CFC APPLIED HOLOGRAPHICS RESEARCH

                              PARTNERSHIP AGREEMENT



         This agreement (the "Agreement")is made and entered into on October 28,
1998  (but  is  effective  as of  October  1,  1998),  by  and  between  Applied
Holographics  Corporation,  a Delaware  corporation  ("AH"), and CFC Management,
Inc.,  a  Delaware  corporation  ("CFC").  Applied  Holographics  PLC  ("Applied
Holographics"),  a company  organized and existing under the laws of England and
Wales,  and  CFC   International,   Inc.  ("CFC   International"),   a  Delaware
corporation,  are also  parties to this  Agreement  not as partners  but for the
limited purposes set forth below.


                                    Recitals

         AH is a wholly-owned  subsidiary of Applied  Holographics  and CFC is a
wholly-owned subsidiary of CFC International.

         AH and CFC  desire to form a general  partnership  for the  purpose  of
performing   research  and   development   for  the   business  of   developing,
manufacturing,  marketing  and selling  holographic  originations  and  embossed
holographic  foils and films,  and for  carrying  on  research  and  development
projects for related  products or  technology as may be agreed from time to time
among the parties hereto.


                                    Covenants

         In  consideration  of the  premises  and the  mutual  covenants  of the
parties set forth herein, the parties hereto agree as follows:

1.   Definitions

     1.1 Defined Terms. As used in this Agreement, the following terms shall 
have the meanings given them below:

     "1998 License Agreement" shall mean the License Agreement of even date
herewith   effective   October  1,  1998,  among  the  parties  hereto  and  the
Partnership.

     "Act" shall mean the Uniform Partnership Act of the State of Delaware,
as amended from time to time.

     "Affiliate" shall mean any entity or person that directly or indirectly
through  one or more  intermediaries  controls,  is  controlled  by, or is under
common  control  with any other  entity or  person.  "Control"  (including  with
correlative meanings, the terms "controlled by" and "under common control with")
means the  ownership or control of  securities  possessing  more than 50% of the
voting power of all outstanding  voting securities of an entity or person or the
power to otherwise  direct or cause the direction of the management and policies
of such entity or person,  whether  through  the  ownership  of voting  stock or
similar rights or the holding of office in such entity or person, by contract or
otherwise.

     "Business" shall mean the business of performing research and development 
for the business of developing, manufacturing, marketing and selling holographic
originations and embossed  holographic  foils and films, as well as related  
products or  technology,  all as agreed  from time to time  between the 
Partners.

     "Capital Account" shall mean, with respect to any Partner, such Partner's  
capital  account  maintained  in  accordance  with the  provisions of 
Section 8.5.

     "Capital Contribution" shall mean, with respect to any Partner, the amount 
of money and the fair market value of any  property  other than money (as
determined by the Partners) contributed to the Partnership by such Partner.

     "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

     "Controlling Affiliate" shall mean, with respect to any Partner, any
Affiliate of such Partner  which  controls  (within the meaning of "control" set
forth in the definition of "Affiliates" above) such Partner.

     "Distribution" shall mean, with respect to any Partner, the amount of
money and the fair market value of any property  other than money (as determined
by the Partners) distributed to such Partner by the Partnership.

     "Interest in the Partnership" shall mean, with respect to any Partner,
such Partner's  interest in the capital of the  Partnership,  and the Net Income
and Net Loss of the Partnership.

     "Net Income" shall mean, with respect to any period, the net income, if
any, of the  Partnership  for such period as determined  for Federal  income tax
purposes,  provided  that such income  shall be  increased  by the amount of all
income of the Partnership  during such period that is exempt from Federal income
tax and decreased by the amount of all  expenditures of the  Partnership  during
such period which are not deductible in computing the  Partnership's  income for
Federal income tax purposes and which do not constitute capital  expenditures of
the Partnership.

     "Net Loss" shall mean, with respect to any period, the net loss, if
any, of the  Partnership  for such period as determined  for Federal  income tax
purposes, provided that such loss shall be decreased by the amount of all income
of the Partnership during such period that is exempt from Federal income tax and
increased  by the amount of all  expenditures  of the  Partnership  during  such
period  which are not  deductible  in  computing  the  Partnership's  income for
Federal income tax purposes and which do not constitute capital  expenditures of
the Partnership.

     "Oxnard Assets" shall mean the assets of the Prior Operating Partnership  
located in or directly  related to the Oxnard  California  research operations  
of the Prior  Operating  Partnership  as they  existed on October 1, 1998.

     "Partner" shall mean each of AH and CFC.

     "Partnership" shall mean the Partnership created by the Partners under the 
Act.

     "Percentage Interest" shall mean the percentage interest of each Partner  
in the Net  Income  and Net Loss of the  Partnership  set  forth on the 
signature pages hereto opposite the signature of such Partner.

     "Prior Operating Partnership" means the partnership created by and under 
the restated and amended CFC Applied  Holographics  Partnership  Agreement
dated October 1, 1994, between AH and CFC.

     "Purchase of Partnership and Termination Agreement" means the Purchase
of  Partnership   and  Termination   Agreement   among  the  Partners,   Applied
Holographics and CFC International dated as of October 1, 1998.

     1.2 Other Definitions. The following terms as used in this Agreement
shall have the respective meanings specified in the Sections indicated below.

                        Term                            Section
                        ----                            -------

                         Acquired Partner                9.5
                         Arbitration                    11.1
                         Arbitration Notice             11.1
                         Change in Control               9.5.3
                         Dispute                        11.1
                         Independent Partner             9.5
                         Tax Matters Partner             8.7
                         Transfer                       10.1


2.   Formation of the Partnership

     The Partners hereby form a general partnership under the Act. The Act
shall  govern the rights and  obligations  of the  Partners  except as otherwise
expressly set forth herein.

3.   General Provisions

     3.1 Name. The name of the Partnership shall be "CFC Applied Holographics 
Research Partnership."

     3.2 Assumed Name Statements; Other Certificates. Following the execution  
of this  Agreement,  the Partners  shall  execute and file assumed or fictitious
business name  statements and such other  certificates,  notices and statements 
as may be required by law for the operation of the Partnership in all 
jurisdictions where the Partnership does business.

     3.3 Principal Place of Business. The principal place of business of the 
Partnership shall be at 500 State Street, Chicago Heights, Illinois 60411.

     3.4 Purpose of the Partnership. The purpose of the Partnership shall be
to  conduct  the  Business  and to engage  in such  other  activities  as may be
necessary or convenient therefor.

     3.5 Title to Partnership Property. Except as provided in the 1998 License  
Agreement,  all  property  owned by the  Partnership,  whether  real or 
personal,  tangible  or  intangible,   shall  be  deemed  to  be  owned  by  the
Partnership,  and no  Partner,  individually,  shall have any  interest  in such
property.  Each Partner hereby waives any right to partition of the  Partnership
property.

