any such exceptions that would not, individually or in the aggregate, be
expected to be material. The patents and trademarks that are included in the Business Intellectual
Property have been validly registered and maintained in force in favor of the Seller or its
Subsidiaries, except as would not, individually or in the aggregate, reasonably be expected to have
an adverse and material effect on the use of such patents or trademarks in the Business.



10









 







The Seller or its Subsidiaries has paid all due and payable related fees related to the Business
Intellectual Property, except as would not, individually or in the aggregate, be expected to have a
Material Adverse Effect. To the Knowledge of the Seller, no written claim has been asserted or
threatened that the use or exploitation by the Seller or any of its Subsidiaries of any Business
Intellectual Property infringes the intellectual property of any third party. Neither Seller nor
any of its Subsidiaries owns any patent, trademark, trade name or copyright that is used in, and is
material to, the Business, other than the Business Intellectual Property, the License Intellectual
Property and the items listed on Schedule 1.2(c).



     Section 2.11 Taxes. The Seller has filed or caused to be filed all tax and social
security charge or similar tax returns relating to the Business which have become due and payable
(taking into account valid extensions of time to file) prior to the date hereof, except as would
not reasonably be expected to have a Material Adverse Effect, and the Seller has paid or caused to
be paid all taxes and related charges due and payable therein, in each case, to the extent the
Buyer would reasonably be expected to incur liability for the Seller’s failure to file such returns
or pay such taxes (subject to Section 5.2 below).



     Section 2.12 Material Contracts.



          (a) Schedule 2.12 of the Disclosure Schedules lists each of the following written Contracts
(such Contracts described in this Section 2.12 being “Material Contracts”) to which the
Seller or any of its Subsidiaries is a party or bound: (i) all Contracts that provide for payment
or receipt by the Seller or any of its Subsidiaries in connection with the Business of more than
US$300,000 per year; (ii) all Contracts that limit or purport to limit the ability of the Business
to compete in any line of business or with any Person or in any geographic area or during any
period of time; (iii) all joint venture, partnership or similar Contracts; and (iv) any other
Contract that is believed by the Seller to be material to the Business, taken as a whole. Except
as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect, each Material Contract is valid and binding on the Seller and its Subsidiaries (as
the case may be) and, to the Knowledge of the Seller, the counterparties thereto, and is in
full force and effect. Except as requested by Buyer or as otherwise contemplated by this Agreement
or the Schedules hereto, to the Knowledge of Seller, as of the date hereof, no customer, supplier,
employee or other Person who is a counter-party to a Material Contract has informed the Seller that
it intends to terminate or modify its business relationship with the Business, the result of which
would reasonably be expected to have a Material Adverse Effect. Neither the Seller nor any of its
Subsidiaries is in breach of, or default under, any Material Contract to which it is a party,
except for such breaches or defaults that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.




          (b) Seller has made available to Buyer copies of the South Korean supply agreements between
SCM Microsystems (Asia) Pte Ltd and (i) CJ Cablenet dated May 20, 2004, (ii) Korean Digital Cable
Media Center Co., Ltd. dated June 1, 2005, and (iii) Qrix Networks, Inc. dated March 17, 2005
(together, the “Korean Contracts”), which agreements are included in the definition of
“Contracts” pursuant to Section 1.1(a) and constitute “Transferred Assets” hereunder. The Korean
Contracts are governed by Singapore law and none of the Korean Contracts contain specific
prohibitions against the assignment of the rights and benefits of Seller and its Subsidiaries under
such supply agreements nor any express requirement that Seller shall





11









 




obtain the prior consent of the relevant contract counter-party to such agreement. To
the knowledge of Seller and subject to an exception relating to the performance of personal
services, which Seller does not believe is applicable to the Korean Contracts, Singapore common law
generally allows the assignment of the rights and benefits under an agreement in the absence of a
specific prohibition against assignment.




     Section 2.13 Inventory. Since December 31, 2005, Seller has in all material respects
managed its inventory in the ordinary course of business consistent with past practices and its
practices relating to its other businesses and, as Seller believes, a reasonably prudent person
conducting the Business as a going concern would have managed its inventory.



     Section 2.14 Subsidies. There is no subsidy that would reasonably be expected to be
transferred to the Buyer in connection with the transactions contemplated by this Agreement.



     Section 2.15 Brokers. Except for Avondale Partners, LLC, the fees of which will be
paid by the Seller, no broker, finder or investment banker is entitled to any brokerage, finder’s
or other fee or commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Seller.



ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BUYER




     The Buyer hereby represents and warrants to the Seller as follows:



     Section 3.1 Organization. Kudelski S. A. is a corporation duly organized, validly
existing and in good standing under the laws of Switzerland and has all necessary corporate power
and authority to own, lease and operate its properties and to carry on its business as it is now
being conducted.



     Section 3.2 Authority. The Buyer has full corporate power and authority to execute
and deliver this Agreement and each of the Ancillary Agreements to which it will be a party, to
perform its obligations hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by the Buyer of this Agreement and each of the
Ancillary Agreements to which it will be a party and the consummation by the Buyer of the
transactions contemplated hereby and thereby have been duly and validly authorized by all necessary
corporate action. This Agreement has been, and upon their execution each of the Ancillary
Agreements to which the Buyer will be a party will have been, duly and validly executed by the
Buyer. This Agreement constitutes, and upon their execution and delivery each of the Ancillary
Agreements to which the Buyer will be a party will constitute, the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors’ rights generally and by general principles of
equity (regardless of whether considered in a proceeding in equity or at law).



12









 





     Section 3.3 No Conflict; Required Filings and Consents.



          (a) The execution, delivery and performance by the Buyer of this Agreement and each of the
Ancillary Agreements to which the Buyer will be a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with or violate the certificate
of incorporation or bylaws of the Buyer; (ii) conflict with or violate any law applicable to the
Buyer or by which any property or asset of the Buyer is bound or affected; or (iii) conflict with,
result in any breach of, constitute a default (or an event that, with notice or lapse of time or
both, would become a default) under, or require any consent of any Person pursuant to, any material
contract or agreement to which the Buyer is a party; except, in the case of clause (ii) or (iii),
for any such conflicts, violations, breaches, defaults or other occurrences that would not,
individually or in the aggregate, reasonably be expected to have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agreement or the Ancillary Agreements to
which it will be a party or to consummate the transactions contemplated hereby or thereby (a
“Buyer Material Adverse Effect”) or that arise as a result of any facts or circumstances
relating to the Seller or any of its Affiliates.




