10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 – Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM_____________TO_______________

COMMISSION FILE NUMBER: 0-22689

SCM MICROSYSTEMS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) 77-0444317
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

466 Kato Terrace, Fremont, CA 94539
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(510) 360- 2300
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ]    No

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]   No [  ]

At August 7, 2003, 15,160,877 shares of common stock were outstanding.

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TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
	SCM MICROSYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
	Item 3. Quantitative and Qualitative Disclosure about Market Risk Foreign Currencies
	Item 4. Controls and Procedures
PART II: OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.2
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2003			2002			2003			2002
Net revenue			$	19,331		$	23,709		$	38,053		$	47,611
Cost of revenue				12,555			13,875			23,121			27,940
Gross profit				6,776			9,834			14,932			19,671
Operating expenses:
Research and development				2,491			2,145			4,929			4,116
Selling and marketing				2,917			2,532			5,824			4,703
General and administrative				3,171			2,724			5,893			5,662
Amortization of intangible assets				281			149			554			253
Restructuring and infrequent charges				2,098			1,408			2,426			1,963
		Total operating expenses		10,958			8,958			19,626			16,697
Income (loss) from operations				(4,182	)		876			(4,694	)		2,974
Loss on investments				(460	)		—			(460	)		—
Interest and other income (expense), net				(277	)		(628	)		445			(513	)
Income (loss) from continuing operations before income taxes				(4,919	)		248			(4,709	)		2,461
Benefit (provision) for income taxes				(115	)		99			(221	)		169
Net income (loss) from continuing operations				(5,034	)		347			(4,930	)		2,630
Loss from discontinued operations, net of income taxes				(5,311	)		(61	)		(9,140	)		(2,231	)
Loss on sale of discontinued operations				(5,889	)		—			(5,889	)		—
Net income (loss)			$	(16,234	)	$	286		$	(19,959	)	$	399
Net income (loss) per share from continuing operations:
	Basic		$	(0.33	)	$	0.02		$	(0.32	)	$	0.17
	Diluted		$	(0.33	)	$	0.02		$	(0.32	)	$	0.16
Loss per share from discontinued operations:
	Basic and diluted		$	(0.73	)	$	(0.00	)	$	(0.97	)	$	(0.14	)
Net income (loss) per share:
	Basic		$	(1.06	)	$	0.02		$	(1.29	)	$	0.03
	Diluted		$	(1.06	)	$	0.02		$	(1.29	)	$	0.02
Shares used to compute basic net income (loss) per share				15,293			15,592			15,421			15,567
Shares used to compute diluted net income (loss) per share				15,293			16,096			15,421			16,154
Comprehensive income (loss):
Net income (loss)			$	(16,234	)	$	286		$	(19,959	)	$	399
Unrealized gain (loss) on investments, net of deferred taxes				(85	)		(427	)		49			(403	)
Foreign currency translation adjustment				793			2,867			123			3,070
		Total comprehensive income (loss)	$	(15,526	)	$	2,726		$	(19,787	)	$	3,066

See notes to condensed consolidated financial statements.

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SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)

			June 30,			December 31,
			2003			2002
ASSETS
Current assets:
	Cash and cash equivalents		$	42,938		$	50,133
	Short-term investments			5,684			5,384
	Accounts receivable, net of allowances of $5,016 and $5,327 as of June 30, 2003 and December 31, 2002, respectively			13,154			31,254
	Inventories			8,400			39,114
	Other current assets			4,310			6,629
	Assets of discontinued operations held for sale			25,995			—
		Total current assets		100,481			132,514
Property and equipment, net				8,768			9,124
Intangible assets, net				3,448			4,317
Other assets				5,823			2,662
Total assets			$	118,520		$	148,617
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	10,991		$	21,470
	Accrued compensation and related benefits			3,963			3,206
	Accrued royalties			2,886			2,107
	Accrued restructuring and infrequent charges			9,519			8,175
	Accrued sales and marketing promotions			3,465			3,163
	Other accrued expenses			6,413			7,882
	Income taxes payable			2,697			2,514
		Total current liabilities		39,934			48,517
Stockholders’ equity:
	Common stock, $0.001 par value: 40,000 shares authorized; 15,161 and 15,582 shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively			16			16
	Additional paid-in capital			225,756			225,608
	Treasury stock			(2,778	)		(674	)
	Deferred stock compensation			(188	)		(417	)
	Accumulated deficit			(143,441	)		(123,482	)
	Other cumulative comprehensive loss			(779	)		(951	)
		Total stockholders’ equity		78,586			100,100
Total liabilities and stockholders’ equity			$	118,520		$	148,617

See notes to condensed consolidated financial statements.

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SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

					Six Months
					Ended June 30,
					2003			2002
Cash flows from operating activities:
	Net income (loss)				$	(19,959	)	$	399
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Loss from discontinued operations				15,029			2,231
		Deferred income taxes							56
		Depreciation and amortization				1,889			987
		Loss on investments				460			—
		Loss on disposal of fixed assets				40			13
		Amortization of deferred stock compensation				—			—
		Changes in operating assets and liabilities:
			Accounts receivable			4,088			2,091
			Inventories			5,969			(6,008	)
			Other assets			(3	)		896
			Accounts payable			(2,527	)		560
			Accrued expenses			(1,630	)		447
			Income taxes payable			(362	)		(410	)
				Net cash provided by operating activities from continuing operations		2,994			1,262
				Net cash provided by (used in) operating activities from discontinued operations		(5,896	)		1,790
				Net cash provided by (used in) operating activities		(2,902	)		3,052
Cash flows from investing activities:
	Capital expenditures					(967	)		(104	)
	Proceeds from disposal of fixed assets					4			—
	Purchase of long-term investments					(432	)		—
	Business acquired, net of cash received					—			(4,096	)
	Maturities of short-term investments					960			491
	Purchases of short-term investments					(1,262	)		(4,322	)
				Net cash used in investing activities from continuing operations		(1,697	)		(8,031	)
				Net cash used in investing activities from discontinued operations		(236	)		(231	)
				Net cash used in investing activities		(1,933	)		(8,262	)
Cash flows from financing activities:
	Proceeds from issuance of equity securities, net					267			929
	Repurchase of common stock					(2,104	)		—
				Net cash provided by (used in) financing activities		(1,837	)		929
Effect of exchange rates on cash and cash equivalents						(523	)		1,248
Net decrease in cash and cash equivalents						(7,195	)		(3,033	)
Cash and cash equivalents at beginning of period						50,133			59,421
Cash and cash equivalents at end of period					$	42,938		$	56,388
Supplemental disclosures of cash flow information — cash paid for:
	Income taxes				$	51		$	369
	Interest				$	5		$	11

See notes to condensed consolidated financial statements.

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SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003

1. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in SCM Microsystems’ (“SCM” or “the Company”) December 31, 2002 Annual Report on Form 10-K.

2. DISCONTINUED OPERATIONS

     In conjunction with a strategy to focus on its core Security business, in the second quarter of 2003, the Company’s Board of Directors authorized two transactions to sell SCM’s consumer Digital Media and Video business. On July 25, 2003, the Company completed the sale of selected assets of its digital video business, including all product rights, inventory, intellectual property, trade names and other rights, to Pinnacle Systems, Inc. (“Pinnacle”). In return, Pinnacle issued to SCM 1,866,851 shares of Pinnacle common stock valued at $21.5 million. The purchase price is subject to post-closing cash adjustments relating to inventory, backlog, receivables and prorated royalty fees. Under the agreement, Pinnacle will register the shares with the Securities and Exchange Commission (“SEC”) and SCM will sell them over a period of several months. If the value received from the sale of the Pinnacle shares is less than $21.5 million, excluding the cash adjustments for inventory, backlog, receivables and prorated royalty fees, Pinnacle will compensate SCM in cash to reach the $21.5 million level. Should the sale of Pinnacle stock yield more than $21.5 million, excluding the cash adjustments for inventory, backlog, receivables and prorated royalty fees, SCM will compensate Pinnacle for the excess value received. On August 1, 2003, the Company completed the sale of its consumer digital media reader business to Zio Corporation, which will purchase and distribute existing inventories of digital media readers and also will assume certain liabilities and supply arrangements for the planned disposition of reader inventory.

     As a result, the Company accounted for the consumer Digital Media and Video business as a discontinued operation in the second quarter of fiscal 2003, and statements of operations for all periods presented have been restated to reflect the discontinuance of this business. Accordingly, as of June 30, 2003, SCM operates in one principal segment: Security. For comparability, certain 2002 amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in 2003, including the adjustments necessary to conform to the discontinued operations presentation of the consumer Digital Media and Video business during 2002. In accordance with Statement of Financial Accounting Standards (‘SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the assets for the consumer Digital Media and Video business are considered a “disposal group” and are no longer being depreciated.

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     The operating results for the discontinued operations of the consumer Digital Media and Video business for the three and six months ended June 30, 2003 and 2002, are as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net revenue	$	9,430		$	21,260		$	21,733		$	40,787
Operating loss	$	(5,728	)	$	(873	)	$	(9,924	)	$	(2,894	)
Net loss before income taxes	$	(5,311	)	$	(236	)	$	(9,140	)	$	(2,544	)
Income tax benefit	$	—		$	175		$	—		$	313
Loss from discontinued operations	$	(5,311	)	$	(61	)	$	(9,140	)	$	(2,231	)

3. SHORT-TERM AND STRATEGIC INVESTMENTS

     The Company’s available-for-sale short-term investments are as follows (in thousands):

	June 30, 2003							December 31, 2002
			Unrealized			Estimated				Unrealized			Estimated
	Cost		Gain (Loss)			Value		Cost		Gain (Loss)			Value
Corporate notes	$	4,046	$	21		$	4,067	$	3,769	$	(25	)	$	3,744
U.S. government agencies		520		(1	)		519		520		3			523
Total	$	4,566	$	20		$	4,586	$	4,289	$	(22	)	$	4,267

     Strategic investments consist of corporate equity securities and investments in privately held companies, in which SCM holds less than 20% ownership and does not have the ability to exercise control, are accounted for by the cost method. Corporate securities are included in either short-term investments or long-term investments and stated at fair value based on quoted market price.

     Strategic investments designated as short-term consist of the following (in thousands):

	June 30, 2003		December 31 2002
Investment in SmartDisk, at fair value	$	—	$	121
Investment in ActivCard, at fair value		1,098		996
Total	$	1,098	$	1,117

     During each quarter, the Company evaluates its investments for possible asset impairment by examining a number of factors including the current economic conditions and markets for each investment, as well as their cash position and anticipated cash needs for the short and long term. During 2003 and 2002, because of the continued deterioration of general economic conditions, changes in specific market conditions for each investment and difficulties by SmartDisk and Cryptovision in obtaining additional funding, SCM determined that investments in SmartDisk, Cryptovision and ActivCard were impaired. Accordingly, in 2003 SCM wrote off the investments in SmartDisk and Cryptovision and in 2002 wrote down the investments in SmartDisk and ActivCard to their fair market value as of September 2002.

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4. INVENTORIES

               Inventories consist of (in thousands):

	June 30,		December 31,
	2003		2002
Raw materials	$	4,592	$	16,733
Finished goods		3,808		22,381
	$	8,400	$	39,114

5. GOODWILL AND OTHER INTANGIBLE ASSETS

     SCM adopted SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. As defined by SFAS No. 142, at the beginning of 2002 the Company identified two reporting units which constituted components of SCM’s business that included goodwill. As of January 1, 2002, the fair value of these two reporting units was assessed and compared to the respective carrying amounts. Upon completion of the transitional impairment test, the fair value for each of SCM’s reporting units approximated or exceeded the reporting units carrying amount and no impairment was indicated. In the second quarter of 2003, the Company disposed of one of the two reporting units and now operates in one principal segment only: Security.

     Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company recorded an impairment charge of $15.4 million in the fourth quarter of 2002 related to the goodwill and trade names acquired in past acquisitions in order to adjust goodwill and intangible assets to their estimated fair value as of December 31, 2002. During the second quarter of 2003, the Company wrote off intangible assets of $0.3 million related to the disposition of the consumer Digital Media and Video business.

     The changes in the carrying amount of goodwill for the year ended December 31, 2002 and the six months ended June 30, 2003 are as follows (in thousands):

				Discontinued
	Security			Operations			Total
Balance as of January 1, 2002	$	5,342		$	6,612		$	11,954
Reclassification of assembled workforce in accordance with SFAS No. 142		88			58			146
Goodwill acquired during the period		860			—			860
Impairment loss		(6,290	)		(6,670	)		(12,960	)
Balance as of December 31, 2002		—			—			—
Goodwill acquired during the period		—			—			—
Balance as of June 30, 2003	$	—		$	—		$	—

     Intangible assets consist of the following (in thousands):

		June 30, 2003							December 31, 2002
		Gross							Gross
	Amortization	Carrying		Accumulated					Carrying		Accumulated			Impairment
	Period	Value		Amortization			Net		Value		Amortization			Loss			Net
Core technology	60 months	$	3,673	$	(1,521	)	$	2,152	$	6,764	$	(3,949	)	$	—		$	2,815
Customer relations	60 months		1,662		(435	)		1,227		2,439		(1,033	)		—			1,406
Trade name	Indefinite		—		—			—		4,191		(1,703	)		(2,488	)		—
Non-compete agreements	24 months		153		(84	)		69		858		(762	)		—			96
Total intangible assets		$	5,488	$	(2,040	)	$	3,448	$	14,252	$	(7,447	)	$	(2,488	)	$	4,317

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     Amortization of intangible assets in the first six months of 2003 was $0.6 million compared with $0.3 million for the same period of 2002.

     Estimated future amortization expense is as follows (in thousands):

Fiscal Year	Amount
2003 (remaining 6 months)	$	572
2004		1,096
2005		918
2006		607
2007		255
Total	$	3,448

6.   RESTRUCTURING AND INFREQUENT CHARGES

     In the first six months of 2003 and during 2002, SCM incurred net restructuring and infrequent charges related to continuing Security operations of approximately $2.4 million and $8.5 million, respectively, as well as charges related to discontinued operations of $2.3 million and $3.1 million, respectively.

     Accrued liabilities related to restructuring actions and infrequent activities during the first two quarters of 2003 and during 2002 consist of the following (in thousands):

      Continuing Security Operations:

							Asset
	Legal			Lease			Write						Other
	Settlements			Commitments			Downs			Severance			Costs			Total
Balances as of January 1, 2002	$	—		$	310		$	—		$	307		$	6		$	623
Provision for 2002		25			674			214			575			7,159			8,647
Changes in estimates		(25	)		(38	)		1			(16	)		(30	)		(108	)
		—			636			215			559			7,129			8,539
Payments or write offs in 2002		—			(85	)		(200	)		(618	)		(2,603	)		(3,506	)
Balances as of December 31, 2002		—			861			15			248			4,532			5,656
Provision for Q1 2003		—			—			—			103			235			338
Changes in estimates		—			(9	)		—			—			—			(9	)
Payments or write offs in Q1 2003		—			10			1			(348	)		(141	)		(478	)
Balances as of March 31, 2003		—			862			16			3			4,626			5,507
Provision for Q2 2003		—			284			139			1,381			318			2,122
Changes in estimates		—			(21	)		—			(3	)		—			(24	)
Payments or write offs in Q2 2003		—			(109	)		(110	)		(123	)		(1,456	)		(1,798	)
Balances as of June 30, 2003	$	—		$	1,016		$	45		$	1,258		$	3,488		$	5,807

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       Discontinued Operations:

							Asset
	Legal			Lease			Write									Other
	Settlements			Commitments			Downs			Severance			Costs			Total
Balances as of January 1, 2002	$	578		$	1,205		$	43		$	—		$	267		$	2,093
Provision for 2002		731			1,363			817			383			145			3,439
Changes in estimates		(158	)		(190	)		—									(348	)
		573			1,173			817			383			145			3,091
Payments or write offs in 2002		(817	)		(340	)		(818	)		(284	)		(406	)		(2,665	)
Balances as of December 31, 2002		334			2,038			42			99			6			2,519
Provision for Q1 2003		—			—			18			7			—			25
Changes in estimates		—			(16	)		16			—			—			—
Payments or write offs in Q1 2003		(334	)		(233	)		(34	)		(51	)		—			(652	)
Balances as of March 31, 2003		—			1,789			42			55			6			1,892
Provision for Q2 2003		—			—			102			545			1,673			2,320
Changes in estimates		—			(40	)		6			—			(6	)		(40	)
Payments or write offs in Q2 2003		—			(156	)		(95	)		(195	)		(14	)		(460	)
Balances as of June 30, 2003	$	—		$	1,593		$	55		$	405		$	1,659		$	3,712

     Restructuring costs related to continuing Security operations for the three months ended June 30, 2003 consisted of approximately $1.4 million for severance costs, $0.3 million of lease commitments, and $0.1 million of asset write-downs related to the closure and relocation of certain SCM facilities. These charges were in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, and the Company expects to complete the planned restructuring actions during the next six months and to incur additional charges of approximately $2.0 to $4.0 million. The severance costs related to the reduction in force of ten employees. One of these employees was from Operations, two were from Sales and Marketing, three from Research and Development, and four from General and Administrative functions. Four were from the United States and six from Europe. Restructuring costs for the three months ended June 30, 2002 consisted of severance costs of approximately $34,000 related to the reduction in force of five employees in Asia. Four of these employees were from Sales and Marketing and one was from Operations.

     Restructuring costs related to continuing Security operations for the three months ended March 31, 2003 primarily consisted of $0.1 million of severance costs related to the reduction in force of 11 employees. Eight of these employees were from Operations, two from Research and Development and one from General and Administrative functions. Ten were from Asia and one from Europe. Restructuring costs for the three months ended March 31, 2002 consisted of approximately $0.2 million of severance costs relating to the termination of two employees from the Sales and Marketing function in the United States.

     Infrequent charges related to continuing Security operations for the three months ended June 30, 2003 and 2002 were $0.3 million and $1.4 million respectively. For the three months ended March 31, 2003 and 2002, infrequent charges were $0.2 million and $0.3 million, respectively. These charges consisted primarily of legal and professional costs relating to the announced separation of the Digital Media and Video division.

     Exit costs related to discontinued operations for the three months ended June 30, 2003 consisted of approximately $1.7 million of legal and professional fees, $0.5 million for severance costs and $0.1 million of asset write-downs. These charges were in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, and the Company expects to incur additional charges during the next six months of approximately $13.0 to $18.0 million for exit costs. The severance costs related to the reduction in force of 17 employees. Fourteen of these employees were from Sales and Marketing and three from General and Administrative functions. Two were from the United States and 15 from Europe. Restructuring costs for the three months ended June 30, 2002 consisted of severance costs of $0.1 million related to the reduction in force of 15 employees. Eleven of these employees were from Sales and Marketing, two from Research and Development, and two from General and Administrative functions. Seven were from the United States and eight were from Europe.

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     Restructuring costs related to discontinued operations for the three months ended March 31, 2003 of $25,000 consisted primarily of asset write-downs. Restructuring and infrequent charges for the three months ended March 31, 2002 of $0.2 million consisted primarily of $0.1 million of asset write-downs and $0.1 million of severance related to the termination of seven employees. Two were from Operations, one from Research and Development, two from Sales and Marketing, and two from General and Administrative functions. Six were from the United States and one from Europe.

7. RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not provide sufficient equity at risk for the entity to support its activities. FIN No. 46 is effective for all variable interest entities created after January 31, 2003. For variable interest entities acquired or created prior to February 1, 2003, the provisions of FIN No. 46 must be applied to the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the impact of FIN No. 46 on its financial position, results of operations and cash flows.

     In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for the Company’s fiscal year beginning January 1, 2003. The Company adopted the disclosure requirements of SFAS No. 148 in 2002. The Company has not yet determined the impact, if any, that SFAS No. 148 may have on its financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, (FIN No. 45). FIN No. 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The Company adopted the disclosure requirements of FIN No. 45 in 2002. (See Note 11 concerning the reserve for warranty costs.) The recognition and measurement provisions apply to guarantees issued or modified after December 31, 2002. The Company does not expect the adoption of the recognition and measurement provisions to have a material effect on its financial position, results of operations or cash flows.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost, as defined in Issue No. 94-3, was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that the liability should initially be measured and recorded at fair value. In 2003, the Company adopted the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002. The adoption did not have an impact on the Company’s historical results of operations or cash flows.

8. ACQUISITIONS

     On May 22, 2002, SCM paid $4.5 million in cash in exchange for all the outstanding share capital of Towitoko AG, a privately held smart card-based security solutions company based in Munich, Germany. The acquisition has been accounted for under the purchase method of accounting and Towitoko’s results of operations were included in

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SCM’s results of operations since the date of the acquisition. In connection with the acquisition, SCM incurred acquisition costs of approximately $0.1 million.

     A valuation of the intangible assets related to the acquisition was finalized in December 2002. A summary of the allocation of the purchase price is as follows (in thousands):

Cash		$	483
Tangible assets			2,476
Assumed liabilities			(1,854	)
Trade name			259
Customer relations			1,120
Core technology			1,270
Non-compete agreements			119
Goodwill			775
	Total	$	4,648

     Intangible assets and goodwill from the acquisition approximated $3.5 million and represented the excess of the purchase price over the fair value of the tangible assets acquired less the liabilities assumed. The goodwill and trade name of $1.1 million were evaluated for impairment in accordance with SFAS No. 142 in the fourth quarter of 2002 and were written off. Intangible assets with definite lives are being amortized over their useful lives which range from two to five years.

     Pro forma results of operations to reflect the acquisition as if it had occurred on the first date of all periods presented would not be significantly different than SCM’s results of operations as stated.

9. STOCK-BASED COMPENSATION

     The Company accounts for its employee stock option plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (FIN No. 44). Accordingly, no compensation is recognized for employee stock options granted with exercise prices greater than or equal to the fair value of the underlying common stock at date of grant. If the exercise price is less than the market value at the date of grant, the difference is recognized as deferred compensation expense, which is amortized over the vesting period of the options. The Company accounts for stock options issued to non-employees in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and EITF Issue No. 96-18 under the fair value based method.

     Pursuant to FIN No. 44, options assumed in a purchase business combination are valued at the date of acquisition at their fair value calculated using the Black-Scholes option pricing model. The fair value of the assumed options is included as part of the purchase price. The intrinsic value attributable to the unvested options is recorded as unearned stock-based compensation and amortized over the remaining vesting period of the related options. Options assumed by the Company related to the business acquisitions made subsequent to July 1, 2000 (the effective date of FIN No. 44) have been accounted for pursuant to FIN No. 44.