     3.6 Activities of the Partners. Subject to the agreements set forth in
the 1998 License  Agreement,  each Partner and its  Affiliates  may engage in or
hold an  interest  in other  business  ventures  and  activities  of any nature,
including  without  limitation  ventures and activities  similar to those of the
Partnership,  and neither the  Partnership  nor any Partner shall,  by virtue of
this  Agreement,  have any  interest  or rights in or to such other  ventures or
business or any liability or obligation with respect thereto.

4.   Capital Contributions

     4.1 Capital Contributions.

          4.1.1 Working Capital. AH shall contribute 50% of the working capital 
     and  ongoing   expenses  of  the  Partnership  and  CFC  shall contribute  
     50% of the  working  capital  and  ongoing  expenses of the Partnership all
     as agreed in advance between the Partners.  The parties hereto agree that 
     CFC International will offset royalties payable to AH or Applied  
     Holographics under the 1998 License Agreement (and thus pay directly  to  
     the  Partnership  part  or all  of  any  royalty  payment otherwise  
     payable  to  AH)  to  fund  AH's  50%  agreed  upon  Capital Contributions.

          4.1.2 Prior Operating Partnership. AH and CFC will each contribute 50%
     of the expenses  incurred through September 30, 1998, by the Prior  
     Operating  Partnership  on the 3D  research  project and the Partnership  
     will reimburse the Prior  Operating  Partnership for these expenses.  The 
     parties hereto agree that CFC International  will offset royalties  payable
     to  Applied  Holographics  under  the 1998  License Agreement (and thus pay
     directly to the Partnership  part or all of any royalty  payment  otherwise
     payable  to AH) to fund  AH's 50%  Capital Contribution to fund these 
     expenses.

          4.1.3 Rental of Oxnard Assets. As a result of the Purchase of 
     Partnership and Termination  Agreement,  effective October 1, 1998, CFC
     International will be the owner of the Oxnard Assets. CFC International
     agrees that it will rent the Oxnard Assets to the Partnership for a
     monthly rental fee of $4,166.67 per month ($50,000 per year) for the
     rest of their useful life and thereafter at such reduced rental as the
     Partners may from time to time agree. If additional capital assets are
     required by the Partnership, the parties will agree on how to finance
     their purchase or rental.

          4.1.4 Additional Capital Contributions. Notwithstanding the agreement 
     of CFC  International to offset royalties  payable to Applied Holographics 
     under the 1998 License Agreement (and thus pay directly to the Partnership 
     part or all of any royalty payment otherwise payable to AH) to  fund  to  
     AH's  agreed  upon  Capital  Contributions,  if  such royalties are less 
     than any amount due to the  Partnership  from AH, AH shall make up any such
     deficit.

     4.2 No Interest; No Return. No Partner shall be entitled to interest on
any Capital  Contribution or Capital Account. No Partner shall have the right to
demand or receive the return of all or any part of any Capital  Contribution  or
Capital Account, except as may otherwise be expressly provided herein.

5.   Allocations

     Net Income and Net Loss of the Partnership shall be allocated to the
Partners in proportion to their respective Percentage Interests.

6.   Distributions

     Distributions to the Partners shall be declared at such time or times
and in such amounts as shall be determined by the Partners.

     (a) Except as otherwise provided in Section 9 of this Agreement, 
distributions shall be paid to the Partners in proportion to their respective 
Percentage Interests.

     (b) In the case of expiration, termination, dissolution or liquidation
of the  Partnership,  distributions  shall be paid to the Partners in accordance
with the provisions of Section 9.

7.   Management

     7.1 Officers of the Partnership.

          7.1.1 Offices. The officers of the Partnership shall consist of a 
     president and chief executive officer and a chairman. In addition, the  
     Partners  may name one or more  vice-presidents,  a  secretary,  a
     treasurer, assistant secretaries, assistant treasurers, or other officers 
     as may be determined  from time to time by the  Partners.  Any two or more 
     offices may be held by the same person.

          7.1.2 Annual Election. During the period from the effective date of 
     this Agreement through the end of calendar year 1999, CFC shall appoint the
     president and chief executive  officer and AH shall appoint the  chairman. 
     AH shall  appoint  the  president  and chief  executive officer and CFC 
     shall appoint the chairman in the year 2000,  CFC shall appoint the 
     president and chief executive  officer and AH shall appoint the chairman in
     the year 2001,  and the  appointment  of officers  will continue to 
     alternate on an annual basis thereafter.

          7.1.3 Term of Office and Vacancy. Each officer shall hold office  
     until a  successor  is  elected  and  qualified  or  until  the officer's 
     earlier resignation or removal. Election or appointment of an officer or 
     agent shall not of itself create contract rights.

          7.1.4 Removal. Any officer or agent elected or appointed by either CFC
     or AH may be removed by the party which elected or appointed such officer 
     or agent at its sole discretion, but such removal shall be without  
     prejudice  to the  contract  rights,  if any, of the person so removed.  
     Similarly,  any officer or agent  elected or appointed by the Partners may 
     be removed by the Partners at their sole  discretion,  but such removal 
     shall be without prejudice to the contract rights, if any, of the person so
     removed.

          7.1.5 President. The president shall be the chief executive officer of
     the Partnership  and shall in general  supervise and control all of the  
     affairs  of the  Partnership.  He shall  have the  power to execute all 
     documents that the Partners have authorized to be executed.  He shall also,
     in general  perform all duties incident to the office of president and 
     chief executive officer of the Partnership.

          7.1.6 Chairman. The chairman shall preside at all meetings of the 
     Partners and in general  perform all duties  incident to the office of 
     chairman of the Partnership.

          7.1.7 General Manager. The general manager (a) shall be the chief  
     operating  officer of the  Partnership,  (b) shall report to the president,
     (c) shall have general and active management of the business and  affairs 
     of the  Partnership,  and (d) shall see that all orders of the president 
     and the Partners are carried into effect.

          7.1.8 Vice Presidents. The vice-president(s) shall perform such duties
     and have such powers as the  Partners,  general  manager or president may 
     from time to time prescribe.

          7.1.9 Secretary. The secretary shall (a) be custodian of the corporate
     records  and of the  seal  of the  Partnership,  and  (b) in general 
     perform all duties incident to the office of secretary and such other  
     duties  and  have  such  other  powers  as the  Partners  or the president 
     may from time to time prescribe.