          (b) To the Knowledge of the Buyer, the Buyer is not required to file, seek or obtain any
notice, authorization, approval, order, permit or consent of or with any Governmental Authority in
connection with the execution, delivery and performance by the Buyer of this Agreement and each of
the Ancillary Agreements to which it will be party or the consummation of the transactions
contemplated hereby or thereby, except for (i) filings made or consents, approvals or
authorizations obtained on or prior to the Closing, (ii) where failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would not, individually
or in the aggregate, reasonably be expected to have a Buyer Material Adverse Effect or (iii) as may
be necessary as a result of any facts or circumstances relating to the Seller or any of its
Affiliates.




     Section 3.4 Financing. The Buyer has sufficient funds to permit the Buyer to
consummate the transactions contemplated by this Agreement and the Ancillary Agreements. The Buyer
has provided the Seller with accurate and complete copies of the commitment letters or other
materials satisfactory to the Seller evidencing the Buyer’s possession of sufficient funds for the
transactions contemplated by this Agreement. Notwithstanding anything to the contrary contained
herein, the parties acknowledge and agree that it shall not be a condition to the obligations of
the Buyer to consummate the transactions contemplated hereby that the Buyer shall have obtained
financing for payment of the Purchase Price.



     Section 3.5 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Buyer.



     Section 3.6 No Knowledge of Breaches. The Buyer has no Knowledge or reason to believe
that any of the representations or warranties made by the Seller as of the date hereof are untrue,
incomplete or inaccurate.



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ARTICLE IV

COVENANTS




     Section 4.1 Conduct of Business Prior to the Closing. Between the date of this
Agreement and the Closing Date, unless the Buyer shall otherwise agree in writing, the Business
shall be conducted only in the ordinary course of business in all material respects, and the Seller
shall use its commercially reasonable efforts to preserve the material business relationships with
customers, suppliers, distributors and others with whom the Seller deals in connection with the
conduct of the Business in the ordinary course.



     Section 4.2 Covenants Regarding Information.



          (a) From the date hereof until the Closing Date, upon reasonable notice, the Seller shall
afford the Buyer, at the Buyer’s expense, during normal business hours, under the supervision of
the Seller’s or any of its Subsidiaries’ personnel, reasonable access to the properties, offices,
plants and other facilities, books and records of the Seller and its Subsidiaries relating
exclusively to the Business, and shall furnish the Buyer with such financial, operating and other
data and information to the extent relating exclusively to the Business as the Buyer may reasonably
request. Notwithstanding anything to the contrary in this Agreement, the Seller shall not be
required to disclose any information to the Buyer if such disclosure would, in the Seller’s sole
discretion, (i) contravene any applicable laws or fiduciary duty (ii) have a material adverse
effect on Seller, or (iii) relate to any consolidated, combined or unitary tax return filed by the
Seller or any Affiliate thereof or any of their respective predecessor entities.




          (b) In order to facilitate the resolution of any claims made against or incurred by a party
(as it relates to the Business), for a period of ten years after the Closing or, if shorter, the
applicable period specified in a party’s document retention policy, each party shall (i) retain the
books and records relating to the Business relating to periods prior to the Closing and (ii) upon
reasonable notice, afford the other party reasonable access (including the right to make, at the
other party’s expense, photocopies), during normal business hours, to such books and records;
each party shall notify the other party in writing at least 30 days in advance of
destroying any such books and records prior to the tenth anniversary of the Closing Date in order
to provide the other party the opportunity to copy such books and records in accordance with this
Section 4.2(b).




     Section 4.3 Update of Disclosure Schedules; Knowledge of Breach. The Seller shall
have the right from time to time prior to the Closing to supplement or amend the Disclosure
Schedules with respect to any event, condition or matter hereafter arising or discovered which if
existing or known at the date of this Agreement would have been included or described in the
Disclosure Schedules. Any such supplemental or amended disclosure shall be deemed to have cured
any breach of any representation or warranty made in this Agreement for purposes of determining
whether or not the conditions set forth in Article VI have been satisfied. Notwithstanding the
foregoing, any such supplemental or amended disclosure shall be subject to the prior written
consent of Buyer, which consent shall not be unreasonably withheld or delayed, in order to be part
of this Agreement.



14









 





     Section 4.4 Notification of Certain Matters. Until the Closing, each party hereto
shall notify the other party in writing as soon as reasonably practicable of any fact, change,
condition, circumstance or occurrence or nonoccurrence of any event of which it is or becomes aware
that will or is reasonably likely to result in any of the conditions set forth in Article VI of
this Agreement becoming incapable of being satisfied.



     Section 4.5 Confidentiality. The terms and provisions of the confidentiality
agreement dated September 21, 2005 between the Buyer and the Seller (the “Confidentiality
Agreement”) are incorporated by reference herein and made a part hereof and Buyers obligations
thereunder shall continue in full force and effect and survive after the Closing Date. Seller may
disclose the existence of this Agreement as required by applicable law or in connection with any
proposed sale or merger of Seller.



     Section 4.6 Consents and Filings; Further Assurances. Each of the parties shall use
all commercially reasonable efforts to take, or cause to be taken, all appropriate action to do, or
cause to be done, all things necessary, proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by this Agreement and the Ancillary
Agreements as promptly as practicable, including, without limitation, to (i) obtain from
Governmental Authorities and other Persons all consents, approvals, authorizations, qualifications
and orders as are necessary for the consummation of the transactions contemplated by this Agreement
and the Ancillary Agreements, (ii) promptly make all necessary filings, and thereafter make any
other required submissions, with respect to this Agreement or the Ancillary Agreements required
under any applicable law. In addition, immediately after the execution of this Agreement, the
Seller shall, or procure that the relevant persons shall, (i) launch the regularization process
of the building permit (number PC 13 028 87 B 0298 dated December 10, 1987) aiming at obtaining a
compliance certificate (permis de construire de régularisation) from the town hall which has
delivered such permit and to (ii) file such request with the relevant town hall on or before the
Closing Date. All costs and fees relating to such regularization process (including those relating
to the ordering of the construction plans and the work of the architect to be designated in
connection with this process, i.e, the preparation of the request and the follow-up until the
town hall has rendered its decision) shall be borne by the Seller. In the event the compliance
certificate has not been issued prior to the Closing Date, the Seller shall deliver a copy of the
regularization file and related documents, and introduce the designated architect, to the
Purchaser, who will then handle the follow-up and supervision of the regularization process, at
Purchaser’s costs (except for architect’s fees relating to the follow-up during the instruction
period of the request), with the cooperation of the Seller, using commercially reasonable efforts.
Each of the parties shall promptly notify the other party of any communication it or any of its
Affiliates receives from any Governmental Authority relating to the matters that are the subject of
this Agreement or the Ancillary Agreements and permit the other party to review in advance any
proposed communication by such party to any Governmental Authority. The parties will coordinate
and cooperate fully with each other in exchanging such information and providing such assistance as
the other party may reasonably request in connection with the foregoing and in seeking early
termination of any applicable waiting periods.



