**Exhibit 10.3**

 
| *** *** | ***CONFIDENTIAL TREATMENT***     |
|--------------|----------------------------------|
| *** *** | ***REQUESTED PURSUANT TO RULE*** |
| *** *** | ***24b-2 OF THE SECURITIES***    |
| ** **   | ***EXCHANGE ACT OF 1934***       |

 

**Certain portions of this exhibit have been omitted pursuant to arequest for confidentialtreatment under Rule 24b-2 of the Securities Exchange Act of 1934. Theomitted materialshave been filed separately with the Securities and Exchange Commission.**

 

 

**VISAINTERNATIONALHOLOGRAPHIC MAGNETIC STRIPE TAPE MANUFACTURING APPROVALAGREEMENT**

 

**THIS AGREEMENT**, entered into this 8th day of April 2005(“Effective Date”), is by and between **VISAINTERNATIONAL SERVICE ASSOCIATION (**“**Visa**”**)**, a membership corporationorganized under the laws of the State of Delaware, U.S.A., with its principalplace of business at 900 Metro Center Boulevard, Foster City, California 94404(mailing address P. O. Box 8999, San Francisco, CA 94128-8999), U.S.A. (jointlyand severally hereinafter referred to as “Visa”) and**AMERICAN BANK NOTE HOLOGRAPHICS, INC. (**“**MANUFACTURER**”**)**,with its principal place of business at 2 Applegate Drive, Robbinsville, NJ 08691.

 

WHEREAS,MANUFACTURER is engaged in manufacturing holographic magnetic stripe tape andwishes to manufacture holographic magnetic stripe tape bearing the trade orservice marks of Visa (“HMS”);

 

WHEREAS, Visa wishes to include HMS as a feature on Visa-brandedpayment cards;

 

WHEREAS,the Visa International Operating Regulations require that all HMS is purchasedfrom Visa-approved HMS manufacturers in order to control security risks and toensure that HMS is of uniform high quality and appearance;

 

WHEREAS,MANUFACTURER desires to become a Visa-approved HMS manufacturer in order tosell HMS to Visa-approved card manufacturers that produce Visa-branded paymentcards on behalf of Members that issue Visa-branded payment cards (collectively,“CUSTOMER” or “CUSTOMERS”);

 

WHEREAS,Visa seeks to ensure that MANUFACTURER is capable of producing HMS of uniformhigh quality and appearance under the most secure conditions available; and

 

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The information furnished herein is CONFIDENTIAL and proprietary toVisa International.  It shall not beduplicated, published, or disclosed in whole or in part without prior writtenpermission of Visa International.

 

Visa International Holographic Magnetic Stripe Tape ManufacturingApproval Agreement

 

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WHEREAS, MANUFACTURER has created at its own expense, a customholographic image, and an implementation plan for supply of HMS toVisa-approved card manufacturers that Visa has approved and MANUFACTURER hasproceeded in good faith to implement this plan on behalf of Visa.

 

NOWTHEREFORE, MANUFACTURER and Visa hereby agree as follows:

 

1.             **TERM**

 

Theterm of this Agreement shall commence on the date indicated above when signedby both parties.  It shall continue untilterminated in accordance with the provisions of Section 6 herein.

 

2.**            ****SPECIFICATIONS**

 

2.1           HOLOGRAPHIC MAGNETIC STRIPE Specifications

 

AllHMS manufactured by MANUFACTURER and/or its agents shall conform i) to the holographic origination that MANUFACTURER createdand Visa approved based on the two-dimensional drawing provided by Visa to MANUFACTURER as set forth in Exhibit D attached hereto and made apart hereof by reference (the “Design”), and ii) to the ISO Standards related to magnetic stripeproperties and formats (“ISO Specifications”) (collectively the “Standards andSpecifications”).  Visa may modify said Standards andSpecification by written notice to and delivery to MANUFACTURER of such amendedSpecifications and Standards, in which case the Specifications and Standardsshall be deemed to incorporate such modifications, and MANUFACTURER willimplement said amended Standards and specifications as soon as reasonablypracticable.  Visa may direct MANUFACTURERnot to manufacture HMS, except to finish HMS which may be in progress, untilsuch time as the modification(s) can be implemented by MANUFACTURER.

 

2.2           Use of Visa Proprietary Material for HMSManufacturing

 

MANUFACTURERshall not use any of the proprietary material, standards, specifications, orother material provided to the MANUFACTURER in connection with the manufactureof HMS which is or may be considered proprietary to Visa, for any other purposewithout the prior written consent of Visa.

 

3.**            ****APPROVAL**

 

3.1           MANUFACTURER’S Capability

 

Priorto the initial manufacture of HMS, MANUFACTURER shall provide evidencesatisfactory to Visa that it is capable of fulfilling all obligations expressedherein.

 

3.2           Acceptance of Orders

 

Uponapproval by Visa of sample HMS, MANUFACTURER may commence accepting orders fromCUSTOMERS for HMS, subject to the provisions of this Agreement. Under nocircumstances shall MANUFACTURER sell or otherwise make available HMS otherthan to CUSTOMERS.

 

3.3           Notice of Approval

 

Visamay withhold its approval under this Section 3 until the MANUFACTURER andall of its agents and subcontractors, have satisfied a security inspection byVisa or has received a written waiver from Visa and has satisfied all otherrequirements of the Visa approval process, including payment of applicablefees.  Each approval granted hereunderwill have a term of no more than one year.

 

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3.4           Registration Renewal

 

Uponsatisfaction of Visa that all approval requirements continue to be met Visawill re-approve MANUFACTURER annually. Visa shall use reasonable efforts to conduct its re-approval process ina timely fashion.

 

4.**            ****SECURITY AND INTEGRITY STANDARDS**

 

4.1           Location of Manufacturing Facilities

 

Exhibit Aattached hereto and made a part hereof by reference sets forth the location ofall facilities of MANUFACTURER at which HMS may be manufactured.  MANUFACTURER warrants and represents that itwill not perform any functions related to the manufacture of HMS at any otherfacility without the prior written consent of Visa.