          7.1.10 Treasurer. The treasurer shall have custody of the funds  and  
     securities  of the  Partnership  and  shall  keep  full and accurate  
     accounts  of receipts  and  disbursements  thereof  except as otherwise 
     directed by the Partners. He shall in general perform all the duties  
     incident to the office of  treasurer  and such other  duties as from  time 
     to time may be  assigned  to him by the  Partners  or by the president.  
     The  treasurer  acting alone may exercise all the powers of the Partnership
     with respect to the purchase and sale,  investment and reinvestment, care, 
     custody  and  protection  of  the  Partnership's property.  No  signature  
     other  than  that of the  treasurer  shall be necessary to make the act of 
     the Partnership  valid with respect to the signing of checks,  transfer of 
     securities,  delegation of authority to fiscal agents, execution of proxies
     and  designation of  depositaries, and all other fiscal matters which the  
     treasurer may deem  necessary.  The  treasurer may vote in person or by 
     proxy all shares of stock owned by the  Partnership  and take any  other  
     action  in person or by proxy deemed  advisable  in  connection  with  the 
     Partnership's personal property.

          7.1.11 Initially Appointed Officers. The following persons shall  
     initially  serve in the offices set forth below  opposite their respective 
     names:

         David Tidmarsh                                Chairman
         Roger H. Hruby                                President/CEO
         Craig Newswanger                              General Manager
 
         David Mahony                                  Executive Vice President

         Dennis Lakomy                                 Vice President, CFO
                                                        Treasurer and Secretary

         Michael Angus                                 Vice President



          7.1.12 Access to Premises. Each of the Officers of the Partnership  
     shall  have  the  right  of  access  to the  Partnership's premises at all 
     times.

8.   Books and Records; Accounting Matters; Financial Statements; Maintenance of
Capital Accounts; Tax Matters; Bank Accounts 

     8.1 Books and Records. The Partnership shall maintain or cause to be
maintained  complete and accurate books and records with respect to the business
of the  Partnership.  The books and records of the Partnership  shall be kept at
the principal  place of business of the  Partnership.  The books and records for
any taxable year shall be retained until such taxable year has been closed under
Federal and state income tax laws, by the running of the statute of  limitations
or  otherwise,  for each of the  Partners.  Each Partner shall at all times have
access to such books and  records  for the purpose of  inspecting,  copying,  or
auditing them.

     8.2 Method of Accounting. The books and records of the Partnership shall be
maintained using the accrual method of accounting.

     8.3 Fiscal Year. The Partnership's fiscal year shall be the year ending on 
December 31.

     8.4 Financial Statements. Within 45 days after the end of each calendar
quarter of each fiscal year,  except the fourth  fiscal  quarter,  and within 90
days  after  the end of each  fiscal  year,  the  Partnership  will  cause to be
furnished to each Partner a balance  sheet of the  Partnership  as of the end of
such fiscal  period,  a statement  of  operations  and a statement of changes in
financial  position of the Partnership for the fiscal period then ended,  all of
which  shall be  prepared  in  accordance  with  generally  accepted  accounting
principles applied on a consistent basis. Such financial statements will in each
case be accompanied by a statement of the Partners' Capital Accounts.

     8.5 Capital Accounts. The Partnership shall prepare and maintain a Capital 
Account for each  Partner.  Each  Partner's  Capital  Account  shall be
increased  by (i) the  amount of such  Partner's  Capital  Contributions  to the
Partnership,  and (ii) the amount of the Net Income of the Partnership allocated
to  such  Partner,  and  it  shall  be  decreased  by  (i)  the  amount  of  the
Partnership's Distributions to such Partner, and (ii) the amount of the Net Loss
of the Partnership  allocated to such Partner.  The provisions of this Agreement
relating to the  maintenance  of Capital  Accounts  are  intended to comply with
Treasury  Regulations Section 1.704-1(b) and shall be interpreted and applied in
a manner consistent with such regulations.

     8.6 Tax Returns; Tax Accounting Methods; Tax Elections. CFC shall cause
the Federal and any required  state income tax returns of the  Partnership to be
prepared and filed on behalf of the  Partnership.  The Partners,  or individuals
designated  by each Partner for such purpose,  shall select such tax  accounting
methods and cause such tax elections to be made on behalf of the  Partnership as
the Partners, or such individuals, shall determine.

     8.7 Tax Matters Partner.

     (a) CFC is hereby appointed as the tax matters partner of the Partnership  
(the "Tax  Matters  Partner").  The Tax Matters  Partner  shall (i)furnish  to 
each  Partner  affected  by an audit of the  Partnership  income tax returns a 
copy of each notice or other communication  received from the Internal Revenue 
Service or applicable state  authority,  (ii) keep such Partner informed of any 
administrative or judicial proceeding,  as required by section 6623(g) of the 
Code,  (iii) allow such Partner an  opportunity  to  participate in all such
administrative  and judicial  proceedings;  and (iv) submit to the other Partner
all tax  computations  for approval and comment before they are submitted to the
Internal Revenue Service.

     (b) Notwithstanding any right or power that may be granted to the Tax
Matters  Partner  hereunder or under the Code or any other provision of law, the
Tax Matters  Partner  shall not,  without the approval of all of the Partners or
the individuals designated by each Partner for such purpose:

          (i) extend the statute of limitations on behalf of the Partnership;

          (ii) determine the Partnership's choice of the forum for the 
     litigation of any matter pertaining to the treatment of items of income, 
     deduction or credit;

          (iii) determine whether to appeal or not appeal any administrative or 
     judicial determination;

          (iv) enter into any settlement agreement with the Internal Revenue  
     Service  which  purports to bind a Partner other than the Tax Matters 
     Partners; or

          (v) file any request for an administrative adjustment under Section 
     6228 of the Internal Revenue Code.

     (c) The Partnership shall not be obligated to pay any fees or other
compensation  to the Tax Matters Partner in its capacity as such.  However,  the
Partnership shall reimburse the expenses  (including  reasonable  attorneys' and
other professional fees and  disbursements)  incurred by the Tax Matters Partner
in such  capacity.  Each  Partner  who  elects  to  participate  in  Partnership
administrative tax proceedings will be responsible for its own expenses incurred
in connection with such participation.  In addition, the cost of any adjustments
to a Partner and the cost of any resulting  audits or adjustments of a Partner's
tax return will be borne solely by the affected Partner.

     (d) The Partnership hereby agrees to indemnify and hold harmless the
Tax  Matters  Partner  from and  against any loss,  liability,  damage,  cost or
expense (including  reasonable  attorneys' fees and disbursements)  sustained or
incurred as a result of any act or decision  concerning  Partnership tax matters
and within the scope of such Partner's  responsibilities as Tax Matters Partner,
so long as such act or decision was not the result of gross  negligence,  fraud,
bad faith or  willful  misconduct  or  knowing  violation  of the law by the Tax
Matters Partner. The Tax Matters Partner shall be entitled to rely on the advice
of  legal  counsel  as to the  nature  and  scope  of its  responsibilities  and
authority  as Tax  Matters  Partner,  and any act or omission of the Tax Matters
Partner  pursuant  to such  advice  shall in no event  subject  the Tax  Matters
Partner to liability to the Partnership or any Partner.