     Section 4.7 Release of Guarantees. The parties hereto agree to cooperate and use
their commercially reasonable efforts to obtain the release of the Seller and its Affiliates that
are a



15









 




 party to each of the guarantees, performance bonds, bid bonds and other similar agreements listed in Schedule 4.7 (the “Guarantees”). In the event any of the Guarantees are not
released prior to or at the Closing, the Buyer will provide the Seller at the Closing with a
guarantee that indemnifies and holds the Seller and its Affiliates that are a party to each such
Guarantee harmless for any and all payments required to be made under, and costs and expenses
incurred in connection with, such Guarantee by the Seller or its Affiliates that are a party to
such Guarantee until such Guarantee is released.




     Section 4.8 Corporate Name; Website; Email. The Buyer acknowledges that, from and
after the Closing Date, the Seller and any of its Affiliates shall have the absolute and exclusive
proprietary right to all names, marks, trade names and trademarks incorporating all or part of
“SCM Microsystems” or the other names and marks listed on Schedule 1.2(c), by itself or in
combination with any other name or mark, and that none of the rights thereto or goodwill
represented thereby or pertaining thereto are being transferred hereby or in connection herewith.
The Buyer agrees that from and after the Closing Date it will not, nor will it permit any of its
Affiliates to, use any name, phrase or logo incorporating all or part of “SCM Microsystems” or the
other names and marks listed on Schedule 1.2(c), in or on any of its literature, sales materials or
products or otherwise in connection with the sale of any products or services; provided,
however, that the Buyer may continue to use any printed literature, sales materials,
purchase orders and sales forms (collectively, “Printed Forms”) and sell any products, in
each case, that are included in the Inventory on the Closing Date and that bear a name, phrase or
logo incorporating all of part of “SCM Microsystems” (as limited by any existing agreements the
Seller may have with third parties) until the supplies thereof existing on the Closing Date have
been exhausted, but in any event, for not longer than nine months after the Closing Date;
provided further, that, with respect to any such Printed Forms or products, from
and after such nine-months period the Buyer shall sticker or otherwise mark such Printed Forms and
products as necessary in order to indicate clearly that neither the Seller nor any of its
Affiliates is a party to such Printed Forms or is selling such products. From and after the
expiration of such nine-months period, the Buyer shall cease to use any such Printed Forms, delete
or cover (as by stickering) any such name, phrase or logo from any item included in the Inventory
that bears such name, phrase or logo and take such other commercially reasonable actions as may be
necessary or advisable to clearly and prominently indicate that neither the Buyer nor any of its
Affiliates is affiliated with the Seller or any of its Affiliates. In addition, for a period of up
to sixty (60) days after the Closing Date, (i) the Seller shall provide a link on its website for
customers of the Business to access the Buyers website and (ii) the Seller shall forward to Buyer
email messages relating to the Business that have been sent to the prior email addresses of the
Transferred Employees on the Sellers domain.



     Section 4.9 Refunds and Remittances. After the Closing: (i) if the Seller or any of
its Affiliates receives any refund or other amount that is a Transferred Asset or is otherwise
properly due and owing to the Buyer in accordance with the terms of this Agreement, the Seller
promptly shall remit, or shall cause to be remitted, such amount to the Buyer and (ii) if the Buyer
or any of its Affiliates receives any refund or other amount that is an Excluded Asset or is
otherwise properly due and owing to the Seller or any of its Affiliates in accordance with the
terms of this Agreement, the Buyer promptly shall remit, or shall cause to be remitted, such amount
to Seller.



16









 





     Section 4.10 Joint and Several Liability. To the extent that Kudelski S.A. causes one
or more of its Affiliates to purchase the Transferred Assets, assume the Assumed Liabilities and/or
perform any other obligation of Buyer hereunder or under any of the Ancillary Agreements, Kudelski
S.A. and such Affiliate(s) shall be jointly and severally liable for the performance of such
obligations; provided that it is expressly agreed by the parties that each Affiliate of Kudelski
S.A. shall be liable only for the performance of the obligations relating to the Transferred
Assets, the Assumed Liabilities and the other obligations of Buyer purchased and/or assumed by it
pursuant to or in connection with this Agreement and/or the Ancillary Agreements and that such
Affiliate shall not be liable for the performance of the obligations relating to Transferred
Assets, Assumed Liabilities or other obligations of Buyer purchased and/or assumed by any other
Affiliate of Kudelski S.A. To the extent that one of the Seller’s Affiliates is a party to one or
more of the Ancillary Agreements, the Seller and such Affiliate shall be jointly and severally
liable for the performance by such Subsidiary of such Affiliate’s obligations under such Ancillary
Agreement; provided that it is expressly agreed by the parties that each Affiliate of the Seller
shall be liable only for the performance of its obligations set forth in such Ancillary Agreement
and that such Affiliate shall not be liable for the performance of any obligation of any other
Affiliate of Seller set forth in such Ancillary Agreement or any other Ancillary Agreement.



     Section 4.11 Public Announcements. On and after the date hereof and through the
Closing Date, the parties shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement, the Ancillary Agreements or
the transactions contemplated hereby or thereby, and neither party shall issue any press release or
make any public statement prior to obtaining the other party’s written approval, which approval
shall not be unreasonably withheld or delayed, except that no such approval shall be necessary to
the extent disclosure may be required by applicable law or any listing agreement of either party
hereto.



     Section 4.12 Conditional Access Module Agreements. The Seller will provide the Buyer
with reasonable cooperation (and the Buyer will reimburse the Seller for any out-of pocket expenses
actually incurred by the Seller, other than payroll for the Seller’s employees and travel and
administrative costs, but, for the avoidance of any doubt, including, without limitation, any
amount the Seller may have to pay to any third party reseller or third party licensor), prior to
and, if necessary and requested by the Buyer, after the Closing Date, to assist the Buyer in the
Buyer’s effort to (i) negotiate and enter into an agreement with a certain third party reseller
relating to the sale by the Business of conditional access modules to such third party reseller and
the subsequent resale of such conditional access modules by the third party reseller to end users
and (ii) cause such third party reseller to negotiate and enter into a license agreement with a
certain third party licensor that will allow the third party reseller to incorporate the
conditional access systems of the third party licensor into such conditional access modules on
terms substantially similar to such third party licensor’s then current standard license terms and
conditions.