     For purposes of pro forma disclosure under SFAS No. 123, the estimated fair value of the options is assumed to be amortized to expense over the options’ vesting period, using the multiple option method. Pro forma information is as follows (in thousands, except per share amounts):

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	Three months ended						Six months ended
	June 30,						June 30,
	2003			2002			2003			2002
Net income (loss), as reported	$	(16,234	)	$	286		$	(19,959	)	$	399
Add: Stock-based compensation included in reported net income (loss), net     of related tax effects		37			51			110			103
Less: Stock-based compensation expense determined under fair value     method for all awards, net of related tax effects		(550	)		(1,886	)		(2,774	)		(1,896	)
Pro forma net loss	$	(16,747	)	$	(1,549	)	$	(22,623	)	$	(1,394	)
Net income (loss) per share, as reported - basic	$	(1.06	)	$	0.02		$	(1.29	)	$	0.03
Net income (loss) per share, as reported - diluted	$	(1.06	)	$	0.02		$	(1.29	)	$	0.02
Pro forma loss per share - basic and diluted	$	(1.10	)	$	(0.10	)	$	(1.47	)	$	(0.09	)

10. STOCK REPURCHASE PROGRAM

     In October 2002, the Company’s Board of Directors approved a stock repurchase program in which up to $5.0 million may be used to purchase shares of the Company’s common stock on the open market in the United States or Germany from time to time over the next two years, depending on market conditions, share prices and other factors. Repurchases during the three and six months ended June 30, 2003 totaled approximately $1.9 million and $2.1 million respectively. Total repurchases made by the Company under this program totaled $2.8 million as of June 30, 2003.

11. COMMITMENTS

     The Company leases its facilities, certain equipment, and automobiles under noncancelable operating lease agreements. These agreements expire at various dates during the next fourteen years.

     The Company provides warranties on certain product sales (generally one year) and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires us to make estimates of product return rates and expected costs to repair or to replace the products under warranty. We currently establish warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior twelve months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from our estimates, adjustments to recognize additional cost of sales may be required in future periods.

     Components of the reserve for warranty costs during the six months ended June 30, 2003 and the year ended December 31, 2002 were as follows (in thousands):

	Continuing
	Security			Discontinued
	Operations			Operations			Total
Balance at January 1, 2002	$	465		$	282		$	747
Additions related to current period sales		540			106			646
Warranty costs incurred in the current period		(466	)		(97	)		(563	)
Adjustments to accruals related to prior period sales		(116	)		(25	)		(141	)
Balance at December 31, 2002		423			266			689
Additions related to current period sales		158			205			363
Warranty costs incurred in the current period		(165	)		(130	)		(295	)
Adjustments to accruals related to prior period sales		(41	)		(33	)		(74	)
Balance at June 30, 2003	$	375		$	308		$	683

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12. SEGMENT REPORTING, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

     SCM adopted the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, in 1998. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within SCM for making operating decisions and assessing financial performance. Our chief operating decision maker is considered to be the executive staff consisting of the Chief Executive Officer and Chief Financial Officer.

     In conjunction with a strategy to focus on its core Security business, in the second quarter of 2003 the Company’s Board of Directors authorized two transactions to sell SCM’s consumer Digital Media and Video business. The Company completed the sale of its digital video business to Pinnacle Systems on July 25, 2003 and received 1,866,851 shares valued at $21.5 million. The sale is subject to post-closing cash adjustments relating to inventory, backlog, receivables and prorated royalty fees. The Company completed the sale of its consumer digital media reader business to Zio Corporation on August 1, 2003. As a result, the Company accounted for the consumer Digital Media and Video business as a discontinued operation in the second quarter of fiscal 2003, and all periods presented have been restated to reflect the discontinuance of this business. Accordingly, as of June 30, 2003, SCM operates in one principal segment: Security.

     Geographic revenues are based on the country where the revenue is recognized. Information regarding revenues by geographic region for the three- and six-month periods ended June 30, 2003 and 2002 is as follows (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2003		2002		2003		2002
United States	$	5,202	$	7,114	$	9,782	$	12,106
Europe		11,234		13,737		21,831		26,102
Asia-Pacific		2,895		2,858		6,440		9,403
	$	19,331	$	23,709	$	38,053	$	47,611

     Long-lived assets by geographic location as of June 30, 2003 and December 31, 2002, are as follows (in thousands):

		June 30,		December 31,
		2003		2002
Property and equipment, net:
	United States	$	1,570	$	1,732
	Europe		2,729		3,042
	Asia-Pacific		4,469		4,350
	Total	$	8,768	$	9,124
Intangible assets, net:
	United States	$	1,001	$	1,763
	Europe		2,447		2,554
	Total	$	3,448	$	4,317

     Two customers represented 19% and 14% of SCM’s total net revenue for the second quarter of 2003 and two customers each represented 18% of SCM’s total net revenue for the first six months of 2003. Four customers represented 23%, 15%, 14% and 11% of total net revenue for the three months ended June 30, 2002 and one customer represented 26% of total revenue for the six months ended June 30, 2002.

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13. RELATED PARTY TRANSACTIONS

     During the three months ended June 30, 2003 and 2002, SCM has recognized revenue of approximately $0.8 million and $0.2 million, respectively, from sales to ActivCard Corporation, a digital identity management software company. During the six months ended June 30, 2003 and 2002, SCM has recognized revenue of approximately $2.8 million and $0.4 million, respectively, from sales to ActivCard. As of June 30, 2003 and December 31, 2002, accounts receivable amounts due from ActivCard were $0.1 million and $0.7 million, respectively. Although SCM is not a sole supplier of specific products to ActivCard, the companies do share the services of Steven Humphreys. Mr. Humphreys is both the Chairman and Chief Executive Officer of ActivCard and the Chairman of SCM’s Board of Directors. Mr. Humphreys is not directly compensated for revenue transactions between the two companies.

     During the three months ended June 30, 2003 and 2002, SCM has recognized revenue of approximately $0.2 million and $0.4 million, respectively, from sales to Conax AS, a company engaged in the development and provision of smart-card based systems. During the six months ended June 30, 2003 and 2002, SCM has recognized revenue of approximately $0.4 million and $0.8 million, respectively, from sales to Conax. As of June 30, 2003, there were no accounts receivable amounts due from Conax and as of December 31, 2002, the accounts receivable amounts due were $0.3 million. Oystein Larsen serves as the Executive Vice President, Business Development and New Business, of Conax and is a board director of SCM Microsystems. Mr. Larsen is not directly compensated for revenue transactions between the two companies.

     During 2002, the Company discontinued sales of media and storage products as part of its announced separation of its Digital Media and Video business. This discontinuation included the sale of on hand, media and storage inventory to Pexagon, a company based in Connecticut. SCM recognized no revenue from these sales. As of June 30, 2003 and December 31, 2002, the Company had an accounts receivable due from Pexagon of $1.4 million and $2.9 million, respectively. Brian Campbell, a former Executive Vice President of the Company, is the majority shareholder of Pexagon. SCM and Pexagon continue to have an ongoing trading relationship, in the form of inventory transactions which are expected to have no material revenue or earnings impact on the results of operations of SCM.

     On August 1, 2003, the Company completed the sale of its consumer digital media reader business to Zio Corporation, a company based in California that had been formed by Andrew Warner, the Company’s former Chief Financial Officer. The agreement with Zio Corporation includes provisions for distributing existing inventories of the Company’s digital media readers, with the Company being reimbursed for product per agreed terms in the sales agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “will,” “believe,” “anticipate,” “estimate,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements that we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Factors That May Affect Future Operating Results.” These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

     The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto set forth in Item 1 of this quarterly report. We also urge readers to review and consider our disclosures describing various factors that could affect our business, including the disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors and the audited financial statements and notes thereto contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 27, 2003.

Overview

     Prior to the second quarter of 2003, SCM operated in two segments, Security, and Digital Media and Video. In conjunction with a strategy to focus on our core Security business, in the second quarter of 2003 our Board of Directors authorized two transactions to sell SCM’s consumer Digital Media and Video business. We completed the sale of our consumer digital video business to Pinnacle Systems on July 25, 2003 and completed the sale of our consumer digital media reader business to Zio Corporation on August 1, 2003. As a result, we accounted for the consumer Digital Media and Video business as a discontinued operation in the second quarter of fiscal 2003, and statements of operations for all periods presented have been restated to reflect the discontinuance of this business. Accordingly, as of June 30, 2003, SCM operates in one principal segment: Security.

     In our continuing Security business, we design, develop and sell hardware, software and silicon that enable people to conveniently and securely access digital content and services, including content and services that have been protected through digital encryption. We sell our products primarily into the smart card-based security markets for digital TV and PC/network access. Our target customers are primarily original equipment manufacturers, or OEMs, in the consumer electronics, computer and conditional access system industries, as well as digital television operators, the government sector and corporate enterprises. We sell and license our products through a direct sales and marketing organization, as well as through distributors, value added resellers and systems integrators worldwide. SCM was organized in Delaware in 1996.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to product returns, customer incentives, bad debts, inventories, asset impairment, deferred tax assets, accrued warranty reserves, restructuring costs, contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about

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the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

• SCM recognizes product revenue upon shipment, net of estimated returns, provided that risk and title have transferred, a purchase order has been received, collection is determined to be probable and no significant obligations remain. Maintenance revenue is deferred and amortized over the period of the maintenance contract.

• SCM maintains allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

• SCM writes down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If the level of total demand is less favorable than the projections or the mix of sales between products is different to that projected by management, additional inventory write-downs may be required. Based on such judgments, we wrote down approximately $2.0 million of inventory in 2002 and $0.8 million of inventory in the first six months of 2003.

• SCM holds minority interests in companies having operations or technologies in areas within or adjacent to our strategic focus. Some of these investments are in publicly traded companies and some are in non-publicly traded companies, whose value is difficult to determine. We record an investment’s impairment when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investment that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future. We realized impairment charges of approximately $1.2 million related to our investments in 2002, and $0.5 million in the first six months of 2003.

• In assessing the recoverability of our goodwill and other intangibles, SCM must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. On January 1, 2002, SCM adopted SFAS No. 142, Goodwill and Other Intangibles Assets, and is required to analyze our goodwill and intangible assets for impairment issues on a periodic basis. In the fourth quarter of 2002 we recorded $6.6 million of asset impairment based on conclusions that the goodwill and intangible assets from past acquisitions were impaired.

• The carrying value of SCM’s net deferred tax assets reflects that we have been unable to generate sufficient taxable income in certain tax jurisdictions. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefit, or that future deductibility is uncertain. We evaluate the realizability of the deferred tax assets on a quarterly basis. In 2002, we reevaluated the realizability of the deferred tax assets and recorded an additional valuation allowance of $12.7 million, reducing our 2002 net income. The deferred tax assets are still available for us to use in the future to offset taxable income, which would result in the recognition of a tax benefit and a reduction in our effective tax rate. The divestiture of our consumer Digital Media and Video business to Pinnacle Systems and Zio Corporation as well as future changes to the operating structure of our new strategic focus on Security may limit our ability to utilize current deferred tax assets.

• SCM accrues the estimated cost of product warranties during the period of sale. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by actual warranty costs, including material usage or service delivery costs incurred in correcting a product failure. If actual material usage or service delivery costs differ from our estimates, revisions to our estimated warranty liability would be required.

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• On January 1, 2003, we adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that a liability for a cost associated with an exit or disposal activity initiated after December 31, 2002 be recognized when the liability is incurred and that the liability be measured at fair value. During 2002 the accounting for restructuring costs required us to record provisions and charges when we had a formal and committed plan. In connection with plans we had adopted, we recorded estimated expenses for severance and outplacement costs, lease cancellations, asset write-offs and other restructuring costs. We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of such provisions.

Recent Accounting Pronouncements

     In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not provide sufficient equity at risk for the entity to support its activities. FIN No. 46 is effective for all variable interest entities created after January 31, 2003. For variable interest entities acquired or created prior to February 1, 2003, the provisions of FIN No. 46 must be applied to the first interim or annual period beginning after June 15, 2003. We are currently evaluating the impact of FIN No. 46 on our financial position, results of operations or cash flows.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for SCM’s fiscal year beginning January 1, 2003. We adopted the disclosure requirements of SFAS No. 148 in 2002. We have not yet determined the impact, if any, that SFAS No. 148 may have on our financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). FIN No. 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. SCM adopted the disclosure requirements of FIN No. 45 in 2002. The recognition and measurement provisions will be applied to guarantees issued or modified after December 31, 2002. We do not expect the adoption of the recognition and measurement provisions to have a material effect on our financial position, results of operations or cash flows.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost as defined in Issue No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that the liability should initially be measured and recorded at fair value. In 2003, SCM adopted the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002. The adoption did not have an impact on our historical results of operations or cash flows.

Acquisitions

     On May 22, 2002, SCM paid $4.5 million in cash in exchange for all the outstanding share capital of Towitoko AG, a privately held smart card-based security solutions company based in Munich, Germany. The acquisition has been accounted for under the purchase method of accounting and Towitoko’s results of operations were included in our results of operations since the date of acquisition. In connection with the acquisition, SCM incurred acquisition

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costs of approximately $0.1 million. At the time of the acquisition, Towitoko had no significant research and development projects that were incomplete.

     Intangible assets and goodwill from the acquisition approximated $3.5 million and represented the excess of the purchase price over the fair value of the tangible assets acquired less the liabilities assumed. Non-compete agreements entered into in connection with the acquisition are being amortized on a straight-line basis over the term of the agreements of two years. The trade name and goodwill of $1.1 million were evaluated for impairment in the fourth quarter of 2002 and were written off. All other intangible assets are being amortized on a straight-line basis over an estimated useful life of five years.

RESULTS OF OPERATIONS

     Net Revenue. Net revenues consist of sales of conditional access modules and equipment test tools used in digital TV broadcast decryption; smart card readers used to provide secure access to PCs and networks in the government, enterprise and financial sectors; and ASIC technology and other products used for accessing digital media content. Net revenue for the quarter ended June 30, 2003 was $19.3 million, compared with $23.7 million for the second quarter of 2002, a decrease of 18%. This decrease reflects weaker demand both for our conditional access modules and for our smart card reader products. Sales of our smart card readers declined primarily due to lower orders related to the U.S. government’s Common Access Program, which decreased levels of deployments in the second quarter of 2003 compared with the same period of the previous year. We expect that sales of our conditional access modules and smart card readers will continue to be under pressure over the next several quarters as a result of economic conditions and the pace of technology transitions in our markets.

     For the first six months of 2003, net revenue was $38.1 million, compared with $47.6 million for the first six months of 2002, a decrease of 20%. This decrease was primarily related to lower sales of our conditional access modules following the loss of a significant customer in Europe. Sales of our smart card reader products were also lower in the first six months of 2003 compared with the same period of 2002, due to the decreased level of deployments under the U.S. government’s Common Access Card program.

     Sales to SCM’s top 10 customers accounted for 64% and 67% of total net revenues in the three- and six-month periods of 2003, respectively, with sales to our largest customer accounting for 19% and 18% of total net revenues, respectively, during those periods. This compares with 88% and 81% of total net revenues coming from our top ten customers in the three- and six-month periods of 2002, respectively, with sales to our largest customer accounting for 23% and 26% of total net revenues, respectively, during those periods.

     Gross Profit. Gross profit for the second quarter of 2003 was $6.8 million, or 35% of total net revenue, compared with $9.8 million, or 41%, for the second quarter of 2002. Gross profit in the first six months of 2003 was $15.0 million, or 39% of total net revenue, compared with $19.7 million, or 41%, for the first six months of 2002. The decrease in gross profit in percentage of revenue in the second quarter, as well as the first six months of 2003, was primarily due to the write down of inventory of approximately $0.8 million for a digital TV customer in Europe whose sales did not meet forecast. Lower revenues in the three- and six-month periods of 2003 versus the prior year’s period also contributed to lower gross profit in absolute dollars.

     Our gross profit has been and will continue to be affected by a variety of factors, including competition, the volume of sales in any given quarter, product configuration and mix, inventory write-downs, the availability of new products, product enhancements, software and services, and the cost and availability of components. Accordingly, gross profit percentages are expected to fluctuate from period to period.

     Research and Development. Research and development expenses consist primarily of employee compensation and fees for the development of prototype products. To date, the period between achieving technological feasibility and completion of software has been short, and software development costs qualifying for capitalization have been insignificant. Accordingly, SCM has not capitalized any software development costs. For the second quarter of 2003, research and development expenses were $2.5 million, or 13% of total net revenue, compared with $2.1 million, or 9% of total net revenue, in the second quarter of 2002, an increase of 16%. For the first six months of 2003, research and development expenses were $4.9 million, or 13% of total net revenue, compared with $4.1 million, or 9% of revenue for the first six months of 2002. The increase in absolute amounts was primarily due to

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the integration of research and development headcount from the acquisition of Towitoko in May 2002. Research and development costs as a percentage of net revenue are expected to fluctuate from period to period.

     Selling and Marketing. Selling and marketing expenses consist primarily of employee compensation and other marketing costs. Selling and marketing expenses for the second quarter of 2003 were $2.9 million, or 15% of total net revenue, compared with $2.5 million, or 11% of revenue in the second quarter of 2002, an increase of 15%. For the first six months of 2003, selling and marketing expenses were $5.8 million, or 15% of total net revenue, compared with $4.7 million, or 10% of revenue for the first six months of 2002, an increase of 24%. The increase in absolute dollars in 2003 was primarily due to increased headcount and program costs and headcount in Europe associated with the acquisition of Towitoko in May 2002.

     General and Administrative. General and administrative expenses consist primarily of compensation expenses for employees performing SCM’s administrative functions, professional fees such as legal, audit, tax and consulting fees, and changes to allowances for doubtful accounts receivable. In the second quarter of 2003, general and administrative expenses were $3.2 million, or 16% of total net revenue, compared with $2.7 million, or 11% of revenue in the second quarter of 2002, an increase of 16%. For the first six months of 2003, general and administrative expenses were $5.9 million or 15% of total net revenue, compared with $5.7 million or 12% of revenue in the first six months of 2002. The increase in absolute amounts in 2003 compared to the same period in 2002 was primarily due to increased administrative costs associated with the Towitoko acquisition as well as increased facility costs in India and Japan. We expect that general and administrative costs will fluctuate as a percentage of total net revenue.

     Amortization of Intangible Assets. Amortization of intangible assets in the second quarter of 2003 was $0.3 million, compared with $0.1 million for the same period of 2002. For the first six months of 2003, amortization of intangible assets was $0.6 million, compared with $0.3 million for the first six months of 2002. Since our adoption on January 1, 2002 of SFAS No. 142, Goodwill and Other Intangible Assets, we have ceased to amortize goodwill and indefinite-lived intangible assets that resulted from business combinations completed prior to June 30, 2001. Amortization of intangibles for all of fiscal 2003 is expected to be approximately $1.1 million.

     Restructuring and Infrequent Charges. During the second quarter of 2003 and for the six months ended June 30, 2003, SCM incurred restructuring and infrequent charges of $2.1 million and $2.4 million, respectively. In the second quarter of 2003, these charges primarily related to the restructuring of our continuing Security operations along functional lines, following the announced sale of our consumer Digital Media and Video business. These charges included facility closure costs of $0.4 million, severance of $1.4 million and legal and professional fees of $0.3 million. In the first quarter of 2003, restructuring and infrequent charges included severance of $0.1 million and $0.2 million of legal and professional fees. During the second quarter of 2002 and for the six months ended June 30, 2002, SCM incurred restructuring and infrequent charges of $1.4 million and $2.0 million, respectively. In the second quarter of 2002, restructuring and infrequent charges primarily consisted of $1.4 million of legal and professional fees related to the announced separation of the Digital Media and Video division. In the first quarter of 2002, these charges related to $0.2 million of severance and $0.4 million of legal and professional fees.

     During the second half of 2003, we expect to incur restructuring and infrequent charges of between $2.0 million and $4.0 million in connection with the restructuring of our continuing Security operations.

     Loss on Investments. During the second quarter of 2003, we wrote off our investment in Cryptovision.

     Interest and Other, Net. Interest and other, net consists of interest earned on invested cash, offset by interest paid or accrued on outstanding debt, other income and expenses, and foreign currency gains or losses. In the second quarter of 2003, interest and other, net, was a loss of $0.3 million, compared to a loss of $0.6 million in the second quarter of 2002. For the six months ended June 30, 2003 and 2002, interest and other, net, was a gain of $0.4 million compared to a loss of $0.5 million. Foreign currency transaction losses for the second quarter of 2003 were $0.4 million, compared to losses of $1.0 million for the second quarter of 2002. For the six months ended June 30, 2003, foreign currency transaction gains were $0.3 million, compared to losses of $1.1 million for the same period in 2002. Gains in 2003 were primarily a result of favorable rate changes for the U.S. dollar compared to the Singapore dollar and the euro. The foreign exchange losses in 2002 were primarily due to unfavorable rate changes for the U.S. dollar compared to the Singapore dollar and the British pound. These gains and losses resulted primarily from the revaluation of receivables (especially U.S. dollar denominated receivables) to the functional currency of the subsidiary. Interest income for the

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three months ended June 30, 2003 and 2002 was $0.1 million and $0.4 million, respectively, and for the six months ended June 30, 2003 and 2002, interest income was $0.3 and $0.6 million, respectively, The decrease in interest income in 2003 was primarily as a result of lower average investable cash balances and lower interest rates.

     Benefit/Provision for Income Taxes. The provision for income taxes in the second quarter of 2003 was $0.1 million, compared to an income tax benefit of $0.3 million in the second quarter of 2002. The provision for income taxes in the first six months of 2003 was $0.2 million, compared with a benefit of $0.5 million in the first six months of 2002.

     Discontinued Operations. We recently completed two transactions to sell our consumer Digital Media and Video business. On July 25, 2003, we completed the sale of our digital video business to Pinnacle Systems and on August 1, 2003, we completed the sale of our consumer digital media reader business to Zio Corporation. Net revenue for the consumer Digital Media and Video business for the quarter ended June 30, 2003 and 2002, was $9.4 million and $21.3 million, respectively. Operating loss for the same periods was $5.7 million and $0.9 million and net loss was $5.3 million and $0.1 million, respectively.

     For the six months ended June 30, 2003 and 2002, net revenue for the consumer Digital Media and Video business was $21.7 million and $40.8 million, respectively. Operating loss for the same periods was $9.9 million and $2.9 million and net loss was $9.1 million and $2.2 million, respectively.

     During the quarter ended June 30, 2003, net loss on disposal of the consumer Digital Media and Video was $5.9 million and included net inventory write-downs of $1.8 million, asset write-downs of $1.5 million, increased liabilities of $0.4 million, severance of $0.5 million and transactional costs to sell the businesses of $1.7 million.

