Exhibit 10.1

                                     FORM OF


                              SEPARATION AGREEMENT


                                 BY AND BETWEEN


                          AMERICAN BANKNOTE CORPORATION


                                       AND


                      AMERICAN BANK NOTE HOLOGRAPHICS, INC.



                         DATED AS OF [________ __,] 1998
                              SEPARATION AGREEMENT


         SEPARATION AGREEMENT (this "Agreement"),  dated as of the IPO Effective
Date, is entered into by and between Parent and ABNH.  Capitalized terms used in
this  Agreement  and not  otherwise  defined  herein  shall have the  respective
meanings assigned to them in Section 1.

         WHEREAS,  the Board of  Directors of Parent has  determined  that it is
appropriate  and  desirable for Parent to sell for its account all of the shares
of ABNH Common Stock owned by Parent; and

         WHEREAS, it is appropriate and desirable to set forth certain
agreements of the parties in connection with the Separation;

         NOW, THEREFORE,  in consideration of the mutual agreements,  provisions
and covenants contained herein, the parties hereto agree as follows:

         Section 1. Definitions.

         For the purpose of this  Agreement the  following  terms shall have the
following meanings:

         "Action"  means any demand,  action,  suit,  countersuit,  arbitration,
inquiry,  proceeding or  investigation by or before any federal,  state,  local,
foreign or international  Governmental Authority or any arbitration or mediation
tribunal.

         "Affiliate" of any Person means a Person that controls, is controlled
by, or is under common control with such Person. As used herein, "control" of


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any Person means the possession,  directly or indirectly, of the power to direct
or cause the direction of the  management  and policies of such Person,  whether
through  ownership  of voting  securities  or other  interests,  by  contract or
otherwise.

         "Agreement" means this Separation Agreement, including any Schedules
hereto.

         "Ancillary  Agreements"  means  any  and  all  supplemental  and  other
agreements  and  instruments  contemplated  by this Agreement or entered into in
connection with this Agreement.

         "ABNH" means American Bank Note Holographics, Inc., a Delaware
corporation.

         "ABNH Common Stock" means the Common Stock,  $0.01 par value per share,
of ABNH.
         "ABNH Indemnitees" has the meaning set forth in Section 11.3.

         "Closing" means the receipt by Parent of the net proceeds of the shares
of ABNH Common Stock sold by it in the IPO in  accordance  with the terms of the
Underwriting Agreement.

         "Closing Date" means the date on which the Closing occurs.

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

         "Commission" means the Securities and Exchange Commission, including
the members of its staff.

         "Environmental  Law"  means  any  federal,  state,  local,  foreign  or
international  statute,  ordinance,  rule,  regulation,  code, license,  permit,
authorization,  approval,  consent, common law (including tort and environmental
nuisance law), legal doctrine, order, judgment, decree, injunction,  requirement
or  agreement  with any  Governmental  Authority,  now or  hereafter  in effect,
relating to health, safety, pollution or the environment (including ambient air,
surface water, groundwater,  land surface or subsurface strata) or to emissions,
discharges, releases or threatened releases of any substance currently or at any
subsequent time listed, defined,  designated or classified as hazardous,  toxic,
waste,  radioactive  or  dangerous,  or  otherwise  regulated,  under any of the
foregoing, or otherwise relating to the manufacture,  processing,  distribution,
use, treatment, storage, disposal, transport or handling of any such substances,
including the Comprehensive  Environmental Response,  Compensation and Liability
Act,  the  Superfund   Amendments  and  Reauthorization  Act  and  the  Resource
Conservation and Recovery Act and comparable provisions in state, local, foreign
or international law.

         "Environmental  Liabilities" means all Liabilities relating to, arising
out of or resulting from any Environmental Law or contract or agreement relating
to environmental,  health or safety matters (including all removal,  remediation
or cleanup costs,  investigatory  costs,  governmental  response costs,  natural
resources  damages,   property  damages,   personal  injury  damages,  costs  of
compliance with any settlement, judgment or other determination of Liability and
indemnity,  contribution  or  similar  obligations)  and all costs and  expenses
(including  allocated costs of in-house counsel and other personnel),  interest,
fines,   penalties  or  other  monetary   sanctions  in  connection   with  such
liabilities.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
together with the rules and regulations promulgated under the Exchange Act.

         "GAAP" means generally accepted accounting principles.


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         "Governmental  Authority" shall mean any federal, state, local, foreign
or international  court,  government,  department,  commission,  board,  bureau,
agency, official or other regulatory, administrative or governmental authority.

         "Indemnifying Party" has the meaning set forth in Section 11.4.

         "Indemnitee" has the meaning set forth in Section 11.4.

         "Indemnity Payment" has the meaning set forth in Section 11.4.