     Section 4.13 Non-Compete. Until December 31, 2009, the Seller shall, and shall cause
its Subsidiaries that exist on the Closing Date to, refrain from, directly or indirectly, selling
products that directly compete with the digital television security solution products of the
Business that exist as of the Closing Date; provided, however, that the foregoing
restriction shall not apply to, restrict or bind, in any way, (a) Seller with respect to the
production and sale of



17









 




digital media readers, including those that might be use in digital televisions and (b) any
Person that may at any time in the future (i) acquire the Seller or any of its Affiliates or any of
the assets or properties of the Seller or any of its Affiliates, (ii) be acquired by the Seller or
any of its Affiliates, (iii) merge or consolidate with or into the Seller or any of its Affiliates,
or (iv) otherwise succeed to the business or operations of the Seller or any of its Affiliates.
The Seller shall cause Robert Schneider, the Seller’s Chief Executive Officer, to enter into a
similar non-compete agreement with a term of two (2) years (the “Schneider Agreement”) that
is substantially in the form attached hereto as Exhibit I.




     Section 4.14 Notice to German Employees. The Buyer shall prepare and provide to the
Seller and each of the German Business Employees promptly, and in any event, within three (3)
business days, after the execution of this Agreement the notice required under the applicable
statutory provisions, including Section 613a (5), (6), of the German Civil Code (BGB). The Seller
will provide the Buyer with reasonable cooperation in connection with the Buyer’s preparation of
such notice. Prior to the notice being delivered to the Excluded GBEs, Seller shall inform each
Excluded GBE of their respective rights as a result of the consummation of the transactions
contemplated by this Agreement and that the Buyer does not desire to retain such Excluded GBE after
the Closing Date.



ARTICLE V

TAX MATTERS




     Section 5.1 Cooperation. From and after the Closing Date, the parties hereto agree to
furnish or cause to be furnished to one another, upon request, as promptly as practicable, such
information and assistance relating to the Transferred Assets as is reasonably necessary for the
filing of all returns and other filings with respect to taxes of any kind, and making of any
election related to taxes, the preparation for any audit by any taxing authority, and the
prosecution or defense of any claim, action or proceeding relating to taxes. The parties hereto
shall cooperate with each other in the conduct of any audit or other claim, action or proceeding
related to taxes involving the Transferred Assets and each shall execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this Section 5.1.



     Section 5.2 Allocation of Taxes. All taxes of any kind (including, without
limitation, personal property taxes and similar ad valorem obligations and business taxes, but —
for the avoidance of doubt — excluding income tax or tax on capital gains upon the sale of the
Transferred Assets) levied with respect to the Transferred Assets or the Business for a taxable
period that includes (but does not end on) the Closing Date shall be apportioned prorata temporis
between the Seller and the Buyer as of the Closing Date based on the number of days of such taxable
period included in the Pre-Closing Tax Period and the number of days of such taxable period
included in the Post-Closing Tax Period. The Seller shall be liable for the proportionate amount
of such taxes that is attributable to the Pre-Closing Tax Period, and the Buyer shall be liable for
the proportionate amount of such taxes that is attributable to the Post-Closing Tax Period. Within
a reasonable period after the Closing, the Seller and the Buyer shall present a statement to the
other setting forth the amount of reimbursement to which each is entitled under this Section 5.2,
together with such supporting evidence as is reasonably necessary to calculate the proration
amount. The proration amount shall be paid by the party owing it to the other within ten (10) days
after delivery of such statement. From time to time after the



18









 




Closing, as may be necessary, the Seller shall notify the Buyer upon receipt of any bill for
tax relating to the Transferred Assets or the Business (such as personal property taxes and
business taxes), part or all of which are attributable to the Post-Closing Tax Period, and shall
promptly deliver such bill to the Buyer who shall pay the same to the appropriate taxing authority,
provided that if such bill covers any part of the Pre-Closing Tax Period, the Seller shall also
remit prior to the due date of assessment to the Buyer payment for the proportionate amount of such
bill that is attributable to the Pre-Closing Tax Period. In the event that either the Seller or
the Buyer shall thereafter make a payment for which it is entitled to reimbursement under this
Section 5.2, the other party shall make such reimbursement promptly, but in no event later than
thirty (30) days after the presentation of a statement setting forth the amount of reimbursement to
which the presenting party is entitled along with such supporting evidence as is reasonably
necessary to calculate the amount of reimbursement. Any payment required under this Section 5.2
and not made when due shall bear interest at the rate of seven and one-half percent (7.5%) per
annum.




     Section 5.3 Sales and Use Taxes. If any sales, use and any other similar transfer
taxes or any registration, stamp or other duties arise out of or become due as the result of the
transfer of the Transferred Assets (“Sales Tax”), such taxes and duties shall be determined
at Closing based on the Purchase Price allocation described in Section 1.7 and shall be paid by the
Buyer. To the extent permitted by applicable law, the Buyer and the Seller shall cooperate fully
in minimizing the Sales Tax. To the extent a taxing authority provides notice to the Seller of an
audit of the Sales Tax, the Seller shall promptly notify the Buyer and the Buyer shall assume
responsibility for such audit and shall pay when due any additional Sales Tax ultimately assessed
with respect to the transactions contemplated by this Agreement. The Buyer shall have complete
authority to control, settle or defend any proposed adjustment to the Sales Tax subject to the
Seller’s approval, which shall not be unreasonably withheld, and the Seller shall cooperate fully
with the Buyer in its defense or settlement of any proposed adjustment to the Sales Tax. Buyer
hereby agrees to indemnify, defend, and hold Seller and its Affiliates harmless for any claims,
losses, costs, fines, assessments, fees, liabilities, damages or injuries suffered by Seller or its
Affiliates relating to the Sales Taxes or arising out of any failure by Buyer to pay the Sales
Taxes.



     Section 5.4 Other Taxes. Taxes attributable to the Transferred Assets, other than
those treated specifically in Sections 5.2 and 5.3, shall be borne by the party incurring such
taxes (other than solely by reason of successor liability or similar provisions of law) under
applicable law, and each party shall indemnify, defend and hold the other party harmless from and
against all taxes for which such party is liable pursuant to this Section 5.4. The Buyer shall
prepare and file (or cause to be prepared and filed) on a timely basis all tax returns and other
filings for all taxable periods beginning after the Closing Date, shall pay all taxes shown to be
due on such returns and other filings, and shall indemnify and hold the Seller harmless against,
from and respect of all taxes (i) for any taxable year or period commencing after the Closing Date,
and (ii) for any taxable period beginning before and ending after the Closing Date, other than
taxes attributable to the Pre-Closing Tax Period. The provisions of Section 5.2 regarding payment,
verification, and interest shall apply to the taxes that are subject to this Section 5.4.