 

4.2           Plant Security Standards

 

Theplant security standards contained in the Visa International SecurityValidation Requirements for Card Vendors manual (“Manual”) set the minimumsecurity and integrity processing standards to be maintained by MANUFACTURERduring the term of this Agreement. MANUFACTURER warrants and represents that during the term of thisAgreement it will, at a minimum, maintain the security controls, productionstandards, and transportation standards set forth in said Manual, the contentsof which are incorporated by reference herein, unless and then only to theextent excused by Visa in a written waiver.

 

4.3           Standards Modification

 

Visamay modify said standards in the Manual from time to time by written notice anddelivery to MANUFACTURER of such amended standards, which shall become part ofthe Manual, and MANUFACTURER agrees to conform to such standards, as amended,as soon as reasonably practicable.

 

4.4           Security Inspections

 

MANUFACTURERauthorizes Visa to designate a representative(s) to inspect MANUFACTURER’sfacilities where HMS is manufactured and/or stored during normal businesshours, with or without advance notice, to ensure, among other things, thatMANUFACTURER is complying with the Manual, transportation requirements,background investigation checks, and standards of professional conduct as setforth herein.  MANUFACTURER shallcooperate fully with such representative(s) in the conduct of such inspection.

 

4.5           Financial Statements

 

a.             MANUFACTURER shall furnish to Visa whenrequested by Visa, copies of all audited financial statements of MANUFACTURER as provided by MANUFACTURERto the United States Securities and Exchange Commission and, upon Visa’s request, shall makequalified personnel available to Visa to discuss MANUFACTURER’s financialstatus.

 

b.             MANUFACTURER shall inform Visa immediately ifthere has occurred a material or adverse change in the MANUFACTURER’s financialcondition not reflected in the latest financial statements furnished to Visa bythe MANUFACTURER.

 

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4.6           Change of Control

 

To the greatest extent possible, MANUFACTURER shall notify Visa inwriting at least thirty (30) days in advance of any merger, consolidation, orsubstantial change of control.

 

4.7           Visa Standards of Conduct

 

MANUFACTURER will comply, and ensure thatany and all MANUFACTURER subcontractors comply, with the Visa Standards ofConduct set out in Exhibit B attached hereto and made a part hereof byreference.

 

**5.****            ****MANUFACTURER’SINDEMNIFICATION OF VISA**

 

Inaddition to any indemnification obligations imposed on MANUFACTURER elsewherein this Agreement, MANUFACTURER shall indemnify and hold harmless Visa and itsregional entities, subsidiaries, affiliates, member financial institutions andthe respective directors, officers, employees, agents, representatives,independent contractors, attorneys, successors, and assigns of the foregoing (“IndemnifiedParties”) from all third party claims, losses, liabilities, damages, suits, actions,government procedures, taxes, penalties or interest, associated auditing andlegal expenses and other costs incurred by Indemnified Parties (“Damages”), provided that Visa promptly notifiesMANUFACTURER in writing of such claim, arising from (i) any claim ofinfringement of patent or other industrial or intellectual property right(including, without limitation, copyrights and rights in proprietaryinformation) arising from the manufacture, sale, offer for sale, importation,exportation, distribution or use of HMS manufactured by MANUFACTURER unless modified by Visa orany third party; (ii) theloss, theft, or unexplained disappearance of any materials or anynon-manufactured or manufactured HMS in the possession or under the control ofthe MANUFACTURER or its agent(s) at the time of the loss, theft, or unexplaineddisappearance; (iii) the use of any counterfeit HMS, or HMS not approvedby Visa,  which was manufactured byMANUFACTURER or its employees or agent(s) or by others with the cooperation or byvirtue of the negligence of the MANUFACTURER, its employees, or agent(s); (iv) themanufacture, sale, distribution or use of HMS which was not manufactured inaccordance with the Standards and Specifications and/or other guidelines ordocumentation provided to MANUFACTURER by Visa; (v) the failure byMANUFACTURER, its officers, employees, or agents, to comply with the securityand integrity standards set forth in this Agreement and as may be supplementedfrom time to time; (vi) the failure of HMS to perform in accordance withthe Standards and Specifications; or (vii) violation of any law, rule, orregulation or the breach of any of the terms of this Agreement, including butnot limited to those terms pertaining to confidentiality and intellectualproperty.  Costs and expenses for which MANUFACTURERshall be liable to indemnify and hold harmless the Indemnified Partieshereunder include, without limitation, reasonable costs and expenses documented by the Indemnified Parties for travel,inspections, rewards, overtime compensation and benefits, laboratory andscientific tests, consultants, and reasonableattorneys’ fees.    Theobligation of MANUFACTURER to indemnify and hold harmless the IndemnifiedParties as set forth herein shall not limit and shall not be lessened by theIndemnified Parties’ right, in their sole discretion, to defend, settle orotherwise remediate or mitigate any claim, loss, liability, or other event thatis covered by this Section 5.

 

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**6.****            ****REVOCATION AND TERMINATION**

 

6.1           Revocation

 

Visamay temporarily (“PROBATION”) or permanently (“DE-APPROVAL”) revokeMANUFACTURER’s right to manufacture HMS for any or all CUSTOMERS upon theoccurrence of any of the following:

 

a.             MANUFACTURER’s actual merger, consolidation,change of control or financial condition which creates, in Visa’s opinion,unreasonable potential for damage or financial loss to Visa or its CUSTOMERS ifthe manufacture of HMS, possession of HMS, and/or possession ofmaterials necessary to manufacture HMS were to continue.

 

b.             MANUFACTURER fails in Visa’s opinion, tomaintain sufficient quality control standards to enable MANUFACTURER to complywith the Standards and Specifications as documented herein.