         "Information"   means   information,   whether  or  not  patentable  or
copyrightable,  in written,  oral,  electronic  or other  tangible or intangible
forms,  stored  in any  medium,  including  studies,  reports,  records,  books,
contracts,   instruments,   surveys,  discoveries,  ideas,  concepts,  know-how,
techniques,  designs,  specifications,  drawings, blueprints,  diagrams, models,
prototypes,  samples, flow charts, data, computer data, disks, diskettes, tapes,
computer   programs  or  other  software,   marketing  plans,   customer  names,
communications  by  or  to  attorneys  (including   attorney-client   privileged
communications),  memos and other materials prepared by attorneys or under their
direction  (including  attorney work product),  and other technical,  financial,
employee or business information or data.

         "Insurance Proceeds" means those monies:

         (a)      received by an insured from an insurance carrier;

         (b)      paid by an insurance carrier on behalf of the insured; or

         (c) received  (including by way of set-off) from any third party in the
nature  of  insurance,   contribution  or  indemnification  in  respect  of  any
Liability; in any such case net of any applicable premium adjustments (including
reserves and retrospectively  rated premium adjustments) and net of any costs or
expenses  (including  allocated costs of in-house  counsel and other  personnel)
incurred in the collection of proceeds.

         "IPO" means the public offering of shares of ABNH Common Stock pursuant
to the IPO Registration Statement.

         "IPO Effective Date" means [_____ __], 1998, which is the date on which
the IPO Registration Statement was declared effective by the Commission.

         "IPO   Registration   Statement"  means  the  registration   statement,
Registration No. 333-51845, on Form S-1 filed under the Securities Act, pursuant
to which the ABNH Common Stock to be sold in the IPO has been registered.


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         "Liabilities"  means  any  and  all  losses,  claims,  charges,  debts,
demands,  actions,  causes of action,  suits,  damages,  obligations,  costs and
expenses,  including  those arising  under any law,  rule,  regulation,  Action,
threatened or contemplated  Action (including the costs and expenses of demands,
assessments,   judgments,  settlements  and  compromises  relating  thereto  and
attorneys' fees and any and all costs and expenses (including allocated costs of
in-house  counsel  and  other  personnel)   whatsoever  reasonably  incurred  in
investigating,  preparing or defending against any such Actions or threatened or
contemplated Actions),  order or consent decree of any Governmental Authority or
any award of any arbitrator or mediator of any kind.

         "Parent" means American Banknote Corporation, a Delaware corporation.

         "Parent  Group" means Parent and each Person  (other than ABNH) that is
an Affiliate of Parent immediately after the Closing Date.

         "Parent Indemnitees" has the meaning set forth in Section 11.2.

         "Person"  means an  individual,  a general  or limited  partnership,  a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.

         "Prime  Rate"  means the rate  which The Chase  Manhattan  Bank (or any
successor or other major money center  commercial bank agreed to by the parties)
announces from time to time as its prime lending rate, as in effect from time to
time.

         "Prospectus" means each preliminary,  final or supplemental  prospectus
forming a part of the IPO Registration Statement.

         "Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated under the Securities Act.

         "Separation"  means  the  transactions,   arrangements  and  agreements
embodied in this Agreement  entered into by the parties in  preparation  for the
sale by Parent of all ABNH Common Stock held by Parent.

         "Subsidiary" of any Person means any corporation or other  organization
whether  incorporated  or  unincorporated  of which at least a  majority  of the
securities  or interests  having by the terms thereof  ordinary  voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other  organization is directly or
indirectly owned or controlled by such Person or


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by any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries;  provided,  however  that  no  Person  that  is  not  directly  or
indirectly  wholly owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls,  or has the right, power or ability to
control, that Person.

         "Tax" or  "Taxes"  means  all  taxes,  charges,  fees,  levies or other
assessments,  including,  without limitation,  income,  gross receipts,  excise,
property,  sales,  withholding,  social  security,  occupations,  use,  service,
service use, license, payroll, franchise, transfer and recording taxes, fees and
charges, imposed by the United States, or any state, local or foreign government
or subdivision or agency thereof, whether computed on a separate,  consolidated,
unitary,  combined or any other basis; and such term shall include any interest,
fines,  penalties or additional  amounts  attributable  to or imposed on or with
respect to any such taxes, charges, fees, levies or other assessments.

         "Third Party Claim" has the meaning set forth in Section 11.5.

         "Underwriters" means the managing underwriters for the IPO.

         "Underwriting  Agreement" means the underwriting agreement entered into
among Parent, ABNH and the Underwriters with respect to the IPO.


         Section 2. Effect of Agreement.  This  Agreement is being  executed and
delivered on the IPO Effective Date to memorialize  actions that have been taken
by the  parties  prior  to  the  IPO  Effective  Date  in  connection  with  the
Separation,  and to govern the  conduct  of the  parties  subsequent  to the IPO
Effective  Date as to the matters  addressed in this  Agreement.  If the Closing
does not occur, this Agreement shall terminate.


         Section 3. Closing Date Unrestricted Cash. The parties  acknowledge and
agree that,  as of the Closing  Date,  ABNH's  unrestricted  cash on hand is not
likely to exceed a nominal amount,  and that there is no requirement that Parent
take any action to cause ABNH's  unrestricted  cash on hand to be any particular
amount.  Prior to the Closing Date, Parent shall be entitled to all unrestricted
cash of ABNH.


         Section 4. Certain Tax Matters.

         4.1 Consolidated, Combined and Unitary Income Tax Returns. Parent will
include the income of ABNH (including any deferred income required to be
recognized under Treasury


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Regulation  Sections  1.1502-13  and any excess loss  account  taken into income
under Treasury Regulation Sections 1.1502-19) on the Parent consolidated federal
income tax returns (and on any state, local and foreign income tax returns filed
by Parent on a consolidated, combined or unitary basis) for all periods that end
prior to or include the Closing Date and will pay all Taxes assessed, and retain
for its own  account  any  refunds  received,  with  respect to such  income tax
returns,  provided that ABNH shall,  no later than 10 days following  receipt of
notice  from Parent  requesting  such  payment,  pay to Parent the amount of any
Taxes to the extent  incurred  or treated as being  incurred  by ABNH or arising
with  respect to the  activities  of ABNH.  ABNH will  furnish  all  information
reasonably required by Parent for inclusion in Parent' consolidated, combined or
unitary  income tax returns in accordance  with ABNH's past custom and practice.
Parent will allow ABNH an  opportunity  to review and comment on such income tax
returns  (including any amended returns) to the extent they relate to ABNH. ABNH
will  include  its income on its  separate  income tax  returns  for all taxable
periods beginning after the Closing Date. The income of ABNH will be apportioned
to the period up to and  including  the  Closing  Date and the period  after the
Closing  Date by closing  the books of ABNH as of the end of the  Closing  Date,
unless Parent and ABNH elect ratable allocation  pursuant to Treasury Regulation
Sections  1.1502-76(b)(2)(ii).  ABNH  shall  assign  and pay over to Parent  all
refunds of Taxes with  respect  to any  period  ending on or before the  Closing
Date, or with respect to which Parent has agreed to indemnify ABNH under Section
11.3(iii).  For all purposes of this Section and  Sections  4.3,  11.2 and 11.3,
Taxes shall be treated as incurred by ABNH,  whether or not actually assessed or
paid,  if and to the extent such Taxes would be incurred  and payable by ABNH if
ABNH filed its returns on a separate company basis.

         4.2 Separate Tax Returns.  For all periods  following the Closing Date,
and for all  periods  ending  prior to or on the  Closing  Date with  respect to
state,  local and  foreign  income and other tax returns not filed by Parent and
ABNH on a  consolidated,  combined or unitary  basis,  Parent and ABNH will file
their tax returns for state, local and foreign income tax purposes and all other
tax returns on a separate basis and, subject to Sections 11.2 and 11.3, shall be
separately responsible for all Taxes assessed with respect to such returns.

         4.3 Audits.  Parent will allow ABNH and its counsel to  participate  at
ABNH's  own  expense  in any  audits of the  federal,  state,  local or  foreign
consolidated,  combined  or unitary  income tax  returns of Parent to the extent
that such returns  relate to ABNH.  ABNH shall  indemnify  Parent for attorneys'
fees and any and all costs and expenses  (including  allocated costs of in-house
counsel and other personnel)  whatsoever  reasonably incurred in connection with
any such audit to the extent  such audit  relates to Taxes  incurred  by ABNH or
arising with respect to the activities of ABNH.  Parent will not settle any such
audit in a manner that would adversely affect ABNH after the Closing Date,


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unless such  settlement  would be  reasonable in the case of a person that owned
ABNH both before and after the Closing Date.

         4.4 Post-Closing Elections. At Parent's request, ABNH will make or join
with  Parent in making  any  election  for Tax  purposes  if the  making of such
election does not have a material  adverse impact on ABNH for any taxable period
after the Closing Date.

         4.5  Termination  of Other Tax Sharing  Agreements.  Any Tax sharing or
allocation  agreements  between Parent and ABNH other than this Agreement  shall
terminate on the Closing Date.


         Section 5. Insurance Matters.

         5.1 New Policies. On or prior to the date hereof, ABNH obtained binders
for such new business  insurance  policies as it deems  necessary and proper for
the conduct of its  business,  which  policies  by their terms  became or become
effective no later than the Closing  Date.  ABNH is  responsible  for paying all
premiums  required  under such  policies  and,  to the extent any such  premiums
became due prior to the IPO Effective Date, ABNH has paid such premiums.

         5.2 Tail  Coverages.  ABNH is or has been a named insured under various
blanket  business  insurance  policies  owned by  Parent  (the  "Parent  Blanket
Policies").  Parent  has made  available  to ABNH the  opportunity  to  purchase
extended  discovery  period  coverage  for the  benefit of ABNH under the Parent
Blanket  Policies,  and  ABNH  has  purchased  such  extended  discovery  period
coverages as it deems necessary and proper for the conduct of its business.

         5.3 Refunds and Adjustments,  etc. The parties acknowledge that certain
of the premiums paid by Parent under the Parent Blanket  Policies are subject to
reduction  after the  applicable  insurer  audits the  related  claims  history.
Refunds  reflecting  any such  reductions  shall be solely  for the  account  of
Parent,  and ABNH shall have no claim with respect  thereto.  To the extent that
ABNH  receives any such refund,  ABNH shall  immediately  pay it over to Parent.
ABNH shall  indemnify  Parent  for the full  amount of any  retroactive  premium
adjustment or similar  charge,  with respect to workers'  compensation  or other
insurance,  arising out of the activities of ABNH. Any  retroactive  adjustments
for ABNH from prior years shall be paid by ABNH.

         5.4 Workers' Compensation. Effective as of Closing Date (the "WC Switch
Date"), ABNH obtained such workers'  compensation  insurance  arrangements as it
deems  necessary and proper for the conduct of its  business,  and ABNH shall be
solely  responsible  for all  workers'  compensation  claims  of ABNH  employees
incurred after the WC Switch Date.


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         Section 6. Lien and Guaranty  Releases.  It is the  parties'  intention
that,  from and after  the  Closing  Date,  (a) no  assets  (including,  without
limitation,  cash  balances  in bank  accounts  and rights as lessee) or capital
stock of ABNH will be subject to any lien, security interest,  mortgage or other
encumbrance  relating  to any  indebtedness  of Parent  or of any  member of the
Parent Group, and ABNH will have no obligation,  as guarantor or otherwise,  for
any  indebtedness  of Parent or of any  member of the Parent  Group,  and (b) no
assets (including, without limitation, cash balances in bank accounts and rights
as  lessee)  or capital  stock of Parent  will be subject to any lien,  security
interest,  mortgage or other  encumbrance  relating to any indebtedness of ABNH,
and  Parent  will  have  no  obligation,  as  guarantor  or  otherwise,  for any
indebtedness  of ABNH.  If,  after the  Closing  Date,  any lien or  guaranty is
discovered  that  encumbers  any asset or capital  stock of ABNH, or under which
ABNH has any  obligation,  and that relates to any  indebtedness of Parent or of
any member of the Parent  Group,  Parent  shall take all  actions  that shall be
necessary to obtain the release of such lien or guaranty.  If, after the Closing
Date,  any lien or guaranty is  discovered  that  encumbers any asset or capital
stock of Parent,  or under which Parent has any obligation,  and that relates to
any indebtedness of ABNH, ABNH shall take all actions that shall be necessary to
obtain the release of such lien or guaranty.


         Section 7. Asset  Transfer.  As of the Closing  Date,  (a) Parent shall
execute and deliver to ABNH a quitclaim bill of sale,  transferring  to ABNH any
interest  Parent  might have in any of the assets used by ABNH in the conduct of
its business and (b) ABNH shall execute and deliver to Parent a quitclaim  deed,
transferring to Parent any interest ABNH might have in any of the assets used by
Parent in the conduct of its business which are not necessary for the conduct of
ABNH's business.

         Section 8. Bank  Accounts/Cash  Management.  Prior to the IPO Effective
Date,  ABNH has  established  such bank  accounts as it deems to be necessary to
conduct its business  (and/or,  with the  assistance of Parent,  has amended the
authorizations  relating to mutually  agreed existing bank accounts so that they
are  controlled  exclusively by ABNH  personnel),  and,  where  applicable,  all
authorizations,  standing  wire  instructions  and the like  relating  to ABNH's
participation in Parent's cash management system have been terminated.


         Section 9. Employee Benefit Plans. Simultaneously with the execution of
this Agreement,  ABNH and Parent have executed the Employee Benefits  Allocation
Agreement  attached as  Schedule  13 hereto,  which  agreement  constitutes  the
agreement  between ABNH and Parent with respect to employee  benefit  aspects of
the Separation.


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         Section 10.  Termination of  Agreements.  Except for this Agreement and
any Ancillary  Agreements,  in  furtherance of the  Separation,  ABNH and Parent
hereby   terminate  any  and  all  agreements,   arrangements,   commitments  or
understandings,  whether or not in writing,  between or among  ABNH,  on the one
hand,  and Parent  and/or any member of the  Parent  Group,  on the other  hand,
effective as of the Closing Date.


         Section 11. Mutual Releases; Indemnification.

         11.1 Release of Pre-Closing  Claims.  (a) Except as provided in Section
11.1(c),  effective  as of the  Closing  Date,  ABNH  does,  for  itself and its
successors  and  assigns,  remise,  release and forever  discharge  Parent,  the
members of the Parent  Group,  their  respective  Affiliates  (other than ABNH),
successors  and  assigns,  and all  Persons who at any time prior to the Closing
Date have been  shareholders,  directors,  officers,  agents or employees of any
member of the Parent  Group (in each case,  in their  respective  capacities  as
such), and their respective  heirs,  executors,  administrators,  successors and
assigns,  from any and all  Liabilities  to ABNH,  whether  at law or in  equity
(including  any right of  contribution),  whether  arising under any contract or
agreement,  by operation of law or otherwise,  existing or arising from any acts
or events  occurring or failing to occur or alleged to have  occurred or to have
failed to occur or any  conditions  existing  or alleged  to have  existed on or
before the Closing Date.

         (b) Except as provided in Section 11.1(c),  effective as of the Closing
Date,  Parent does, for itself and each other member of the Parent Group,  their
respective Affiliates (other than ABNH), successors and assigns, remise, release
and forever discharge ABNH, and all Persons who at any time prior to the Closing
Date have been shareholders,  directors,  officers,  agents or employees of ABNH
(in each case, in their  respective  capacities as such),  and their  respective
heirs,  executors,  administrators,  successors  and  assigns,  from any and all
Liabilities  to Parent or any of the Parent  Group,  whether at law or in equity
(including  any right of  contribution),  whether  arising under any contract or
agreement,  by operation of law or otherwise,  existing or arising from any acts
or events  occurring or failing to occur or alleged to have  occurred or to have
failed to occur or any  conditions  existing  or alleged  to have  existed on or
before  the  Closing  Date,  except  to the  extent  of  such  product  warranty
obligations or other  Liabilities,  if any, as may arise out of the provision of
goods by ABNH to Parent or other members of the Parent Group or their respective
Affiliates  which are or have been customers of ABNH, which shall not be subject
to or affected by the foregoing release.

         (c)  Nothing  contained  in  Section  11.1(a)  or (b) shall  impair any
obligation under this Agreement or any Ancillary


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Agreement or any right of any Person to enforce this  Agreement or any Ancillary
Agreement.

         11.2  Indemnification by ABNH. Except as provided in Section 11.4, ABNH
shall  indemnify,  defend and hold  harmless  Parent,  each member of the Parent
Group and each of their respective  directors,  officers,  agents and employees,
and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively,  the  "Parent  Indemnitees"),   from  and  against  any  and  all
Liabilities of the Parent  Indemnitees  relating to, arising out of or resulting
from any of the following items (without duplication):

                  (i) the IPO,  the  conduct  by ABNH of its  business,  whether
         before or after the Closing  Date,  including as a result of guarantees
         by Parent of any  obligations of ABNH, and the purchase of any goods or
         services from or through Parent prior to the Closing;

                  (ii) any  breach by ABNH of this  Agreement  or any  Ancillary
         Agreement;

                  (iii) Taxes incurred by ABNH  (including any amounts  assessed
         by a federal, state or local taxing authority), or arising with respect
         to the  activities  of,  ABNH,  with  respect  to any and all  periods,
         whether ending before, on or after the Closing Date; and

                  (iv) the  IPO,  provided  that  such  indemnification  will be
         subordinate to any indemnity  provided by ABNH to the  Underwriters  in
         connection with the IPO pursuant to the Underwriting  Agreement,  among
         ABNH, Parent and the Underwriters listed on Schedule A thereto,  and no
         amount shall be paid pursuant to such indemnification  until any amount
         which is then payable under the Underwriting Agreement is paid in full.

         11.3 Indemnification by Parent. Parent shall indemnify, defend and hold
harmless ABNH, and each of its directors,  officers,  agents and employees,  and
each of the heirs,  executors,  successors  and assigns of any of the  foregoing
(collectively, the "ABNH Indemnitees"), from and against any and all Liabilities
of the ABNH Indemnitees relating to, arising out of or resulting from any of the
following items (without duplication):

                  (i) the  conduct by Parent or any member of the Parent  Group,
         of their  respective  businesses at any time,  including as a result of
         guarantees  by ABNH of any  obligations  of Parent or any member of the
         Parent Group;

                  (ii) any breach by Parent or any member of the Parent Group of
         this Agreement or any Ancillary Agreement; and

                  (iii)  Taxes  incurred  by, or  arising  with  respect  to the
         activities  of,  Parent or any member of the Parent  Group,  other than
         Taxes  incurred by, or arising with respect to the activities of, ABNH,
         during or with  respect to any and all  periods  ending  before,  on or
         after the Closing Date.

         11.4  Indemnification  Obligations Net of Insurance  Proceeds and Other
Amounts.  The parties intend that any Liability  subject to  indemnification  or
reimbursement pursuant to this Section 11 will be net of Insurance Proceeds.


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         11.5 Procedures for  Indemnification  of Third Party Claims.  (a) If an
Indemnitee  shall receive notice or otherwise learn of the assertion by a Person
of  any  claim  or of  the  commencement  by  any  such  Person  of  any  Action
(collectively,  a "Third Party  Claim")  with  respect to which an  Indemnifying
Party may be obligated to provide indemnification to such Indemnitee pursuant to
Section 11.2 or 11.3,  or any other  Section of this  Agreement or any Ancillary
Agreement,  such Indemnitee  shall give such  Indemnifying  Party written notice
within 20 days after becoming  aware of such Third Party Claim.  Any such notice
shall describe the Third Party Claim in reasonable detail.  Notwithstanding  the
foregoing,  the  failure of any  Indemnitee  or other  Person to give  notice as
provided in this  Section  11.5(a)  shall not  relieve the related  Indemnifying
Party of its  obligations  under this Section 11, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice.

         (b) An  Indemnifying  Party may elect to defend (or,  with respect to a
Third  partly  Claim  relating  to  Taxes to which  Section  11.2(iii)  applies,
participate),  and to seek to settle or compromise, at such Indemnifying Party's
own expense and by such Indemnifying Party's own counsel, any Third Party Claim.
Within 30 days after the receipt of notice from an Indemnitee in accordance with
Section  11.5(a)  (or  sooner,  if the  nature  of such  Third  Party  Claim  so
requires),  the  Indemnifying  Party  shall  notify the  Indemnitee  whether the
Indemnifying  Party will assume  responsibility  for defending  such Third Party
Claim.

         (c) If an Indemnifying  Party elects not to assume  responsibility  for
defending a Third Party Claim,  or fails to notify an Indemnitee of its election
as  provided in Section  11.5(d),  such  Indemnitee  may defend such Third Party
Claim at the cost and expense (including allocated costs of in-house counsel and
other personnel) of the Indemnifying Party.

         (d) Unless the  Indemnifying  Party has failed to assume the defense of
the  Third  Party  Claim in  accordance  with the  terms of this  Agreement,  no
Indemnitee may settle or compromise any Third Party Claim without the consent of
the Indemnifying Party.

         (e) No  Indemnifying  Party shall  consent to entry of any  judgment or
enter into any  settlement  of the Third Party Claim  without the consent of the
Indemnitee  if the  effect  thereof  is to permit  any  injunction,  declaratory
judgment,  other order or other  nonmonetary  relief to be entered,  directly or
indirectly, against any Indemnitee.

         11.6 Additional  Matters.  (a) Any claim on account of a Liability that
does not result from a Third  Party  Claim  shall be asserted by written  notice
given by the Indemnitee to the related  Indemnifying  Party.  Such  Indemnifying
Party  shall have a period of 30 days after the  receipt of such  notice  within
which to respond. If such Indemnifying Party does not respond within


                                      -11-

<PAGE>

such 30-day period,  such Indemnifying  Party shall be deemed to have refused to
accept  responsibility  to make  payment.  If such  Indemnifying  Party does not
respond  within  such 30-day  period or rejects  such claim in whole or in part,
such  Indemnitee  shall be free to pursue such  remedies as may be  available to
such party as contemplated by this Agreement and any Ancillary Agreement.

         (b) In the event of payment by or on behalf of any  Indemnifying  Party
to any Indemnitee in connection  with any Third Party Claim,  such  Indemnifying
Party shall be subrogated to and shall stand in the place of such  Indemnitee as
to any events or  circumstances in respect of which such Indemnitee may have any
right,  defense or claim relating to such Third Party Claim against any claimant
or plaintiff  asserting such Third Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying  Party in a reasonable manner,
and at the cost and expense  (including  allocated costs of in-house counsel and
other  personnel) of such  Indemnifying  Party,  in  prosecuting  any subrogated
right, defense or claim.

         11.7  Remedies  Cumulative.  The  remedies  provided in this Section 11
shall be cumulative  and shall not preclude  assertion by any  Indemnitee of any
other  rights  or  the  seeking  of any  and  all  other  remedies  against  any
Indemnifying Party.

         11.8 Survival of  Indemnities.  The rights and  obligations  of each of
Parent and ABNH and their  respective  Indemnitees  under this  Section 11 shall
survive the Closing for a period of three years or, in the case of any Tax,  for
the longer of such period or the period of the applicable statute of limitations
(including any period for which such statute is tolled or waived by agreement or
otherwise).

         Section 12. Certain Business Matters.  (a) Neither ABNH, Parent nor any
member of the Parent  Group shall have any duty to refrain  from (i) engaging in
the  same or  similar  activities  or  lines of  business  as any  other of such
Persons,  (ii) doing business with any potential or actual  supplier or customer
of any other of such  Persons,  or (iii)  engaging in, or refraining  from,  any
other  activities  relating  to any of the  potential  or  actual  suppliers  or
customers  of any other of such  Persons.  Until the  first  anniversary  of the
Closing Date,  ABNH shall not solicit any employee of Parent or of any member of
the Parent  Group to become an  employee  of ABNH,  and  neither  Parent nor any
member of the Parent  Group  shall  solicit  any  employee  of ABNH to become an
employee of Parent or of any member of the Parent Group.


         Section 13.  Late  Payments.  Any amount not paid when due  pursuant to
this Agreement or any Ancillary  Agreement  shall accrue  interest at a rate per
annum equal to the Prime Rate plus 1%.


                                      -12-

<PAGE>

         Section 14. Exchange of Information.  Each of Parent and ABNH agrees to
provide,  or cause to be provided,  to each other, at any time after the Closing
Date, as soon as reasonably  practicable after written request,  any Information
in its  possession  or under its control that the  requesting  party  reasonably
needs (i) to comply with  reporting,  disclosure,  filing or other  requirements
imposed on the requesting party  (including  under applicable  securities or tax
laws) by a Governmental Authority having jurisdiction over the requesting party,
(ii) for use in any other  judicial,  regulatory,  administrative,  tax or other
proceeding  or in  order  to  satisfy  audit,  accounting,  claims,  regulatory,
litigation,  tax or other  similar  requirements,  or (iii) to  comply  with its
obligations under this Agreement or any Ancillary Agreement;  provided, however,
that if any party  determines  that any such provision of  Information  could be
commercially   detrimental,   violate  any  law  or  agreement,   or  waive  any
attorney-client  privilege,  the parties shall take all  reasonable  measures to
permit the  compliance  with such  obligations  in a manner that avoids any such
harm or consequence.


         Section  15.  Confidentiality.  Each of Parent and ABNH agrees to hold,
and to cause its respective directors, officers, employees, agents, accountants,
counsel, other advisors and representatives, and Subsidiaries to hold, in strict
confidence,  with at least  the same  degree of care that  applies  to  Parent's
confidential  and proprietary  information  pursuant to policies in effect as of
the Closing Date,  all  Information  concerning  the other that is either in its
possession  (including  Information in its possession prior to the Closing Date)
or furnished by such other or its  respective  directors,  officers,  employees,
agents, accountants,  counsel and other advisors and representatives at any time
pursuant to this Agreement,  any Ancillary Agreement or otherwise, and shall not
use any such  Information  other than for such purposes as  contemplated by such
agreements,  except,  in each case, to the extent that such Information has been
(i) in the public domain through no fault of such party or any of its directors,
officers,  employees,  agents,  accountants,  counsel  and  other  advisors  and
representatives,  (ii) later lawfully acquired from other sources by such party,
which sources are not themselves bound by a confidentiality obligation, or (iii)
independently  generated  without  reference to any  proprietary or confidential
Information of the other party. In the event that any party either determines on
the advice of its  counsel  that it is  required  to  disclose  any  Information
pursuant to applicable  law or receives any demand under lawful  process or from
any Governmental Authority to disclose or provide Information of any other party
that is subject to the confidentiality  provisions of this Agreement, such party
shall notify the other party prior to disclosing or providing  such  Information
and shall  cooperate  at the  expense of the  requesting  party in  seeking  any
reasonable protective arrangements requested by such other party. Subject to the
foregoing, the Person that received such request may


                                      -13-

<PAGE>

subsequently  disclose or provide Information to the extent required by such law
(as so advised by counsel) or by lawful process or such Governmental Authority.


         Section 16. Further Assurances. In addition to the actions specifically
provided for elsewhere in this  Agreement,  each of the parties hereto shall use
its reasonable  best efforts,  prior to, on and after the Closing Date, to take,
or cause to be taken,  all actions,  and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make  effective the  transactions  contemplated  by
this Agreement and the Ancillary Agreements.


         Section 17. Miscellaneous.

         17.1  Counterparts;  Entire  Agreement.  (a)  This  Agreement  and each
Ancillary  Agreement may be executed in one or more  counterparts,  all of which
shall be considered one and the same agreement,  and shall become effective when
one or more  counterparts  have been signed by each of the parties and delivered
to the other party.

         (b) This Agreement,  any Ancillary  Agreements and the Schedules hereto
and thereto contain the entire agreement between the parties with respect to the
subject  matter  hereof,   supersede  all  previous  agreements,   negotiations,
discussions,  writings,  understandings,   commitments  and  conversations  with
respect to such subject  matter and there are no  agreements  or  understandings
between the parties other than those set forth or referred to herein or therein.

         17.2 Governing Law. This Agreement and each Ancillary  Agreement  shall
be governed by and construed and  interpreted in accordance with the laws of the
State of New York, irrespective of the choice of laws principles of the State of
New York,  as to all  matters,  including  matters  of  validity,  construction,
effect, enforceability, performance and remedies.

         17.3  Assignability.  This Agreement and each Ancillary Agreement shall
be  binding  upon and inure to the  benefit of the  parties to such  agreements,
respectively,  and their respective successors and assigns;  provided,  however,
that no party may  assign  its  respective  rights or  delegate  its  respective
obligations under this Agreement or any Ancillary  Agreement without the express
prior written consent of the other parties.

         17.4 Third Party Beneficiaries.  Except for the indemnification  rights
under  this  Agreement  of any Parent  Indemnitee  or ABNH  Indemnitee  in their
respective  capacities as such,  (a) the  provisions of this  Agreement and each
Ancillary Agreement are solely for the benefit of the parties and are not



                                      -14-

<PAGE>

intended  to confer  upon any Person  except the  parties any rights or remedies
under this  Agreement,  and (b) there are no third party  beneficiaries  of this
Agreement  or any  Ancillary  Agreement  and  neither  this  Agreement  nor  any
Ancillary  Agreement  shall  provide any third  person  with any remedy,  claim,
liability,  reimbursement,  claim of  action  or other  right in excess of those
existing without reference to this Agreement or any Ancillary Agreement.

         17.5 Notices.  All notices or other communications under this Agreement
or any  Ancillary  Agreement  shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed as follows:

              If to Parent, to:     Secretary
                                    American Banknote Corporation
                                    200 Park Avenue
                                    New York, NY 10166

              If to ABNH, to:       Secretary
                                    American Bank Note
                                    Holographics, Inc.
                                    399 Executive Boulevard
                                    Elmsford, NY 10523

Any party may,  by notice to the other  party,  change the address to which such
notices are to be given.

         17.6 Severability.  If any provision of this Agreement or any Ancillary
Agreement or its  application to any Person or  circumstance  is determined by a
court of  competent  jurisdiction  to be  invalid,  void or  unenforceable,  the
remaining provisions of such agreement,  or the application of such provision to
Persons or circumstances or in jurisdictions other than those as to which it has
been held  invalid or  unenforceable,  shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, so long as the economic or
legal substance of the transactions  contemplated by such agreement, as the case
may  be,  is not  affected  in  any  manner  adverse  to any  party.  Upon  such
determination,  the parties shall  negotiate in good faith in an effort to agree
upon such a suitable and  equitable  provision to effect the original  intent of
the parties.

         17.7  Force  Majeure.  No party  shall be  deemed  in  default  of this
Agreement or any Ancillary  Agreement to the extent that any delay or failure in
the  performance  of its  obligations  under  this  Agreement  or any  Ancillary
Agreement  results from any cause beyond its reasonable  control and without its
fault or negligence,  such as acts of God, acts of civil or military  authority,
embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes,
floods, unusually severe weather conditions, labor problems or unavailability of
parts, or, in the case of computer systems, any failure in


                                      -15-

<PAGE>

electrical  or air  conditioning  equipment.  In the  event of any such  excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.

         17.8 Publicity;  Expenses.  Prior to the Closing Date, each of ABNH and
Parent  shall  consult  with each other prior to issuing  any press  releases or
otherwise  making public  statements  with respect to the IPO, the Separation or
any of the other  transactions  contemplated  hereby.  All  expenses of ABNH and
Parent  incurred  in  connection  with  the  implementation  of the  IPO and the
Separation  shall be for the account of ABNH,  except for  expenses  incurred by
Parent in connection  with the Separation and  Underwriters'  commission for the
shares of ABNH Common Stock to be sold in the IPO which shall be for the account
of Parent.  Notwithstanding  the  provisions  of the  foregoing  sentence and of
Section  11.2(i),  Parent  shall pay all SEC filing fees and legal,  accounting,
printing and other similar  out-of-pocket  expenses  directly relating to ABNH's
participation in the completion of the IPO; provided however,  that in the event
the Underwriters  exercise their over-allotment  option to purchase Common Stock
from ABNH,  such expenses shall be allocated in such amounts and  percentages as
the parties shall agree.

         17.9  Waivers  of  Default.  Waiver by any party of any  default by the
other party of any provision of this Agreement or any Ancillary  Agreement shall
not be deemed a waiver by the waiving party of any  subsequent or other default,
nor shall it prejudice the rights of the other party.

         17.10  Specific  Performance.  In the event of any actual or threatened
default in, or breach of, any of the terms,  conditions  and  provisions of this
Agreement or any Ancillary Agreement,  the party or parties who are or are to be
aggrieved  shall have the right to specific  performance and injunctive or other
equitable relief of its rights under this Agreement or such Ancillary Agreement,
in addition to any and all other  rights and  remedies at law or in equity,  and
all such rights and remedies  shall be  cumulative.  The parties  agree that the
remedies at law for any breach or threatened breach, including monetary damages,
are inadequate  compensation for any loss and that any defense in any action for
specific  performance  that a remedy at law would be  adequate  is  waived.  Any
requirements  for the  securing  or  posting  of any bond with such  remedy  are
waived.

         17.11  Amendments.  No  provision of this  Agreement  or any  Ancillary
Agreement  shall be deemed  waived,  amended,  supplemented  or  modified by any
party, unless such waiver,  amendment,  supplement or modification is in writing
and signed by the  authorized  representative  of the party  against  whom it is
sought to enforce such waiver, amendment, supplement or modification.


                                      -16-

<PAGE>

         IN WITNESS  WHEREOF,  each of the parties  has caused  this  Separation
Agreement to be duly executed by its duly  authorized  officer as of the day and
year first written above.



                               AMERICAN BANKNOTE CORPORATION



                               By:_______________________________
                               Name:_____________________________



                               Title:____________________________



                               AMERICAN BANK NOTE HOLOGRAPHICS, INC.



                               By:_______________________________
                               Name:_____________________________
                               Title:____________________________


                                      -17-