     The Seller will be entitled to invoice to the Buyer any French VAT due to the French Treasury
as a result of the sale of the French properties in accordance with articles 210 Schedule



19









 




II of the French tax code. More generally, the Seller will be entitled to claim to the Buyer
any VAT due as a result of the sale of the Business.




     The Seller and the Buyer agree that the sale, purchase and transfer of the German Transferred
Assets qualifies as a transfer of a going concern (Geschäftsveräußerung im Ganzen). The Buyer
guarantees by way of an independent, no-fault promise of guarantee pursuant to Section 311 para. 1
of the German Civil Code to the Seller that all legal requirements for the transfer of a going
concern as laid down in the German Value Added Tax Act (“German VATA”, Umsatzsteuergesetz)
are met. In this regard, the Buyer explicitly guarantees to the Seller to continue to conduct the
Business with the German Transferred Assets.



     If a later tax audit (Betriebsprüfung) turns out that the sale, purchase and transfer of the
German Transferred Asset cannot be qualified as a transfer of a going concern, the Buyer shall pay
to SCM Microsystems GmbH, in exchange for an invoice described in Section 5.5, an amount equal to
the German VAT and interest hereon payable, if any, on the aggregate of the Purchase Price and the
value of the German Assumed Liabilities pursuant to Section 1.3 as far as the Purchase Price and
the value of the German Assumed Liabilities pursuant to Section 1.3 are attributable to the German
Transferred Assets, except for German VAT which is payable by the Buyer directly to the German tax
authorities according to Section 13b German VATA (reverse charge). This additional amount will be
due ten (10) days after receipt of the tax assessment following the tax audit.



     If the sale, purchase and transfer of the Singapore Transferred Assets qualifies as a transfer
of a business of a going concern for the purposes of Section 34A(1) of the Singapore Goods and
Services Tax Act (Chapter 117A) (“GST Act”), neither the Buyer nor the Seller shall not be
liable for the payment of tax under the GST Act for the transfer of the Singapore Transferred
Assets. However, if such sale, purchase and transfer of the Singapore Transferred Assets is
subject to payment of goods and services tax under the GST Act, the parties agree that such tax
shall be borne solely by the Buyer.



     Section 5.5 Tax Certificates. As soon as reasonably practicable, the Seller will
provide Buyer with appropriate invoices for VAT purposes on the inventory to be acquired by the
Buyer from the Seller under this Agreement.



ARTICLE VI

CONDITIONS TO CLOSING




     Section 6.1 General Conditions. The respective obligations of the Buyer and the
Seller to consummate the transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions, any of which may, to
the extent permitted by applicable law, be waived in writing by either party in its sole discretion
(provided that such waiver shall only be effective as to the obligations of the waiving party):



          (a) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any
law (whether temporary, preliminary or permanent), including, without limitation, any law that may
be administered by the U.S. Department of Treasury’s Office of Foreign Assets Controls (OFAC), that
is then in effect and that enjoins, restrains, makes illegal




20









 




or otherwise prohibits the consummation of the transactions contemplated by this Agreement or
the Ancillary Agreements.




          (b) Any waiting period (and any extension thereof) under any antitrust or merger control law
applicable to the transactions contemplated by this Agreement and the Ancillary Agreements shall
have expired or shall have been terminated. All consents of, or registrations, declarations or
filings with, any Governmental Authority legally required for the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements shall have been obtained or filed.




     Section 6.2 Conditions to Obligations of the Seller. The obligations of the Seller to
consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at
or prior to the Closing, of each of the following conditions, any of which may be waived in writing
by the Seller in its sole discretion:



          (a) The representations and warranties of the Buyer contained in this Agreement or any
Ancillary Agreement or any certificate delivered pursuant hereto shall be true and correct both
when made and as of the Closing Date, or in the case of representations and warranties that are
made as of a specified date, such representations and warranties shall be true and correct as of
such specified date, except where the failure to be so true and correct (without giving effect to
any limitation or qualification as to “materiality” (including, without limitation, the word
“material”) or “Material Adverse Effect” set forth therein) would not, individually or in the
aggregate, have a Buyer Material Adverse Effect. The Buyer shall have performed all obligations
and agreements and complied in all material respects with all covenants and conditions required by
this Agreement or any Ancillary Agreement to be performed or complied with by it prior to or at the
Closing. The Seller shall have received from the Buyer a certificate to the effect set forth in
the preceding sentences, signed by a duly authorized officer thereof.




          (b) The Seller shall have received an executed counterpart of each of the Ancillary
Agreements, signed by each party other than the Seller and its Subsidiaries.




          (c) Buyer shall have delivered each of the documents set forth in Section 1.8(c) to Seller.




     Section 6.3 Conditions to Obligations of the Buyer. The obligations of the Buyer to
consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at
or prior to the Closing, of each of the following conditions, any of which may be waived in writing
by the Buyer in its sole discretion:



          (a) The representations and warranties of the Seller contained in this Agreement or any
Ancillary Agreement or any certificate delivered pursuant hereto shall be true and correct both
when made and as of the Closing Date, or in the case of representations and warranties that are
made as of a specified date, such representations and warranties shall be true and correct as of
such specified date, except where the failure to be so true and correct (without giving effect to
any limitation or qualification as to “materiality” (including, without limitation, the word
“material”) or “Material Adverse Effect” set forth therein) would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Seller shall have




21









 




performed all obligations and agreements and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied with by it prior to
or at the Closing. The Buyer shall have received from the Seller a certificate to the effect set
forth in the preceding sentences, signed by a duly authorized officer thereof.




          (b) The Buyer shall have received an executed counterpart of each of the Ancillary Agreements
and the Schneider Agreement, signed by each party other than the Buyer and its Affiliates.




          (c) Seller shall have or shall have caused to be delivered each of the documents set forth in
Section 1.8(b) to Buyer.




          (d) The third party consents listed on Schedule 1.5 shall have been obtained.




          (e) The applicable one-month period during which any Excluded GBE shall be entitled to object
to his/her transfer as provided in Schedule 1.9 shall have lapsed, provided that the Buyer shall
have shall have complied with Section 4.14 hereof.