     8.8 Bank Accounts. The Partnership shall maintain appropriate accounts
at one or more financial  institutions  for all funds of the  Partnership.  Such
accounts  shall be used solely for the business of the  Partnership.  Withdrawal
from  such  accounts  shall be made  only upon the  signature  of those  persons
authorized by the Partners.

9.   Duration and Termination

     9.1 Duration of the Partnership. The Partnership shall continue in
existence until June 30, 2098,  unless sooner  terminated in accordance with the
provisions of this Agreement.

     9.2 Termination of the Partnership. The Partnership may be terminated:

          (i) by either of the Partners as of December 31 or June 30 of any year
     upon not less than twelve months' written notice;

          (ii) by either of the Partners in the event of a material disagreement
     between the Partners which prevents the continuation of the Business;

          (iii) by either of the Partners in the event Craig Newswanger is no 
     longer employed by the Partnership;

          (iv) upon the mutual agreement of both of the Partners; or

          (v) by either of the Partners, effective upon written notice by such 
     Partner to the other Partner, in the event

     (a) the other Partner or a Controlling Affiliate of the other Partner shall
go into liquidation, whether voluntary or otherwise  (not being for the purposes
of  amalgamation  or reconstruction)  or has an administrative  receiver or 
manager of any  of  its  assets  appointed, or  has an  administrator appointed,
or if the Partner suffers any execution,  legal or equitable to be levied on its
property or obtained against it;
                  or

     (b) the other Partner or an Affiliate of the other Partner  is in  breach  
of  any  material  provision  of  this Agreement and such default  continues 
uncured for more than 60 days  following  notice from the Partner  seeking  
termination specifying the breach and indicating its intent to terminate.

     9.3 Dissolution of the Partnership. In the event of the expiration or
termination  of the  Partnership  as provided  for in Section 9.1 or Section 9.2
without the  appropriate  actions  having been taken to continue the business of
the  Partnership,  the Partnership  shall be dissolved.  Upon such  dissolution,
unless the  business of the  Partnership  is being  continued as provided for in
Section 9.2, the  continuing  operation of the  Partnership's  business shall be
confined to those activities  reasonably  necessary to wind up the Partnership's
affairs, discharge its obligations, and preserve and distribute its assets.

     9.4 Application of Proceeds. Upon the dissolution of the Partnership,
except as otherwise agreed by the Partners,  the  Partnership's  assets shall be
liquidated and the cash proceeds  therefrom  shall be distributed and applied in
the following manner:

          (i) to the costs of sale of the Partnership's assets and the 
liquidation and dissolution of the  Partnership,  including  accounting and 
legal fees and other expenses;

          (ii) to the payment of debts and liabilities of the Partnership,  
including  loans or other  debts and  liabilities  of the Partnership to 
Partners or to Affiliates of any Partner;

          (iii) to Partners with positive Capital Account balances, in
proportion to the amounts of their respective Capital Accounts, to the extent of
their Capital Account balances; and

     (iv) thereafter, to each of the Partners in proportion to the Percentage 
Interests of each Partner.

     9.5 Right to Purchase in the Event of a Change in Control. In the event
of a Change in Control of either  Partner (the  "Acquired  Partner"),  the other
Partner  (the  "Independent  Partner")  shall  have the  right to  purchase  the
Acquired  Partner's interest in the Partnership for the Fair Market Value of the
Acquired Partner's  Partnership  Interest.  If the Independent  Partner does not
exercise  its option to purchase  the Acquired  Partner's  Partnership  Interest
within 60 days  following a Change in Control,  the Acquired  Partner shall have
during a  second  period  of 60 days  the  right  to  purchase  the  Independent
Partner's  interest  in  the  Partnership  for  the  Fair  Market  Value  of the
Independent Partner's Partnership Interest.

          9.5.1 Manner of Exercise. Exercise of the option by the Independent  
     Partner or Acquired  Partner  shall be effected by written notice to the  
     other  Partner  stating  the  closing  date and place of closing which 
     shall be within 60 days of the date of notice. Payment of the purchase  
     price as  hereinafter  provided  shall be tendered by the  purchasing  
     Partner  against  delivery of duly executed  bills of sale, assignments,  
     and documents of transfer (in a form to be agreed between the parties, such
     agreement not to be unreasonably withheld or delayed by either  of them) at
     the time and  place  set  forth in such  written notice.  If the selling 
     Partner does not deliver duly executed bills of sale,  assignments,  and 
     documents of transfer (in such agreed form) at the closing, the transfer 
     and sale of the selling Partner's Partnership Interest  shall  nonetheless 
     be deemed to be effective as of such date without any further action,  
     provided that the purchasing Partner shall hold the purchase price, without
     interest,  for payment at a subsequent date against delivery of duly 
     executed documents.

          9.5.2 Purchase Price. The purchase price of a selling Partner's  
     Partnership  Interest  shall be the Fair Market Value of the selling  
     Partner's  Partnership  Interest.  The purchase price shall be payable  in 
     cash  against  delivery  of duly  executed  bills  of sale, assignments,  
     and  documents of  transfer,  and shall be computed as of December  31 of 
     the year  preceding  the date on which  the  option  is exercised by mutual
     agreement of the parties.  Failing such agreement, the Fair Market Value of
     the Partnership shall be deemed to be equal to the greater of (i) the book 
     value of the  Partnership as of the date of closing of the purchase, (ii) 
     eight times the pre-tax net income of the Partnership during the prior 
     calendar year; or (iii) $1,000.

          9.5.3 Change in Control. For purposes of this Agreement, the  term 
     "Change in Control"  shall have the meaning  ascribed to such term in the 
     1998 License Agreement.

     9.6 Employment of Newswanger. Neither Partner (nor any Affiliate of
either Partner) shall employ Craig  Newswanger  without the consent of the other
Partner  during  the  term  of the  Partnership  or for a  period  of two  years
following the date of  dissolution  of the  Partnership.  This Section 9.6 shall
survive the termination of this Agreement.

10.  Transfer of Interests in the Partnership

     10.1 Restriction on Transfer. No Partner shall sell, assign, transfer,
exchange,  mortgage,  pledge, grant a security interest in, or otherwise dispose
of or encumber (any of the foregoing  being herein  referred to as a "Transfer")
all or any part of its Interest in the  Partnership  except in  accordance  with
this Agreement.