     During the second half of 2003, we expect to incur charges of between $18 million and $20 million related to our discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2003, our working capital, which we have defined as current assets less current liabilities, was $60.5 million compared to our working capital of $84.0 million as of December 31, 2002. Working capital decreased in the first six months of 2003 by approximately $23.5 million due to a decrease in current assets of $32.0 million, partially offset by a decrease in current liabilities of $8.5 million.

     Cash and cash equivalents decreased by $7.2 million during the first six months of 2003, primarily due to cash used in operating activities of $2.9 million, cash used in investing activities of $1.9 million, cash used in financing activities of $1.8 million, and the effect of exchange rates on cash and cash equivalents of $0.5 million. Cash provided by continuing operations of $3.0 million was primarily due to a $20.0 million net loss, the adding back of loss from discontinued operations of $15.0 million, depreciation and amortization of $1.9 million, loss on investments of $0.5 million, and decreases in accounts receivable of $4.1 million and inventories of $6.0 million. These were partially offset by decreases in accounts payable of $2.5 million, accrued expenses of $1.6 million, and income taxes payable of $0.4 million. Cash used in operating activities from discontinued operations was $5.9 million. Cash used in investing activities from continuing operations was primarily for capital expenditures of $1.0 million, purchases of long term investments of $0.4 million, and net purchases of short term investments of $0.3 million. Cash used in investing activities from discontinued operations was $0.2 million for capital expenditures. Cash used in financing activities was primarily for the repurchase of common stock of $2.1 million offset by issuance of equity securities of $0.3 million.

     We have a revolving line of credit with a bank in Germany providing total borrowings of up to 0.8 million euros (approximately $0.9 million as of June 30, 2003). The German line has no expiration date and bears interest at 6%. Borrowings under this line of credit are unsecured. We have an unsecured line of credit in France of 0.3 million euros (approximately $0.3 million as of June 30, 2003) which bears interest at 3.63% and has no expiration date. In addition, we have three separate overdraft facilities for our manufacturing facility of 4.0 million, 1.2 million and 5.9 million Singapore dollars (approximately $2.3 million, $0.7 million and $3.4 million as of June 30, 2003) with base interest rates of 4.8%, 6.5% and 7.0% respectively. All of the facilities are unsecured and due upon demand. There were no amounts outstanding under any of these credit facilities as of June 30, 2003.

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     During the fourth quarter of 2002, our Board of Directors authorized a stock repurchase program under which up to $5 million may be used to purchase shares of SCM’s stock on the open market in the United States or Germany from time to time over the next two years, depending on market conditions, share prices and other factors. Such repurchases could be used to offset the issuance of additional shares resulting from employee stock option exercises and the sale of shares under the employee stock purchase plan. As of June 30, 2003, we had repurchased 618,400 shares of our common stock for an aggregate of $2.8 million pursuant to this program.

     In the second half of 2003, we expect to make cash disbursements of between $18.0 million and $25.0 million related to the disposition of our consumer Digital Media and Video business and the restructuring of our continuing Security business, some of which relate to charges already taken. In the second half of 2003, we also expect to generate approximately $25.5 million of cash from the sale of Pinnacle stock and from the Zio transaction, substantially all of which we expect to generate in the fourth quarter of 2003 and thereafter. As a result, we expect our cash balances to decrease significantly in the third quarter of 2003 and then increase in the fourth quarter of 2003 and thereafter as we receive cash amounts related to the disposition of our consumer Digital Media and Video business. For a description of related risks, you should read, “Factors that May Affect Future Operating Results – There Are Risks Related to Our Ability to Collect the Proceeds of the Disposition of Our Consumer Digital Media and Video Business.”

     We currently expect that our current capital resources and available borrowings should be sufficient to meet our operating and capital requirements through at least the next twelve months. We may, however, seek additional debt or equity financing prior to that time. There can be no assurance that additional capital will be available to SCM on favorable terms or at all. The sale of additional debt or equity securities may cause dilution to existing stockholders.

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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

     If any of the following risks actually occur, our business, financial condition, results of operations or product market share could be materially adversely affected. In such case, the trading price of our common stock could decline and you could lose all or part of your investment.

We have incurred operating losses and may not achieve profitability.

     We have a history of losses with an accumulated deficit of $143.4 million as of June 30, 2003. We may continue to incur losses in the future and may be unable to achieve or maintain profitability.

Our quarterly operating results will likely fluctuate.

     Our quarterly operating results have varied greatly in the past and will likely vary greatly in the future depending upon a number of factors. Many of these factors are beyond our control. Our revenues, gross margins and operating results may fluctuate significantly from quarter to quarter due to, among other things:

• business and economic conditions overall and in our markets;

• the timing and amount of orders we receive may be tied to our customers’ budgetary cycles or equipment roll-out schedules;

• cancellations or delays of customer product orders, or the loss of a significant customer;

• our backlog and inventory levels;

• our customer and distributor inventory levels and product returns;

• new product announcements or introductions by us or our competitors;

• our ability to develop, introduce and market new products and product enhancements on a timely basis, if at all;

• the sales volume, product configuration and mix of products that we sell;

• our success in expanding our sales and marketing organization and programs;

• technological changes in the market for our products;

• increased competition or reductions in the average selling prices that we are able to charge;

• fluctuations in the value of foreign currencies against the U.S. dollar;

• the timing and amount of marketing and research and development expenditures;

• our investment experience related to our strategic minority equity investments; and

• costs related to events such as acquisitions, our disposition of the consumer Digital Media and Video business, litigation and write-down of investments or inventory.

     Due to these and other factors, our revenues may not increase or remain at their current levels. Because a high percentage of our operating expenses are fixed, a small variation in our revenue can cause significant variations in our earnings from quarter to quarter and our operating results may vary significantly in future periods. Therefore, our historical results may not be a reliable indicator of our future performance.

A number of factors make it difficult to estimate operating results prior to the end of a quarter.

     We do not typically maintain a significant level of backlog. As a result, revenue in any quarter depends on contracts entered into or orders booked and shipped in that quarter. In recent periods, customers have tended to

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make a significant portion of their purchases towards the end of the quarter, in part because they are able, or believe that they are able, to negotiate lower prices and more favorable terms. This trend makes predicting revenues difficult. The timing of closing larger orders increases the risk of quarter-to-quarter fluctuation. If orders forecasted for a specific group of customers for a particular quarter are not realized or revenues are not otherwise recognized in that quarter, our operating results for that quarter could be materially adversely affected.

Weakness in the economy could decrease demand for our products or for our customers’ products, decreasing our revenue and causing customers to decrease or cancel orders to us or to delay payment.

     Over the past several quarters, economic conditions worldwide have resulted in decreased demand and constrained growth in demand from end users for many companies’ products, including ours. Decreased demand in the European digital television market has contributed to declining and lower than expected sales of our conditional access modules. In the U.S. and in Europe, economic conditions have continued to delay or minimize deployments of smart card readers by corporations and financial institutions. These trends have had an adverse effect on our revenues during 2002 and 2003, and we expect these trends to continue to adversely affect sales during the second half of 2003. Decreased or lower than expected sales will most likely adversely affect our stock price. Also, reduced or canceled orders for our products could lead to decreased sales in a particular period and, because many of our products are custom made for particular customers, could also cause us to write off inventory. In some cases, customers could delay payment or be unable to pay for orders made to us, causing us to increase our allowance for doubtful accounts or to write off certain receivables. In addition, if we anticipate that demand for our products will not increase, we may decide to reduce our operating expense base in order to maintain or reach profitability. Decreased sales, expense base decreases or any write-offs, or any combination of these, could have a material adverse effect on our operating results.

Our listing on the Prime Standard of the Frankfurt Stock Exchange exposes our stock price to additional risks of fluctuation.

     Our common stock currently experiences a significant volume of trading on the Prime Standard of the Frankfurt Stock Exchange. Because of this, factors that would not otherwise affect a stock traded solely on Nasdaq may cause our stock price to fluctuate. Investors outside the United States may react differently and more negatively than investors in the United States to events such as acquisitions, one-time charges and lower than expected revenue or earnings announcements. Any negative reaction by investors in Europe to such events could cause our stock price to decrease. The European economy and market conditions in general, or downturns on the Prime Standard specifically, regardless of the Nasdaq market conditions, could negatively impact our stock price.

Our stock price has been and is likely to remain volatile.

     The stock market has recently experienced significant price and volume fluctuations that have particularly affected the market prices of the stocks of technology companies. During the 12-month period from August 1, 2002 to July 31, 2003, the reported sale prices for our common stock on the Nasdaq market ranged between $10.18 and $2.50 per share. Volatility in our stock price may result from a number of factors, including:

• variations in our or our competitors’ financial and/or operational results;

• the fluctuation in market value of comparable companies in any of our markets;

• comments and forecasts by securities analysts;

• expected or announced relationships with other companies;

• trading patterns of our stock on the Nasdaq Stock Market or Prime Standard of the Frankfurt Stock Exchange;

• any loss of key management;

• announcements of technological innovations or new products by us or our competition;

• litigation developments; and

• general market downturns.

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     In the past, companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. If we were the object of securities class action litigation, it could result in substantial costs and a diversion of our management’s attention and resources.

Sales of our products depend on the development of several emerging markets.

     We sell our products primarily to emerging markets that have not yet reached a stage of mass adoption or deployment. If demand for products in these markets does not develop and grow sufficiently, revenue and gross profit margins in our business could level off or decline. We cannot predict the future growth rate, if any, or size or composition of the market for our products. The demand and market acceptance for our products, as is common for new technologies, will be subject to high levels of uncertainty and risk and may be influenced by several factors, including general economic conditions.

     These factors also include the following:

• the slow pace and uncertainty of adoption in Europe and Asia of open systems digital television platforms that require conditional access modules, such as ours, to decrypt pay-TV broadcasts;

• the strength of entrenched security and set-top receiver suppliers in the United States who may resist the use of removable conditional access modules, such as ours, and prevent or delay opening the U.S. digital television market to greater competition;

• the uncertainty of adoption of smart cards by the U.S. government for large scale security programs beyond those in place today; and

• the ability of financial institutions, corporate enterprises and the U.S. government to create and deploy smart card-based applications that will drive demand for smart card readers such as ours.

     For instance, we believe that, over time, the European digital television industry will transition to removable, modular security, and that our business will benefit from this transition. However, as this transition occurs, we believe that large television operators in Europe are struggling financially because of their high-cost delivery models and that smaller operators have also been adversely affected by turmoil in the industry. We believe these factors have contributed to revenue declines over the past year in our business. If these conditions continue, the revenue and results of operations in our business could continue to be adversely affected.

There are risks related to our transition following the disposition of our consumer Digital Media and Video business.

     We recently sold substantially all of the assets related to our consumer Digital Media and Video business. Net revenues from our Digital Media and Video business were 56% of our total net revenues in 2002. Our senior management must adjust to managing a smaller company with less of a retail emphasis, greater dependence on fewer customers, a higher percentage of international sales and higher potential volatility in operational results due to a smaller revenue and cost base. If we fail to manage these risks effectively, our operating results and financial position could be adversely affected.

There are risks related to the restructuring of our continuing Security business.

     We also are restructuring our continuing Security business. Related risks include the following:

• we may fail to realize the benefits we anticipate from the restructuring;

• we have incurred and will incur significant cash and non-cash charges related to severance payments, contract cancellations and facilities closures;

• the restructuring could occupy a significant portion of senior management’s time and may distract management and employees from ongoing operations; and

• our restructuring could make it more difficult for us to retain employees or maintain employee morale.

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There are risks related to our ability to collect the proceeds of the disposition of our consumer Digital Media and Video business.

     We recently sold substantially all of the assets related to the digital video portion of our consumer Digital Media and Video business to Pinnacle Systems. We received $21.5 million of Pinnacle stock as consideration for this sale, which we expect to sell before the end of 2003. If we do not receive the sales proceeds when expected, our financial position could be adversely affected. Our agreement with Pinnacle requires Pinnacle to pay us the shortfall in cash if our aggregate gross proceeds from these sales are less than $21.5 million. We are also required to make cash repayments to Pinnacle for any proceeds received in excess of $21.5 million. However, realization of these proceeds is subject to the following risks:

• We intend to sell the shares pursuant to an effective registration statement, which Pinnacle has agreed to file with the SEC. However, the registration statement may not be declared effective in a timely manner. Furthermore, in some circumstances Pinnacle may suspend our ability to make sales pursuant to the registration statement. Our agreement with Pinnacle allows us to sell shares privately in some circumstances when the registration statement is not available. However, we may be unable to locate a private buyer willing to purchase shares privately, particularly a large block of shares.

• We have agreed to indemnify Pinnacle for breaches of representations, warranties and covenants we made to Pinnacle in the agreement and for losses Pinnacle incurs related to liabilities we retained and other related matters.

• The Pinnacle agreement includes a purchase price adjustment provision based on measurements of inventory, backlog, receivables and prorated royalty fees. Depending on the results of these measurements, we may be required to make a cash payment to Pinnacle or Pinnacle may be required to make a cash payment to us.

• If Pinnacle’s stock price or trading volume declines significantly and Pinnacle otherwise experiences financial difficulties, we may have difficulty disposing of the shares of Pinnacle stock that we own, and Pinnacle may have difficulty complying with its obligation to pay us the shortfall that results.

     We also recently agreed to sell substantially all of the assets related to the consumer digital media reader portion of our Digital Media and Video business to Zio Corporation. Our agreement with Zio required only a small initial cash payment from Zio. Zio is obligated to pay the remainder of the consideration over time, and the amount of consideration we receive depends in large part on Zio’s success. Zio is a newly formed entity, and there is no assurance that it will be successful. As a result, there is no assurance that we will receive a meaningful amount of cash from the transaction with Zio.

     Our agreement with Zio includes provisions for Zio to purchase and distribute existing inventories of SCM digital media readers, and to make payments to SCM for readers they purchase from us. Under the agreement, SCM is responsible for collecting accounts receivable for digital media readers sold into the retail channel prior to the sale of this business to Zio. Zio is a newly formed entity, and there is no assurance that it will be successful. If Zio is unsuccessful at distributing SCM digital media readers or does not purchase readers from us, we may be required to take further write downs to inventory associated with our discontinued operations. If we are unable to collect accounts receivable from customers who received digital media readers from us prior to the sale of this business to Zio, we may be required to take further write downs to accounts receivable associated with discontinued operations.

A significant portion of our sales comes from a small number of customers and the loss of one of more of these customers could negatively impact our operating results.

     Our products are generally targeted at OEM customers in the consumer electronics, computer and conditional access system industries, as well as digital television operators, the government sector and corporate enterprises. Sales to a relatively small number of customers historically have accounted for a significant percentage of our total sales. For example, sales to our top 10 customers accounted for approximately 64% of our total net revenue in the three months ended June 30, 2003. The divestiture of our consumer Digital Media and Video business increases our dependence on a small number of customers. We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our total sales for the foreseeable future. The loss or reduction of orders from a significant OEM or retail customer, including losses or reductions due to manufacturing, reliability or other difficulties associated with our products, changes in customer buying patterns, or market, economic or competitive conditions in the digital information security business, could result in decreased revenues and/or

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inventory or receivables write-offs and otherwise harm our business and operating results. For instance, lower sales of our conditional access modules in the first half of 2003 compared with the first half of 2002 were primarily due to the loss of a significant customer in Europe.

If we do not achieve our targeted levels of revenues or anticipate the correct mix of products that will be sold we may be required to record further charges related to excess inventories.

     Due to the unpredictable nature of the demand for our products, we are required to place orders with our suppliers for components, finished products and services in advance of actual customer commitments to purchase these products. Significant unanticipated fluctuations in demand could result in costly excess production or inventories. In order to minimize the negative financial impact of this excess production, we may be required to significantly reduce the sales price of the product to increase demand, which in turn could result in a reduction in the value of the original inventory purchase. This could result in a charge adversely impacting our cost of revenues and financial condition.

We rely on our strategic relationships.

     If we are unable to anticipate market trends and the price, performance and functionality requirements for our products, we may not be able to develop and sell products that are commercially viable and widely accepted. We must collaborate closely with our customers, suppliers and other strategic partners to ensure that critical development, marketing and distribution projects proceed in a coordinated manner. Also, this collaboration is important because these relationships increase our exposure to information necessary to anticipate trends and plan product development. If any of our current relationships terminate or otherwise deteriorate, or if we are unable to enter into future alliances that provide us with comparable insight into market trends, our product development and marketing efforts may be adversely affected.

Our future success will depend on our ability to keep pace with technological change and meet the needs of our target markets and customers.

     The markets for our products are characterized by rapidly changing technology and the need to differentiate our products through technological enhancements. Our customers’ needs change and new products are introduced frequently. Product life cycles are short and industry standards are still evolving. These rapid changes in technology, or the adoption of new industry standards, could render our existing products obsolete and unmarketable. If one of our products is deemed to be obsolete or unmarketable, then we might have to reduce revenue expectations or write off inventories for that product. Our future success will depend upon our ability to enhance our current products and to develop and introduce new products on a timely basis that address the increasingly sophisticated needs of our customers and that keep pace with technological developments, new competitive product offerings and emerging industry standards. In addition, in cases where we are selected to supply products based on features or capabilities that are still under development, we must be able to complete our product design and delivery process in a timely basis, or risk losing current and any future business from our customers.

     For example, our Secure Card, Secure PINpad, Secure Retail and Secure Trusted Reader product families are designed to provide smart card-based security for PCs. Smart cards are beginning to be widely deployed by the U.S. government and to a lesser degree by financial institutions, corporations and other large organizations, in some cases in advance of anticipated security-oriented applications. However, standards for smart card readers are still emerging. We may not be able to comply with emerging standards in a timely manner or at all. If we cannot meet the standards requirements of the market or our prospective customers, we would likely lose orders to competitors.

     Because we operate in markets for which industry-wide standards have not yet been fully set, it is possible that any standards eventually adopted could prove disadvantageous to or incompatible with our business model and product lines. If any of the standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.

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Our markets are highly competitive, and our customers may purchase products from our competitors.

     The markets for our products are intensely competitive and characterized by rapidly changing technology. We believe that the principal competitive factors affecting the markets for our products include:

• the extent to which products support existing industry standards and provide interoperability;

• technical features;

• ease of use;

• quality and reliability;

• level of security; and

• price.

     We believe that competition in our markets is likely to intensify as a result of increasing demand for the type of products we offer. We currently experience competition from a number of companies. Our competitors include: Advanced Card Systems, Gemplus, O2Micro, OmniKey and STMicroelectronics in smart card readers, ASICs and universal smart card reader interfaces .

     We also experience indirect competition from some of our customers who sell alternative products or are expected to introduce competitive products in the future. We may in the future face competition from these competitors and new competitors, such as Motorola, that develop digital security products. In addition, the market for our products may ultimately include technological solutions other than ours and our competitors.

     Many of our current and potential competitors have significantly greater financial, technical, marketing, purchasing and other resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or standards and to changes in customer requirements. Our competitors may also be able to devote greater resources to the development, promotion and sale of products and may be able to deliver competitive products at a lower end user price. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of our prospective customers. Therefore, new competitors, or alliances among competitors, may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced operating margins and loss of market share.

Our smart card reader sales largely depend on U.S. government budgetary allocations for information technology (IT) projects.

     We sell a significant proportion of our smart card reader products to the U.S. government. Expenditures on IT projects have varied in the past and we expect them to vary in the future. As a result of shifting priorities in the federal budget and in Homeland Security, U.S. government spending may be reallocated away from IT projects, such as smart card deployments. The slowing of such government projects could negatively impact our sales. For instance, sales of our smart card reader products were lower in the first six months of 2003 compared with the same period in 2003 due to the decreased level of deployments under the U.S. government’s Common Access Card program.

We may have to take back unsold inventory from our customers.

     Although our contractual obligations to accept returned products from our customers are limited, if consumer demand is less than anticipated these customers may ask that we accept returned products that the customers do not believe they can sell. We may determine that it is in our best interest to accept returns in order to maintain good relations. While we have experienced some product returns to date, returns may increase beyond present levels in the future. Once these products have been returned, and although the products are in good working order, we may be required to take additional inventory reserves to reflect the decreased market value of slow-selling returned inventory or of products that were specifically designed for a single customer. In this regard, we incurred charges related to inventory write-downs in the second half of 2002 and the first half of 2003.

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We have global operations, which require significant managerial and administrative resources.

     Operating in diverse geographic locations imposes significant burdens on our managerial resources. In particular, our management must:

• divert a significant amount of time and energy to manage employees and contractors from diverse cultural backgrounds and who speak different languages;

• manage different product lines for different markets;

• manage our supply and distribution channels across different countries and business practices; and

• coordinate these efforts to produce an integrated business effort, focus and vision.

     In addition, we are subject to the difficulties associated with operating in a number of time zones, which may subject us to additional unforeseen difficulties or logistical barriers. Operating in widespread geographic locations requires us to implement and operate complex information and operational systems. In the future we may have to exert managerial resources and implement new systems that may be costly. Any failure or delay in implementing needed systems, procedures and controls on a timely basis or in expanding current systems in an efficient manner could have a material adverse effect on our business and operating results.

Our key personnel are critical to our business, and such key personnel may not remain with us in the future.

     We depend on the continued employment of our senior executive officers and other key management and technical personnel. If any of our key personnel leave and are not adequately replaced, our business would be adversely affected. We provide compensation incentives such as bonuses, benefits and option grants, which are typically subject to vesting over four years, to attract and retain qualified employees. In addition, certain of our executive officers are subject to one-year non-compete agreements. Non-compete agreements are, however, generally difficult to enforce. Even though we provide competitive compensation arrangements to our executive officers and other employees, we cannot be certain that we will be able to retain them, including those individuals that are subject to non-compete agreements.

     We believe that our future success will depend in large part on our continuing ability to attract and retain highly qualified technical and management personnel. Competition for such personnel is intense, and we may not be able to retain our key technical and management employees or to attract, assimilate or retain other highly qualified technical and management personnel in the future.

Our OEM customers may develop technology similar to ours, resulting in a reduction in related customer purchases, canceled orders and direct competition from these customers.

     We sell our products to many OEMs who incorporate our products into their offerings or who resell our products in order to provide a more complete solution to their customers. If our OEM customers develop their own products to replace ours, this would result in a loss of sales to those customers as well as increased competition for our products in the marketplace. In addition, these OEM customers could cancel outstanding orders for our products, which could cause us to write down inventory already designated for those customers.

Any delays in our normally lengthy sales cycle could result in significant fluctuations in our quarterly operating results.

     Our initial sales cycle for a new customer usually takes three to six months. During this sales cycle, we may expend substantial financial resources and our management’s time and effort with no assurance that a sale will ultimately result. The length of a new customer’s sales cycle depends on a number of factors that we may not be able to control. These factors include the customer’s product and technical requirements and the level of competition we face for that customer’s business. Any delays in the sales cycle for new customers would limit our receipt of new revenue and might cause us to expend more resources to obtain new customer wins.

We face risks associated with our past and future acquisitions.

     A component of our business strategy is to seek to buy businesses, products and technologies that complement or augment our existing businesses, products and technologies. In the second quarter of 2002, we acquired Towitoko AG, a leading supplier of smart card-based security solutions for home banking and private PC access in

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the German-speaking market. We may buy or make investments in additional complementary companies, products and technologies. Any acquisition could expose us to significant risks.

Use of Cash or Issuance of Securities

     A potential investment is likely to result in the use of our limited cash balances or require that we issue debt or equity securities to fund the acquisition. Future equity financings would be dilutive to the existing holders of our common stock, and future debt financings could involve restrictive covenants, and we may be unable to obtain debt financing on favorable terms or at all.

Acquisition Charges

     We may incur acquisition-related charges in connection with any acquisition.

Integration Risks

     Integration of an acquired company or technology frequently is a complex, time consuming and expensive process. The successful integration of an acquisition requires, among other things, that we:

• integrate and train key management, sales and other personnel;

• integrate the acquired products into our product offerings both from an engineering and a sales and marketing perspective;

• integrate and support pre-existing supplier, distributor and customer relationships;

• coordinate research and development efforts; and

• consolidate duplicate facilities and functions.

     The geographic distance between the companies, the complexity of the technologies and operations being integrated, and the disparate corporate cultures being combined may increase the difficulties of integrating an acquired company or technology. Management’s focus on the integration of operations may distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts. In addition, it is common in the technology industry for aggressive competitors to attract customers and recruit key employees away from companies during the integration phase of an acquisition.

     Unanticipated Assumption of Liabilities

     If we buy a company, we may have to incur or assume that company’s liabilities, including liabilities that are unknown at the time of the acquisition.

We conduct the majority of our operations outside the United States. Economic, political, regulatory and other risks associated with international sales and operations could have an adverse effect on our business sales.

     We were originally a German corporation, and we continue to conduct a substantial portion of our business in Europe. Approximately 70% of our revenues for the year ended December 31, 2002, and approximately 74% and 75% of our revenues for the six months ended June 30, 2003 and 2002, respectively, were derived from customers located outside the United States. Because most of our principal customers are located in other countries, we anticipate that international sales will continue to account for a large percentage of our revenues. As a result, our sales and operations may continue to be subject to certain international risks, including:

• changes in foreign currency exchange rates;

• changes in a specific country’s or region’s political or economic conditions and stability, particularly in emerging markets;

• unexpected changes in foreign laws and regulatory requirements;

• potentially adverse tax consequences;

• longer accounts receivable collection cycles;

• difficulty in managing widespread sales and manufacturing operations; and

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• less effective protection of intellectual property.

We could lose money and our stock price could decrease as a result of write downs of our strategic investments.

     We have made strategic minority investments in private and public companies and in the future we may make additional strategic minority investments. Our strategic investments involve a number of risks and we have written down a number of these investments, including ActivCard, Cryptovision, SmartDisk, Spyrus and Satup. We may not realize the expected benefits of these transactions and we may lose all or a portion of our investment, particularly in the case of our private investments. If we were to lose these investments or if the investments were determined to be impaired, we would be forced to write off all or a portion of these investments, which would have a negative impact on our earnings in any given quarter. Total strategic investments were $1.1 million at June 30, 2003.

Our products may have defects, which could damage our reputation, decrease market acceptance of our products, cause us to lose customers and revenue and result in liability to us, including costly litigation.

     Products such as our conditional access modules or smart card readers may contain defects for many reasons, including defective design or defective material. Often, these defects are not detected until after the products have been shipped. If any of our products contain defects or have reliability, quality or compatibility problems, our reputation might be damaged significantly, we could lose or experience a delay in market acceptance of the affected product or products, and we might be unable to retain existing customers or attract new customers. In addition, these defects could interrupt or delay sales. We may have to invest significant capital, technical, managerial and other resources to correct potential problems and potentially divert these resources from other development efforts. If we fail to provide solutions to potential problems, we could also incur product recall, repair or replacement or even litigation costs. These potential problems might also result in claims against us by our customers or others.

     In addition, our customers rely on our token-based security products to prevent unauthorized access to their digital information. A malfunction of or design defect in our products could result in legal or warranty claims. Liability for damages resulting from security breaches could be substantial and the adverse publicity associated with this liability could adversely affect our reputation. These costs could have a material adverse effect on our business and operating results. In addition, a well-publicized security breach involving token-based and other security systems could adversely affect the market’s perception of products like ours in general, or our products in particular, regardless of whether the breach is actual or attributable to our products. In that event, the demand for our products could decline, which would cause our business and operating results to suffer.

Our business could suffer if we or our third-party manufacturers cannot meet their performance obligations.

     Most of our products are manufactured outside the United States because we believe that global sourcing enables us to achieve greater economies of scale, improve gross margins and maintain uniform quality standards for our products. Any significant delay in our ability to obtain adequate supplies of our products from our current or alternative sources would materially and adversely affect our business and operating results. Foreign manufacturing poses a number of risks, including:

• difficulties in staffing;

• currency fluctuations;

• potentially adverse tax consequences;

• unexpected changes in regulatory requirements;

• tariffs and other trade barriers;

• political and economic instability;

• lack of control over the manufacturing process and ultimately over the quality of our products;

• late delivery of our products, whether because of limited access to our product components, transportation delays and interruptions, difficulties in staffing, or disruptions such as natural disasters;

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• capacity limitations of our manufacturers, particularly in the context of new large contracts for our products, whether because our manufacturers lack the required capacity or are unwilling to produce the quantities we desire; and

• obsolescence of our hardware products at the end of the manufacturing cycle.

     If we or any of our contract manufacturers cannot meet our production requirements, we may have to rely on other contract manufacturing sources or identify and qualify new contract manufacturers. Despite efforts to do so, we may be unable to identify or qualify new contract manufacturers in a timely manner and these new manufacturers may not allocate sufficient capacity to us in order to meet our requirements.

We have a limited number of suppliers of key components.

     We rely upon a limited number of suppliers of several key components of our products. For example, we currently utilize the foundry services of Philips and Atmel to produce our ASICs for our digital TV modules and we utilize the foundry services of Atmel and Samsung to produce our ASICS for our smart cards readers. Our reliance on a limited number of suppliers could impose several risks, including an inadequate supply of components, price increases, late deliveries and poor component quality. Disruption or termination of the supply of these components or software could delay shipments of our products. These delays could have a material adverse effect on our business and operating results and could also damage relationships with current and prospective customers.

We may be exposed to risks of intellectual property infringement by third parties.

     Our success depends significantly upon our proprietary technology. We currently rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality agreements and contractual provisions to protect our proprietary rights. Our software, documentation and other written materials are protected under trade secret and copyright laws, which afford only limited protection. We generally enter into confidentiality and non-disclosure agreements with our employees and with key vendors and suppliers.

     Our SmartOS and SwapSmart trademarks are registered in the United States, and we continuously evaluate the registration of additional trademarks as appropriate. We currently have patents issued in both the United States and Europe and have other patent applications pending worldwide. In addition, we have licenses for various other U.S. and European patents associated with our products. Although we often seek to protect our proprietary technology through patents, it is possible that no new patents will be issued, that our proprietary products or technologies are not patentable or that any issued patent will fail to provide us with any competitive advantages.

     There has been a great deal of litigation in the technology industry regarding intellectual property rights. Litigation may be necessary to protect our proprietary technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to use our proprietary information and software. In addition, the laws of some foreign countries do not protect proprietary and intellectual property rights to as great an extent as do the laws of the United States. Because many of our products are sold and the majority of our business is conducted overseas, primarily in Europe, our exposure to intellectual property risks may be higher. Our means of protecting our proprietary and intellectual property rights may not be adequate.

We may face claims of infringement of the intellectual rights of third parties, which could subject us to costly litigation, supplier and customer indemnification claims and the possible restriction on the use of our intellectual property.

     We have from time to time received claims that we are infringing upon third parties’ intellectual property rights.

     We expect the likelihood of infringement claims to increase as the number of products and competitors in our markets grows and as we increasingly incorporate third party technology into our products. Any claims or litigation may be time-consuming and costly, cause product shipment delays, or require us to redesign our products. Furthermore, as a result of these claims, we could be required to license intellectually property from a third party. These licenses may not be offered when we need them or on acceptable terms. If we do obtain licenses from third parties, we may be required to pay license fees or royalty payments or we may be required to license some of our intellectual property to others in return for such licenses. In addition, if we are unable to obtain a license that is

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necessary for us to manufacture our allegedly infringing products, we could be required to suspend the manufacture of products or stop our suppliers from using processes that may infringe the rights of third parties. We may be unsuccessful in redesigning our products or in obtaining the necessary licenses under reasonable terms or at all.

     Our suppliers and customers may also receive infringement claims based on intellectual property included in our products. We have historically agreed to indemnify suppliers and customers for alleged patent infringement. The scope of this indemnity varies, but may, in some instances, include indemnification for damages and expenses, including attorney’s fees. We may periodically engage in litigation as a result of these indemnification obligations. Our insurance policies exclude coverage for third party claims for patent infringement.

We may experience significant amortization charges and may have future non-recurring charges as a result of past acquisitions.

     In connection with our previous acquisitions accounted for under the purchase method of accounting, in future periods we may experience significant charges related to the amortization of certain intangible assets. In addition, if we later determine that our intangible assets or goodwill are impaired, we will be required to take a related non-recurring charge to earnings. For example, in 2002 and 2001 we recorded asset impairments of approximately $15.4 million and $36.1 million respectively, based on management’s conclusions that intangible assets and goodwill from previous acquisition were impaired.

We are exposed to credit risk on our accounts receivable. This risk is heightened as economic conditions worsen.

     We distribute our products through third-party resellers and directly to certain customers. A substantial majority of our outstanding trade receivables are not covered by collateral or credit insurance. While we have procedures in place to monitor and limit exposure to credit risk on our trade and non-trade receivables, these procedures may not be effective in limiting credit risk and avoiding losses. Additionally, if the global economy and regional economies fail to improve or continue to deteriorate, it becomes more likely that we will incur a material loss or losses as a result of the weakening financial condition of one or more of our customers.

External factors such as potential terrorist attacks could have a material adverse effect on the U.S. and global economies.

     Concerns about the possibility of potential terrorist attacks could have an adverse effect upon an already weakened world economy and could cause U.S. and foreign businesses to slow spending on products and services and to delay sales cycles. The economic uncertainty resulting from these concerns may continue to negatively impact consumer as well as business confidence at least in the short term.

Factors beyond our control could disrupt our operations and increase our expenses.

     We face a number of potential business interruption risks that are beyond our control. In recent periods, the State of California experienced intermittent power shortages and interruption of service to some business customers. Additionally, we may experience natural disasters that could disrupt our business. Our corporate headquarters are located near a major earthquake fault. The potential impact of a major earthquake on our facilities, infrastructure and overall operations is not known. An earthquake could seriously disturb our entire business process.

Provisions in our agreements, charter documents, Delaware law and our rights plan may delay or prevent acquisition of us, which could decrease the value of your shares.

     Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include a classified board of directors and limitations on actions by our stockholders by written consent. Delaware law imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.

     SCM has adopted a stockholder rights plan. The rights are not intended to prevent a takeover of SCM. However, the rights may have the effect of rendering more difficult or discouraging an acquisition of SCM deemed

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undesirable by the SCM Board of Directors. The rights would cause substantial dilution to a person or group that attempts to acquire SCM on terms or in a manner not approved by the SCM Board of Directors, except pursuant to an offer conditioned upon redemption of the rights.

     Although we believe the above provisions and the adoption of a rights plan provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders. Also, because these provisions may discourage a change of control, they could decrease the value of our common stock.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk Foreign Currencies

Foreign Currencies

     SCM transacts business in various foreign currencies, primarily in certain European countries, the U.K., Singapore and Japan. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to yen denominated sales in Japan and local currency denominated operating expenses in the UK, Europe and Singapore, where we sell in both local currencies and U.S. dollars. We assess the need to utilize financial instruments to hedge foreign currency exposure on an ongoing basis.

     Our foreign currency transactional gains and losses are primarily the result of the revaluation of intercompany receivables/payables (denominated in U.S. dollars) and trade receivables (denominated in a currency other than the functional currency) to the functional currency of the subsidiary.

Fixed Income Investments

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments. We place our investments in instruments that meet high credit quality standards, as specified in our investment policy. The policy also limits the amount of credit exposure to any one issue, issuer and type of instrument. We do not expect any material loss with respect to our investment portfolio.

     We do not use derivative financial instruments in our investment portfolio to manage interest rate risk. We do, however, limit our exposure to interest rate and credit risk by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. At the present time, the maximum duration of all portfolios is limited to two years. The guidelines also establish credit quality standards, limits on exposure to one issue, issuer, as well as the type of instrument. Due to the limited duration and credit risk criteria we have established, our exposure to market and credit risk is not expected to be material.

     At June 30, 2003, we had $42.9 million in cash and cash equivalents and $5.7 million in short-term investments. Based on our cash and cash equivalents and short-term investments as of December 31, 2002, a hypothetical 10% change in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

Item 4. Controls and Procedures

Evaluation and disclosure controls and procedures

     With the participation of our Chief Executive Officer and Chief Financial Officer, SCM’s management evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on that evaluation, these officers have concluded that as of the Evaluation Date, SCM’s disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

Changes in internal controls

     There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

     At our Annual Meeting of Stockholders, held on June 24, 2003, the following matters were acted upon by the stockholders of the Company:

1.	The election of Simon Turner and Andrew Vought as directors of the Company, each to hold office for a three-year term or until a successor is elected and qualified.
2.	Ratification of the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending December 31, 2003.

     The number of shares of Common Stock outstanding and entitled to vote at the Annual Meeting was 15,694,723 and 5,788,445 shares were represented in person or by proxy, constituting a quorum, which is defined as at least one-third of shares outstanding. The results of the voting on each of the matters presented to stockholders at the Annual Meeting are set forth below:

1. Election of Directors

	Votes For		Votes Withheld
o    Simon Turner		5,479,230		309,215
o    Andrew Vought		5,522,581		265,864

		Votes For	Votes Against	Votes Withheld
2.	Ratification of Independent Accountants	5,202,293	55,652	530,500

Item 5. Other Information

Not applicable.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit
Number		Description of Document
	2.1****	Asset Purchase Agreement between SCM Microsystems, Inc. and Dazzle Multimedia, Inc., Collectively as Seller and Pinnacle Systems, Inc. as Purchaser Dated June 29, 2003.
	3.1*	Fourth Amended and Restated Certificate of Incorporation.
	3.2**	Amended and Restated Bylaws of Registrant.
	3.3***	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of SCM Microsystems, Inc.
	4.1*	Form of Registrant’s Common Stock Certificate.
	4.2***	Preferred Stock Rights Agreement, dated as of November 8, 2002, between SCM Microsystems, Inc. and American Stock Transfer and Trust Company.
	10.2	Amended 1997 Stock Plan.
	10.23	Offer Letter with Steven L. Moore.
	10.24	Agreement with Brian Campbell.
	10.25	Amended and Restated Severance Agreement with Andrew Warner.
	10.26	Pinnacle Systems, Inc. Declaration of Registration Rights.
	31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed previously as an exhibit to SCM’s Registration Statement on Form S-1 (See SEC File No. 333-29073).
**	Filed previously as an exhibit to SCM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (see SEC File No. 000-22689).
***	Filed previously as an exhibit to SCM’s Registration Statement on Form 8-A (See SEC File No. 000-29440).
****	Filed previously as an exhibit to SCM’s Current Report on Form 8-K on July 28, 2003 (See SEC File No. 000-29440).

(b)	Reports on Form 8-K
	A current report on the Form 8-K was filed pursuant to the Securities and Exchange Act of 1934, as amended, on June 30, 2003, reporting under Items 5 and 7 the announcements that on June 30, 2003, SCM Microsystems issued (i) a press release announcing agreements related to the sale of its consumer Digital Media and Video business and a restructuring of SCM’s Security business and (ii) a press release announcing that it had named a new Chief Financial Officer.
	A current report on the Form 8-K was filed pursuant to the Securities and Exchange Act of 1934, as amended, on July 28, 2003, reporting under Item 5 that on July 25, 2003, SCM Microsystems had completed the sale of its Digital Video Business to Pinnacle.
	A current report on the Form 8-K was furnished pursuant to the Securities and Exchange Act of 1934, as amended, on July 29, 2003, reporting under Items 7 and 12 the announcement that on

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July 29, 2003, SCM Microsystems issued a press release regarding its financial results for the three and six months ended June 30, 2003.

A current report on the Form 8-K was filed pursuant to the Securities and Exchange Act of 1934, as amended, on August 11, 2003, reporting under Item 7 the financial results of the discontinued operations of its consumer Digital Media and Video business and the restated results of its continuing Security operations for the last three years.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SCM MICROSYSTEMS, INC.
Date: August 14, 2003
	/s/ STEVEN L. MOORE Steven L. Moore Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.2	Amended 1997 Stock Plan.
10.23	Offer Letter with Steven L. Moore.
10.24	Agreement with Brian Campbell
10.25	Amended and Restated Severance Agreement with Andrew Warner.
10.26	Pinnacle Systems, Inc. Declaration of Registration Rights.
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

39 of 39 EX-10.2 3 f92221exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 SCM MICROSYSTEMS, INC. 1997 STOCK PLAN 1. Purposes of the Plan. The purposes of this Stock Plan are: $ to attract and retain the best available personnel for positions of substantial responsibility, $ to provide additional incentive to Employees, Directors and Consultants, and $ to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. (g) "Company" means SCM Microsystems, Inc., a Delaware corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (p) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the Plan. (s) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Option Exchange Program" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an Option or Stock Purchase Right. (v) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (w) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 1997 Stock Plan. (y) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. (z) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "Section 16(b)" means Section 16(b) of the Exchange Act. (cc) "Service Provider" means an Employee, Director or Consultant. (dd) "Share" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. (ee) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ff) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,750,000 Shares, plus an annual increase to be added on each anniversary date of the adoption of the Plan equal to the lesser of (i) 1,000,000 Shares, (ii) 4.9% of the outstanding Shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right of the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 100,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 100,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. Non-Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws. SCM MICROSYSTEMS, INC. 1997 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ________________________________ Date of Grant ________________________________ Vesting Commencement Date ________________________________ Exercise Price per Share $_______________________________ Total Number of Shares Granted _______________________________ Total Exercise Price $_______________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: ________________________________ Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: This Option may be exercised for ninety days after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for such longer period as provided in the Plan. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT 1. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Chief Financial Officer of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan. 4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. (i) Nonstatutory Stock Option. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. (i) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (ii) ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: SCM MICROSYSTEMS, INC. ___________________________________ ___________________________________ Signature By ___________________________________ ___________________________________ Print Name Title Residence Address: __________________________________ __________________________________ __________________________________ CONSENT OF SPOUSE The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. __________________________________ Spouse of Optionee EXHIBIT A 1997 STOCK PLAN EXERCISE NOTICE SCM Microsystems, Inc. 131 Albright Way Los Gatos, CA 95030 Attention: Chief Financial Officer 1. Exercise of Option. Effective as of today, ________________, 199__, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of SCM Microsystems, Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated _____________, 19___ (the "Option Agreement"). The purchase price for the Shares shall be $ ____________, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: SCM MICROSYSTEMS, INC. ___________________________________ ___________________________________ Signature By ___________________________________ ___________________________________ Print Name Its Address: Address: ___________________________________ SCM Microsystems, Inc. ___________________________________ 131 Albright Way ___________________________________ Los Gatos, CA 95030 Date Received: ___________________________________ EX-10.23 4 f92221exv10w23.txt EXHIBIT 10.23 EXHIBIT 10.23 SCM MICROSYSTEMS, INC. 466 KATO TERRACE FREMONT, CALIFORNIA 94539 June 29, 2003 Steven L. Moore 2083 Tenth Avenue San Francisco, California 94116 Dear Steven: I am pleased to offer you a position with SCM Microsystems, Inc. (the "Company") as its Chief Financial Officer and Secretary. If you decide to join us, you will receive an annual salary of $180,000.00, which will be paid in accordance with the Company's normal payroll procedures, and will be eligible for a quarterly 25% target bonus in accordance with the Company's MBO bonus plan, as amended from time to time. As an employee, you will also be eligible to receive employee benefits generally available to the Company's employees. You should note that the Company may modify job titles, salaries, bonuses and benefits from time to time as it deems necessary. In addition, if you decide to join the Company, it will be recommended at the first meeting of the Company's Board of Directors following your start date that the Company grant you an option to purchase 25,000 shares of the Company's Common Stock at a price per share equal to the fair market value per share of the Common Stock on the date of grant, as determined by the Company's Board of Directors. 25% of the shares subject to the option shall vest 12 months after the date your vesting begins subject to you continuing as an employee or consultant of the Company, and no shares shall vest before such date. The remaining shares shall vest monthly over the next 36 months in equal monthly amounts subject to you continuing as an employee or consultant of the Company. This option grant shall be subject to the terms and conditions of the Company's Stock Option Plan and Stock Option Agreement, including vesting requirements. No right to any stock is earned or accrued until such time that vesting occurs, nor does the grant confer any right to continue vesting or employment. You agree that any Stock Option Agreement related to this option grant will supersede and replace this paragraph. In addition, in the event the Company terminates your employment with the Company for a reason other than "cause" (as defined below), then, subject to (x) you signing and not revoking a severance agreement and release in customary form and (y) you agreeing to provide consulting services to the Company for a 12-month period on terms reasonably satisfactory to you and the Company, the Company will continue to pay your then-current salary for such 12-month period. The consulting services you provide will not require you to spend more than five (5) hours a week on such Company-related consulting matters. Unless the Company otherwise agrees, you will receive no additional consideration, other than the 12-month payment of salary, in exchange for the provision of such consulting services. The following actions, failures and events by or affecting you shall constitute "CAUSE" for termination within the meaning of this paragraph: (A) an act of dishonesty made by you in connection with your responsibilities as an employee, (B) your conviction of, or plea of nolo contendere to, a felony, (C) your gross misconduct, (D) your continued substantial violations of your employment duties after you have received a written demand for performance from the Company that specifically sets forth the factual basis for the Company's belief that you have not substantially performed your duties, or (E) your willful and material breach of your At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement. The Company is excited about your joining and looks forward to a beneficial and productive relationship. Nevertheless, you should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice, subject to the Company's obligations to you under the immediately preceding paragraph in the event of a termination without cause. We request that, in the event of resignation, you give the Company at least two weeks notice. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. We also ask that, if you have not already done so, you disclose to the Company any and all agreements relating to your prior employment that may affect your eligibility to be employed by the Company or limit the manner in which you may be employed. It is the Company's understanding that any such agreements will not prevent you from performing the duties of your position and you represent that such is the case. Moreover, you agree that, during the term of your employment with the Company, you will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. Similarly, you agree not to bring any third party confidential information to the Company, including that of your former employer, and that in performing your duties for the Company you will not in any way utilize any such information. As a condition of your employment, you are also required to sign and comply with an At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company, and non-disclosure of Company proprietary information. In the event of any dispute or claim relating to or arising out of our employment relationship, you and the Company agree that (i) any and all disputes between you and the Company shall be fully and finally resolved by binding arbitration, (ii) you are waiving any and all rights to a jury trial but all court remedies will be available in arbitration, (iii) all disputes shall be resolved by a neutral arbitrator who shall issue a written opinion, (iv) the arbitration shall provide for adequate discovery, and (v) the Company shall pay all but the first $125 of the arbitration fees. Please note that we must receive your signed Agreement before your first day of employment. To accept the Company's offer, please sign and date this letter in the space provided below. If you accept our offer, your first day of employment will be June 30, 2003. This letter, along with any agreements relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements including, but not limited to, any representations made during your recruitment, interviews or pre-employment negotiations, whether written or oral, and including the current consulting agreement between you and the Company. This letter, including, but not limited to, its at-will employment provision, may not be modified or amended except by a written agreement signed by the Chief Executive Officer of the Company and you. This letter may be signed in one or more counterparts. This letter will be governed by the laws of the State of California, other than its conflict-of-law provisions. This offer of employment will terminate if it is not accepted, signed and returned by June 30, 2003. [Signature Page Follows] We look forward to your favorable reply and to working with you at SCM Microsystems, Inc. Sincerely, SCM MICROSYSTEMS, INC. By: _____________________________________ Robert Schneider, Chief Executive Officer Agreed to and accepted: Signature: ___________________________________ Printed Name: Steven L. Moore Date: June 29, 2003 Enclosure At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement EX-10.24 5 f92221exv10w24.txt EXHIBIT 10.24 EXHIBIT 10.24 AGREEMENT This Agreement is made by and between SCM Microsystems, Inc. ("SCM"), and you, Brian Campbell, as of May 22, 2003 (the "EFFECTIVE DATE"). References herein to the term "AGREEMENT" include Exhibit A hereto. 1. Employment; Term. During the term of this Agreement, you will serve as Special Advisor to SCM. The term of this Agreement (the "EMPLOYMENT TERM") shall expire on the earlier of July 31, 2003, or the date that you or SCM terminates the Employment Term by giving the other party written notice of such termination. The last day of the Employment Term is referred to as the "END DATE". As of the Effective Date, you resign as Executive Vice President of Retail Brands and, although you will remain an employee of SCM, you relinquish all other officer and director positions with SCM and its affiliates. You will render such business and professional services in the performance of your duties, consistent with your position within SCM, as shall reasonably be assigned to you by SCM's Board of Directors (the "BOARD") or its Chief Executive Officer ("CEO"). You will devote your business efforts and time to SCM and such of its subsidiaries as the Board or CEO may designate. It is understood that you will continue to provide operational services to SCM's Digital Media and Video ("DMV") division on a basis consistent with your previous responsibilities. Your primary managerial focus will be on the Guilford, Connecticut facilities and operations. You will also provide assistance in connection with the controlled exit or sale of the DMV business (including dealing with DMV customers, vendors and employees and assisting in the closing of the DMV facilities in Connecticut and Japan). However, in connection with any sale of the DMV business, you will only be required to provide information related to the DMV business to SCM's representatives and will not be required to directly meet with, or provide information to, potential third party DMV acquirers. 2. Employee Benefits. During the Employment Term, you will be eligible to participate in accordance with the terms of all SCM employee benefit plans that are generally applicable to other U.S. employees of SCM who are Executive Vice President level or below, as such plans and terms may exist from time to time, provided you are determined to be an employee of SCM according to the terms of such plans. In the event you are determined to be ineligible to participate in SCM's employee benefit plans and subject to compliance with the terms of this Agreement (including Exhibit A), SCM shall provide you with the same level of SCM subsidized health (i.e., medical, vision and dental) coverage and executive benefits as in effect for you on the day of such determination through the End Date. You will continue to have the right to use the SCM company car you are currently using until the End Date, at which time you will deliver the car to an SCM designee in Connecticut. 3. COBRA. After the End Date, you agree to elect continued health coverage pursuant to the Consolidated Budget Reconciliation Act of 1985, as amended ("COBRA"). Subject to you making such election and executing and not revoking and delivering to the Company, on or around such date, a release in substantially the form attached as Exhibit A, the Company will reimburse you for the amount of such COBRA premiums from the End Date until December 31, 2003 relating to the SCM-paid coverage provided by SCM prior to the End. 4. Compensation. (a) Base Salary. During the Employment Term and beginning on the Effective Date, SCM will pay you as compensation for your services at a monthly rate of $25,000 (the "BASE SALARY"); provided, however, that for the month of May 2003 you will receive a pro rata portion of your current monthly base salary with SCM ($________) for the period from May 1 to the Effective Date and a pro rata portion of the Base Salary from the Effective Date until May 31, 2003. The Base Salary will be paid through payroll periods that are consistent with SCM's normal payroll practices, assuming that you are in compliance with all of your obligations under this Agreement. If SCM terminates the Employment Term prior to June 1, 2003, the entire pro rata amount of the Base Salary will be paid to you during the month of May 2003, but SCM will not be obligated to pay you the Base Salary or any other salary, bonus or other compensation for the month of June or thereafter. If you terminate the Employment Term prior to June 1, 2003, you will only be entitled to a pro rata portion of the Base Salary earned from the Effective Date through the End Date. If SCM terminates the Employment Term during the month of June 2003, SCM will pay you the entire amount of the Base Salary for the month of June 2003 (together with any earned but unpaid Base Salary from May 2003), but SCM will not be obligated to pay you the Base Salary or any other salary, bonus or other compensation for the month of July or thereafter. If you terminate the Employment Term during the month of June 2003, you will only be entitled to a pro rata portion of the Base Salary earned from June 1, 2003 through the End Date (together with any earned but unpaid Base Salary from May 2003). If SCM terminates the Employment Term during the month of July 2003, SCM will pay you the entire amount of the Base Salary for the month of July 2003 (together with any earned but unpaid Base Salary from May or June 2003). If you terminate the Employment Term during the month of July 2003, you will only be entitled to a pro rata portion of the Base Salary earned from July 1, 2003 through the End Date (together with any earned but unpaid Base Salary from May or June 2003). (b) Stock Options. During the Employment Term, your unexpired stock options will continue to vest and become exercisable pursuant to the terms and conditions of the stock option plans and the applicable stock option agreements by and between you and SCM, assuming that you are providing services to SCM on each vesting date and that you are in compliance with all of your obligations under this Agreement. 5. Indemnification and D&O Insurance. The parties agree that (i) you will continue to be covered by the terms and conditions of the Indemnity Agreement entered into between you and SCM on [INDEMNITY AGREEMENT DATE] (the "INDEMNITY AGREEMENT"), (ii) the parties' rights and obligations thereunder are unaffected by this Agreement and (iii) the Indemnity Agreement will cover your activities performed hereunder during the Employment Term. 6. Settlement Agreement and Release. On the date you sign this Agreement, you will sign and deliver to SCM a Settlement Agreement and Release in the form attached as Exhibit A. SCM's obligation to perform under this Agreement is contingent upon your signing and not revoking the Settlement Agreement and Release. 7. Removal of Files. Following your termination of employment, you may remove your personal files from SCM's premises. Any file containing "Employment Information" (as defined in -2- Section 11) may not be removed from SCM's premises without the written consent of the Board or the CEO. 8. Assignment. This Agreement will be binding upon and inure to the benefit of (a) your heirs, executors and legal representatives upon your death and (b) any successor of SCM. Any such successor of SCM will be deemed substituted for SCM under the terms of this Agreement for all purposes. For this purpose, "SUCCESSOR" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of SCM. None of your rights to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of your right to compensation or other benefits will be null and void. 9. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and will be deemed given (a) on the date of delivery if delivered personally or by facsimile, (b) one (1) day after being sent by a well established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to SCM: SCM Microsystems, Inc. 466 Kato Terrace Fremont, CA 94539 Fax: (510) 360-0211 Telephone: (510) 360-2300 Attn: Stuart Arnott With a copy to: Wilson Sonsini Good rich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304 Fax: (650) 493-6811 Telephone: (650) 493-9300 Attn: Kurt J. Berney, Esq. If to you: at the last residential address known by SCM. 10. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision. 11. Confidentiality. During the Employment Term and thereafter, you agree to use your best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this -3- Agreement, including any documents incorporated by reference, the consideration for this Agreement, any SCM proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of SCM on whom you called or with whom you became acquainted during the term of your employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to you by SCM either directly or indirectly in writing or orally (hereinafter collectively referred to as "EMPLOYMENT INFORMATION"). You agree to take every reasonable precaution to prevent disclosure of any Employment Information to third parties, and agree that there will be no publicity, directly or indirectly, concerning any Employment Information. You agree to take every precaution to disclose Employment Information only to those attorneys, accountants, governmental entities and family members who have a reasonable need to know of such Employment Information. 12. Non-Disparagement. You and SCM agree to refrain from making any negative comments about the other concerning their respective business, products or services, officers, employees and directors and to refrain from any, defamation, libel or slander of the other and their respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the other and their respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. 13. Entire Agreement. This Agreement (including Exhibit A), together with the Indemnity Agreement, the Invention and Assignment Agreement to which you are a party and your stock option agreements, represents the entire agreement and understanding between SCM and you concerning your employment relationship with SCM or any of its subsidiaries, and supersedes and replaces any and all prior agreements and understandings concerning your employment relationship with SCM. 14. Submission to Jurisdiction; Expenses.. The parties submit to jurisdiction of any state or federal court sitting in Santa Clara, California in any action or proceeding arising out of or relating to this Agreement and agree that all claims in respect of such action or proceeding may be heard and determined in such court. Any final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or in equity. The prevailing party in any such judgment will be entitled to recover its costs and expenses, including the costs of litigation and court fees, plus reasonable attorneys' fees, incurred in connection with such an action. (i) 15. Cooperation with SCM. During and after the Employment Term, you will cooperate fully with SCM, including, but not limited to, responding to the reasonable requests of SCM's Board or counsel, in connection with any and all existing or future litigation, arbitrations, mediations or investigations brought by or against SCM or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which SCM reasonably deems your cooperation necessary or desirable. You agree to provide reasonable advice, assistance and -4- information, including offering and explaining evidence, providing sworn statements, participating in discovery and trial preparation and testimony as may reasonably be deemed necessary or desirable by SCM relating to its position in any such legal proceedings. You also agree to promptly send SCM copies of all correspondence (for example, but not limited to, subpoenas) received by you in connection with any such legal proceedings, unless you are expressly prohibited by law from so doing. You will act in good faith to furnish the information and cooperation required by this Section 15 and SCM will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for you. SCM will reimburse you for reasonable out-of-pocket expenses incurred by you as a result of your cooperation, within ten (10) days of the presentation of appropriate documentation thereof, in accordance with SCM's standard reimbursement policies and procedures. The failure by you to cooperate fully with SCM in accordance with this Section 15 will be a material breach of the terms of this Agreement, which will result in all commitments of SCM to make additional payments to you becoming null and void. Notwithstanding anything in this Section, it is agreed that if possible SCM will provide you with reasonable advance notice regarding these activities, and that any requests made hereunder by SCM will be made in good faith and reasonable. 16. No Oral Modification, Cancellation or Discharge. This Agreement may be changed or terminated only in writing (signed by you and the CEO of SCM (on behalf of SCM)). 17. Withholding. SCM is authorized to withhold, or cause to be withheld, from any payment or benefit under this Agreement the full amount of any applicable withholding taxes. 18. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). 19. Authority. SCM represents and warrants that the person signing this Agreement on its behalf has full authority to act for SCM. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -5- 20. Acknowledgment. You acknowledge that you (i) have read this Agreement, (ii) have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of your own choice or that you voluntarily have declined to seek counsel, (iii) understand the terms and consequences of this Agreement, and (iv) are fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth above. BRIAN CAMPBELL /s/ Brian Campbell ------------------------------------- Brian Campbell 5/22/03 SCM MICROSYSTEMS, INC. By: /s/ Robert Schneider --------------------------------- Title: CEO -6- EX-10.25 6 f92221exv10w25.txt EXHIBIT 10.25 EXHIBIT 10.25 AMENDED AND RESTATED SEVERANCE AGREEMENT This Amended and Restated Severance Agreement (this "AGREEMENT") is made by and between SCM Microsystems, Inc. ("SCM"), and You, Andrew Warner ("You" and "Your"), as of August 13, 2003 (the "EFFECTIVE DATE"). This Amended and Restated Severance Agreement amends and restates in its entirety that certain Agreement by and between SCM and You, dated as of June 29, 2003 (the "ORIGINAL AGREEMENT"). 1. Resignation. Effective June 29, 2003 (the "RESIGNATION DATE"), You resigned as an employee of SCM and/or any of its subsidiaries and all officer or director positions with SCM and/or any of its subsidiaries. All options or other awards You hold under SCM's 1997 Stock Plan (or any other similar options or awards) ceased vesting as of the Resignation Date and all post-termination exercise periods will commence as of the Resignation Date (as provided in the respective agreements between You and the Company). Your PTO ceased accruing as of the Resignation Date. 2. Severance and Other Payments. Subject to You signing and not revoking the settlement agreement and release in the form attached hereto as Exhibit A (the "SETTLEMENT AGREEMENT AND RELEASE"), within 5 days of the date hereof SCM will pay You $341,538.48 in cash, by check or wire transfer. Such payment is in consideration of Your execution of the Settlement Agreement and Release and is comprised of the following: (a) A $115,000 transaction bonus related to SCM's sale of substantially all of the digital video assets related to its former Digital Media and Video division to Pinnacle Systems, Inc.; and (b) A $251,000 severance payment (less $24,461.52 previously paid to You before the date hereof) in satisfaction of all salary, wages, bonus (including second quarter MBO), severance, accrued PTO or similar amounts that SCM owes You as of the Resignation Date and as of the date hereof. You acknowledge that SCM has paid all salary, wages, bonuses, accrued vacation and PTO, commissions, ESPP refunds and any and all other employment-related benefits due to You once the payments and benefits referenced in Sections 2 and 3 are received. 3. Medical Benefits. Subject to You executing and not revoking the Settlement Agreement and Release, SCM will continue coverage of Your existing medical benefits from the Resignation Date through September 30, 2003 consistent with the medical benefits SCM provided You immediately prior to the Resignation Date. 4. Invention and Assignment Agreement. You and SCM have executed and delivered an Invention Assignment Agreement (the "INVENTION AND ASSIGNMENT AGREEMENT"). 5. Removal of Files. To the extent You have not done so already, You may remove Your personal files from SCM's premises. Any file containing "Confidential Information" of the Company (as that term is defined in the Invention and Assignment Agreement) may not be removed from SCM's premises without the written consent of the Board of Directors or the CEO of SCM. 6. Assignment. This Agreement will be binding upon and inure to the benefit of (a) Your heirs, executors and legal representatives upon Your death and (b) any successor of SCM. Any such successor of SCM will be deemed substituted for SCM under the terms of this Agreement for all purposes. For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of SCM. None of Your rights to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by the written consent of SCM, by will or by the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Your right to compensation or other benefits will be null and void. 7. Notices. All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally or by facsimile, (b) one (1) day after being sent by a well established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to SCM: SCM Microsystems, Inc. 466 Kato Terrace Fremont, California 94539 Fax: (510) 360-0211 Telephone: (510) 360-2300 Attn: Steven L. Moore and Stuart Arnott With a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304 Fax: (650) 493-6811 Telephone: (650) 493-9300 Attn: Kurt J. Berney, Esq. If to You, to You at: Andrew Warner 18660 Castle Lake Drive Morgan Hill, CA 95037 Fax: (408) 779-4775 2 Tel: (408) 779-2339 With a copy to: Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 Fax: (617) 951-8736 Telephone: (617) 951-8000 Attn: John Utzschneider, Esq. 8. Severability. In the event that any provision of this Agreement (other than Section 2) becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision. 9. Confidentiality. You agree to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, including any documents incorporated by reference, and the consideration for this Agreement. 10. Non-Disparagement. You and SCM agree to refrain from making any negative comments about the other concerning their respective business, products or services, officers, employees and directors and to refrain from any, defamation, libel or slander of the other and their respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the other and their respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. 11. Entire Agreement. This Agreement (including Exhibit A), together with the Invention and Assignment Agreement, represents the entire agreement and understanding between SCM and You concerning the subject matter hereof and supersedes and replaces any and all prior agreements (including, without limitation, the Original Agreement) and understandings concerning Your employment relationship with SCM, except for such agreements, policies or plans that govern Your medical, retirement or pension benefits and except for any stock option or similar agreements between You and SCM. 3 12. Arbitration and Equitable Relief. (a) Except as provided in Section 12(d) below, You and SCM agree that to the extent permitted by law, any dispute or controversy arising out of, relating to, or in connection with this Agreement (including the Settlement Agreement and Release and any agreement referenced in Section 11 hereof), or the interpretation, validity, construction, performance, breach, or termination thereof will be settled by arbitration to be held in the County of Santa Clara, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "RULES"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator will apply California law to the merits of any dispute or claim (with the exception of its conflict of laws provisions). You hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) SCM will pay the direct costs and expenses of the arbitration. SCM and You each will pay Your own counsel fees and expenses. (d) SCM or You may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary to enforce the provisions of this Agreement, without breach of this arbitration agreement and without abridgement of the powers of the arbitrator. (e) YOU HAVE READ AND UNDERSTAND THIS SECTION 12, WHICH DISCUSSES ARBITRATION. YOU UNDERSTAND THAT BY SIGNING THIS AGREEMENT, YOU AGREE TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF YOUR RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION; 4 (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF ANY STATE; AND (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 13. Cooperation with SCM. You will, for a period of six (6) months after the date hereof, cooperate fully with SCM to the extent of your availability, including, but not limited to, (a) responding to the reasonable requests of SCM's Board or counsel, in connection with any and all existing or future litigation, arbitrations, mediations or investigations brought by or against SCM or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which SCM reasonably deems Your cooperation necessary or desirable and, (b) responding to reasonable requests and providing information reasonably within Your knowledge regarding SCM's results of operations, financial condition and performance, internal controls, disclosure controls and procedures, accounting practices and policies, reporting procedures and practices, other related information and any other information reasonably within Your knowledge that is necessary or appropriate for SCM to satisfy its obligations under the Securities Exchange Act of 1934, as amended. During such period, You agree to provide reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, participating in discovery and trial preparation and testimony as may reasonably be deemed necessary or desirable by SCM relating to its position in any such legal proceedings. During such period, You also agree to promptly send SCM copies of all correspondence (for example, but not limited to, subpoenas) received by You in connection with any such legal proceedings, unless You are expressly prohibited by law from so doing. During such period, You will act in good faith to furnish the information and cooperation required by this Section 13 and SCM will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for You. SCM will advance to You all out-of-pocket expenses which you reasonably anticipate You will incur as a result of Your cooperation, provided that You will provide appropriate documentation thereof within ten (10) days of incurring any such expenses, and, at the termination of the cooperation period, a reconciliation shall be completed including appropriate credits or debits as necessary (i) to reimburse You fully for all such expenses or (ii) to repay SCM any amounts you owe for previous expense advancements. The failure by You to cooperate fully with SCM in accordance with this Section 13 will be a material breach of the terms of this Agreement. Notwithstanding anything in this Section 13, it is agreed that if possible SCM will provide You with reasonable advance notice regarding these activities, and that any requests made hereunder by SCM will be made in good faith and reasonable. 14. No Oral Modification, Cancellation or Discharge. This Agreement may be changed or terminated only in writing (signed by You and the Chief Executive Officer of SCM (on behalf of SCM)). 5 15. Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement. No breach of any covenant hereunder by You will relieve SCM of any obligation to make any payment required hereunder; provided, however, that the foregoing does not require SCM to make any payment hereunder unless and until the satisfaction or waiver of the conditions precedent to the making of such payment. For the avoidance of doubt, nothing contained in this Section 15 limits SCM's right to take any action against you, whether equitable or legal, as a result of Your breach of a covenant hereunder. 16. Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. 17. Withholding. SCM is authorized to withhold, or cause to be withheld, from any payment or benefit under this Agreement the full amount of any withholding taxes required by applicable law. 18. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). 19. Authority. SCM represents and warrants that the person signing this Agreement on its behalf has full authority to act for SCM. 20. Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned. 6 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 21. Acknowledgment. You acknowledge that You (i) have read this Agreement, (ii) have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Your own choice or that You voluntarily have declined to seek counsel, (iii) understand the terms and consequences of this Agreement, and (iv) are fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth above. ANDREW WARNER /s/ Andrew Warner ---------------------------------------- Andrew Warner SCM MICROSYSTEMS, INC. By: /s/ Robert Schneider ------------------------------------ Title: Chief Executive Officer [ANDREW WARNER/SCM MICROSYSTEMS, INC. AMENDED AND RESTATED SEVERANCE AGREEMENT SIGNATURE PAGE] EX-10.26 7 f92221exv10w26.txt EXHIBIT 10.26 EXHIBIT 10.26 EXECUTION COPY PINNACLE SYSTEMS, INC. DECLARATION OF REGISTRATION RIGHTS This Declaration of Registration Rights ("Declaration") is made as of July 25, 2003, by Pinnacle Systems, Inc., a California corporation ("the Company"), for the benefit of SCM Microsystems, Inc., a Delaware corporation ( "Parent"), acquiring shares of Company Common Stock pursuant to that Asset Purchase Agreement dated as of June 29, 2003 (the "Agreement"), among the Company, Parent and Dazzle Multimedia, Inc., a Delaware corporation sometimes doing business as "Dazzle, Inc." and wholly-owned subsidiary of Parent. WHEREAS, it is a condition to Parent's obligation to consummate the transactions contemplated by the Agreement that the Company enter into this Declaration. 1. Definitions. As used in this Declaration: (a) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (b) "Form S-3" means such form under the Securities Act as is in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that similarly permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) "Holder" shall mean (i) Parent or (ii) a transferee of Registrable Securities to whom registration rights granted under this Agreement are assigned pursuant to Section 8 of this Agreement. (d) "Registrable Securities" means the number of shares of Company Common Stock issued to Parent pursuant to the Agreement at Closing; provided, however, that such shares of Company Common Stock held by Parent shall cease to be Registrable Securities (i) after a registration statement on Form S-3 with respect to the sale of such shares shall have been declared effective under the Securities Act and such shares shall have been disposed of in accordance with such registration statement and with Section 2 hereof or (ii) the one-year anniversary of the Closing Date. (e) "Securities Act" means the Securities Act of 1933, as amended. (f) "SEC" means the United States Securities and Exchange Commission. Terms not otherwise defined herein have the meanings given to them in the Agreement. 2. Registration Statement on Form S-3. (a) The Company shall use its best efforts to cause the Registrable Securities to be registered under the Securities Act so as to permit the resale thereof. In connection therewith, the Company shall prepare and file with the SEC a registration statement on Form S-3 (or any successor form to Form S-3, or if Form S-3 is not available, another appropriate form) covering all Registrable Securities within twenty (20) days of the Closing Date. It shall be a condition precedent to the obligations of the Company pursuant to this Declaration register the Registrable Securities that Parent shall provide all such information and materials regarding Parent and take all such action as may be required under applicable laws and regulations in order to permit the Company to comply with all applicable requirements of the Securities Act and the Exchange Act that relate to the Company's ability to file and have declared effective a registration statement pursuant to this Declaration, and to obtain any desired acceleration of the effective date of such registration statement. The offerings made pursuant to such registration shall not be required to be underwritten. (b) The Company shall (i) prepare and file with the SEC the registration statement in accordance with Section 2(a) hereof with respect to the Registrable Securities and shall use its best efforts to cause such registration statement to become effective as promptly as practicable after filing (and shall request acceleration of effectiveness of such registration statement by the SEC no later than forty-eight (48) hours after receiving notice from the SEC that it will not review the registration statement or that any SEC comments have been resolved to the satisfaction of the SEC) and to keep such registration statement effective until the earliest to occur of (A) the date on which all Registrable Securities included within such registration statement have been sold or (B) the one-year anniversary of the Closing Date; provided, however, that the Company shall not be obligated to have the registration statement declared effective by the SEC until after it shall have publicly released its earnings for the quarter ended June 30, 2003; (ii) prepare and file with the SEC such amendments to such registration statement and amendments or supplements to the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities registered by such registration statement; (iii) furnish to Parent such number of copies of any prospectus (including any preliminary prospectus and any amended or supplemented prospectus) in conformity with the requirements of the Securities Act, and such other documents, as Parent may reasonably request in order to effect the offering and resale of the Registrable Securities to be offered and sold, but only while the Company shall be required under the provisions hereof to cause the registration statement to remain effective; (iv) register or qualify the Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as Parent shall reasonably request (provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction where it has not been qualified or is not otherwise subject to a general consent for service of process), and do any and all other acts or things which may be necessary or advisable to enable Parent to consummate the public sale or other disposition of such Registrable Securities in such jurisdictions; and (v) notify Parent, promptly after it shall receive notice thereof, of the date and time the registration statement and each post-effective amendment thereto has become effective or a supplement to any prospectus forming a part of such registration statement has been filed. 3. S-3 Eligibility. As of the date hereof, the Company meets the "Registrant Requirements" for eligibility to use Form S-3 as set forth in Section I. A. of the General Instructions to Form S-3. -2- 4. Suspension of Prospectus. Under any registration statement filed pursuant to Section 2 hereof, the Company may restrict disposition of Registrable Securities, and Parent will not be able to dispose of such Registrable Securities, if the Company shall have delivered a notice in writing to Parent stating that a delay in the disposition of such Registrable Securities is necessary because the Company, in its reasonable judgment, has determined in good faith that such sales would require public disclosure by the Company of material nonpublic information that is not included in such registration statement and that immediate disclosure of such information would be materially detrimental to the Company. In the event of the delivery of the notice described above by the Company, the Company shall use its reasonable best efforts to amend such registration statement and/or amend or supplement the related prospectus if necessary and to take all other actions necessary to allow the proposed sale to take place as promptly as possible, subject, however, to the right of the Company to delay further sales of Registrable Securities until the conditions or circumstances referred to in the notice have ceased to exist or have been disclosed. Such right to delay sales of Registrable Securities shall not be exercised by the Company more than two times in any four (4) month period and shall not exceed sixty (60) days in the aggregate (during the period the registration statement is otherwise required to remain effective specified in Section 2(b) above) and no longer than thirty (30) days as to any single delay. The provisions set forth in this Section 4 shall have no adverse effect upon, nor compromise, the rights of Parent under Section 2.12(a)(iii) of the Agreement. 5. Expenses. All of the out-of-pocket expenses incurred in connection with any registration of Registrable Securities pursuant to this Declaration, including, without limitation, all SEC, Nasdaq National Market and blue sky registration and filing fees, printing expenses, transfer agents' and registrars' fees and the reasonable fees and disbursements of the Company's outside counsel and independent accountants shall be paid by the Company. The Company shall not be responsible for any legal fees or any selling expenses of Parent incurred in connection with the registration or, subject to Section 6 hereof, the resale of Registrable Securities pursuant to this Declaration (including, without limitation, any broker's fees or commissions); provided that nothing in this Section 5 shall have an adverse effect upon, nor compromise, the rights of Parent under Section 2.12(d) of the Agreement. Notwithstanding the foregoing, in the event that at the Company's election the resale of the Registrable Securities occurs in a registration conducted as a firm commitment underwritten offering, the Company shall also pay the underwritten discounts and commissions of any Registrable Securities of Parent if it participates therein. 6. Sale Without Registration. The Holder of a certificate representing Registrable Securities required to bear the legend in substantially the form set forth in Section 3.17 of the Agreement by acceptance thereof agrees to comply in all respects with the provisions of this Section 6. Prior to any proposed sale or transfer of any Registrable Securities which shall not be registered under the Securities Act, the holder thereof shall give written notice to the Company of such Holder's intention to effect such transfer, accompanied by: (i) such information as is reasonably necessary in order to establish that such transfer may be made without registration under the Securities Act; and (ii) except for transfers proposed to be made in accordance with SEC Rule 144 (as in effect at the date hereof and as amended from time to time thereafter), upon request and at the expense of the Company, a customary written opinion of legal counsel, satisfactory in form and substance to the Company, to the effect that such transfer may be made without registration under the Securities Act; -3- provided, however, that, notwithstanding anything to the contrary herein, the Company shall not be required to incur any expense in connection with a written opinion of legal counsel required for a "section 4(1-1/2)" private resale of Registrable Securities (other than a "section 4(1-1/2)" private resale in connection with a Private Sale pursuant to Section 2.12 of the Agreement); provided, further, that nothing contained in this Section 6 shall relieve the Company from complying with any request for registration, qualification or compliance made pursuant to the other provisions of Section 2 of this Agreement. 7. Indemnification. In the event of any offering registered pursuant to this Declaration: (a) the Company will indemnify Parent, each of its officers, directors and partners and Parent's legal counsel, and each person controlling Parent within the meaning of Section 15 of the Securities Act (each, a "Seller Indemnified Party"), with respect to which registration, qualification or compliance has been effected pursuant to this Declaration, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act, or state securities laws, or common law, applicable to the Company in connection with any such registration, qualification or compliance, and will reimburse each Seller Indemnified Party for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable to any Seller Indemnified Party to the extent that any such claim, loss, damage, liability or expense arises out of or is based in any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished by any Seller Indemnified Party to the Company in an instrument duly executed by such Seller Indemnified Party and stated to be specifically for use therein. (b) Parent will indemnify the Company, each of its directors and officers who has signed any registration statement made effective pursuant to the obligations hereunder and its legal counsel and independent accountants (each, a "Company Indemnified Party"), against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Company Indemnified Party for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by -4- Parent and stated to be specifically for use therein; provided, however, that the obligations of Parent hereunder shall be limited to an amount equal to the gross proceeds (after deducting reasonable commissions) received by Parent of Registrable Securities sold as contemplated herein. (c) If the indemnification provided for in this Section 7 is for any reason not available to a party entitled to indemnification under this Section 7 (the "Indemnified Party") with respect to any loss, liability, claim, damage, or expense referred to therein as a result of a judicial determination that such indemnification may not be enforced, in such case notwithstanding this Declaration to the contrary, the party required to provide indemnification (the "Indemnifying Party"), in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or the alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation and provided, further that the liability of Parent or any permitted transferee of the registration rights granted hereunder this Section 7(c) shall not exceed the proceeds from the offering received by Parent or any permitted transferee of the registration rights granted hereunder, prior to deduction of any commissions, transfer taxes or other selling expenses incurred with respect to such sale. (d) Each Indemnified Party shall give notice to the Indemnifying Party promptly after such Indemnified Party has written notice of any claim or potential claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or potential claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Declaration, except to the extent, but only to the extent, that the Indemnifying Party's ability to defend against such claim or litigation is compared as a result of such failure to give notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect to such claim or litigation. (e) The obligations of Parent and Company under this Section 7 shall survive the completion of any offering of Registrable Securities in a registration statement under this Declaration and otherwise. -5- 8. Limitation on Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Declaration may not be assigned by Parent unless such a transfer is (a) to an Affiliate (as defined pursuant to Rule 144 of the Securities Act) and such assignment includes all of the Registrable Securities then held by the transferor or (b) in connection with a Private Sale (as defined in the Agreement) of Registrable Securities pursuant to Section 2.12 of the Agreement. Prior to a permitted transfer of registration rights under this Declaration, Parent must furnish the Company with written notice of the name and address of such proposed transferee and the Registrable Securities with respect to which such registration rights are being assigned and a copy of a duly executed written instrument in form reasonably satisfactory to the Company by which such transferee assumes all of the obligations and liabilities of its transferor hereunder and agrees itself to be bound hereby. No transfer of registration rights under this Declaration shall be permitted if immediately following such transfer the disposition of such Registrable Securities by the transferee is not restricted under the Securities Act. 9. Termination of Registration Rights. The registration rights set forth in this Agreement shall terminate with respect to the Company Common Stock issued pursuant to the Agreement (and the right to transfer such shares of the Company Common Stock pursuant to the registration statement under which such shares of the Company Common Stock were registered shall terminate) immediately upon the earliest to occur of (i) the date on which such shares cease to be Registrable Securities, (ii) the one (1) year anniversary of the issuance of such shares pursuant to the Agreement and (iii) the date that all parties hereto agree in writing to so terminate this Agreement; provided, however, that no such termination shall affect (i) any liability of the Company for any prior breach of the registration rights of the Holders set forth herein or (ii) the indemnification obligations of the Company and of a Holder pursuant to Section 7 of this Agreement. 10. Information. Parent shall furnish to the Company such information regarding Parent, the Registrable Securities held by Parent and the distribution proposed by Parent as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Declaration. 11. Reports Under Exchange Act. Subject to Section 2 of this Agreement, the Company agrees to: (a) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (b) furnish to Parent, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), and (ii) a copy of the most recent annual or quarterly report of the Company. 12. Amendment of Registration Rights. The registration rights granted hereunder may not be amended without the mutual written consent of Parent and the Company. -6- 13. Governing Law. This Declaration shall be governed in all respects by and construed in accordance with the laws of the State of California. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] -7- EXECUTION COPY IN WITNESS WHEREOF, this Declaration of Registration Rights is executed as of the date first above written. PINNACLE SYSTEMS, INC. By: /s/ Arthur D. Chadwick --------------------------------- Arthur D. Chadwick Vice President of Finance and Chief Financial Officer SCM MICROSYSTEMS, INC. By: Robert Schneider --------------------------------- Name: Robert Schneider Title: CEO [SIGNATURE PAGE TO DECLARATION OF REGISTRATION RIGHTS] EX-31.1 8 f92221exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 SCM MICROSYSTEMS, INC. CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert Schneider, Chief Executive Officer of SCM Microsystems, Inc., certify that as of the date hereof: 1. I have reviewed this quarterly report on Form 10-Q of SCM Microsystems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-(15)(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 By: /s/ ROBERT SCHNEIDER ----------------------------- Robert Schneider Chief Executive Officer EX-31.2 9 f92221exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 SCM MICROSYSTEMS, INC. CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven L. Moore, Chief Financial Officer of SCM Microsystems, Inc., certify that as of the date hereof: 1. I have reviewed this quarterly report on Form 10-Q of SCM Microsystems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-(15)(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 By: /s/ STEVEN L. MOORE ----------------------------------------- Steven L. Moore Chief Financial Officer and Secretary EX-32 10 f92221exv32.txt EXHIBIT 32 EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert Schneider, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of SCM Microsystems, Inc. on Form 10-Q for the quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of SCM Microsystems, Inc. By: /s/ ROBERT SCHNEIDER -------------------------------------------- Name: Robert Schneider Title: Chief Executive Officer I, Steven L. Moore, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of SCM Microsystems, Inc. on Form 10-Q for the quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of SCM Microsystems, Inc. By: /s/ STEVEN L. MOORE -------------------------------------------- Name: Steven L. Moore Title: Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.2

                                                                    EXHIBIT 10.2

                             SCM MICROSYSTEMS, INC.

                                 1997 STOCK PLAN

         1.       Purposes of the Plan. The purposes of this Stock Plan are:

                  $        to attract and retain the best available personnel
                           for positions of substantial responsibility,

                  $        to provide additional incentive to Employees,
                           Directors and Consultants, and

                  $        to promote the success of the Company's business.

         Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

         2.       Definitions. As used herein, the following definitions shall
apply:

                  (a)      "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.

                  (b)      "Applicable Laws" means the requirements relating to
the administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

                  (c)      "Board" means the Board of Directors of the Company.

                  (d)      "Code" means the Internal Revenue Code of 1986, as
amended.

                  (e)      "Committee" means a committee of Directors appointed
by the Board in accordance with Section 4 of the Plan.

                  (f)      "Common Stock" means the common stock of the Company.

                  (g)      "Company" means SCM Microsystems, Inc., a Delaware
corporation.

                  (h)      "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

                  (i)      "Director" means a member of the Board.

                  (j)      "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.



                  (k)      "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

                  (l)      "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                  (m)      "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:

                           (i)      If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

                           (ii)     If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or

                           (iii)    In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

                  (n)      "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

                  (o)      "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.

                  (p)      "Notice of Grant" means a written or electronic
notice evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

                  (q)      "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.



                  (r)      "Option" means a stock option granted pursuant to the
Plan.

                  (s)      "Option Agreement" means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.

                  (t)      "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.

                  (u)      "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.

                  (v)      "Optionee" means the holder of an outstanding Option
or Stock Purchase Right granted under the Plan.

                  (w)      "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                  (x)      "Plan" means this 1997 Stock Plan.

                  (y)      "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the
Plan.

                  (z)      "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.

                  (aa)     "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.

                  (bb)     "Section 16(b)" means Section 16(b) of the Exchange
Act.

                  (cc)     "Service Provider" means an Employee, Director or
Consultant.

                  (dd)     "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.

                  (ee)     "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.

                  (ff)     "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.

         3.       Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 1,750,000 Shares, plus an annual increase to
be added on each anniversary date of the adoption of the Plan equal to the
lesser of (i) 1,000,000 Shares, (ii) 4.9% of the outstanding Shares on such



date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.

                  If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.

         4.       Administration of the Plan.

                  (a)      Procedure.

                           (i)      Multiple Administrative Bodies. The Plan may
be administered by different Committees with respect to different groups of
Service Providers.

                           (ii)     Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

                           (iii)    Rule 16b-3. To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.

                           (iv)     Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.

                  (b)      Powers of the Administrator. Subject to the
provisions of the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator shall have
the authority, in its discretion:

                           (i)      to determine the Fair Market Value;

                           (ii)     to select the Service Providers to whom
Options and Stock Purchase Rights may be granted hereunder;

                           (iii)    to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;

                           (iv)     to approve forms of agreement for use under
the Plan;



                           (v)      to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right of the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;

                           (vi)     to reduce the exercise price of any Option
or Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;

                           (vii)    to institute an Option Exchange Program;

                           (viii)   to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;

                           (ix)     to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

                           (x)      to modify or amend each Option or Stock
Purchase Right (subject to Section 15(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;

                           (xi)     to allow Optionees to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;

                           (xii)    to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                           (xiii)   to make all other determinations deemed
necessary or advisable for administering the Plan.

                  (c)      Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options or Stock Purchase
Rights.

         5.       Eligibility. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Service Providers. Incentive Stock Options may be
granted only to Employees.



         6.       Limitations.

                  (a)      Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

                  (b)      Neither the Plan nor any Option or Stock Purchase
Right shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.

                  (c)      The following limitations shall apply to grants of
Options:

                           (i)      No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 100,000 Shares.

                           (ii)     In connection with his or her initial
service, a Service Provider may be granted Options to purchase up to an
additional 100,000 Shares which shall not count against the limit set forth in
subsection (i) above.

                           (iii)    The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

                           (iv)     If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.

         7.       Term of Plan. Subject to Section 19 of the Plan, the Plan
shall become effective upon its adoption by the Board. It shall continue in
effect for a term of ten (10) years unless terminated earlier under Section 15
of the Plan.

         8.       Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.



         9.       Option Exercise Price and Consideration.

                  (a)      Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                           (i)      In the case of an Incentive Stock Option

                                    (A)      granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.

                                    (B)      granted to any Employee other than
an Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

                           (ii)     In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                           (iii)    Notwithstanding the foregoing, Options may
be granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.

                  (b)      Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised.

                  (c)      Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:

                           (i)      cash;

                           (ii)     check;

                           (iii)    promissory note;

                           (iv)     other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;



                           (v)      consideration received by the Company under
a cashless exercise program implemented by the Company in connection with the
Plan;

                           (vi)     a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;

                           (vii)    any combination of the foregoing methods of
payment; or

                           (viii)   such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.

         10.      Exercise of Option.

                  (a)      Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

                           An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.

                           Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

                  (b)      Termination of Relationship as a Service Provider. If
an Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall



revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

                  (c)      Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

                  (d)      Death of Optionee. If an Optionee dies while a
Service Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

                  (e)      Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

         11.      Stock Purchase Rights.

                  (a)      Rights to Purchase. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.



                  (b)      Repurchase Option. Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's service with the Company for any reason
(including death or Disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Administrator.

                  (c)      Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion.

                  (d)      Rights as a Stockholder. Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

         12.      Non-Transferability of Options and Stock Purchase Rights.
Unless determined otherwise by the Administrator, an Option or Stock Purchase
Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee.
If the Administrator makes an Option or Stock Purchase Right transferable, such
Option or Stock Purchase Right shall contain such additional terms and
conditions as the Administrator deems appropriate.

         13.      Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.

                  (a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with



respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.

                  (b)      Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable. In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option or Stock Purchase
Right shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action.

                  (c)      Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

         14.      Date of Grant. The date of grant of an Option or Stock
Purchase Right shall be, for all purposes, the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other later date as is determined by the Administrator.



Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

         15.      Amendment and Termination of the Plan.

                  (a)      Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.

                  (b)      Stockholder Approval. The Company shall obtain
stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.

                  (c)      Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

         16.      Conditions Upon Issuance of Shares.

                  (a)      Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.

                  (b)      Investment Representations. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.

         17.      Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

         18.      Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

         19.      Stockholder Approval. The Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.



                             SCM MICROSYSTEMS, INC.

                                 1997 STOCK PLAN

                             STOCK OPTION AGREEMENT

         Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.

I.       NOTICE OF STOCK OPTION GRANT

         [Optionee's Name and Address]

         You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:

         Grant Number                         ________________________________

         Date of Grant                        ________________________________

         Vesting Commencement Date            ________________________________

         Exercise Price per Share             $_______________________________

         Total Number of Shares Granted        _______________________________

         Total Exercise Price                 $_______________________________

         Type of Option:                      ___  Incentive Stock Option

                                              ___  Nonstatutory Stock Option

         Term/Expiration Date:                ________________________________

Vesting Schedule:

         This Option may be exercised, in whole or in part, in accordance with
the following schedule:

         25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates.



         Termination Period:

         This Option may be exercised for ninety days after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for such longer period as provided in the Plan. In no event
shall this Option be exercised later than the Term/Expiration Date as provided
above.

II.      AGREEMENT

          1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.

         If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").

          2.      Exercise of Option.

                  (a)      Right to Exercise. This Option is exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and the applicable provisions of the Plan and this Option Agreement.

                  (b)      Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to Chief Financial Officer of the
Company. The Exercise Notice shall be accompanied by payment of the aggregate
Exercise Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.

                  No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.

         3.       Method of Payment. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election of
the Optionee:



                  (a)      cash;

                  (b)      check; or

                  (c)      consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan.

         4.       Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.

         5.       Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.

         6.       Tax Consequences. Some of the federal tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.

                  (a)      Exercising the Option.

                           (i)      Nonstatutory Stock Option. The Optionee may
incur regular federal income tax liability upon exercise of a NSO. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

                           (ii)     Incentive Stock Option. If this Option
qualifies as an ISO, the Optionee will have no regular federal income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee ceases to be
an Employee but remains a Service Provider, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.

                  (b)      Disposition of Shares.



                           (i)      NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.

                           (ii)     ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.

                  (c)      Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.

         7.       Entire Agreement; Governing Law. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of California.

         8.       NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.



         By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.

OPTIONEE:                                    SCM MICROSYSTEMS, INC.

___________________________________          ___________________________________
Signature                                    By

___________________________________          ___________________________________
Print Name                                   Title

Residence Address:

__________________________________
__________________________________
__________________________________



                                CONSENT OF SPOUSE

         The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.

                                              __________________________________
                                              Spouse of Optionee



                                    EXHIBIT A

                                 1997 STOCK PLAN

                                 EXERCISE NOTICE

SCM Microsystems, Inc.
131 Albright Way
Los Gatos, CA  95030

Attention:  Chief Financial Officer

         1.       Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of SCM Microsystems, Inc. (the
"Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock
Option Agreement dated _____________, 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $ ____________, as required by the Option
Agreement.

         2.       Delivery of Payment. Purchaser herewith delivers to the
Company the full purchase price for the Shares.

         3.       Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.

         4.       Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.

         5.       Tax Consultation. Purchaser understands that Purchaser may
suffer adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchaser represents that Purchaser has consulted
with any tax consultants Purchaser deems advisable in connection with the
purchase or disposition of the Shares and that Purchaser is not relying on the
Company for any tax advice.



         6.       Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.

Submitted by:                                Accepted by:

PURCHASER:                                   SCM MICROSYSTEMS, INC.

___________________________________          ___________________________________
Signature                                    By

___________________________________          ___________________________________
Print Name                                   Its

Address:                                     Address:

___________________________________          SCM Microsystems, Inc.
___________________________________          131 Albright Way
___________________________________          Los Gatos, CA  95030

                                             Date Received:

                                             ___________________________________

EX-10.23

                                                                   EXHIBIT 10.23

                             SCM MICROSYSTEMS, INC.

                                466 KATO TERRACE

                            FREMONT, CALIFORNIA 94539

                                  June 29, 2003

Steven L. Moore

2083 Tenth Avenue

San Francisco, California 94116

Dear Steven:

         I am pleased to offer you a position with SCM Microsystems, Inc. (the
"Company") as its Chief Financial Officer and Secretary. If you decide to join
us, you will receive an annual salary of $180,000.00, which will be paid in
accordance with the Company's normal payroll procedures, and will be eligible
for a quarterly 25% target bonus in accordance with the Company's MBO bonus
plan, as amended from time to time. As an employee, you will also be eligible to
receive employee benefits generally available to the Company's employees. You
should note that the Company may modify job titles, salaries, bonuses and
benefits from time to time as it deems necessary.

         In addition, if you decide to join the Company, it will be recommended
at the first meeting of the Company's Board of Directors following your start
date that the Company grant you an option to purchase 25,000 shares of the
Company's Common Stock at a price per share equal to the fair market value per
share of the Common Stock on the date of grant, as determined by the Company's
Board of Directors. 25% of the shares subject to the option shall vest 12 months
after the date your vesting begins subject to you continuing as an employee or
consultant of the Company, and no shares shall vest before such date. The
remaining shares shall vest monthly over the next 36 months in equal monthly
amounts subject to you continuing as an employee or consultant of the Company.
This option grant shall be subject to the terms and conditions of the Company's
Stock Option Plan and Stock Option Agreement, including vesting requirements. No
right to any stock is earned or accrued until such time that vesting occurs, nor
does the grant confer any right to continue vesting or employment. You agree
that any Stock Option Agreement related to this option grant will supersede and
replace this paragraph.

         In addition, in the event the Company terminates your employment with
the Company for a reason other than "cause" (as defined below), then, subject to
(x) you signing and not revoking



a severance agreement and release in customary form and (y) you agreeing to
provide consulting services to the Company for a 12-month period on terms
reasonably satisfactory to you and the Company, the Company will continue to pay
your then-current salary for such 12-month period. The consulting services you
provide will not require you to spend more than five (5) hours a week on such
Company-related consulting matters. Unless the Company otherwise agrees, you
will receive no additional consideration, other than the 12-month payment of
salary, in exchange for the provision of such consulting services. The following
actions, failures and events by or affecting you shall constitute "CAUSE" for
termination within the meaning of this paragraph: (A) an act of dishonesty made
by you in connection with your responsibilities as an employee, (B) your
conviction of, or plea of nolo contendere to, a felony, (C) your gross
misconduct, (D) your continued substantial violations of your employment duties
after you have received a written demand for performance from the Company that
specifically sets forth the factual basis for the Company's belief that you have
not substantially performed your duties, or (E) your willful and material breach
of your At-Will Employment, Confidential Information, Invention Assignment and
Arbitration Agreement.

         The Company is excited about your joining and looks forward to a
beneficial and productive relationship. Nevertheless, you should be aware that
your employment with the Company is for no specified period and constitutes
at-will employment. As a result, you are free to resign at any time, for any
reason or for no reason. Similarly, the Company is free to conclude its
employment relationship with you at any time, with or without cause, and with or
without notice, subject to the Company's obligations to you under the
immediately preceding paragraph in the event of a termination without cause. We
request that, in the event of resignation, you give the Company at least two
weeks notice.

         For purposes of federal immigration law, you will be required to
provide to the Company documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.

         We also ask that, if you have not already done so, you disclose to the
Company any and all agreements relating to your prior employment that may affect
your eligibility to be employed by the Company or limit the manner in which you
may be employed. It is the Company's understanding that any such agreements will
not prevent you from performing the duties of your position and you represent
that such is the case. Moreover, you agree that, during the term of your
employment with the Company, you will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of your employment, nor will you engage in any other activities that
conflict with your obligations to the Company. Similarly, you agree not to bring
any third party confidential information to the Company, including that of your
former employer, and that in performing your duties for the Company you will not
in any way utilize any such information.

         As a condition of your employment, you are also required to sign and
comply with an At-Will Employment, Confidential Information, Invention
Assignment and Arbitration Agreement which requires, among other provisions, the
assignment of patent rights to any



invention made during your employment at the Company, and non-disclosure of
Company proprietary information. In the event of any dispute or claim relating
to or arising out of our employment relationship, you and the Company agree that
(i) any and all disputes between you and the Company shall be fully and finally
resolved by binding arbitration, (ii) you are waiving any and all rights to a
jury trial but all court remedies will be available in arbitration, (iii) all
disputes shall be resolved by a neutral arbitrator who shall issue a written
opinion, (iv) the arbitration shall provide for adequate discovery, and (v) the
Company shall pay all but the first $125 of the arbitration fees. Please note
that we must receive your signed Agreement before your first day of employment.

         To accept the Company's offer, please sign and date this letter in the
space provided below. If you accept our offer, your first day of employment will
be June 30, 2003. This letter, along with any agreements relating to proprietary
rights between you and the Company, set forth the terms of your employment with
the Company and supersede any prior representations or agreements including, but
not limited to, any representations made during your recruitment, interviews or
pre-employment negotiations, whether written or oral, and including the current
consulting agreement between you and the Company. This letter, including, but
not limited to, its at-will employment provision, may not be modified or amended
except by a written agreement signed by the Chief Executive Officer of the
Company and you. This letter may be signed in one or more counterparts. This
letter will be governed by the laws of the State of California, other than its
conflict-of-law provisions. This offer of employment will terminate if it is not
accepted, signed and returned by June 30, 2003.

                            [Signature Page Follows]



         We look forward to your favorable reply and to working with you at SCM
Microsystems, Inc.

                                       Sincerely,

                                       SCM MICROSYSTEMS, INC.

                                       By: _____________________________________

                                       Robert Schneider, Chief Executive Officer

Agreed to and accepted:

Signature: ___________________________________

Printed Name: Steven L. Moore

Date: June 29, 2003

Enclosure
At-Will Employment, Confidential Information, Invention Assignment and
Arbitration Agreement

EX-10.24

                                                                   EXHIBIT 10.24

                                    AGREEMENT

         This Agreement is made by and between SCM Microsystems, Inc. ("SCM"),
and you, Brian Campbell, as of May 22, 2003 (the "EFFECTIVE DATE"). References
herein to the term "AGREEMENT" include Exhibit A hereto.

         1.       Employment; Term. During the term of this Agreement, you will
serve as Special Advisor to SCM. The term of this Agreement (the "EMPLOYMENT
TERM") shall expire on the earlier of July 31, 2003, or the date that you or SCM
terminates the Employment Term by giving the other party written notice of such
termination. The last day of the Employment Term is referred to as the "END
DATE". As of the Effective Date, you resign as Executive Vice President of
Retail Brands and, although you will remain an employee of SCM, you relinquish
all other officer and director positions with SCM and its affiliates. You will
render such business and professional services in the performance of your
duties, consistent with your position within SCM, as shall reasonably be
assigned to you by SCM's Board of Directors (the "BOARD") or its Chief Executive
Officer ("CEO"). You will devote your business efforts and time to SCM and such
of its subsidiaries as the Board or CEO may designate. It is understood that you
will continue to provide operational services to SCM's Digital Media and Video
("DMV") division on a basis consistent with your previous responsibilities. Your
primary managerial focus will be on the Guilford, Connecticut facilities and
operations. You will also provide assistance in connection with the controlled
exit or sale of the DMV business (including dealing with DMV customers, vendors
and employees and assisting in the closing of the DMV facilities in Connecticut
and Japan). However, in connection with any sale of the DMV business, you will
only be required to provide information related to the DMV business to SCM's
representatives and will not be required to directly meet with, or provide
information to, potential third party DMV acquirers.

         2.       Employee Benefits. During the Employment Term, you will be
eligible to participate in accordance with the terms of all SCM employee benefit
plans that are generally applicable to other U.S. employees of SCM who are
Executive Vice President level or below, as such plans and terms may exist from
time to time, provided you are determined to be an employee of SCM according to
the terms of such plans. In the event you are determined to be ineligible to
participate in SCM's employee benefit plans and subject to compliance with the
terms of this Agreement (including Exhibit A), SCM shall provide you with the
same level of SCM subsidized health (i.e., medical, vision and dental) coverage
and executive benefits as in effect for you on the day of such determination
through the End Date. You will continue to have the right to use the SCM company
car you are currently using until the End Date, at which time you will deliver
the car to an SCM designee in Connecticut.

         3.       COBRA. After the End Date, you agree to elect continued health
coverage pursuant to the Consolidated Budget Reconciliation Act of 1985, as
amended ("COBRA"). Subject to you making such election and executing and not
revoking and delivering to the Company, on or around such date, a release in
substantially the form attached as Exhibit A, the Company will reimburse you for
the amount of such COBRA premiums from the End Date until December 31, 2003
relating to the SCM-paid coverage provided by SCM prior to the End.



         4.       Compensation.

                  (a)      Base Salary. During the Employment Term and beginning
on the Effective Date, SCM will pay you as compensation for your services at a
monthly rate of $25,000 (the "BASE SALARY"); provided, however, that for the
month of May 2003 you will receive a pro rata portion of your current monthly
base salary with SCM ($________) for the period from May 1 to the Effective Date
and a pro rata portion of the Base Salary from the Effective Date until May 31,
2003. The Base Salary will be paid through payroll periods that are consistent
with SCM's normal payroll practices, assuming that you are in compliance with
all of your obligations under this Agreement.

                  If SCM terminates the Employment Term prior to June 1, 2003,
the entire pro rata amount of the Base Salary will be paid to you during the
month of May 2003, but SCM will not be obligated to pay you the Base Salary or
any other salary, bonus or other compensation for the month of June or
thereafter. If you terminate the Employment Term prior to June 1, 2003, you will
only be entitled to a pro rata portion of the Base Salary earned from the
Effective Date through the End Date. If SCM terminates the Employment Term
during the month of June 2003, SCM will pay you the entire amount of the Base
Salary for the month of June 2003 (together with any earned but unpaid Base
Salary from May 2003), but SCM will not be obligated to pay you the Base Salary
or any other salary, bonus or other compensation for the month of July or
thereafter. If you terminate the Employment Term during the month of June 2003,
you will only be entitled to a pro rata portion of the Base Salary earned from
June 1, 2003 through the End Date (together with any earned but unpaid Base
Salary from May 2003). If SCM terminates the Employment Term during the month of
July 2003, SCM will pay you the entire amount of the Base Salary for the month
of July 2003 (together with any earned but unpaid Base Salary from May or June
2003). If you terminate the Employment Term during the month of July 2003, you
will only be entitled to a pro rata portion of the Base Salary earned from July
1, 2003 through the End Date (together with any earned but unpaid Base Salary
from May or June 2003).

                  (b)      Stock Options. During the Employment Term, your
unexpired stock options will continue to vest and become exercisable pursuant to
the terms and conditions of the stock option plans and the applicable stock
option agreements by and between you and SCM, assuming that you are providing
services to SCM on each vesting date and that you are in compliance with all of
your obligations under this Agreement.

         5.       Indemnification and D&O Insurance. The parties agree that (i)
you will continue to be covered by the terms and conditions of the Indemnity
Agreement entered into between you and SCM on [INDEMNITY AGREEMENT DATE] (the
"INDEMNITY AGREEMENT"), (ii) the parties' rights and obligations thereunder are
unaffected by this Agreement and (iii) the Indemnity Agreement will cover your
activities performed hereunder during the Employment Term.

         6.       Settlement Agreement and Release. On the date you sign this
Agreement, you will sign and deliver to SCM a Settlement Agreement and Release
in the form attached as Exhibit A. SCM's obligation to perform under this
Agreement is contingent upon your signing and not revoking the Settlement
Agreement and Release.

         7.       Removal of Files. Following your termination of employment,
you may remove your personal files from SCM's premises. Any file containing
"Employment Information" (as defined in

                                                                             -2-


Section 11) may not be removed from SCM's premises without the written consent
of the Board or the CEO.

         8.       Assignment. This Agreement will be binding upon and inure to
the benefit of (a) your heirs, executors and legal representatives upon your
death and (b) any successor of SCM. Any such successor of SCM will be deemed
substituted for SCM under the terms of this Agreement for all purposes. For this
purpose, "SUCCESSOR" means any person, firm, corporation or other business
entity which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of SCM.
None of your rights to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of your right to compensation or other benefits will be null and
void.

         9.       Notices. All notices, requests, demands and other
communications called for hereunder shall be in writing and will be deemed given
(a) on the date of delivery if delivered personally or by facsimile, (b) one (1)
day after being sent by a well established commercial overnight service, or (c)
four (4) days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors at the
following addresses, or at such other addresses as the parties may later
designate in writing:

                  If to SCM:

                  SCM Microsystems, Inc.
                  466 Kato Terrace
                  Fremont, CA 94539
                  Fax:  (510) 360-0211
                  Telephone:  (510) 360-2300
                  Attn:  Stuart Arnott

                  With a copy to:

                  Wilson Sonsini Good rich & Rosati, P.C.
                  650 Page Mill Road
                  Palo Alto, CA 94304
                  Fax:  (650) 493-6811
                  Telephone:  (650) 493-9300
                  Attn:  Kurt J. Berney, Esq.

                  If to you:

                  at the last residential address known by SCM.

         10.      Severability. In the event that any provision hereof becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement will continue in full force and effect without said
provision.

         11.      Confidentiality. During the Employment Term and thereafter,
you agree to use your best efforts to maintain in confidence the existence of
this Agreement, the contents and terms of this

                                                                             -3-


Agreement, including any documents incorporated by reference, the consideration
for this Agreement, any SCM proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited to,
customers of SCM on whom you called or with whom you became acquainted during
the term of your employment), markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances or other business information
disclosed to you by SCM either directly or indirectly in writing or orally
(hereinafter collectively referred to as "EMPLOYMENT INFORMATION"). You agree to
take every reasonable precaution to prevent disclosure of any Employment
Information to third parties, and agree that there will be no publicity,
directly or indirectly, concerning any Employment Information. You agree to take
every precaution to disclose Employment Information only to those attorneys,
accountants, governmental entities and family members who have a reasonable need
to know of such Employment Information.

         12.      Non-Disparagement. You and SCM agree to refrain from making
any negative comments about the other concerning their respective business,
products or services, officers, employees and directors and to refrain from any,
defamation, libel or slander of the other and their respective officers,
directors, employees, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns or
tortious interference with the contracts and relationships of the other and
their respective officers, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns.

         13.      Entire Agreement. This Agreement (including Exhibit A),
together with the Indemnity Agreement, the Invention and Assignment Agreement to
which you are a party and your stock option agreements, represents the entire
agreement and understanding between SCM and you concerning your employment
relationship with SCM or any of its subsidiaries, and supersedes and replaces
any and all prior agreements and understandings concerning your employment
relationship with SCM.

         14.      Submission to Jurisdiction; Expenses.. The parties submit to
jurisdiction of any state or federal court sitting in Santa Clara, California in
any action or proceeding arising out of or relating to this Agreement and agree
that all claims in respect of such action or proceeding may be heard and
determined in such court. Any final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or in equity. The prevailing party in any such
judgment will be entitled to recover its costs and expenses, including the costs
of litigation and court fees, plus reasonable attorneys' fees, incurred in
connection with such an action.

                           (i)

         15.      Cooperation with SCM. During and after the Employment Term,
you will cooperate fully with SCM, including, but not limited to, responding to
the reasonable requests of SCM's Board or counsel, in connection with any and
all existing or future litigation, arbitrations, mediations or investigations
brought by or against SCM or any of its affiliates, agents, officers, directors
or employees, whether administrative, civil or criminal in nature, in which SCM
reasonably deems your cooperation necessary or desirable. You agree to provide
reasonable advice, assistance and

                                                                             -4-


information, including offering and explaining evidence, providing sworn
statements, participating in discovery and trial preparation and testimony as
may reasonably be deemed necessary or desirable by SCM relating to its position
in any such legal proceedings. You also agree to promptly send SCM copies of all
correspondence (for example, but not limited to, subpoenas) received by you in
connection with any such legal proceedings, unless you are expressly prohibited
by law from so doing. You will act in good faith to furnish the information and
cooperation required by this Section 15 and SCM will act in good faith so that
the requirement to furnish such information and cooperation does not create an
undue hardship for you. SCM will reimburse you for reasonable out-of-pocket
expenses incurred by you as a result of your cooperation, within ten (10) days
of the presentation of appropriate documentation thereof, in accordance with
SCM's standard reimbursement policies and procedures. The failure by you to
cooperate fully with SCM in accordance with this Section 15 will be a material
breach of the terms of this Agreement, which will result in all commitments of
SCM to make additional payments to you becoming null and void. Notwithstanding
anything in this Section, it is agreed that if possible SCM will provide you
with reasonable advance notice regarding these activities, and that any requests
made hereunder by SCM will be made in good faith and reasonable.

         16.      No Oral Modification, Cancellation or Discharge. This
Agreement may be changed or terminated only in writing (signed by you and the
CEO of SCM (on behalf of SCM)).

         17.      Withholding. SCM is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

         18.      Governing Law. This Agreement will be governed by the laws of
the State of California (with the exception of its conflict of laws provisions).

         19.      Authority. SCM represents and warrants that the person signing
this Agreement on its behalf has full authority to act for SCM.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                                                             -5-


         20.      Acknowledgment. You acknowledge that you (i) have read this
Agreement, (ii) have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of your own choice or that you
voluntarily have declined to seek counsel, (iii) understand the terms and
consequences of this Agreement, and (iv) are fully aware of the legal and
binding effect of this Agreement.

         IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth above.

                                           BRIAN CAMPBELL

                                           /s/ Brian Campbell
                                           -------------------------------------
                                           Brian Campbell 5/22/03

                                           SCM MICROSYSTEMS, INC.

                                           By: /s/ Robert Schneider
                                               ---------------------------------

                                           Title: CEO

                                                                             -6-

EX-10.25

                                                                   EXHIBIT 10.25

                    AMENDED AND RESTATED SEVERANCE AGREEMENT

         This Amended and Restated Severance Agreement (this "AGREEMENT") is
made by and between SCM Microsystems, Inc. ("SCM"), and You, Andrew Warner
("You" and "Your"), as of August 13, 2003 (the "EFFECTIVE DATE"). This Amended
and Restated Severance Agreement amends and restates in its entirety that
certain Agreement by and between SCM and You, dated as of June 29, 2003 (the
"ORIGINAL AGREEMENT").

         1.       Resignation. Effective June 29, 2003 (the "RESIGNATION DATE"),
You resigned as an employee of SCM and/or any of its subsidiaries and all
officer or director positions with SCM and/or any of its subsidiaries. All
options or other awards You hold under SCM's 1997 Stock Plan (or any other
similar options or awards) ceased vesting as of the Resignation Date and all
post-termination exercise periods will commence as of the Resignation Date (as
provided in the respective agreements between You and the Company). Your PTO
ceased accruing as of the Resignation Date.

         2.       Severance and Other Payments. Subject to You signing and not
revoking the settlement agreement and release in the form attached hereto as
Exhibit A (the "SETTLEMENT AGREEMENT AND RELEASE"), within 5 days of the date
hereof SCM will pay You $341,538.48 in cash, by check or wire transfer. Such
payment is in consideration of Your execution of the Settlement Agreement and
Release and is comprised of the following:

                  (a)      A $115,000 transaction bonus related to SCM's sale of
substantially all of the digital video assets related to its former Digital
Media and Video division to Pinnacle Systems, Inc.; and

                  (b)      A $251,000 severance payment (less $24,461.52
previously paid to You before the date hereof) in satisfaction of all salary,
wages, bonus (including second quarter MBO), severance, accrued PTO or similar
amounts that SCM owes You as of the Resignation Date and as of the date hereof.

         You acknowledge that SCM has paid all salary, wages, bonuses, accrued
vacation and PTO, commissions, ESPP refunds and any and all other
employment-related benefits due to You once the payments and benefits referenced
in Sections 2 and 3 are received.

         3.       Medical Benefits. Subject to You executing and not revoking
the Settlement Agreement and Release, SCM will continue coverage of Your
existing medical benefits from the Resignation Date through September 30, 2003
consistent with the medical benefits SCM provided You immediately prior to the
Resignation Date.

         4.       Invention and Assignment Agreement. You and SCM have executed
and delivered an Invention Assignment Agreement (the "INVENTION AND ASSIGNMENT
AGREEMENT").

         5.       Removal of Files. To the extent You have not done so already,
You may remove Your personal files from SCM's premises. Any file containing
"Confidential Information" of the



Company (as that term is defined in the Invention and Assignment Agreement) may
not be removed from SCM's premises without the written consent of the Board of
Directors or the CEO of SCM.

         6.       Assignment. This Agreement will be binding upon and inure to
the benefit of (a) Your heirs, executors and legal representatives upon Your
death and (b) any successor of SCM. Any such successor of SCM will be deemed
substituted for SCM under the terms of this Agreement for all purposes. For this
purpose, "successor" means any person, firm, corporation or other business
entity which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of SCM.
None of Your rights to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by the written consent of SCM,
by will or by the laws of descent and distribution. Any other attempted
assignment, transfer, conveyance or other disposition of Your right to
compensation or other benefits will be null and void.

         7.       Notices. All notices, requests, demands and other
communications called for hereunder will be in writing and will be deemed given
(a) on the date of delivery if delivered personally or by facsimile, (b) one (1)
day after being sent by a well established commercial overnight service, or (c)
four (4) days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors at the
following addresses, or at such other addresses as the parties may later
designate in writing:

                  If to SCM:

                  SCM Microsystems, Inc.
                  466 Kato Terrace
                  Fremont, California 94539
                  Fax: (510) 360-0211
                  Telephone: (510) 360-2300
                  Attn: Steven L. Moore and Stuart Arnott

                  With a copy to:

                  Wilson Sonsini Goodrich & Rosati, P.C.
                  650 Page Mill Road
                  Palo Alto, CA 94304
                  Fax: (650) 493-6811
                  Telephone: (650) 493-9300
                  Attn: Kurt J. Berney, Esq.

                  If to You, to You at:

                  Andrew Warner
                  18660 Castle Lake Drive
                  Morgan Hill, CA 95037
                  Fax: (408) 779-4775

                                                                               2


                  Tel: (408) 779-2339

                  With a copy to:

                  Bingham McCutchen LLP
                  150 Federal Street
                  Boston, MA 02110
                  Fax: (617) 951-8736
                  Telephone: (617) 951-8000
                  Attn: John Utzschneider, Esq.

         8.       Severability. In the event that any provision of this
Agreement (other than Section 2) becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement will continue
in full force and effect without said provision.

         9.       Confidentiality. You agree to maintain in confidence the
existence of this Agreement, the contents and terms of this Agreement, including
any documents incorporated by reference, and the consideration for this
Agreement.

         10.      Non-Disparagement. You and SCM agree to refrain from making
any negative comments about the other concerning their respective business,
products or services, officers, employees and directors and to refrain from any,
defamation, libel or slander of the other and their respective officers,
directors, employees, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns or
tortious interference with the contracts and relationships of the other and
their respective officers, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns.

         11.      Entire Agreement. This Agreement (including Exhibit A),
together with the Invention and Assignment Agreement, represents the entire
agreement and understanding between SCM and You concerning the subject matter
hereof and supersedes and replaces any and all prior agreements (including,
without limitation, the Original Agreement) and understandings concerning Your
employment relationship with SCM, except for such agreements, policies or plans
that govern Your medical, retirement or pension benefits and except for any
stock option or similar agreements between You and SCM.

                                                                               3


         12.      Arbitration and Equitable Relief.

                  (a)      Except as provided in Section 12(d) below, You and
SCM agree that to the extent permitted by law, any dispute or controversy
arising out of, relating to, or in connection with this Agreement (including the
Settlement Agreement and Release and any agreement referenced in Section 11
hereof), or the interpretation, validity, construction, performance, breach, or
termination thereof will be settled by arbitration to be held in the County of
Santa Clara, California, in accordance with the National Rules for the
Resolution of Employment Disputes then in effect of the American Arbitration
Association (the "RULES"). The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator will be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.

                  (b)      The arbitrator will apply California law to the
merits of any dispute or claim (with the exception of its conflict of laws
provisions). You hereby expressly consent to the personal jurisdiction of the
state and federal courts located in California for any action or proceeding
arising from or relating to this Agreement and/or relating to any arbitration in
which the parties are participants.

                  (c)      SCM will pay the direct costs and expenses of the
arbitration. SCM and You each will pay Your own counsel fees and expenses.

                  (d)      SCM or You may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or other
interim or conservatory relief, as necessary to enforce the provisions of this
Agreement, without breach of this arbitration agreement and without abridgement
of the powers of the arbitrator.

                  (e)      YOU HAVE READ AND UNDERSTAND THIS SECTION 12, WHICH
DISCUSSES ARBITRATION. YOU UNDERSTAND THAT BY SIGNING THIS AGREEMENT, YOU AGREE
TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING
ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF YOUR RIGHT
TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO,
THE FOLLOWING CLAIMS:

                           (i)      ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;

                                                                               4


                           (ii)     ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS
WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF ANY
STATE; AND

                           (iii)    ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

         13.      Cooperation with SCM. You will, for a period of six (6) months
after the date hereof, cooperate fully with SCM to the extent of your
availability, including, but not limited to, (a) responding to the reasonable
requests of SCM's Board or counsel, in connection with any and all existing or
future litigation, arbitrations, mediations or investigations brought by or
against SCM or any of its affiliates, agents, officers, directors or employees,
whether administrative, civil or criminal in nature, in which SCM reasonably
deems Your cooperation necessary or desirable and, (b) responding to reasonable
requests and providing information reasonably within Your knowledge regarding
SCM's results of operations, financial condition and performance, internal
controls, disclosure controls and procedures, accounting practices and policies,
reporting procedures and practices, other related information and any other
information reasonably within Your knowledge that is necessary or appropriate
for SCM to satisfy its obligations under the Securities Exchange Act of 1934, as
amended. During such period, You agree to provide reasonable advice, assistance
and information, including offering and explaining evidence, providing sworn
statements, participating in discovery and trial preparation and testimony as
may reasonably be deemed necessary or desirable by SCM relating to its position
in any such legal proceedings. During such period, You also agree to promptly
send SCM copies of all correspondence (for example, but not limited to,
subpoenas) received by You in connection with any such legal proceedings, unless
You are expressly prohibited by law from so doing. During such period, You will
act in good faith to furnish the information and cooperation required by this
Section 13 and SCM will act in good faith so that the requirement to furnish
such information and cooperation does not create an undue hardship for You. SCM
will advance to You all out-of-pocket expenses which you reasonably anticipate
You will incur as a result of Your cooperation, provided that You will provide
appropriate documentation thereof within ten (10) days of incurring any such
expenses, and, at the termination of the cooperation period, a reconciliation
shall be completed including appropriate credits or debits as necessary (i) to
reimburse You fully for all such expenses or (ii) to repay SCM any amounts you
owe for previous expense advancements. The failure by You to cooperate fully
with SCM in accordance with this Section 13 will be a material breach of the
terms of this Agreement. Notwithstanding anything in this Section 13, it is
agreed that if possible SCM will provide You with reasonable advance notice
regarding these activities, and that any requests made hereunder by SCM will be
made in good faith and reasonable.

         14.      No Oral Modification, Cancellation or Discharge. This
Agreement may be changed or terminated only in writing (signed by You and the
Chief Executive Officer of SCM (on behalf of SCM)).

                                                                               5


         15.      Waiver of Breach. The waiver of a breach of any term or
provision of this Agreement, which must be in writing, will not operate as or be
construed to be a waiver of any other previous or subsequent breach of this
Agreement. No breach of any covenant hereunder by You will relieve SCM of any
obligation to make any payment required hereunder; provided, however, that the
foregoing does not require SCM to make any payment hereunder unless and until
the satisfaction or waiver of the conditions precedent to the making of such
payment. For the avoidance of doubt, nothing contained in this Section 15 limits
SCM's right to take any action against you, whether equitable or legal, as a
result of Your breach of a covenant hereunder.

         16.      Headings. All captions and section headings used in this
Agreement are for convenient reference only and do not form a part of this
Agreement.

         17.      Withholding. SCM is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any withholding taxes required by applicable law.

         18.      Governing Law. This Agreement will be governed by the laws of
the State of California (with the exception of its conflict of laws provisions).

         19.      Authority. SCM represents and warrants that the person signing
this Agreement on its behalf has full authority to act for SCM.

         20.      Counterparts. This Agreement may be executed in counterparts,
and each counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

                                                                               6

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



         21.      Acknowledgment. You acknowledge that You (i) have read this
Agreement, (ii) have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of Your own choice or that You
voluntarily have declined to seek counsel, (iii) understand the terms and
consequences of this Agreement, and (iv) are fully aware of the legal and
binding effect of this Agreement.

         IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth above.

                                        ANDREW WARNER

                                        /s/ Andrew Warner
                                        ----------------------------------------
                                        Andrew Warner

                                        SCM MICROSYSTEMS, INC.

                                        By: /s/ Robert Schneider
                                            ------------------------------------

                                        Title:   Chief Executive Officer

                      [ANDREW WARNER/SCM MICROSYSTEMS, INC.
            AMENDED AND RESTATED SEVERANCE AGREEMENT SIGNATURE PAGE]

EX-10.26

                                                                   EXHIBIT 10.26

                                                                  EXECUTION COPY

                             PINNACLE SYSTEMS, INC.

                       DECLARATION OF REGISTRATION RIGHTS

         This Declaration of Registration Rights ("Declaration") is made as of
July 25, 2003, by Pinnacle Systems, Inc., a California corporation ("the
Company"), for the benefit of SCM Microsystems, Inc., a Delaware corporation (
"Parent"), acquiring shares of Company Common Stock pursuant to that Asset
Purchase Agreement dated as of June 29, 2003 (the "Agreement"), among the
Company, Parent and Dazzle Multimedia, Inc., a Delaware corporation sometimes
doing business as "Dazzle, Inc." and wholly-owned subsidiary of Parent.

         WHEREAS, it is a condition to Parent's obligation to consummate the
transactions contemplated by the Agreement that the Company enter into this
Declaration.

         1.       Definitions. As used in this Declaration:

                    (a)  "Exchange Act" means the Securities Exchange Act of
                         1934, as amended.

                    (b)  "Form S-3" means such form under the Securities Act as
is in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the SEC that similarly permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

                    (c)  "Holder" shall mean (i) Parent or (ii) a transferee of
Registrable Securities to whom registration rights granted under this Agreement
are assigned pursuant to Section 8 of this Agreement.

                    (d)  "Registrable Securities" means the number of shares of
Company Common Stock issued to Parent pursuant to the Agreement at Closing;
provided, however, that such shares of Company Common Stock held by Parent shall
cease to be Registrable Securities (i) after a registration statement on Form
S-3 with respect to the sale of such shares shall have been declared effective
under the Securities Act and such shares shall have been disposed of in
accordance with such registration statement and with Section 2 hereof or (ii)
the one-year anniversary of the Closing Date.

                    (e)  "Securities Act" means the Securities Act of 1933, as
amended.

                    (f)  "SEC" means the United States Securities and Exchange
Commission.

         Terms not otherwise defined herein have the meanings given to them in
the Agreement.

         2.       Registration Statement on Form S-3.

                    (a)  The Company shall use its best efforts to cause the
Registrable Securities to be registered under the Securities Act so as to permit
the resale thereof. In connection therewith, the



Company shall prepare and file with the SEC a registration statement on Form S-3
(or any successor form to Form S-3, or if Form S-3 is not available, another
appropriate form) covering all Registrable Securities within twenty (20) days of
the Closing Date. It shall be a condition precedent to the obligations of the
Company pursuant to this Declaration register the Registrable Securities that
Parent shall provide all such information and materials regarding Parent and
take all such action as may be required under applicable laws and regulations in
order to permit the Company to comply with all applicable requirements of the
Securities Act and the Exchange Act that relate to the Company's ability to file
and have declared effective a registration statement pursuant to this
Declaration, and to obtain any desired acceleration of the effective date of
such registration statement. The offerings made pursuant to such registration
shall not be required to be underwritten.

                  (b)      The Company shall (i) prepare and file with the SEC
the registration statement in accordance with Section 2(a) hereof with respect
to the Registrable Securities and shall use its best efforts to cause such
registration statement to become effective as promptly as practicable after
filing (and shall request acceleration of effectiveness of such registration
statement by the SEC no later than forty-eight (48) hours after receiving notice
from the SEC that it will not review the registration statement or that any SEC
comments have been resolved to the satisfaction of the SEC) and to keep such
registration statement effective until the earliest to occur of (A) the date on
which all Registrable Securities included within such registration statement
have been sold or (B) the one-year anniversary of the Closing Date; provided,
however, that the Company shall not be obligated to have the registration
statement declared effective by the SEC until after it shall have publicly
released its earnings for the quarter ended June 30, 2003; (ii) prepare and file
with the SEC such amendments to such registration statement and amendments or
supplements to the prospectus used in connection therewith as may be necessary
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities registered by such registration statement;
(iii) furnish to Parent such number of copies of any prospectus (including any
preliminary prospectus and any amended or supplemented prospectus) in conformity
with the requirements of the Securities Act, and such other documents, as Parent
may reasonably request in order to effect the offering and resale of the
Registrable Securities to be offered and sold, but only while the Company shall
be required under the provisions hereof to cause the registration statement to
remain effective; (iv) register or qualify the Registrable Securities covered by
such registration statement under the securities or blue sky laws of such
jurisdictions as Parent shall reasonably request (provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such jurisdiction where it has not been qualified or is not otherwise subject to
a general consent for service of process), and do any and all other acts or
things which may be necessary or advisable to enable Parent to consummate the
public sale or other disposition of such Registrable Securities in such
jurisdictions; and (v) notify Parent, promptly after it shall receive notice
thereof, of the date and time the registration statement and each post-effective
amendment thereto has become effective or a supplement to any prospectus forming
a part of such registration statement has been filed.

         3.       S-3 Eligibility. As of the date hereof, the Company meets the
"Registrant Requirements" for eligibility to use Form S-3 as set forth in
Section I. A. of the General Instructions to Form S-3.

                                      -2-


         4.       Suspension of Prospectus. Under any registration statement
filed pursuant to Section 2 hereof, the Company may restrict disposition of
Registrable Securities, and Parent will not be able to dispose of such
Registrable Securities, if the Company shall have delivered a notice in writing
to Parent stating that a delay in the disposition of such Registrable Securities
is necessary because the Company, in its reasonable judgment, has determined in
good faith that such sales would require public disclosure by the Company of
material nonpublic information that is not included in such registration
statement and that immediate disclosure of such information would be materially
detrimental to the Company. In the event of the delivery of the notice described
above by the Company, the Company shall use its reasonable best efforts to amend
such registration statement and/or amend or supplement the related prospectus if
necessary and to take all other actions necessary to allow the proposed sale to
take place as promptly as possible, subject, however, to the right of the
Company to delay further sales of Registrable Securities until the conditions or
circumstances referred to in the notice have ceased to exist or have been
disclosed. Such right to delay sales of Registrable Securities shall not be
exercised by the Company more than two times in any four (4) month period and
shall not exceed sixty (60) days in the aggregate (during the period the
registration statement is otherwise required to remain effective specified in
Section 2(b) above) and no longer than thirty (30) days as to any single delay.
The provisions set forth in this Section 4 shall have no adverse effect upon,
nor compromise, the rights of Parent under Section 2.12(a)(iii) of the
Agreement.

         5.       Expenses. All of the out-of-pocket expenses incurred in
connection with any registration of Registrable Securities pursuant to this
Declaration, including, without limitation, all SEC, Nasdaq National Market and
blue sky registration and filing fees, printing expenses, transfer agents' and
registrars' fees and the reasonable fees and disbursements of the Company's
outside counsel and independent accountants shall be paid by the Company. The
Company shall not be responsible for any legal fees or any selling expenses of
Parent incurred in connection with the registration or, subject to Section 6
hereof, the resale of Registrable Securities pursuant to this Declaration
(including, without limitation, any broker's fees or commissions); provided that
nothing in this Section 5 shall have an adverse effect upon, nor compromise, the
rights of Parent under Section 2.12(d) of the Agreement. Notwithstanding the
foregoing, in the event that at the Company's election the resale of the
Registrable Securities occurs in a registration conducted as a firm commitment
underwritten offering, the Company shall also pay the underwritten discounts and
commissions of any Registrable Securities of Parent if it participates therein.

         6.       Sale Without Registration. The Holder of a certificate
representing Registrable Securities required to bear the legend in substantially
the form set forth in Section 3.17 of the Agreement by acceptance thereof agrees
to comply in all respects with the provisions of this Section 6. Prior to any
proposed sale or transfer of any Registrable Securities which shall not be
registered under the Securities Act, the holder thereof shall give written
notice to the Company of such Holder's intention to effect such transfer,
accompanied by: (i) such information as is reasonably necessary in order to
establish that such transfer may be made without registration under the
Securities Act; and (ii) except for transfers proposed to be made in accordance
with SEC Rule 144 (as in effect at the date hereof and as amended from time to
time thereafter), upon request and at the expense of the Company, a customary
written opinion of legal counsel, satisfactory in form and substance to the
Company, to the effect that such transfer may be made without registration under
the Securities Act;

                                      -3-


provided, however, that, notwithstanding anything to the contrary herein, the
Company shall not be required to incur any expense in connection with a written
opinion of legal counsel required for a "section 4(1-1/2)" private resale of
Registrable Securities (other than a "section 4(1-1/2)" private resale in
connection with a Private Sale pursuant to Section 2.12 of the Agreement);
provided, further, that nothing contained in this Section 6 shall relieve the
Company from complying with any request for registration, qualification or
compliance made pursuant to the other provisions of Section 2 of this Agreement.

         7.       Indemnification. In the event of any offering registered
pursuant to this Declaration:

                  (a)      the Company will indemnify Parent, each of its
officers, directors and partners and Parent's legal counsel, and each person
controlling Parent within the meaning of Section 15 of the Securities Act (each,
a "Seller Indemnified Party"), with respect to which registration, qualification
or compliance has been effected pursuant to this Declaration, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act, or state securities
laws, or common law, applicable to the Company in connection with any such
registration, qualification or compliance, and will reimburse each Seller
Indemnified Party for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable to any Seller Indemnified Party to the extent that any such claim, loss,
damage, liability or expense arises out of or is based in any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished by any Seller Indemnified Party
to the Company in an instrument duly executed by such Seller Indemnified Party
and stated to be specifically for use therein.

                  (b)      Parent will indemnify the Company, each of its
directors and officers who has signed any registration statement made effective
pursuant to the obligations hereunder and its legal counsel and independent
accountants (each, a "Company Indemnified Party"), against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Company Indemnified Party for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by

                                      -4-


Parent and stated to be specifically for use therein; provided, however, that
the obligations of Parent hereunder shall be limited to an amount equal to the
gross proceeds (after deducting reasonable commissions) received by Parent of
Registrable Securities sold as contemplated herein.

                  (c)      If the indemnification provided for in this Section 7
is for any reason not available to a party entitled to indemnification under
this Section 7 (the "Indemnified Party") with respect to any loss, liability,
claim, damage, or expense referred to therein as a result of a judicial
determination that such indemnification may not be enforced, in such case
notwithstanding this Declaration to the contrary, the party required to provide
indemnification (the "Indemnifying Party"), in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or the alleged untrue statement of a material fact or the
omission or the alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation and provided, further that the
liability of Parent or any permitted transferee of the registration rights
granted hereunder this Section 7(c) shall not exceed the proceeds from the
offering received by Parent or any permitted transferee of the registration
rights granted hereunder, prior to deduction of any commissions, transfer taxes
or other selling expenses incurred with respect to such sale.

                  (d)      Each Indemnified Party shall give notice to the
Indemnifying Party promptly after such Indemnified Party has written notice of
any claim or potential claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or
potential claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Declaration, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is compared as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Indemnified Party of
a release from all liability in respect to such claim or litigation.

                  (e)      The obligations of Parent and Company under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Declaration and otherwise.

                                      -5-


         8.       Limitation on Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this
Declaration may not be assigned by Parent unless such a transfer is (a) to an
Affiliate (as defined pursuant to Rule 144 of the Securities Act) and such
assignment includes all of the Registrable Securities then held by the
transferor or (b) in connection with a Private Sale (as defined in the
Agreement) of Registrable Securities pursuant to Section 2.12 of the Agreement.
Prior to a permitted transfer of registration rights under this Declaration,
Parent must furnish the Company with written notice of the name and address of
such proposed transferee and the Registrable Securities with respect to which
such registration rights are being assigned and a copy of a duly executed
written instrument in form reasonably satisfactory to the Company by which such
transferee assumes all of the obligations and liabilities of its transferor
hereunder and agrees itself to be bound hereby. No transfer of registration
rights under this Declaration shall be permitted if immediately following such
transfer the disposition of such Registrable Securities by the transferee is not
restricted under the Securities Act.

         9.       Termination of Registration Rights. The registration rights
set forth in this Agreement shall terminate with respect to the Company Common
Stock issued pursuant to the Agreement (and the right to transfer such shares of
the Company Common Stock pursuant to the registration statement under which such
shares of the Company Common Stock were registered shall terminate) immediately
upon the earliest to occur of (i) the date on which such shares cease to be
Registrable Securities, (ii) the one (1) year anniversary of the issuance of
such shares pursuant to the Agreement and (iii) the date that all parties hereto
agree in writing to so terminate this Agreement; provided, however, that no such
termination shall affect (i) any liability of the Company for any prior breach
of the registration rights of the Holders set forth herein or (ii) the
indemnification obligations of the Company and of a Holder pursuant to Section 7
of this Agreement.

         10.      Information. Parent shall furnish to the Company such
information regarding Parent, the Registrable Securities held by Parent and the
distribution proposed by Parent as the Company may reasonably request in writing
and as shall be required in connection with any registration, qualification or
compliance referred to in this Declaration.

         11.      Reports Under Exchange Act. Subject to Section 2 of this
Agreement, the Company agrees to:

                  (a)      use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and

                  (b)      furnish to Parent, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, or that it qualifies as
a registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), and (ii) a copy of the most recent annual or quarterly
report of the Company.

         12.      Amendment of Registration Rights. The registration rights
granted hereunder may not be amended without the mutual written consent of
Parent and the Company.

                                      -6-


         13.      Governing Law. This Declaration shall be governed in all
respects by and construed in accordance with the laws of the State of
California.

                  [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

                                      -7-



                                                                  EXECUTION COPY

         IN WITNESS WHEREOF, this Declaration of Registration Rights is executed
as of the date first above written.

                                           PINNACLE SYSTEMS, INC.

                                           By: /s/ Arthur D. Chadwick
                                               ---------------------------------
                                                Arthur D. Chadwick
                                                Vice President of Finance and
                                                Chief Financial Officer

                                           SCM MICROSYSTEMS, INC.

                                           By: Robert Schneider
                                               ---------------------------------
                                                Name: Robert Schneider
                                                Title: CEO

             [SIGNATURE PAGE TO DECLARATION OF REGISTRATION RIGHTS]

EX-31.1

                                                                    EXHIBIT 31.1

                             SCM MICROSYSTEMS, INC.
     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Schneider, Chief Executive Officer of SCM Microsystems, Inc., certify
that as of the date hereof:

         1.       I have reviewed this quarterly report on Form 10-Q of SCM
                  Microsystems, Inc.;

         2.       Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e)and 15d-(15)(e)) for the registrant and we have:

             a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

             b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

             c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent function):

             a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal controls over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

             b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: August 14, 2003                          By:   /s/ ROBERT SCHNEIDER
                                                   -----------------------------
                                                         Robert Schneider
                                                         Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                             SCM MICROSYSTEMS, INC.
     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven L. Moore, Chief Financial Officer of SCM Microsystems, Inc., certify
that as of the date hereof:

         1.       I have reviewed this quarterly report on Form 10-Q of SCM
                  Microsystems, Inc.;

         2.       Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e)and 15d-(15)(e)) for the registrant and we have:

             a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

             b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

             c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent function):

             a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal controls over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

             b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: August 14, 2003            By: /s/ STEVEN L. MOORE
                                     -----------------------------------------
                                         Steven L. Moore
                                         Chief Financial Officer and Secretary

EX-32

                                                                      EXHIBIT 32

      CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         I, Robert Schneider, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of SCM Microsystems, Inc. on Form 10-Q for the quarter ended
June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such
Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of SCM Microsystems, Inc.

                                By: /s/ ROBERT SCHNEIDER
                                    --------------------------------------------
                                Name: Robert Schneider
                                Title: Chief Executive Officer

         I, Steven L. Moore, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of SCM Microsystems, Inc. on Form 10-Q for the quarter ended
June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such
Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of SCM Microsystems, Inc.

                                By: /s/ STEVEN L. MOORE
                                    --------------------------------------------
                                Name: Steven L. Moore
                                Title: Chief Financial Officer and Secretary