          (f) Except as set forth on Schedule 2.4, no Material Adverse Effect shall have occurred
between the date hereof and the Closing Date.




          (g) The following documents relating to the Real Property shall have been provided to the
Buyer, subject to the Buyer or its agents making an advance of at least 300 Euros to the Seller’s
real property notary on or prior to the date of this Agreement:





	 	•	 	Construction plans relating to the 1987 building permit;
	 
	 	•	 	Zoning documents relating to “ZAC” where the Real Property is located;
	 
	 	•	 	Easement plans;
	 
	 	•	 	Insurance certificate acknowledging the absence of any material claims
since the acquisition of the Real Property by the Seller;
	 
	 	•	 	Urbanism certificate (note d’urbanisme);
	 
	 	•	 	Certificate that the air conditioning system is not affected by legionella;
	 
	 	•	 	A copy of the request relating to the regularization of the building
permit filed with the town hall in accordance with Section 4.6.





ARTICLE VII

TERMINATION




     Section 7.1 Termination. This Agreement may be terminated at any time prior to the
Closing:



          (a) by mutual written consent of the Buyer and the Seller;




          (b) (i) by the Seller, if the Buyer breaches or fails to perform in any respect any of its
representations, warranties or covenants contained in this Agreement or any Ancillary Agreement and
such breach or failure to perform (A) would give rise to the failure of a condition




22









 




 set forth in
Section 6.2, (B) cannot be or has not been cured within 15 days following delivery of written
notice of such breach or failure to perform, and (C) has not been waived by the Seller or (ii) by
the Buyer, if the Seller breaches or fails to perform in any respect any of its representations,
warranties or covenants contained in this Agreement or any Ancillary Agreement and such breach or
failure to perform (x) would give rise to the failure of a condition set forth in Section 6.3, (y)
cannot be or has not been cured within 15 days following delivery of written notice of such breach
or failure to perform, and (z) has not been waived by the Buyer; or




          (c) by either the Seller or the Buyer if the Closing shall not have occurred by the date 120
days after the date hereof (the “Termination Date”); provided, that the right to
terminate this Agreement under this Section 7.1(d) shall not be available if the failure of the
party so requesting termination to fulfill any obligation under this Agreement shall have been the
cause of the failure of the Closing to occur on or prior to such date.



The party seeking to terminate this Agreement pursuant to this Section 7.1 (other than Section
7.1(a)) shall give prompt written notice of such termination to the other party.




     Section 7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability
on the part of either party, except that (a) the obligations set forth in, Sections 2.15 and 3.5
relating to broker’s fees and finder’s fees, Section 4.5 relating to confidentiality, Section 4.11
relating to public announcements, Article VIII and this Section 7.2 shall survive any termination
of this Agreement and the parties shall continue to have liability thereunder and (b) nothing
herein shall relieve either party from liability for any breach of this Agreement or any agreement
made as of the date hereof or subsequent thereto pursuant to this Agreement.



ARTICLE VIII

GENERAL PROVISIONS




     Section 8.1 Non-survival of Representations, Warranties and Covenants. The
respective representations, warranties and covenants of the Seller and the Buyer contained in this
Agreement and any certificate delivered pursuant hereto shall terminate at, and not survive, the
Closing; provided that this Section shall not limit any covenant or agreement of the
parties that by its terms requires performance after the Closing, including, but not limited to,
Sections 1.3, 1.4, 1.5, 1.6, 1.7 and 1.9, Sections 2.15 and 3.5 relating to broker’s fees and
finder’s fees, Section 4.2(b) relating to the retention of records, Section 4.5 relating to
confidentiality, Section 4.6 relating to consents and filings and further assurances, Section 4.7
relating to guarantees, Section 4.8 relating to corporate name, Section 4.9 relating to refunds,
Section 4.10 relating to joint and several liability, Section 4.11 relating to public
announcements, Article V relating to taxes, this Article VIII, and Section 7.2 regarding the effect
of termination.



     Section 8.2 Fees and Expenses. Except as otherwise provided herein, all fees and
expenses incurred in connection with or related to this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and thereby shall be paid by the party incurring such
fees or expenses, whether or not such transactions are consummated.



23









 








     Section 8.3 Amendment and Modification. 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 signed on behalf of each party and otherwise as expressly set forth herein.



     Section 8.4 Waiver. No failure or delay of either 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. The rights and remedies of the parties hereunder are cumulative and are not
exclusive of any rights or remedies which they would otherwise have hereunder. Any agreement on
the part of either party to any such waiver shall be valid only if set forth in a written
instrument executed and delivered by a duly authorized officer on behalf of such party.



     Section 8.5 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 electronic confirmation of delivery by facsimile, (b) on the first Business Day
following the date of dispatch if delivered utilizing a next-day service by a recognized next-day
courier 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.
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:



          (a) if to the Seller, to:



SCM Microsystems, Inc.



466 Kato Terrace



Fremont California 94539



Attention: Steven Moore



Facsimile: +49-89-9595-59-5506




          with a copy (which shall not constitute notice) to:



Gibson, Dunn & Crutcher LLP



1881 Page Mill Road



Palo Alto, California 94304



Attention: Joseph Barbeau



Facsimile: (650) 849-5333




          (b) if to the Buyer, to:



Adrienne Corboud



Executive Vice President Business Development, Kudelski Group



Route de Geneve 22



CH — 1033 Cheseaux



Phone + 41 21 732 01 20



Fax + 41 21 732 03 00



E-mail: adrienne.corboud@nagra.com




24









 







          with a copy (which shall not constitute notice) to:



Christine Bougis-Stentz



Member of the Paris and New York Bars, Partner



Correspondent DLA Piper Rudnick Gray Cary US LLP



12 rue de la Paix



75002 Paris, France



Tel: +33 (0)1 40 15 24 00



Fax: +33 (0)1 40 15 24 03



Email: christine.bougisstentz@dlapiper.com




     Section 8.6 Interpretation. When a reference is made in this Agreement to a
paragraph, section, article or exhibit, such reference shall be to a paragraph, section, article or
exhibit of this Agreement unless otherwise indicated. This Agreement has been negotiated and
written in the English language and the English text hereof shall be the controlling text in the
event of any discrepancy that may exist between the English text and any translation therefrom.
The parties agree that this Agreement shall be interpreted according to its plain meaning and not
strictly for or against any party. No party to this Agreement has relied upon the advice of any
other party or that party’s agents as to the legal, tax or other consequences of this Agreement.
Each of the Buyer and the Seller acknowledges that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of
any claimed ambiguities in this Agreement against the drafting party has no application and is
expressly waived.