     10.2 Permitted Transferees. Any Partner may make a Transfer of all or
any part of its  Interest in the  Partnership  to an  Affiliate  of such Partner
provided  that such  Affiliate  agrees in writing to be bound by this  Agreement
together  with such changes  hereto as may be necessary or  appropriate  to give
effect to such  Transfer  and the addition of such  Affiliate as a Partner,  and
provided  further that the Partner  making a Transfer  shall have given not less
than 60 days prior written notice of its intent to Transfer.

     10.3 Effect of Transfer.

     (a) No Transfer shall relieve the Transferring Partner of liability
under  this  Agreement  for  matters  arising or events  occurring  prior to the
consummation  of  the  Transfer.  Upon  the  Transfer  of all  Interests  in the
Partnership  held by a Partner (except a Transfer by mortgage,  lien,  pledge or
other  encumbrance  but not  excepting  a Transfer  resulting  from a default in
connection with such mortgage, lien, pledge or other encumbrance),  such Partner
shall  have  no  further  Interest  in the  Partnership  or  rights  under  this
Agreement.

     (b) Any Affiliate to whom a Transfer is made pursuant to Section 10.2
may become an additional  or substitute  Partner in place of its assignor if the
following conditions are satisfied:

          (i) the instrument of assignment sets forth the intention of  the  
     assignor  that  the  Affiliate  shall  succeed  to the  assignor's interest
     as a substituted Partner in its place;

          (ii) the assignor and Affiliate shall have executed such other
     instruments as the Partners may reasonably require, including written
     acceptance  by the  Affiliate  of  this  Agreement  and  any  ancillary
     agreements to which the assignor is a party; and

          (iii) the Affiliate shall have paid all reasonable fees and costs 
     incurred by the Partnership in connection  with its  substitution as a 
     Partner, as determined by the Partners.

No other  person to whom a Transfer is made shall,  by virtue of such  Transfer,
have a right to be admitted to the  Partnership  as a  substitute  Partner,  but
instead shall succeed only to the right of the Partner to receive distributions.

11.  Dispute Resolution

     11.1 Arbitration. In the event that a dispute on any matter arises
between or among the Partners,  or between or among the  Partnership  and one or
more  Partners  or their  Affiliates,  in  connection  with any  aspect  of this
Agreement,  the duties or  responsibilities of the Partners or their performance
hereunder or the interpretation hereof (a "Dispute"), and such Dispute shall not
have been resolved pursuant to good faith  discussions among the Partners,  then
any Partner may elect by written notice (the "Arbitration Notice") to each other
Partner to have the Dispute subjected to arbitration as provided in this Section
11.1 (the "Arbitration"). Notwithstanding any provision of this Agreement to the
contrary,  nothing  in this  Section  11.1  or in any  other  provision  of this
Agreement  shall  preclude  a Partner  from (i)  commencing  and  maintaining  a
proceeding  prior to the  completion of the  Arbitration if necessary to prevent
the  expiration  of any statute of  limitations,  provided  that the  commencing
Partner shall endeavor to have such proceeding  stayed pending the completion of
the  Arbitration,  (ii)  terminating this Agreement in accordance with the terms
hereof or  thereof,  (iii)  pursuing  its rights  pursuant  to Section  9.2 with
respect to the dissolution,  winding up and liquidation of the Partnership, (iv)
commencing and  maintaining a proceeding  prior to completion of the Arbitration
seeking  injunctive  relief  against the violation or breach of any provision of
Section 10.1, or (v) seeking an accounting  among the Partners in an appropriate
court of equity.  The arbitration  shall be held in Chicago,  Illinois under the
rules of the American Arbitration Association then in effect. The arbitral panel
shall consist of one arbitrator,  appointed by mutual agreement of the Partners,
or failing such  agreement by the American  Arbitration  Society.  The facts and
circumstances  of the Dispute and all other relevant  matters shall be presented
to the arbitral panel within 60 days after the effective date of the Arbitration
Notice.  The arbitrator  shall consider the Dispute and issue a written decision
setting  forth  resolution  of the  Dispute or the method  for  determining  the
resolution  of the  Dispute  decided  upon by  them.  The  Arbitration  shall be
completed within six months after its commencement. The fees and expenses of the
arbitrator and the other costs of the Arbitration shall be borne by the Partners
in the manner determined by the arbitrator.

     11.2 Effect of Arbitration. The decision of the arbitrator pursuant to
Section  11.1  above  shall be final  and  binding  upon  all  Partners  and the
Partnership and shall be enforceable as provided by law.

12.  Miscellaneous

     12.1 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

     12.2 Amendment. This Agreement may be amended only by the written consent 
of both of the Partners.

     12.3 Governing Law. This Agreement shall be governed by and construed
in  accordance  with the laws of the State of Delaware  applicable  to contracts
made and to be performed therein.  Each of the Partners hereby expressly submits
itself generally and unconditionally to the personal jurisdiction of any U.S. or
state  court which sits in the City of  Chicago,  State of Illinois  which would
have  jurisdiction over the subject matter of an action to enforce any or all of
the terms of this  Agreement  or to recover  damages  for a breach of any of its
provisions.

     12.4 Governing Language. English shall be the governing language of
this  Agreement  and the English  language  version of this  Agreement  shall be
controlling for all purposes.

     12.5 Severability. If any term, restriction or covenant of this Agreement  
is deemed  illegal  or  unenforceable  under the laws of the State of Delaware  
(or any other law deemed by a court of  competent  jurisdiction  to be
controlling),  all  other  terms,  restrictions  and  covenants  hereof  and the
application thereof to all persons and circumstances subject hereto shall remain
unaffected to the extent  permitted by law; and if any  application of any term,
restriction  or  covenant of this  Agreement  to any person or  circumstance  is
deemed illegal or  unenforceable,  the application of such term,  restriction or
covenant to other  persons and  circumstances  shall  remain  unaffected  to the
extent permitted by law.

     12.6 Headings. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.

     12.7 Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.

     12.8 Notices. Any notice, request, information or other document to be
given hereunder to any of the parties by any other party shall be in writing and
delivered  personally  or sent by  Federal  Express or other  reliable  courier,
transmitted by fax, or sent by certified or registered mail, postage prepaid, as
follows:

                                    If to AH, addressed to:

                                    David J. Tidmarsh
                                    Managing Director
                                    Applied Holographics PLC
                                    40 Phoenix Road
                                    Crowther Industrial Estate
                                    Washington, District 3, Tyne & Wear
                                    NE38 0AD England
                                    Telephone: 44 191 417 5434
                                    Fax: 44 191 416 3053


With a copy to:

                                    Jamie Pass, Esq.
                                    Dickinson Dees
                                    St. Ann's Wharf
                                    112 Quayside
                                    Newcastle upon Tyne
                                    NE99 1SB England
                                    Telephone: 44 191 279 9000
                                    Fax: 44 191 279 9100

If to CFC, addressed to:

                                    Roger F. Hruby, Chairman
                                    CFC International, Inc.
                                    500 State Street
                                    Chicago Heights, Illinois 60411
                                    Telephone: 1 (708) 891-3456
                                    Fax: 1 (708) 758-5989

with a copy to:

                                    Bell, Boyd & Lloyd
                                    Three First National Plaza
                                    70 West Madison Street
                                    Chicago, IL 60602
                                    Attention:  William G. Brown
                                    Telephone: 1 (312) 372-1121
                                    Fax:  1 (312) 372-2098

If to the  Partnership,  addressed  to  each  of the  Partners,  as  hereinabove
provided.

Any such notice  delivered  personally shall be deemed to have been given on the
date that it is so  delivered,  and any  notice  delivered  by the  other  means
referred to above shall be deemed to have been given on the date it is received.
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice.

     12.9 Further Assurances. Each of the Partners shall execute and deliver
any and all additional papers, documents and other assurances,  and shall do any
and all acts and things reasonably  necessary in connection with the performance
of its obligations hereunder and to carry out the intent of the parties hereto.

     12.10 Assignment. No Partner may assign this Agreement or any of its
rights hereunder,  including all or any part of its Interest in the Partnership,
or delegate the performance of any of its obligations hereunder.

     12.11 Publicity. No press release or other public announcement related
to this Agreement or the  Partnership or the  transactions  contemplated  hereby
will be issued by any Partner without the prior approval of all of the Partners,
except that any Partner  may make such  public  disclosure  which it believes in
good faith to be required by law or by the terms of any listing agreement with a
securities  exchange  (in which case such  Partner  will  consult with the other
Partners prior to making such disclosure).

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.



                                                       Percentage
     Partner                                           Interest

     APPLIED HOLOGRAPHICS                              50.00%
     CORPORATION


     By____________________________________________
          David J. Tidmarsh, President



     CFC MANAGEMENT, INC.                              50.00%



     By____________________________________________
          Roger F. Hruby, Chairman


     Joinder Party

     APPLIED HOLOGRAPHICS PLC


     By____________________________________________
          David J. Tidmarsh, President



     CFC INTERNATIONAL, INC.



     By____________________________________________
          Roger F. Hruby, Chairman






                                LICENSE AGREEMENT



         This License  Agreement (the  "Agreement")  is made and entered into on
October 28, 1998 (but is effective as of October 1, 1998), by and among  Applied
Holographics PLC, a company organized and existing under the laws of England and
Wales  (together with its Controlled  Affiliates  herein referred to as "Applied
Holographics"), Applied Holographics Corporation, a Delaware corporation ("AH"),
CFC International,  Inc., a Delaware  corporation  (together with its Controlled
Affiliates herein referred to as "CFC International"),  CFC Management,  Inc., a
Delaware corporation ("CFC"), and CFC Applied Holographics Research Partnership,
a Delaware general partnership (the "Research Partnership").

                                    Recitals

         The  parties  desire  to  provide  for (i)  the  license  to  CFC,  CFC
International  and the Research  Partnership  of certain  intellectual  property
rights  owned by AH and  Applied  Holographics,  (ii) the license by each of the
parties  hereto to each of the other  parties of certain  intellectual  property
rights that may hereafter be developed,  and (iii) certain other matters, all as
hereinafter provided.


                                    Covenants

         In  consideration  of the  premises  and the  mutual  covenants  of the
parties set forth herein, the parties hereto agree as follows:

1.   Definitions As used in this  Agreement,  the following  terms shall have 
the meanings given them below:

     "1992 License Agreement" shall mean the License Agreement dated April
1, 1992, among Applied Holographics, AH, CFC International and CFC.

     "1998 License Agreement," "License Agreement" and "Agreement" shall
mean this Agreement dated October 1, 1998, among Applied  Holographics,  AH, CFC
International, CFC and the Research Partnership.

     "Affiliate" shall mean any entity or person that directly or indirectly
through  one or more  intermediaries  controls,  is  controlled  by, or is under
common  control  with,  any other entity or person.  "Control"  (including  with
correlative meanings, the terms "controlled by" and "under common control with")
means the  ownership or control of  securities  possessing  more than 50% of the
voting power of all outstanding  voting securities of an entity or person or the
power  otherwise to direct or cause the direction of the management and policies
of such entity or person,  whether  through  the  ownership  of voting  stock or
similar rights or the holding of office in such entity or person, by contract or
otherwise.

     "AH Future Holographic Product Development" shall mean a Future
Holographic Product Development  developed,  created,  discovered,  or otherwise
acquired during the term of this Agreement by Applied Holographics except as set
forth  in  Schedules  A  and B  attached  hereto  and  as  to  which  additional
information is set forth in Schedule C attached hereto.

     "AH Holographic Proprietary Rights" shall mean all of the patents,
trademarks,   copyrights,  technology,  trade  secrets  and  other  intellectual
property rights of Applied Holographics  (including,  without limitation,  those
owned by AH) relating to the  development,  manufacture,  marketing  and sale of
Holographic  Products  except as set forth in  Schedules A and B and as to which
additional information is set forth in Schedule C.

     "AH Worldwide Holographic Proprietary Rights" shall mean the AH
Holographic   Proprietary   Rights  and  the  AH  Future   Holographic   Product
Developments both within the Territory and outside the Territory.

     "CFC Future Holographic Product Development" shall mean a Future
Holographic Product Development  developed,  created,  discovered,  or otherwise
acquired during the term of this Agreement by CFC International.

     "CFC Holographic Proprietary Rights" shall mean all of the patents,
trademarks,   copyrights,  technology,  trade  secrets  and  other  intellectual
property rights of CFC International  relating to the development,  manufacture,
marketing and sale of Holographic Products.

     "CFC Worldwide Holographic Proprietary Rights" shall mean the CFC
Holographic   Proprietary  Rights  and  the  CFC  Future   Holographic   Product
Developments both within the Territory and outside the Territory.

     "Change in Control" shall mean with respect to CFC International or
Applied  Holographics  (in either case,  the "Company") the occurrence of any of
the following events:

          (i) The acquisition, by new stockholders (being any person or group of
     persons other than the current directors of the Company, their respective  
     families,  estates,  trusts and other Affiliates) acting in concert, of a 
     beneficial  ownership interest in the Company,  resulting in the total  
     beneficial  ownership of such persons or group of persons equaling or 
     exceeding 30% of the outstanding  common stock and warrants (or, in the 
     case of Applied Holographics,  issued equity share capital) of the Company.
     The Change in Control  shall be deemed to occur on the date the  beneficial
     ownership  of the  acquiring  person  or group of persons first equals or 
     exceeds 30% of the outstanding common stock and warrants (or, in the case 
     of Applied Holographics,  issued equity share capital) of the Company.