 

c.             MANUFACTURER does not maintain security andaudit integrity processing controls consistent with the Manual, or if Visa agrees to alternative controls andprocedures, and MANUFACTURER does not maintain security controls consistentwith such alternative controls and procedures.

 

d.             MANUFACTURER is unable to maintain in forcethe insurance coverage provided for in this Agreement.

 

e.             MANUFACTURER enters bankruptcy, voluntary orinvoluntary, reorganization, liquidation, dissolution, rationalization, or anyother event of insolvency or form of debtor relief proceeding.

 

f.              Failure of MANUFACTURER to comply with anyotherprovision of this Agreement.

 

6.2           Probation

 

Uponreceipt of a written notice of PROBATION from Visa in accordance with Section 6.1, MANUFACTURER shall stop manufacturing HMSproducts until MANUFACTURER has been re-approved by Visa.  MANUFACTURER will immediately follow allstandards and procedures set forth in the Manual relative to PROBATION.  Visa shall promptly re-approve MANUFACTURERafter MANUFACTURER corrects the condition(s) giving rise to PROBATION.  MANUFACTURERshall pay all expenses associated with the re-approval.

 

6.3           Termination and De-approval by Visa

 

Visamay permanently terminate MANUFACTURER’s approval (“DE-APPROVAL”) and thisAgreement (i) immediately and at any time in the event that any of theconditions giving rise to PROBATION continue uncorrected for a period of sixty(60) days following the written receipt of notice of PROBATION (except forprobation under 6.1.e., which shall be terminable immediately), (ii) untilJune 30, 2007, for any reason upon one hundred eighty (180) days priorwritten notice to MANUFACTURER, or (iii) beginning July 1, 2007, forany reason upon ninety (90) days prior written notice to MANUFACTURER.  MANUFACTURER will immediately follow allstandards and procedures set forth in the Manual relative to DE-APPROVAL.

 

6.4           Termination by MANUFACTURER

 

MANUFACTURERmay terminate this Agreement upon one years’ prior written notice to Visa.  MANUFACTURER will immediately follow all standardsand procedures set forth in the Manual relative to DE-APPROVAL.

 

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6.5           Termination Liability

 

Upontermination of this Agreement for any reason, the provisions of Sections 2.2,5, 7.1, 7.2,  7.3 and the “Royalty” section ofExhibit C of this Agreement shall continue in force indefinitely.  In addition, in the event of termination ofthis Agreement, all provisions of this Agreement shall continue in full forceand effect until all contracts between MANUFACTURER and CUSTOMERS expire or areterminated according to their terms or by mutual consent of the parties.  In the event of termination of this Agreementunder Sections 6.3 or 6.4, MANUFACTURER shall return upon demand all Visamaterials and property specified by Visa, including but not limited to allDesign-bearing HMS master plates, without any right of reimbursement.

 

**7.****            ****PROPERTY RIGHTS**

 

7.1           Property Rights

 

**[*]**

 

Visa acknowledges that MANUFACTURER owns or otherwise has intellectualproperty rights and technology relating to the processes for the production of (i) holographic magnetic stripe; and (ii) plates forthe production of holographic magnetic stripe, (including but not limited to trademarks and tradesecrets) (“MANUFACTURER IP Rights”), and Visa agrees with respect to suchMANUFACTURER IP Rights (i) not to take any action inconsistent withMANUFACTURERIP Rights and (ii) not to furnish said property ordisclose information relating to said property to any third party, includingany CUSTOMER, without MANUFACTURER’s prior written approval.

 

MANUFACTURERand Visa acknowledge that in the event of a breach or threatened breach of thisSection by either party, the non-breaching party’s remedies at law may be inadequate and, as aresult, such non-breaching party shall be entitled to injunctive relief inaddition to any other remedy to which it would be otherwise entitled.

 

The restrictions on use and disclosure set forth in this Agreementshall not apply to any information: (i) which is known by the receivingparty before it is disclosed by the disclosing party; (ii) is or becomespublicly known or available from industry sources without any disclosure by thereceiving party; (iii) is acquired by the receiving party from a thirdparty who in providing such information to the receiving party is not, to theknowledge of the receiving party, violating any agreement or duty owed to thedisclosing party; or (iv) provided the receiving party provides thedisclosing party with reasonable notice thereof and discloses only informationthat the receiving party is legally obligated or compelled to disclose whetherpursuant to discovery, subpoena, investigative demand or similar process.

 

7.2           **[*]**

 

a.             **[*]**

 

b.**            ****[*]**

 

c.             **[*]**

 

d.             **Use of Work Product. **MANUFACTURER shall ensure that neither it nor any MANUFACTURERsubcontractor shall use the Design, holographic origination and master platesfor production of the HMS for any purpose except as necessary for

 

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*Confidential

 

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manufactureof HMS for CUSTOMERS or testing of HMS on an ongoing basis or asotherwise requested by Visa.

 

e.             **Grant of License**. Pursuant**[*]**, Visa hereby grants toMANUFACTURER (i)  a revocable, non-exclusive right and license to possessand use the Design, Visa holographic origination and Visa master plates, andany derivative works or tools MANUFACTURER creates, for the purpose ofMANUFACTURER’S performance of its obligations under this Agreement and tomanufacture and sell HMS to Visa authorized card manufacturers under the termshereof, and (ii) **[*]**.

 

 

7.3           Disclosure of Terms

 

MANUFACTURERshall not disclose the terms of this Agreement or the nature of its undertakinghereunder to any third party except under the following circumstances:

 

a.             To a subsidiary company of the MANUFACTURERcharged with work related to the security or manufacture or personalization ofHMS.

 

b.             To an insurance company where such disclosureis necessary to secure the required insurance coverage as indicated herein.

 

c.             Where it is necessary to the negotiation orfulfillment of a contract with an CUSTOMER.

 

d.             To a government agency or under courtsubpoena.