     Section 8.7 Entire Agreement. This Agreement (including the exhibits and schedules
hereto), the Ancillary Agreements and the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter of this Agreement and supersede all prior
written agreements, arrangements, communications and understandings.



     Section 8.8 No Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit
or remedy of any nature under or by reason of this Agreement, except with respect to the Business
Employees and the Excluded GBEs to the extent expressly set forth in Section 1.9 or Schedule 1.9.
For the avoidance of any doubt, the stockholders of Seller are not third party beneficiaries under
this Agreement and shall have no right to rely on the representations and warranties contained
herein as characterizations of the actual state of facts or condition of the Seller or any of its
Subsidiaries.



     Section 8.9 Governing Law. This Agreement and all disputes or controversies arising
out of or relating to this Agreement or the transactions contemplated hereby shall be governed
exclusively by, and construed in accordance with, the internal laws of the State of Delaware,
without regard to the laws of any other jurisdiction. The conflicts of laws principles of the State
of Delaware and the United Nations Convention on Contracts for the International Sale of Goods
(CISG) are expressly excluded.



     Section 8.10 Submission to Arbitration. The Parties hereby irrevocably consent and
agree that any dispute arising in connection with this Agreement shall be finally settled under the



25









 




Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in
accordance with said Rules. The place of arbitration shall be Paris, France and the language of
the arbitral proceedings shall be English.




     Section 8.11 Disclosure Generally. The fact that any item of information is disclosed
in any Disclosure Schedule shall not be construed to mean that such information is required to be
disclosed by this Agreement. Any item of information disclosed in any Disclosure Schedule and the
dollar thresholds set forth herein shall not be used as a basis for interpreting the terms
“material” or “Material Adverse Effect” or other similar terms in this Agreement.



     Section 8.12 Personal Liability. This Agreement shall not create or be deemed to
create or permit any personal liability or obligation on the part of any direct or indirect
stockholder of the Seller or the Buyer or any officer, director, employee, representative or
investor of either party hereto.



     Section 8.13 Assignment; Successors. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by
operation of law or otherwise, by either party without the prior written consent of the other
party, and any such assignment without such prior written consent shall be null and void. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.



     Section 8.14 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, but if any provision or portion of any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed
and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion
of any provision had never been contained herein.



     Section 8.15 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.



     Section 8.16 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.



     Section 8.17 No Consequential Damages. The parties hereto expressly acknowledge and
agree that, except with respect to a breach of Section 4.5 or 4.8 hereof, no party hereto shall
have any liability under any provision of this Agreement for any punitive, incidental,
consequential, special or indirect damages, including, without limitation, business interruption,



26









 




loss of future revenue, profits or income, or loss of business reputation or opportunity relating
to the breach or alleged breach of this Agreement.




     Section 8.18 Disclaimer of Implied Warranties.



          (a) Except for the representations and warranties expressly set forth in this Agreement, (i)
neither party nor any of such party’s Subsidiaries, Affiliates or representatives is making any
representation or warranty whatsoever, whether oral or written or express or implied, as to the
accuracy or completeness of any information regarding the Business, the Transferred Assets or the
Assumed Liabilities, and (ii) neither party is relying on any statement, representation or
warranty, whether oral or written or express or implied, made by the other party or any of such
party’s Subsidiaries, Affiliates or representatives. Without limiting the generality of the
foregoing, the Buyer acknowledges and agrees that, except as expressly otherwise stated in this
Agreement, neither the Seller nor any of its Subsidiaries, Affiliates or representatives makes any
representations or warranties relating to the maintenance, repair, condition, design, performance
or marketability of any Transferred Asset, including, without limitation, merchantability or
fitness for a particular purpose. The Buyer acknowledges and agrees that it shall obtain rights in
the Transferred Assets in their present condition and state of repair, “as is” and “where is.”




          (b) In connection with the Buyer’s investigation of the Business, the Buyer has received
certain estimates, projections and other forecasts regarding the Business and the Transferred
Assets. The Buyer acknowledges that there are uncertainties inherent in attempting to make such
estimates, projections and other forecasts, that the Buyer is familiar with such uncertainties and
that the Buyer is taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections and other forecasts so furnished to it (including, without
limitation, the reasonableness of the assumptions underlying such estimates, projections and
forecasts). Accordingly, the Seller makes no representation or warranty with respect to such
estimates, projections and other forecasts (including, without limitation, the reasonableness of
the assumptions underlying such estimates, projections and forecasts).




ARTICLE IX

DEFINITIONS




     Section 9.1 Certain Defined Terms. For purposes of this Agreement:



          (a) “Affiliate”, with respect to any specified Person, means any other Person that
directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified Person, including, but not limited to, affiliates within the
meaning of Sec. 15 et seq. of the German Stock Corporation Act (AktG).




          (b) “Ancillary Agreements” means the Assumption Agreement, the License Agreement, the
French Assets Purchase Agreement, the French Real Property Purchase Agreement, the German Transfer
and Assumption Agreement, the IP Transfer Agreements and the Singapore Transfer and Assumption
Agreement.




          (c) “Assumption Agreement” means an instrument of bill of sale and assignment and
assumption substantially in the form attached hereto as Exhibit B and reasonably




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satisfactory to the Buyer and the Seller pursuant to which (i) the Seller and its Subsidiaries
shall transfer to the Buyer the tangible property owned or held by the Seller or any of its
Subsidiaries as of the Closing Date that is included in the Transferred Assets and not otherwise
transferred pursuant to the French Assets Purchase Agreements, the French Real Property Purchase
Agreement, the German Transfer and Assumption Agreement or the Singapore Transfer and Assumption
Agreement, and (ii) the Seller and its Subsidiaries shall assign to the Buyer and the Buyer shall
assume the liabilities of the Seller or any of its Subsidiaries as of the Closing Date that are
included in the Assumed Liabilities and not otherwise assigned and assumed pursuant to the French
Assets Purchase Agreement, the French Real Property Purchase Agreement, the German Transfer and
Assumption Agreement or the Singapore Transfer and Assumption Agreement.




          (d) “control”, including the terms “controlled by” and “under common
control with”, means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the ownership of voting
securities, as trustee or executor, as general partner or managing member, by contract or
otherwise.




          (e) “French Assets Purchase Agreement” means an agreement in French qualifying as a
convention de successeur substantially in the form of the agreement attached hereto as Exhibit
C, pursuant to which (i) the Seller and/or SCM Microsystems GmbH shall transfer to the Buyer
the French Transferred Assets and (ii) the Buyer shall assume all of the French Assumed
Liabilities.