          (ii) A merger, consolidation or other reorganization having 
     substantially  the same effect, or the sale of all or substantially all
     the  consolidated  assets of the Company in each case,  with the result
     that the persons or group of persons who were the respective beneficial
     owners of the outstanding  common stock immediately prior to such event
     do not, following such event, beneficially own, directly or indirectly,
     more than 70% of,  respectively,  the then outstanding  voting stock of
     the corporation resulting from such event or the corporation purchasing
     or receiving assets pursuant to such event.

          If more than one of the foregoing events shall occur, each such event 
     shall constitute a separate Change in Control.

     "Confidential Information" shall have the meaning ascribed to it in 
Section 7.1.

     "Controlled Affiliate" shall mean any entity or person controlled by a 
Controlling Affiliate.

     "Controlling Affiliate" shall mean with respect to any entity or person
the  ownership or control of securities  possessing  more than 50% of the voting
power of all outstanding  voting securities of the entity or person or the power
otherwise  to direct or cause the  direction of the  management  and policies of
such entity or person,  whether through the ownership of voting stock or similar
rights or the  holding  of  office in such  entity or  person,  by  contract  or
otherwise.

     "Event of Default" shall mean the continuing and uncured occurrence of any 
one of the following events:

          (i) if CFC International fails to pay make any payment required  to be
     paid by it  under  this  Agreement,  the  Purchase  of Partnership 
     Agreement, the Installment Note issued pursuant thereto, or the  Research  
     Partnership  Agreement,  when due and payable or validly declared due and 
     payable and such default  continues  for 15 days after notice  and  demand 
     for  such   payment   has  been  made  by  Applied Holographics,  provided 
     that CFC International may (provided that it is acting in good faith)  
     contest  the  validity or amount of any claim of breach, and such contest 
     on the part of CFC International  shall not be a default hereunder; 
     provided, however, that during the pendency of any such contest CFC 
     International shall furnish to Applied Holographics an indemnity bond with 
     corporate  surety (or other security  acceptable to Applied  Holographics) 
     in an amount equal to the amount being contested plus a reasonable 
     additional sum to cover possible costs, interest, and penalties,  and 
     provided further that CFC  International  shall pay any amount finally 
     adjudged by a court of competent jurisdiction to be due, with all costs, 
     interest, and penalties thereon;

          (ii) if a petition under the Bankruptcy Code or any similar law  or  
     regulation  shall  be  filed  by  CFC   International  or  any Controlling 
     Affiliate of CFC  International or if CFC International or any Controlling 
     Affiliate of CFC International shall make an assignment for the benefit of 
     its  creditors or if any case or proceeding is filed by CFC International 
     for its dissolution or liquidation;

          (iii) if CFC International or any Controlling Affiliate of CFC
     International is enjoined,  restrained or in any way prevented by court
     order from conducting all or any material part of its business  affairs
     or if a  petition  under  the  Bankruptcy  Code or any  similar  law or
     regulation  is  filed  against  CFC  International  or any  Controlling
     Affiliate of CFC  International  or if any case or  proceeding is filed
     against  CFC   International  or  any  Controlling   Affiliate  of  CFC
     International  for its dissolution or liquidation and such  injunction,
     restraint,  petition,  case or  proceeding  is not  dismissed or stayed
     within  150 days  after the entry or  filing  thereof  and no motion to
     dismiss is then pending.

     "Future Holographic Product Development" shall mean any idea, concept,
design, name, mark, invention,  improvement or process (whether or not patented,
patentable or  registrable  in any country) used or useable in the  development,
manufacture, marketing or sale of any Holographic Products.

     "Future Non-Holographic Product Development" shall mean any idea,
concept,  design, name, mark, invention,  improvement or process (whether or not
patented,  patentable or  registrable in any country) not used or useable in the
development, manufacture, marketing or sale of any Holographic Products.

     "Holographic Products" shall mean holographic originations, films and
foils and other holographic products.

     "Net Sales of Products" shall mean the net invoice price of all
Holographic  Products  less any amounts  shown on the invoice  being payable for
packaging, shipping charges, discounts, credits, allowances, bad debts and taxes
and less the invoice value of returned  goods and all taxes and all discounts or
allowances  actually taken off the invoice price by CFC International or CFC. If
a product sold combines a Holographic Product and a Non-Holographic Product, the
Net  Sales  of  Products  with  respect  to such  product  shall  be a fair  and
appropriate  reduced  percentage  of the net sales of such product which reduced
percentage reflects the economic  importance of the Holographic  Products in the
respective product.

     "Non-Holographic Product" shall mean a product other than a Holographic 
Product.

     "Partnership Future Holographic Product Development" shall mean a
Future  Holographic  Product  Development  developed,  created,  discovered,  or
otherwise   acquired   during  the  term  of  this  Agreement  by  the  Research
Partnership.

     "Partnership Future Non-Holographic Product Development" shall mean a
Future Non-Holographic Product Development developed,  created,  discovered,  or
otherwise   acquired   during  the  term  of  this  Agreement  by  the  Research
Partnership.

     "Prior Operating Partnership" shall mean CFC Applied Holographics, a
Delaware  general  partnership,  existing  pursuant to the restated  Partnership
Agreement dated as of October 1, 1994, among Applied  Holographics  PLC, Applied
Holographics   Corporation,   CFC   International,   Inc.,  and  CFC  Management
Corporation.

     "Purchase of Partnership Agreement" shall mean the Purchase of
Partnership and Termination  Agreement of even date herewith and effective as of
October  1,  1998,  among  Applied   Holographics   PLC,  Applied   Holographics
Corporation, CFC International, Inc., and CFC Management Corporation.

     "Research Partnership" shall mean the general partnership created by
the Research Partnership Agreement.

     "Research Partnership Agreement" shall mean the CFC Applied Holographics  
Research Partnership Agreement of even date herewith and effective as of 
October 1, 1998,  among Applied  Holographics  PLC,  Applied  Holographics
Corporation, CFC International, Inc., and CFC Management Corporation.

     "Territory" shall mean the United States, Mexico and Canada.