 

e.             To the MANUFACTURER’s auditors where suchdisclosure is necessary to assess the financial conditions of the MANUFACTURER.

 

f.              Inany mandatory filing with the Securities and Exchange Commission, provided thatMANUFACTURER shall seek the greatest possible confidential treatment of theAgreement and the confidential information herein in connection with any suchfiling.

 

Nothingherein contained shall prevent MANUFACTURER from disclosing to a CUSTOMER thatMANUFACTURER has received written notice of approval from Visa.

 

TheMANUFACTURER and Visa acknowledge that in the event of a breach or threatenedbreach of this Section by MANUFACTURER, Visa’s remedies at law may beinadequate and, as a result, Visa shall be entitled to injunctive relief inaddition to any other remedy to which it would be otherwise entitled.

 

7.4           Information Disclosure

 

Confidential information and materials provided to Visa by MANUFACTURERand designated as “Confidential” shall not be disclosed or given by Visa to anythird party, including CUSTOMER, without prior written approval fromMANUFACTURER, except when required by a government agency or under subpoena froma court of competent jurisdiction.

 

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*Confidential

 

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TheMANUFACTURER and Visa acknowledge that in the event of a breach or threatenedbreach of this Section by Visa, MANUFACTURER’s remedies at law may beinadequate and, as a result, MANUFACTURER shall be entitled to injunctiverelief in addition to any other remedy to which it would be otherwise entitled.

 

Theobligations of confidentiality assumed under Sections 7.3 and 7.4 of thisAgreement shall not apply to the extent the receiving party can demonstrate, byclear and convincing evidence, that such information:

 

a.             isor has become generally available to the public other than as a result of anybreach of the provisions of this Agreement or any other applicable agreementbetween the parties hereto;

 

b.             was rightfully in the possession of the receiving party,without confidentiality restrictions, prior to such party’s receipt pursuant tothis Agreement;

 

c.             was rightfully acquired by the receiving party from athird party who was entitled to disclose such information, withoutconfidentiality or proprietary restrictions;

 

**8.**             **INSURANCE.**** **Prior to the manufacture of HMS under thisAgreement, MANUFACTURER shall procure the following insurance coverageat itsown expense, with respect to the manufacture of HMS.  Such insurance shall be issued by financiallyresponsible and properly licensed insurance carriers rated at least A VIII byBest’s Rating Guide (or otherwise acceptable to Visa) and with minimum limitsas set forth below.  Such insurance shallbe maintained in full force and effect for the duration of this Agreement andany renewals thereof:

 

WORKERS’COMPENSATION: Statutory Workers Compensation as required by applicable law.

 

EMPLOYER’SLIABILITY with a minimum limit of $1,000,000.

 

COMMERCIALGENERAL LIABILITY INSURANCE including PRODUCTS, COMPLETED OPERATIONS includingCONTRACTUAL LIABILITY INSURANCE with the following minimum limits for BodilyInjury and Property Damage on an Occurrence basis: $1,000,000 per occurrenceand $2,000,000 annual aggregate.

 

COMMERCIALAUTOMOBILE INSURANCE including owned, leased, hired or non-owned autos subjectto minimum limits of $1,000,000 for bodily injury and physical damage.

 

COMMERCIALEXCESS/UMBRELLA LIABILITY INSURANCE subject to minimum limits of $5,000,000 forbodily injury and physical damage.

 

CRIME/FIDELITYBOND including employee dishonesty, robbery, fraud, theft, forgery, alteration,mysterious disappearance and destruction. The minimum limit shall be $1,000,000 per loss.

 

PROFESSIONALLIABILITY for negligent acts, errors or omissions in connection with theServices provided under this agreement with a minimum limit of $1,000,000 peroccurrence.

 

INTELLECTUALPROPERTY coverage for protection of copyright and trademark infringement orproprietary right violation involving any HMS provided by MANUFACTURER underthis Agreement with a minimum limit of $1,000,000 per occurrence and annualaggregate.

 

Ifany of the above insurance is written on a claims-made basis, then MANUFACTURERshall maintain such insurance for five (5) years after the termination ofthis Agreement.

 

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Withoutlimiting MANUFACTURER’s indemnification duties as outlined in theIndemnification Section herein, Visa shall be named as an additionalinsured under the Commercial General Liability, Commercial Automobile Liability and Commercial Excess/Umbrella Liabilitylisted above for any claims and losses arising out of, allegedly arising out ofor in any way connected to the MANUFACTURER’s manufacture of HMS under thisAgreement.  The insurers shall agree thatthe MANUFACTURER’s insurance is primary and any insurance maintained by Visashall be excess and non-contributing to the MANUFACTURER’s insurance.

 

Priorto commencing manufacture of HMS under this Agreement and annually thereafter,MANUFACTURER shall furnish a certificate, satisfactory to Visa from eachinsurance company evidencing that the above insurance is in force in compliancewith the terms of this insurance section, stating policy numbers, dates ofexpiration and limits of liability, and further providing that the insurancewill not be canceled or materially changed until the expiration of at leastthirty (30) days after written notice of such cancellation or change has beenmailed to and received by Visa. MANUFACTURER shall send Certificate(s) of Insurance confirming suchcoverage to Visa International Service Association, Attn: Procurement Department,P. O. Box 8999, M/S: M3-6A, San Francisco, CA 94128-8999.  Fulfillment of obligations to procureinsurance shall not otherwise relieve MANUFACTURER of any liability hereunderor modify MANUFACTURER’s obligations to indemnify Visa. In the event the aboveinsurance requirements are not met, Visa may, at its option, purchase suchcoverage at the expense of the MANUFACTURER.

 

Inthe event that MANUFACTURER subcontracts or assigns any portion of themanufacture of HMS in this Agreement, the MANUFACTURER shall, other than withrespect to intellectual property insurance, (i) require any suchsubcontractor to purchase and maintain insurance coverage and provide waiver ofsubrogation as required herein; and/or (ii) ensure that, for purposes ofthis Section 8, MANUFACTURER’s own insurance coverage covers suchsubcontractor and its actions in the same way as it does the MANUFACTURERitself.

 

WAIVEROF SUBROGATION:  MANUFACTURER agrees towaive subrogation against Visa for any injuries to its employees arising out ofor in any way related to MANUFACTURER’s manufacture of HMS under this Agreementor for damage or loss to MANUFACTURER’s personal property.  Further, MANUFACTURER agrees that it shallensure that the Workers’ Compensation/Employer’s Liability and All RiskReplacement Cost (Property) insurers, providing the coverages required above,agree to waive subrogation,  in favor ofVisa, for any claims arising out of or in any way connected to MANUFACTURER’sperformance of the manufacture of HMS under this Agreement or property coveredby the MANUFACTURER’s property insurance.

 

**9.**             **WARRANTIES.**

 

a.             **Intellectual Property.**MANUFACTURER warrants and represents that it will not knowingly use or infringe anyintellectual property or other proprietary right of a third party in themanufacture of HMS.  MANUFACTURER furtherwarrants and represents that it has not granted and will not grant any right inthe Design, holographic origination and master plates for production of the HMSto a third party that would be inconsistent with the rights granted to Visaunder this Agreement.

 

b.             **Other Contracts.** MANUFACTURER warrants and represents that entering into this Agreementand manufacture of HMS hereunder does not contravene the terms of any agreementwith a third party.

 

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c.             **Inducements.** MANUFACTURER warrants and represents that it has not provided and shallnot provide any gift, gratuity, service, or other inducement to any VisaPersonnel or agency involved in retaining MANUFACTURER’s services for thisAgreement.

 

d.             **Compliance.** MANUFACTURER warrants and represents that it shall comply with allapplicable laws and regulations, including, without limitation, employment,immigration, and tax laws and regulations, in connection with the performanceof its obligations hereunder. MANUFACTURER warrants and represents that all personnel manufacturingHMS have the legal right to work in the United States.  MANUFACTURER warrants and represents that itqualifies under applicable tax laws and regulations as an “independentcontractor” of Visa.

 

e.             **Performance**.  MANUFACTURER warrants and represents that its Personnelshall use reasonable care and judgment in the manufacturing of HMS hereunder.

 

10.           **PRODUCTION**

#####  

Subjectto the terms hereof, MANUFACTURER will adhere to the provisions in Exhibit C,which is made a part hereof by reference.

 

**11.****         ****ASSIGNMENT**

 

Noassignment by MANUFACTURER of this Agreement, MANUFACTURER’s written notice ofapproval, or any contract to manufacture HMS to a CUSTOMER, includingassignments to subsidiaries, affiliates, and/or parents of MANUFACTURER, shallbe permitted without prior written consent of Visa, and any such assignmentwithout consent shall be void.

 

**12.**          **INDEPENDENT CONTRACTORS**

 

MANUFACTURERand Visa are independent contractors, and nothing contained herein shall beconstrued to create a partnership, joint venture, agency, or other businessrelationship between them.

 

**13.****         ****SUBCONTRACTING**

 

MANUFACTURERshall not subcontract with any third party for any purpose related to thisAgreement without first obtaining Visa’s prior written authorization.  Failure to obtain Visa’s prior writtenauthorization may result in DE-APPROVAL. MANUFACTURER shall retain full responsibility and liability with respectto all work done pursuant to this Agreement, whether or not such work has beenproperly subcontracted to a third party.

 

**14.****         ****GOVERNING LAW**

 

ThisAgreement shall be governed by and construed in accordance with the internallaws of the State of California, U.S.A., without regard to any law of conflictsthat would require the application of the law of another jurisdiction. Visa andMANUFACTURER consent to the exclusive jurisdiction of state and federal courtsin the City and County of San Francisco, California and expressly waive anyobjection or defense based upon lack of personal jurisdiction or venue inconnection with any dispute arising out of or relating to this Agreement or itsbreach.

 

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**15.****         ****ATTORNEYS’ FEES**

 

Ifany action at law or in equity, including an action for declaratory relief, isbrought to enforce or interpret the provisions of this Agreement, theprevailing party shall be entitled to reasonable attorneys’ fees in addition toany other relief to which it may be entitled, as allowed by law.

 

**16.****          SUCCESSORSAND ASSIGNS**

 

Subjectto the provisions regarding assignment, this Agreement shall be binding uponthe successors and assigns of the respective parties.

 

**17.****         ****ENTIRE AGREEMENT**

 

ThisAgreement, including the Exhibits hereto, supersedes any and all other agreements,either verbal or written, between the parties hereto with respect to thesubject matter hereof, and contains all the covenants and agreements betweenthe parties with respect to said matter. Each party to this Agreementacknowledges that no representation, inducements, promises, or agreements,verbally or otherwise, have been made by any party or anyone acting on behalfof any party which are not embodied herein; and no other agreement, statement,or promise not contained in this Agreement shall be valid or binding.  For the avoidance of any doubt, thisAgreement is between Visa and MANUFACTURER and the terms of this Agreement arenot intended to provide any right to indemnification to anyVisa card manufacturer or affect any party’s obligations under any MANUFACTURER-card manufactureragreements which may be entered into by MANUFACTURER, except as explicitly setout herein.

 

**18.****         ****PARTIAL INVALIDITY**

 

Ifany term, provision, covenant, or condition of this Agreement is held by acourt of competent jurisdiction to be invalid, void, or unenforceable, theremainder of the provisions shall remain in full force and effect and shall inno way be affected, impaired, or invalidated.

 

**19.****         ****NON-WAIVER**

 

Nowaiver of any default of this Agreement shall be effective unless in writingand executed by an officer of the party against which such waiver isasserted.  A waiver of a specific defaultshall not be a waiver of any other or subsequent default.  No waiver or any provision hereof shallconstitute a waiver of any other matter. No failure or delay on the part of either party to exercise any right orremedy in this Agreement shall operate as a waiver thereof.

 

**20.****         ****CAPTIONS**

 

Thecaptions of paragraphs of this Agreement are for reference only and are not tobe construed as part of this Agreement.

 

**21.****         ****CORRESPONDENCE AND NOTICE**

 

Allcorrespondence and notifications relating to this Agreement shall be written inthe English language and delivered or dispatched by prepaid first class mail,facsimile or courier service addressed to the addressee at its office listedabove, to the attention of the representative indicated

 

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below;or, in each case, at such address, and/or to the attention of such otherrepresentative as may hereafter have been designated most recently in writingby the addressee to the addresser, and will be deemed received five businessdays after submission for delivery, in the case of first class mail, and uponsender’s receipt of delivery confirmation, in the case of facsimile or courierservice.

 

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| VISA REPRESENTATIVE:         |   | Michael Hosken |
|------------------------------|--------|----------------|
|                         |   |           |
| MANUFACTURER REPRESENTATIVE: |   | Kenneth Traub  |

 

**22.**          **LIMITATION OF LIABILITY**

 

EXCEPT FOR DAMAGES CAUSED BY WILLFUL MISCONDUCT OF A PARTY , IN NOEVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL,INCIDENTAL, INDIRECT OR SPECIAL DAMAGES, HOWEVER CAUSED, WHETHER UNDER THEORYOF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THEPOSSIBILITY OF SUCH DAMAGES. THIS LIMITATION OF LIABILITY DOES NOT APPLY TOINDEMNIFICATION OWED TO THE OTHER PARTY FOR THIRD PARTY CLAIMS.

 

 

INWITNESS WHEREOF, the parties hereto have executed this Holographic MagneticStripe Tape Manufacturing Approval Agreement as of the date first abovewritten.

 
| **AMERICAN BANK NOTE HOLOGRAPHICS,  INC.** | ** **                     | **VISA INTERNATIONAL SERVICE**     |
|--------------------------------------------|--------------------------------|------------------------------------|
| (“MANUFACTURER”)                 |                           | **ASSOCIATION** (“VISA”) |
|                                       |                           |                               |
| By:                                        | /s/ Kenneth Traub              |                               |   | By: | /s/ Karen Gullett |   |
|                                       |                           |                               |
| Name:                                      | Kenneth Traub                  |                               |   | Name: | Karen Gullett |   |
|                                       |                           |                               |
| Title:                                     |   President and CEO  |                               |   | Title: |   Senior Vice President |   |
|                                       |                           |                               |   |   |
| Date:                                      |   April 8, 2005 |                               |   | Date: |   April 25, 2005 |   |
|                                            |                                |                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**EXHIBIT A**

 

Location of allfacilities of MANUFACTURER at which HMS can be manufactured:

 

American Bank Note Holographics, Inc.399 Executive BlvdElmsford, NY 10523American Bank Note Holographics, Inc.1448 County Line RoadHuntingdon Valley, PA 19006American Bank Note Holographics, Inc.2 Applegate DriveRobbinsville, NJ 08691

 

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**EXHIBIT BVISA STANDARDS OF CONDUCT**

 

MANUFACTURER,including MANUFACTURER personnel engaged in manufacturing Holographic MagneticStripe tape bearing the trade or service marks of Visa (“HMS”) for Members thatissue Visa-branded payment cards while traveling on behalf of Visa, and, ifapplicable, performing work outside of Visa offices, shall follow the followingstandards of conduct.  These standards areintended to clarify the most common questions about the extent of MANUFACTURERinvolvement in daily Visa events.  Theterm “MANUFACTURER” includes the agents and employees (collectively “personnel”)of MANUFACTURER. It is the MANUFACTURER’s responsibility to ensure all of itspersonnel are fully aware of the standards of conduct stated herein. Moreover,MANUFACTURER will ensure that all work is managed and conducted in fullcompliance with these standards.

 

**Office Privileges**

 

GenerallyMANUFACTURER personnel will perform their services at MANUFACTURER’soffices.  Visa will provide officeaccommodations at its sole discretion only when necessary for security reasonsor because the use of proprietary equipment or programs is required.  If Visa does provide office accommodations,MANUFACTURER may be asked to move to different locations within Visa at anytime.  Office amenities such as coffeebars, restrooms, and the cafeteria are available to guests, includingMANUFACTURER, with the exception of particular occasions when the cafeteria ora similar area has been reserved for employee functions.

 

**Use of Company Equipment, Systems and Information**

 

Visaequipment (including printers, copiers, and telephones), systems, information(including information in InSite, electronic mail, and company mail) and supplies(collectively “Visa Property”) may be used by MANUFACTURER only when requiredto work on-site with secured or proprietary materials or equipment.  Personal use of Visa Property may beconsidered grounds for immediate termination of a MANUFACTURER’sengagement.  Visa expects vendor to useVisa Property to which MANUFACTURER has been given access according to thefollowing guidelines:

 

1.      The use must be for legitimate businessdirectly related to the MANUFACTURER’S engagement and not for non-business-relatedcommunications.  Telephone service may bemade available to MANUFACTURER for the sole purpose of conducting Visa businesswhen MANUFACTURER is on site to work with secured or proprietary materials.  Calls unrelated to Visa business (personal orto other clients) will be kept to a minimum, and MANUFACTURER should not ask asecretary or receptionist to handle personal telephone calls.  Long-distance personal calls will be madeonly with the MANUFACTURER’s credit/calling card.  Misuse of Visa telephones may result inimmediate contract termination.

 

2.      MANUFACTURER must not use Visa Propertyfor soliciting outside business ventures, charitable or community activities,or political or religious causes.

 

3.      MANUFACTURER personnel using a Visacomputer must use only the computer to which the individual is assigned.MANUFACTURER personnel must not use or try to use (i) other individuals’passwords or (ii) any files, systems or networks that are not required toperform services under this Agreement or to which Visa has not authorizedaccess. MANUFACTURER personnel who want to connect to Visa’s network withnon-Visa equipment must receive prior written approval from Visa’s InformationSecurity department.

 

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4.      Offensive communications, includingracial, ethnic, or sexual slurs, are not permitted.

 

5.      When handling Visa information,MANUFACTURER will comply with Visa’s Key Controls.

 

Toensure compliance with Visa’s policies, as well as local, state, and federallaws, and to ensure employee safety, Visa reserves the right to search all VisaProperty at any time, with or without MANUACTURER’s knowledge or presence.  Inspections and searches may include, but arenot limited to, desks, storage areas, company mail, electronic mail, phones,voice mail, faxes, copiers, printers, and vehicles.  Any such inspections or searches areconducted only with approval from Visa Legal and Security Departments.  In addition, Visa reserves the right tocollect and maintain electronic records of use of, or access to, Visa Property,and to use these records for business purposes, including detectingunauthorized use or intrusion. MANUFACTURER’s use of Visa Property is not considered private, and issubject to the inspection and searches outlined above, regardless of passwordprotection.

 

**Scope of Company Participation**

 

VisaProject Managers will ask MANUFACTURER to attend only those meetings thatrelate to their contracted scope of work or specific project.  MANUFACTURER will not attend corporate,division or department staff meetings. When in doubt about whether or not participation in meetings is expectedor permitted, MANUFACTURER should check with the Visa Project Manager with whomthe MANUFACTURER is contracting.  As arule, MANUFACTURER is not included in company-sponsored holiday or annualcelebrations.

 

**Management**

 

TheVisa Project Manager is responsible for project management, as well asevaluation on completed work.  In thisregard, such supervisor will give guidance as to the required outcome of thecontracted project.  It will be up to theMANUFACTURER to determine how to accomplish the desired results.  If a MANUFACTURER provides one of its employeesto Visa to complete a contractual arrangement, the Visa Project Manager mayprovide project guidance to that employee. However, it is the MANUFACTURER’s responsibility to handle all issuesregarding the worker’s compensation, satisfaction with Visa, assignments, timeoff, or Visa personnel interactions.

 

**Conflict of Interest and Gifts**

 

Visaexpects MANUFACTURER personnel to avoid conflicts of interest or the appearanceof such conflicts with Visa or its employees. When MANUFACTURER uses its position or Visa’s resources or influence forpersonal advantage, or for the advantage of parties other than Visa, it resultsin a conflict of interest.  Examples ofconflicts of interest include, but are not limited to:

 

1.      Receipt of cash, goods, stock, orservices from Visa Members, merchants, other vendors, or business partners;

 

2.      Influencing or pressuring Visa employees toaward additional business or contracts to MANUFACTURER or other businesses inwhich MANUFACTURER has a personal or financial interest;

 

3.      Using MANUFACTURER’s position to secure anunfair advantage over other vendors in securing additional business orcontracts;

 

16

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4.      Ownership in, includingsignificant stock holding, or a personal relationship with, a Visa Member,merchant, vendor, business partner, or a Visa/Inovant Competitor whereMANUFACTURER stands to realize a personal gain;

 

5.      Spending time for which MANUFACTURER is beingcompensated by Visa, or using Visa Property (see also “Use of CompanyEquipment, Systems and Information”, above) to secure additional business orcontracts;

 

6.      Real or perceived conflicts of interest mightalso arise in connection with MANUFACTURER offering a Visa employeeconsultancies, directorships, freelance commercial activities, or otherfinancial or professional opportunities; etc.

 

Visaexpects MANUFACTURER to conduct business in a way that avoids even theperception of illegal or unethical conduct. When offering entertainment, gifts, favors, or gratuities, to a Visaemployee, Visa Member, merchant, or business partner, follow these guidelines:

 

1.      The entertainment, gift, favor, or gratuitycannot be meant or expected to influence the recipient’s judgment or to securepreferential treatment for the giver;

 

2.      The entertainment, gift, favor, or gratuitymust be of a limited value so that it cannot be perceived to affect therecipient’s judgment;

 

3.      Public disclosure of the receipt of any gift,favor, or gratuity would not embarrass Visa, Visa’s Members, or the recipient.

 

Ingeneral, the receipt by an Visa employee from MANUFACTURER of gifts,entertainment, or favors valued at more than $200 carries the presumption of aconflict of interest.

 

**Prohibition of Solicitation**

 

Visaemployees should be able to work without interference from people whose purposeis not related to company business. Accordingly, MANUFACTURER may not enter Visa’s premises, nor takeadvantage of access granted to Visa’s premises, for other purposes, to solicitadditional business, to distribute literature or other materials, or to engagein any business not directly related to the project or assignment for whichMANUFACTURER was engaged by Visa, etc., *unlessspecifically invited by Visa to do so*.

 

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**EXHIBIT C**

 

**Capacity**

 

MANUFACTURER will deliver HMS to CUSTOMERS in the formas required and designated by CUSTOMER, and the following numbers are based onan anticipated yield of approximately **[*]** cards froma **[*]**foot reel.

 

During the initial production ramp up period,MANUFACTURER shall cooperate with Visa personnel and take all reasonable stepsto increase HMS production quantities, and will in any case meet the followingminimum production quantities with the formats and characteristics asdesignated by Visa and dates:

 
| **Monthly Card Production** | ** ** | **Total Card Yield** | ** ** | **Date** |
|-----------------------------|------------|----------------------|------------|----------|
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |
| **[*]**                     |       | **[*]**              |       | **[*]**  |

 

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*Confidential

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MANUFACTURER will use best efforts to ensure that, nolater than October 2005, it will be capable of producing enough HMS for **[*]**cards per month.

 

**Service Levels**

 

Beginningno later than June 30, 2006 and until at least June 30, 2007,MANUFACTURER will use best efforts to maintain an on-hand inventory of at least**[*]** HMS units and will use all reasonable efforts to fulfill and ship **[*]**% of allCUSTOMERorders within two business days. Beginning July 1, 2007, MANUFACTURER willuse best efforts to maintain an on-hand inventory of at least **[*]** HMS units and useall reasonable efforts to fulfill and ship **[*]**% of CUSTOMER orderswithin two businessdays.  Nothing in this section shallobligate MANUFACTURER to fulfill or ship HMS units to potential CUSTOMERS thatfail to meet MANUFACTURER’S reasonable standards of customer credit worthiness.

 

Visaacknowledges that the production of HMS is always subject to normal manufacturing variationsincluding the impact of the plate gap, image alignment, brightness, spots,etc., consistent with the samples provided by MANUFACTURER to Visa prior toexecution of this Agreement, and that such variations will always be taken intoaccount in applying the specification set out in Section 2.1(i) ofthe Agreement.

 

**Distribution of HMS**

 

Because of the limited amount of HMS that will be initially availablefrom MANUFACTURER, Visa shall have oversight over MANUFACTURER’s distributionof HMS to Visa-approved card manufacturers. Until March 31, 2006, Visa shall exercise oversight overMANUFACTURERS distribution of HMS to ensure that HMS is only delivered toVisa-approved card manufacturers that have received orders from Visa Membersthat have been authorized by Visa to receive the initial amounts of HMSproduced by MANUFACTURER.

 

**Card Manufacturers Guide**

 

Inconnection with all sales to CUSTOMERS, MANUFACTURER will make available amutually agreed ‘best practices’ guide for use by CUSTOMERS in successfullyintegrating HMS into payment card products. MANUFACTURER shall provide on-site support to Visa-approved cardmanufacturer when requested.

 

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*Confidential

 

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**Visa Authorized Card Manufacturers**

 

Visawill provide MANUFACTURER with a list of Visa-approved payment cardmanufacturers, which Visa may update from time to time, that may manufactureVisa-branded payment cards on behalf of Visa Members.

 

**Royalty**

 

Visa shall not authorize a third party to produce Design-bearing HMSunless such third party has entered into a license agreement with MANUFACTURERconsistent with the terms of this section.  **[*]**.

 

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*  Confidential

 

20

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**EXHIBIT D**

** **

**DESIGN**

** **

**(Attached)**

 

21

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**CONFIDENTIAL**

 

**3 TRACK VISA HOLOMAG STRIPEHolographic security features**

 

 
| 1.                                     |   | Doves are exposed with high resolution  system depicting multiple color animation.                                                  |             |   |
|----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|-------------|--------|
|                                   |   | •     Nano-text  [*] microscope.                                                                           |        |
|                                   |   |                                                                                                                                |        |
| 2.                                     |   | When hologram is tipped left and right,  smallest dove appears to travel on top of vertical lines.                                  |        |
|                                   |   |                                                                                                                                |        |
| 3.                                     |   | Black dot behind middle dove’s wing  displays parallax clue when hologram is tipped left and right.                            |        |
|                                   |   |                                                                                                                                |             |
| 4.                                     |   | [*].                                                                                                                                |
|                                   |   |                                                                                                                                |
| 5.                                     |   | Micro text [*].                                                                                                                     |             |
|                                   |   |                                                                                                                                |
| 6.                                     |   | Secondary flip image “VISA” appears and  disappears on top of “sun” when the hologram is tipped top and bottom. |
|                                   |   |                                                                                                                                | Actual Size |
| 7.                                     |   | Micro text [*] across the horizon line,  viewable with [*].                                                                         |             |   |
|                                   |   |                                                                                                                                |        |
| 8.                                     |   | Machine readable hidden image [*] viewable  with ABNH’s proprietary reader.                                                    |        |
|                                   |   |                                                                                                                                |        |
| 9.                                     |   | Machine readable optical codes, readable  with [*].                                                                                 |             |   |
|                                   |   |                                                                                                                                |
| **CONFIDENTIALITY NOTICE**.  [*]. |        |
|                                        |        |                                                                                                                                     |             |        |  |  |  |  |

 

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* Confidential

 

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**CONFIDENTIAL**

 

**2 TRACK VISA HOLOMAG STRIPEHolographic security features**

 

 
| 1.                                           |   | Doves are exposed with high resolution  system depicting multiple color animation.                                                  |             |   |
|----------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|-------------|--------|
|                                         |   | •     Nano-text  [*] microscope.                                                                           |        |
|                                         |   |                                                                                                                                |        |
| 2.                                           |   | When hologram is tipped left and right,  smallest dove appears to travel on top of vertical lines.                                  |        |
|                                         |   |                                                                                                                                |        |
| 3.                                           |   | Black dot behind middle dove’s wing  displays parallax clue when hologram is tipped left and right.                            |        |
|                                         |   |                                                                                                                                |             |
| 4.                                           |   | [*].                                                                                                                                |
|                                         |   |                                                                                                                                |
| 5.                                           |   | Micro text [*].                                                                                                                     |             |
|                                         |   |                                                                                                                                |
| 6.                                           |   | Secondary flip image “VISA” appears and  disappears on top of “sun” when the hologram is tipped top and bottom. |
|                                         |   |                                                                                                                                | Actual Size |
| 7.                                           |   | Micro text [*] across the horizon line,  viewable with [*].                                                                         |             |   |
|                                         |   |                                                                                                                                |        |
| 8.                                           |   | Machine readable hidden image [*] viewable  with ABNH’s proprietary reader.                                                    |        |
|                                         |   |                                                                                                                                |        |
| 9.                                           |   | Machine readable optical codes, readable  with [*].                                                                                 |             |   |
|                                         |   |                                                                                                                                |
| **CONFIDENTIALITY NOTICE**.    [*] |        |
|                                              |        |                                                                                                                                     |             |        |  |  |  |  |

 

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* Confidential

 

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