<PAGE>
                                                                    Exhibit 10.3


                                    AGREEMENT
          ("Substitute CLA" to replace Agreement dated Feb. 25th 1992)


                                 BY AND BETWEEN

                        AMERICAN BANK NOTE HOLOGRAPHICS,
                      INC. A DELAWARE CORPORATION ("ABNH")

                                       AND

                       LEONHARD KURZ GMBH & CO. KG ("LK")
              A LIMITED PARTNERSHIP ORGANIZED UNDER THE LAWS OF THE
                           FEDERAL REPUBLIC OF GERMANY

ENTERED INTO ON July 01st, 2002

WITNESSETH

Whereas, the parties entered into an Agreement on February 25, 1992, sometimes
referred to as the "CLA" and have agreed to replace the CLA with this
"Substitute CLA", terminating and suspending the CLA entirely; and

Whereas, LK owns or has acquired the exclusive rights to those patents and
patent applications set forth on Schedule A hereto (the "LK Patents") and ABNH
and certain of its affiliates own or have acquired the exclusive rights to those
patents and patent applications set forth on Schedule B hereto (the "ABNH
Patents"); and

Whereas LK and ABNH are involved in ongoing discussions concerning the potential
infringement and coverage of their respective patents; and

Whereas, LK and ABNH desire to settle their differences and release each other
from any claims of infringement or invalidity of each other's patents; and

Whereas, LK and ABNH desire to collaborate in the technology of the LK and ABNH
Patents;

Now therefore, in consideration of the parties' mutual agreements contained
herein, the parties hereto agree as follows.


                                       1
<PAGE>
TABLE OF CONTENTS:

<TABLE>
<S>                                                                           <C>
1.  DEFINITIONS ...........................................................    3

2.  CROSS-LICENSE .........................................................    3

3.  ROYALTIES .............................................................    4

4.  ROYALTY PAYMENTS ......................................................    6

5.  PURCHASE ..............................................................    7

6.  INVENTIONS ............................................................    7

7.  REPRESENTATIONS .......................................................    8

8.  CONFIDENTIALITY .......................................................    8

9.  TERMINATION ...........................................................    9

10. INDEPENDENT CONTRACTORS ...............................................    9

11. ASSIGNMENT AND SUBCONTRACTORS .........................................    9

12. ENTIRE AGREEMENT ......................................................   10

13. NOTICES ...............................................................   10

14. SUBSTANTIVE LAW .......................................................   10

15. ARBITRATION ...........................................................   11

16. MISCELLANEOUS .........................................................   11

17. SALVATORY CLAUSE ......................................................   11
</TABLE>


                                       2
<PAGE>
1.    DEFINITIONS

      a)    "Card Products" shall mean all Holomag Products used on or in
            connection with credit, debit and ATM (Automatic Transaction
            Machine) cards or card carriers corresponding to the size and shape
            standards of currently used credit, debit and ATM cards (ISO 7810,
            7811/1 and 7813 or such other successor organizations as may
            thereafter certify size and shape standards for Card Products) as
            such may be amended from time to time.

      b)    "Holomag Product" shall mean any magnetic particle layer
            super-imposed or in an overlapping position with a hologram layer
            regardless of positioning and as described in any of the LK Patents
            or ABNH Patents of Schedules A and B hereto, whether incorporated
            into a finished, semi-finished or unfinished product. (Holomag is a
            trademark of ABNH.)

      c)    "Information" shall mean this Agreement and costs, pricing,
            production matters and related information and materials, including
            technical, financial and managerial information as well as any and
            all information, know-how, including the know-how and data,
            technical or non-technical, which relates to the technology of
            Holographic Magstripe, whether written or oral, as well as samples
            or specimens thereof, furnished by or on the behalf of a party,
            either directly or indirectly.

      d)    "LK Territory" shall mean all countries as listed in Schedule C
            hereto.

      e)    "Net Sales Price" shall mean the amount paid for the Holomag Product
            by a party less quantity and/or cash discounts, freight, postage,
            insurance, taxes, and duties. With respect to sales of Holomag
            Products in combination with other components of a product the Net
            Sales Price shall be limited to that portion of the total sales
            price which will represent the fair market value of the Holomag
            Products as if it were sold separately.

2.    CROSS-LICENSE

      a)    LK hereby grants ABNH an exclusive, irrevocable license to make,
            have made, use and sell Card Products under the LK Patents in the
            territories of the United States, its territories and possessions
            ("United States") with no retained right to make, have made, use,
            and sell by LK in the


                                       3
<PAGE>
            United States or to sell to United States based Card Product
            authorizing organizations.

            LK hereby grants ABNH a non-exclusive, irrevocable license to make,
            have made, use, and sell products other than Card Products under the
            LK Patents in the United States.

            It is the intention of the parties that such licenses shall include
            the right of ABNH or any of its United States customers to assemble
            and distribute outside the United States and including in the LK
            Territory including with respect to the first paragraph above for
            United States Card Product authorizing organizations provided there
            are used Holomag Products originating from ABNH.

      b)    ABNH hereby grants LK an exclusive, irrevocable license to make,
            have made, use, and sell Holomag Products other than Card Products
            under the ABNH Patents in the United States. ABNH shall retain the
            full right under the ABNH Patents to make, have made, use, and sell
            Holomag Products.

      c)    LK hereby grants to ABNH an exclusive, irrevocable worldwide license
            to make, have made, use, and sell to Eurocard and Eurocheque or any
            possible successor Holomag Products for Card Products under the LK
            Patents with no retained right to use and sell by LK to Eurocard and
            Eurocheque or any possible successor(s).

      d)    Neither party shall have any right to grant any sublicense or
            assignment of any of the patents licensed to such party by the other
            party to this Agreement without the express written consent of the
            party which owns such patents.

      e)    In the event LK receives an inquiry for Card Products from a United
            States Card Product authorizing organization, LK shall refer such
            inquiry to ABNH.

3.    ROYALTIES

a)    Sales under Section 2a)

      1.    In consideration of the licenses granted ABNH shall pay to LK
            royalties in accordance with the following schedule for all sales
            pursuant to Section 2a) hereof:

      i)    Card Products


                                       4
<PAGE>
      -     if ABNH purchases both the magnetic particle layer and the
            holographic embossing film from LK, a sum equal to 0% of the Net
            Sales Price.

      -     if ABNH purchases only the magnetic particle layer from LK, a sum
            equal to 6% of the Net Sales Price.

      -     if ABNH purchases only the holographic embossing film from LK, a sum
            equal to 10% of the Net Sales Price.

      -     if ABNH neither purchases the holographic embossing film nor the
            magnetic particle layer from LK, a sum equal to 12% of the Net Sales
            Price.

      -     if ABNH purchases the holographic embossing film from LK and the
            magnetic particle layer from Malco Plastics, a sum equal to 6% of
            the Net Sales Price, provided however, that the magnetic particle
            layer purchased from Malco is for use exclusively on Malco
            manufactured Card Products.

      ii)   Other Products

            For products other than Card Products the respective royalties shall
            amount to half of the above mentioned sums.

      2.    EUROCARD/EUROCHEQUE

            If ABNH sells Holomag Products pursuant to Section 2c) hereof it
            shall pay to LK a sum equal to 15% of the Net Sales Price where LK
            shall provide the embossing, magnetic particle layer and holographic
            embossing film for such purchases and in all other cases a sum equal
            to 30% of the Net Sales Price. In addition ABNH agrees that it shall
            not charge any fees for holographic originations provided to LK with
            respect to orders pursuant to Section 2c).

      3.    NON-UNITED STATES SUBCONTRACTOR

            In addition to the amount payable under Section 3a) 1. or 2. ABNH
            shall, in the event ABNH uses any non-United States subcontractor in
            connection with manufacture of the Holomag Product, pay to LK a sum
            equal to 6% of the Net Sales Price.

b)    LK

      i)    LK will purchase holographic originations from ABNH for all of its
            use of Holomag Products in the United States, provided however, that
            LK may purchase a holographic origination other than from ABNH for
            any customer which


                                       5
<PAGE>
            objects in writing to the production of the origination by ABNH.

      ii)   For all sales of Holomag Products using originations produced by
            ABNH LK shall pay to ABNH a sum equal to 6% of the Net Sales Price
            for purchases throughout the world, provided, however, for
            originations produced for sales of LK in Japan the sum shall be
            equal to 7% of the Net Sales Price.

      iii)  In addition to the above, LK shall charge to its customer and pay to
            ABNH after receipt from the customer the usual and customary initial
            set-up charges of ABNH for the cost of producing the origination for
            the customer unless ABNH and LK have agreed that the full cost
            thereof cannot be charged to the LK customer by LK.

c)    Royalties shall be deemed to accrue on the date that a party receives
      payment for sales.

d)    Royalties shall only be payable as long as any of the valid patents of
      schedule A and B continue to apply to manufacture and sale of the licensed
      products.

4.    ROYALTY PAYMENTS

      a)    Within thirty (30) days after the end of each calendar quarter, the
            parties shall remit any royalties payable pursuant to Section 3
            hereof for all licensed products sold during such quarter. Royalties
            shall be paid in US Dollars. If the Net Sales Price is in a currency
            other than US Dollars, royalties shall be computed by converting the
            royalty at the exchange rate for the currency prevailing at the date
            of royalty payment as such exchange rate is published in the Wall
            Street Journal.

      b)    Each payment of royalties hereunder shall be accompanied by a
            statement certified by an officer of the party issuing such report
            containing sufficient information to allow the recipient to permit
            verification of the accuracy of all royalty calculations hereunder.

      c)    The parties shall each have the right, at their own cost and expense
            to audit the books and records of the other party through
            independent certified public accountants for the purposes of
            verifying the accuracy of the royalty reports and payments. Such
            audits shall be made during regular


                                       6
<PAGE>
            business hours and upon not less than thirty (30) days advance
            written notice and shall be permitted not more frequently than once
            per calendar year.

            The accountants shall treat all Information received during the
            audits as confidential Information pursuant to Section 8.

5.    PURCHASE

      a)    LK agrees that the terms and conditions of sale individually for
            substantially similar embossing foil, embossing and magnetic
            particle layer, to ABNH for Card Products including but not limited
            to price, shall not be less favorable than those terms and
            conditions of sale to any third party when such materials are sold
            to ABNH either individually or together for the purposes of this
            Agreement, subject to required price increases reflecting actual
            increased costs of materials and/or labor applicable to such
            materials.

      b)    ABNH shall be at liberty to purchase the holographic embossing film,
            embossing, and/or magnetic particle layer from any non-United
            States; and such subcontractors are released from any claims of
            infringement of any LK patents licensed hereunder per Schedule A. On
            request by ABNH to Kurz, Kurz shall confirm in writing to ABNH that
            ABNH and the subcontractor have the licensing rights under the LK
            patent listed in Schedule A.

6.    INVENTIONS

      Any methods, developments, inventions, discoveries, techniques and/or
      improvements, whether or not patentable, made during the course of work
      performed under this Agreement, shall be the property of the party whose
      personnel made the invention, and that party may make application for
      patents covering such invention. Any invention made jointly during the
      course of work performed under this agreement and for a period of (6) six
      months thereafter shall be the joint property of LK and ABNH, and any
      applications made and patents obtained for such inventions or discoveries
      shall be assigned jointly to LK and ABNH, each obtaining a 50% interest
      therein. Each party shall aquire an irrevocable world wide non-exclusive
      license to make, have made, use and sell under any such joint inventions.


                                       7
<PAGE>
7.    REPRESENTATIONS

      LK hereby represents and warrants that it has the right and authority to
      execute, deliver and perform the obligations of this Agreement required to
      be performed by LK, that it has not entered any agreements which would
      conflict with the rights granted ABNH pursuant to this Agreement and that
      it knows of no potential infringements of third-party patents which would
      result from the manufacture, sale or use of Holomag Products to be
      produced hereunder.

      ABNH hereby represents and warrants that it has the right and authority to
      execute, deliver and perform the obligations of this Agreement required to
      be performed by ABNH, that it has not entered any agreements which would
      conflict with the rights granted LK pursuant to this Agreement and that it
      knows of no potential infringements of third-party patents which would
      result from the manufacture, sale or use of Holomag Products to be
      produced hereunder.

8.    CONFIDENTIALITY

      The parties agree that any Information of the other party shall be
      maintained in strict secrecy. Each party agrees that it will disclose
      Information of the other party only to those of its officers and employees
      who are subject to an agreement which provides similar restrictions on
      disclosure as are provided herein and who are directly concerned with the
      use of the Information for the purpose specified herein, and that it will
      take all necessary and reasonable precautions to prevent such Information
      from being disclosed to any unauthorized person, firm or company. Upon
      disclosing any Information to its officers or employees, such officers and
      employees shall be informed of the existence of this Agreement, will be
      instructed to treat the Information confidentially, and the parties will
      take all necessary and reasonable precautions to prevent the unauthorized
      disclosure of such Information by such officers and employees. The
      parties' nondisclosure obligations under this Agreement shall be limited
      to a period ending the latest to occur of (i) five (5) years from the last
      receipt of such Information, (ii) five (5) years following the termination
      of any purchase or supply arrangements hereunder and (iii) five (5) years
      from the termination of this Agreement

      Recipient shall not have any obligation of confidentiality with respect to
      any Information that:

      a)    was already in its possession prior to receipt from the other party
            or is developed independently of Information received from the other
            party as evidenced by the written


                                       8
<PAGE>
            records of such party;

      b)    is or hereafter becomes in the public domain by public use,
            publication, general knowledge or the like through no fault of
            receiving party; or

      c)    is properly obtained by the receiving party from a third party not
            under any obligation to a party or any of its affiliates to keep
            such information confidential.

      Any and all Information in tangible form received by either party shall
      remain the property of the disclosing party and all such Information, and
      copies thereof, upon request, shall be promptly returned or destroyed.

      The terms of this Section 8 shall survive the termination of this
      Agreement for the periods set forth.

9.    TERMINATION

      This Agreement shall replace the Agreement of February 25th, 1992 and be
      in full force and effect and shall terminate on the expiry of the latest
      US-Patents as per Schedule 1 or Schedule 2. Upon expiry, this Agreement
      shall cease to be binding on the Parties automatically without the
      necessity for either Party to provide notice of termination.

10.   INDEPENDENT CONTRACTORS

      ABNH and LK shall each act as independent contractors and not as agent
      for, partner of or joint venture with the other party hereto. Neither
      party shall have any authority to bind or otherwise obligate the other
      party except as specifically set forth herein.

11.   ASSIGNMENT AND SUBCONTRACTORS

      Neither this Agreement, nor any of the rights granted hereunder, may be
      assigned or otherwise transferred, to any third party except as provided
      hereunder or by operation of law, nor may any party subcontract its
      obligations hereunder except with the prior written consent of the other
      party or as provided under Section 3a3 hereof.

      Notwithstanding the foregoing ABNH shall be permitted to subcontract any
      of its requirements to produce Card Products to LK and agrees that it
      shall charge not any fees for holographic originations provided to LK with
      respect to such subcontracted work.


                                       9
<PAGE>
12.   ENTIRE AGREEMENT

      This Agreement and the schedules hereto contain the entire agreement
      between the parties hereto with respect to the subject matter hereof and
      supersedes all previous and contemporaneous oral or written agreements and
      no amendments to this Agreement shall be effective unless in writing
      signed by the parties.

13.   NOTICES

      All notices, request, demands, and other communications required or
      permitted to be given hereunder, shall be in writing and shall be deemed
      to have been given at the time actually received by the party to whom
      notice is sent at the address given below or to such changed address as
      such party may have designated by notice:

      If to ABNH:
             American Bank Note Holographies, Inc.
             399 Executive Boulevard Elmsford,
             New York 10523
             Attention: Chief Executive Officer,
                        Kenneth Traub


      If to LK:
             Leonhard Kurz GmbH & Co.KG
             Schwabacher Str. 482
             D - 90763 Furth/Germany
             Attention: Vice President of Security Concepts and
                        Member of the Board
                        Werner Reinhart

14.   SUBSTANTIVE LAW

      All disputes shall be settled in accordance with the provisions of this
      Agreement and all other agreements regarding its performance, otherwise in
      accordance with the substantive law in force in Switzerland without
      reference to other laws. The application of the United Nations Convention
      on the International Sale of Goods shall be excluded.


                                       10
<PAGE>
15.   ARBITRATION

      All disputes arising in connection with the present Agreement shall be
      finally settled under the Rules of Conciliation and Arbitration of the
      International Chamber of Commerce by 3 (three) arbitrators appointed in
      accordance with the said Rules.

      The place of arbitration shall be Zurich, Switzerland.

16.   MISCELLANEOUS

      a)    In light of the joint research and development activities which the
            parties anticipate will be required to commercially exploit Holomag
            Products the parties agree that the benefits of this Agreement shall
            be strictly limited to LK and its affiliates and ABNH and its
            affiliates.

      b)    The parties acknowledge that this Agreement shall in no way be
            interpreted to affect their ongoing business activities involving
            holographic imaging, products or technology or magnetic stripe
            products or technology other than with respect to Holomag Products
            and that each party shall be free in every respect to conduct such
            business and continue to develop such technology outside of this
            Agreement.

      c)    LK shall be entitled to utilize any of its affiliated companies to
            perform any of the activities contemplated to be performed by LK
            under this Agreement in its sole discretion, provided however, that
            LK shall remain responsible for the performance thereof.

17.   SALVATORY CLAUSE

      All provisions of this Agreement shall be considered several and if any of
      the provisions of this Agreement are held by a court of competent
      jurisdiction to be invalid, void or otherwise unenforceable, the remaining
      provisions shall remain in effect, and if any provision is inapplicable to
      any person or circumstance, it shall nevertheless remain applicable to all
      other persons and circumstances.


                                       11
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date and year first above written.



Frankfurt, the 01.July.2002                Frankfurt, the 01.July.2002




/s/ Kenneth Traub                          /s/ Werner Reinhart
---------------------                      -------------------
AMERICAN BANK NOTE                         LEONHARD KURZ
HOLOGRAPHICS, INC.                         GmbH & Co KG
Name:  Kenneth Traub                       Name:  Werner Reinhart
Title: Chief Executive Officer             Title: Vice President of
                                           Security Concepts and
                                           Member of the Board


                                       12
<PAGE>
Schedule A to the Agreement dated 01.07.2002

LK PATENTS


<TABLE>
<CAPTION>
COUNTRY                        PATENT NUMBER                    DATE OF PATENT
<S>                            <C>                              <C>
USA                            4,232,077                        Nov 8,1980
                               4,631,222                        Dec 23,1986

UNITED KINGDOM                 1,568,563                        Aug 6,1980

GERMANY (FRG)                  34 22 910                        April 1,1985

JAPAN                          1,588,749                        May 16,1990
</TABLE>


<TABLE>
<CAPTION>
                               Application No
<S>                            <C>                              <C>
                               1,352,41/1985                    pending
EUROPE                         0,171,540                        Aug 30,1989
</TABLE>

Countries:

Germany (FRG)

Sweden

Switzerland

Liechtenstein

Austria

The Netherlands

Italy

France

United Kingdom


                                       13
<PAGE>


Schedule B to the Agreement dated 01.07.2002


ABNH PATENTS

<TABLE>
<CAPTION>
COUNTRY                               PATENT NUMBER        DATE OF PATENT
-------------------------------------------------------------------------
<S>                                   <C>                  <C>
USA                                     4,684,795          AUG 4    1987
CANADA                                  1,257,992          AUG 1,   1989
UNITED KINGDOM                          2,129,739          JAN 14   1987
FRANCE                                  2,535,864          MARCH 9  1990
SWITZERLAND                               656,721          JULY 15  1986
</TABLE>


                                       14
<PAGE>

Schedule C to the Agreement dated 01.07.2002

LK TERRITORY

Federal Republic of Germany, Sweden, Switzerland, Liechtenstein, Austria, The
Netherlands, Italy, France, United Kingdom, Japan


                                       15