          (f) “French Assumed Liabilities” means all of the Assumed Liabilities relating to
French Transferred Assets or that are otherwise assumed and to be paid, discharged, performed or
otherwise satisfied when due by the Buyer pursuant to this Agreement and the French Assets Purchase
Agreement.




          (g) “French Real Property Purchase Agreement” means a notarized agreement in French
(acte de vente) substantially in the form of the agreement attached hereto as Exhibit D,
pursuant to which the Buyer shall purchase from the Seller or SCM Microsystems GmbH the Real
Property.




          (h) “French Transferred Assets” means all of the Transferred Assets that are located
in France or that are attached to the operation of the Business in France.




          (i) “German Assumed Liabilities” means all the of Assumed Liabilities relating to
German Transferred Assets or that are otherwise assumed and to be paid, discharged, performed or
otherwise satisfied when due by the Buyer pursuant to this Agreement and the German Transfer and
Assumption Agreement.




          (j) “German Transfer and Assumption Agreement” means the agreement substantially in
the form of the agreement attached hereto as Exhibit E, pursuant to which (i) the Seller
and/or SCM Microsystems GmbH shall transfer to the Buyer the German Transferred Assets and (ii) the
Buyer shall assume the German Assumed Liabilities.




          (k) “German Transferred Assets” means all of the Transferred Assets that are located
in Germany or that are attached to the operation of the Business in Germany.




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          (l) “IP Transfer Agreements” means the local patent, trademark and copyrights transfer
agreements substantially in the form of the agreements attached hereto as Exhibit F and
such other forms and agreements as may be reasonably required for the Seller and its Subsidiaries
to assign and transfer to the Buyer the Business Intellectual Property.




          (m) “Knowledge” means the actual (but not constructive or imputed) knowledge of the
persons listed in Schedule 9.1(m) as of the date of this Agreement (or, with respect to a
certificate delivered pursuant to this Agreement, as of the date of delivery of such certificate).




          (n) “License Agreement” means that certain License Agreement substantially in the form
of the agreement attached hereto as Exhibit G pursuant to which Seller grants to Buyer a
royalty free and fully paid, sublicenseable, perpetual and irrevocable nonexclusive license to use
the Licensed Intellectual Property in the Business.




          (o) “Material Adverse Effect” means any event, change, circumstance, effect or state
of facts that is materially adverse to the Business or results of operations of the Business,
taken as a whole; provided, however, that “Material Adverse Effect” shall not
include the effect of any circumstance, change, development, event or state of facts arising out of
or attributable to any of the following, either alone or in combination: (1) the markets in which
the Business operates generally, (2) general economic or political conditions, (3) the public
announcement of this Agreement or of the consummation of the transactions contemplated hereby, (4)
acts of war (whether or not declared), sabotage or terrorism, military actions or the escalation
thereof or other force majeure events occurring after the date hereof or (5) any changes in
applicable laws, regulations or accounting rules.




          (p) “Permitted Encumbrance” means (a) statutory liens for current taxes not yet due or
delinquent (or which may be paid without interest or penalties) or the validity or amount of which
is being contested in good faith by appropriate proceedings, (b) mechanics’,
carriers’, workers’, repairers’, landlords’ and other similar liens arising or incurred in the
ordinary course of business relating to obligations as to which there is no default on the part of
the Seller or any of its Subsidiaries for a period greater than 60 days, or the validity or amount
of which is being contested in good faith by appropriate proceedings, or pledges, deposits or other
liens securing the performance of bids, trade contracts, leases or statutory obligations
(including, without limitation, workers’ compensation, unemployment insurance or other social
security legislation), (c) zoning, entitlement, conservation restriction and other land use and
environmental regulations by Governmental Authorities and (d) all exceptions, restrictions,
easements, leases, imperfections of title, retention of title, charges, rights-of-way and other
charges, claims, mortgages, leases, liens, options, pledges or security interests or other
restrictions of any kind that do not materially interfere with the present use of the Transferred
Assets in the Business taken as a whole in each relevant jurisdiction.




          (q) “Person” means an individual, corporation, partnership, limited liability company,
limited liability partnership, syndicate, person, trust, association, organization or other entity,
including, without limitation, any Governmental Authority, and including any successor, by merger
or otherwise, of any of the foregoing.




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          (r) “Post-Closing Tax Period” means any tax period (or portion thereof) beginning on
or after the Closing Date and ending after the Closing Date.




          (s) “Pre-Closing Tax Period” means any tax period (or portion thereof) ending on or
before the close of business on the day prior to the Closing Date.




          (t) “Singapore Transfer and Assumption Agreement” means the agreement substantially in
the form of the agreement attached hereto as Exhibit H, pursuant to which (i) the Seller
and/or SCM (Asia) Microsystems PTE Ltd shall transfer to the Buyer the Transferred Assets that are
located in Singapore or that are attached to the operation of the Business in Singapore and (ii)
the Buyer shall assume all of the Assumed Liabilities relating to such Transferred Assets or that
are otherwise assumed and to be paid, discharged, performed or otherwise satisfied when due by the
Buyer pursuant to this Agreement and the Singapore Transfer and Assumption Agreement, it being
agreed, however, that, for the purposes of the Singapore Transfer and Assumption Agreement, the
Buyer may be two Subsidiaries of Kudelski, which will each acquire a portion of such Transferred
Assets and assume a portion of the aforementioned Assumed Liabilities.




          (u) “Subsidiary” of any Person means any other Person of which at least 50% of the
outstanding voting securities or other voting equity interests are owned, directly or indirectly,
by such first Person.




[The remainder of this page is intentionally left blank.]




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     IN WITNESS WHEREOF, the Seller and the Buyer have caused this Agreement to be executed as of
the date first written above by their respective officers thereunto duly authorized.



	 	 	 	 	 
	 	SCM MICROSYSTEMS, INC.

 	 
	 	By:  	/s/ Robert Schneider 	 
	 	 	Name:  	Robert Schneider 	 
	 	 	Title:  	Chief Executive Officer 	 
	 



	 	 	 	 	 
	 	KUDELSKI S.A.

 	 
	 	By:  	/s/ Jean-Jacques Duvoisin 	 
	 	 	Name:  	Jean-Jacques Duvoisin 	 
	 	 	Title:  	VP Finance and Administrative 	 
	 


	 	 	 	 	 
	 	By:  	/s/ Nicolas Goepfschmann 	 
	 	 	Name:  	Nicolas Goepfschmann 	 
	 	 	Title:  	Corporate Secretary,
Director of Group Administration 	 
	 




SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT