Business Combination Agreement

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Term

Definition

means this business combination agreement

has the meaning as defined in section 2.1

has the meaning as defined in section 9.3

means Bluehill ID AG, a stock corporation incorporated in Switzerland, Dufourstraße 121, 9001 St. Gallen, Switzerland

means Ernst & Young AG, Zurich, Switzerland

has the meaning as defined in recital (C)

means the chief executive officer of Bluehill

has the meaning as defined in section 9.2 (h)

means Bluehill’s executive share option plan (ESOP) and Bluehill’s executive bonus plan in each case adopted by the Bluehill Board on 16 September 2009 on the basis of the resolutions of the annual general meeting of 25 May 2009 collectively

has the meaning as defined in section 9.2 (h)

has the meaning as defined in section 7.2

has the meaning as defined in recital (B)

has the meaning as defined in section 10.1

means a day (other than Saturday or Sunday) on which banks are open for business in New York and Frankfurt am Main

means the call option agreement between Bluehill and BH Capital Management AG of 8 September 2009 granting BH Capital Management AG options for 3,914,790 shares in Bluehill on the basis of the resolutions of the annual general meeting of 25 May 2009

means Swiss Francs

means the completion of the acquisition of Bluehill Shares by SCM in exchange for the Share Consideration as a result of the Offer

means the day on which the Closing occurs

has the meaning as defined in recital (C)

means the confidentiality agreement between the Parties dated 3 July 2009

Term

Definition

means a sale and purchase agreement entered into by a Party or any of its Subsidiaries under which a Party or a Subsidiary of a Party, as the case may be, is obliged to issue shares to a third party if certain conditions precedent are met

means the Frankfurt Stock Exchange in Frankfurt/Main, Germany

has the meaning as defined in section 2.2(b)

has the meaning as defined in section 10.3

means a state when any of the Parties or any of its Subsidiaries, as the case may be, has stopped or suspended payment of its debts, has become unable to pay its debts or otherwise become insolvent or over-indebted in any jurisdiction

means Jupiter Capital Services GmbH, Munich, Germany

means the NASDAQ Stock Market’s National Market, New York, USA

has the meaning as defined in recital (E)

has the meaning as defined in recital (D)

has the meaning as defined in section 6.1

has the meaning as defined in section 2.2(c)

means Bluehill or SCM

means a Party and its Subsidiaries, taken as a whole

has the meaning as defined in section 2.2(a)

has the meaning as defined in section 2.2(a)

has the meaning as defined in section 9.3

means SCM Microsystems, Inc., a corporation incorporated in Delaware, USA, 1900-B Carnegie Avenue, Santa Ana, CA 92705, USA

has the meaning as defined in recital (C)

means the chief executive officer of SCM

has the meaning as defined in section 9.1 (h)

has the meaning as defined in section 9.1 (h)

Term

Definition

has the meaning as defined in section 8.2

has the meaning as defined in section 2.1

has the meaning as defined in section 4.2

has the meaning as defined in section 4.2

means the date on which this Agreement is signed by the Parties

means any corporation, partnership, joint venture, limited liability company, association or unincorporated organisation which is directly or indirectly controlled by a Party or is under common control by a Party and a third party; for the purpose of this definition, the term “control” means the power to direct an entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term “controlled” has the meaning correlative to the foregoing

has the meaning as defined in section 7.4

has the meaning as defined in section 17.1

means this Agreement and the transactions contemplated thereby

means US Dollars

Ad hoc publication

Form 8-K

Joint press release

Securities issued by SCM

Participations held by SCM

Securities issued by Bluehill

Participations held by Bluehill

(A)

SCM designs, develops and sells hardware, software and system solutions for access control applications of all kinds. As of the date hereof, SCM has issued and outstanding 25,134,985 shares of common stock with a par value of USD 0.001 each. SCM’s shares are admitted for trading on the regulated market of the FSE (Prime Standard) (ISIN US7840181033, ticker symbol “SMY”) and on the NASDAQ (ticker symbol “SCMM”).

(B)

Bluehill focuses its business activities on the use and development of radio frequency identification (RFID) and other automated identification and access control technologies. Bluehill serves its customers in diverse global markets spanning across the entire RFID and identification value chain. As of the date hereof, Bluehill has a registered share capital of CHF 32,023,797 and issued and outstanding 32,023,797 shares of common stock with a par value of CHF 1.00 each which are traded on the Open Market (Freiverkehr) at the FSE (ISIN CH0031958629, ticker symbol “BUQ”), 173.768 of which are held as treasury shares on the Signing Date (“ Bluehill Shares ”).

(C)

The board of directors of SCM (“ SCM Board ”) and the board of directors (Verwaltungsrat) of Bluehill (“ Bluehill Board ”), after detailed considerations and negotiations as well as completion of a satisfactory due diligence of the respective other Party and its Subsidiaries, believe that a combination of the businesses of the Party Groups (“ Combination ”) is in the best interest of both Parties and their respective shareholders.

(D)

The Parties have jointly considered various transaction structures to effect the Combination and have mutually agreed that the most desirable transaction structure, taking into account the interests of both Parties as well as of their respective shareholders, is a public share-for-share offer by SCM to Bluehill’s shareholders (including any amendments, e.g. prolongations of the Offer period or waivers of conditions, “ Offer ”).

(E)

Shareholders of Bluehill who accept the Offer will transfer their Bluehill Shares to SCM as a contribution in kind in exchange for new shares in SCM (“ New Shares ”).

(F)

SCM intends to acquire all shares in Bluehill by the Offer, but in any event at least 75% of the Bluehill Shares.

(G)

Both Parties are determined to carry out the Transaction and wish to enter into this Agreement which, in particular, sets forth on the one hand Bluehill’s involvement in the Transaction and the support of the Offer by the Bluehill Board in accordance with applicable law, and on the other hand the agreement between the Parties as to the principle terms and their mutual understanding with respect to the realisation of the Transaction, the Transaction structure and the future mutual board representation in each of the Parties after the Closing.

1.

Business rationale of the Transaction

Following numerous intensive discussions which have taken place between Bluehill and SCM, both Parties have come to the conclusion and agree that it would be in their and their respective shareholders’ best interest to execute the Transaction.

Signing of this Agreement by the Parties

Announcement of the signing of this Agreement and the launch of the Offer in the near future

Preparation of Offer Document, including the German Prospectus, and of Registration Statement, including the Proxy Statement for a special stockholders’ meeting of Henry in order to approve the Offer and the issuance of the New Shares

Filing of Registration Statement, and any necessary amendments thereto, review of the Registration Statement by the Securities and Exchange Commission (“ SEC ”) and declaration of the Registration Statement’s effectiveness by the SEC

Review of German Prospectus by the German Federal Financial Supervisory Authority (“ BaFin ”)

Mailing of Proxy Statement to SCM’s stockholders

Publication of Offer Document including German Prospectus

Special stockholders’ meeting of SCM

Closing of the Offer by exchange of Bluehill Shares against New Shares, listing of New Shares at NASDAQ and FSE and delivery of New Shares

2.2

SCM shall, subject to and in accordance with the applicable laws and the terms and conditions of this Agreement, without undue delay ( unverzüglich ) after the Signing Date

(e)

file the Registration Statement with the SEC for review,

(f)

file the German Prospectus with the BaFin for review,

(g)

subject to the complete satisfaction of Bluehill’s covenants set forth in sections 11.5 and 11.6 of this Agreement, mail the Proxy Statement to SCM’s stockholders after the SEC has declared it effective and after the BaFin has approved the German Prospectus,

(h)

subject to the complete satisfaction of Bluehill’s covenants set forth in sections 11.5 and 11.6 of this Agreement, publish the Offer Document (including the German Prospectus) after the SEC has declared the Proxy Statement effective and after the BaFin has approved the German Prospectus,

(i)

hold a special stockholders’ meeting in order to have SCM’s stockholders approve the Offer and the issuance of the New Shares to those shareholders of Bluehill who accept the Offer,

(j)

apply for and use commercially reasonable efforts to obtain approval for the listing of the New Shares on NASDAQ and FSE,

(k)

close the Offer by exchanging the tendered Bluehill Shares against the Share Consideration, and

(l)

hold a meeting of its board of directors to appoint (i) the Bluehill CEO as executive chairman of the SCM Board and (ii) two additional members of the Bluehill Board, as designated by the Bluehill CEO, as members of the SCM Board, in each case to be effective at the Closing.

(a)

provide such assistance and information (financial or other) relating to Bluehill and its Subsidiaries as SCM may reasonably require in order to comply with its obligations set forth in section 2.2 to prepare, file and publish the German Prospectus, the Offer Document, the Registration Statement and the Proxy Statement in accordance with the applicable laws,

(i)

the information provided by or on behalf of Bluehill for inclusion therein does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements in such information, in light of the circumstances in which they are made, not misleading in any material respect,

(ii)

all expressions of opinion, intention or expectation provided by or on behalf of Bluehill for inclusion therein are truly and honestly held and made on reasonable grounds after due consideration and enquiry, and

(iii)

all matters known to Bluehill which should be taken into account by the SEC and/or BaFin in the course of the review of the German Prospectus and the Proxy Statement have been provided by or on behalf of Bluehill to SCM.

3.3

SCM shall not be obligated to launch the Offer if a Termination Event occurs.

4.

Share Exchange Ratio; Share Consideration

4.1

The Share Exchange Ratio is based on a valuation of Bluehill and of SCM performed by the Parties. Under the assumption that all Bluehill Shares are tendered during the course of the Offer and all holders of the Bluehill Shares receive the Share Consideration, the present shareholders of SCM will post Closing hold 60% of the shares in SCM and the present holders of Bluehill Shares will post Closing hold 40% of the shares in SCM.

4.2

The shareholders of Bluehill who tender their Bluehill Shares during the course of the Offer shall receive 0.52 (in words: zero point five two) New Shares for each Bluehill Share being tendered (such share exchange ratio “ Share Exchange Ratio ” and such New Shares “ Share Consideration ”). No adjustment of such share exchange ratio shall be made.

4.3

No fractions of New Shares will be issued. The Share Consideration received by any shareholder of Bluehill will be rounded down to an integer number of New Shares. In lieu of fractional shares, shareholders of Bluehill who have tendered Bluehill Shares will receive adequate compensation.

5.

Offer Document

SCM shall draft the Offer Document in accordance with this Agreement, shall provide Bluehill with a draft of the Offer Document prior to the publication thereof and shall provide Bluehill with a reasonable opportunity to review the draft and provide comments thereon. The Parties acknowledge that SCM is free to take into account or not to take into account the comments made by Bluehill, if any.

6.

Offer Conditions

6.1

The Offer shall be subject to the following conditions precedent:

(d)

absence of the occurrence of an event that has or would have a material adverse effect on either Party Group

(a)

the Bluehill Board and management believe that the Transaction is in the best interest of Bluehill and its shareholders, and

(b)

the Bluehill Board supports the Transaction and recommends to Bluehill’s shareholders to accept the Offer and to tender their Bluehill Shares to SCM

(a)

the Offer having been launched in accordance with this Agreement,

(b)

no Superior Offer having been launched by any third party,

(c)

no circumstances existing that, in the opinion of the Bluehill Board acting