2.   License to CFC International and Royalties.

     2.1 License of AH Holographic Proprietary Rights and AH Future
Holographic  Developments.  Subject  to the  terms  of this  Agreement,  Applied
Holographics hereby grants to CFC International a perpetual exclusive license to
use  the  AH  Holographic  Proprietary  Rights  and  the AH  Future  Holographic
Developments  in the Territory.  This license grant is (save as provided in this
Agreement)  ongoing  and  includes  all  AH  Future   Holographic   Developments
developed,  created,  discovered or otherwise  acquired by Applied  Holographics
during  the term of this  Agreement.  Without  limiting  the  generality  of the
foregoing, CFC shall (save as provided in this Agreement) have the perpetual and
exclusive right to develop,  manufacture,  have  manufactured,  import,  market,
sell,  sublicense  agents and distributors,  and otherwise  exploit  Holographic
Products which  incorporate any AH Holographic  Proprietary  Rights or AH Future
Holographic Developments in the Territory provided always that this license does
not authorize CFC  International  to manufacture and develop  products which are
the subject of exclusive  licensing  agreements as set out in Schedules A and B.
Applied Holographics agrees that it will not use the AH Holographic  Proprietary
Rights or the AH Future  Holographic  Developments in the Territory,  or license
the AH Holographic Proprietary Rights or the AH Future Holographic  Developments
for use by others in the Territory  during the term of this Agreement  except on
behalf,  or for the benefit of, CFC  International  and except as  described  in
Schedules A and B.

     2.2 Assignment and Sublicensing. CFC International shall have no right
to transfer or assign the license granted to it by Applied Holographics pursuant
to this Agreement or any of the AH Holographic  Proprietary  Rights or AH Future
Holographic Developments hereby licensed to it without the prior written consent
of Applied  Holographics.  Applied Holographics may, in its absolute discretion,
withhold such consent  without being  obliged to give to CFC  International  any
reasons for so doing.

     2.3 Royalty Payments. CFC International agrees that it will pay to AH
(or as it may  direct) a royalty of 6% of its Net Sales of  Products  during the
term of this  Agreement.  Such payments shall be accrued  quarterly on the books
and  records  of CFC and will be paid  within  seventy-five  (75) days after the
close of each  fiscal  quarter of CFC  International.  Payment  shall be made in
immediately  available  funds in U.S.  dollars by wire  transfer  to the account
designated  from time to time by AH and, in the event of late payment,  interest
at the base  rate  from  time to time of  Barclays  Bank PLC plus  four  percent
calculated on a daily basis from the due date for payment  until actual  payment
(whether before or after any judgment) shall be payable in addition.

     2.4 Right to Audit. Applied Holographics or AH, at its own expense,
shall have the right  during  normal  business  hours on 30 days' prior  written
notice to CFC  International and not more than once in any calendar year to have
a nationally  recognized  independent public accounting firm selected by Applied
Holographics  (or,  as the case may be,  AH) and  reasonably  acceptable  to CFC
International  examine the relevant books and records of CFC  International  and
its Affiliates for the purpose of verifying the royalty  payments due under this
Agreement. Such accounting firm shall not work on a contingency fee basis, shall
execute and deliver to CFC International a standard confidentiality agreement in
a form  reasonably  acceptable  to CFC  International  and shall not disclose to
Applied Holographics any information  relating to CFC International's  business,
except whether CFC International royalty payments are correct or incorrect,  and
if incorrect,  the specific details concerning any discrepancies and the amounts
of the royalty payments due under this Agreement.  If such examination reveals a
discrepancy,  and CFC  International  does not  dispute  such  discrepancy,  CFC
International shall pay to AH (or as it or Applied  Holographics may direct) any
additional royalty payment owed to AH (including  interest as provided elsewhere
herein), or AH shall refund to CFC International any excess royalty payment made
by CFC International,  as appropriate. In the event that the discrepancy amounts
to an underpayment by CFC International of 5% or more of the royalty payment due
under  this  Agreement,  CFC  International  shall  promptly  reimburse  Applied
Holographics  (or,  as the  case  may be,  AH) for  its  out-of-pocket  expenses
reasonably incurred in connection with such examination.

3.   Royalty Free License to Applied Holographics.

     3.1 License of CFC Holographic Proprietary Rights and CFC Future
Holographic   Developments.   Subject  to  the  terms  of  this  Agreement,  CFC
International  hereby  grants to  Applied  Holographics  a  perpetual  exclusive
royalty-free  license to use the CFC Holographic  Proprietary Rights and the CFC
Future  Holographic  Developments  outside the Territory.  This license grant is
(save as  provided  in this  Agreement)  ongoing  and  includes  all CFC  Future
Holographic Developments developed, created, discovered or otherwise acquired by
CFC  International  during  the term of this  Agreement.  Without  limiting  the
generality of the  foregoing,  Applied  Holographics  shall (save as provided in
this Agreement) have the perpetual and exclusive right to develop,  manufacture,
have manufactured, import, market, sell, sublicense agents and distributors, and
otherwise  exploit  Holographic  Products which  incorporate any CFC Holographic
Proprietary Rights or CFC Future Holographic Developments outside the Territory.
CFC agrees that it will not use the CFC  Holographic  Proprietary  Rights or the
CFC Future Holographic  Developments  outside the Territory,  or license the CFC
Holographic  Proprietary Rights or the CFC Future  Holographic  Developments for
use by others outside the Territory  during the term of this Agreement except on
behalf, or for the benefit of, Applied Holographics.

     3.2 Assignment and Sublicensing. Applied Holographics shall have no
right to  transfer  or assign the  license  granted  to it by CFC  International
pursuant to this Agreement or any of the CFC Holographic  Proprietary  Rights or
the CFC Future Holographic  Developments hereby licensed to it without the prior
written consent of CFC  International.  CFC  International  may, in its absolute
discretion,  withhold  such  consent  without  being  obliged  to  give  Applied
Holographic any reasons for so doing.

4.   Holographic Proprietary Rights and Licenses to the Research Partnership.

     4.1 License of AH Holographic Proprietary Rights and Future Holographic
Developments.  CFC  International  hereby  grants to the Research  Partnership a
royalty-free  sublicense to use the AH Holographic Proprietary Rights, AH Future
Holographic  Developments,  CFC  Holographic  Proprietary  Rights and CFC Future
Holographic  Developments as contemplated by the Research Partnership Agreement,
and Applied Holographics hereby consents to such sublicense.

     4.2 Ownership of Partnership Future Holographic Developments. Subject
to the Agreements  described in Schedules A and B, Applied  Holographics and CFC
International  shall be the joint owners of the Partnership  Future  Holographic
Developments which the Research Partnership is creating for their account and on
their  behalf,   provided  that  during  the  term  of  this  Agreement  Applied
Holographics  shall own the exclusive right to use all of the Partnership Future
Holographic  Developments  to develop,  manufacture,  market,  sell,  sublicense
agents  and  distributors,  and  otherwise  in the entire  world  outside of the
Territory and during the term of this Agreement CFC International  shall own the
exclusive right to use all of the Partnership Future Holographic Developments to
develop,  manufacture,  market,  sell,  sublicense agents and distributors,  and
otherwise within the Territory.

     4.3 Co-Ownership of Partnership Future Non-Holographic Developments.
CFC  International  and Applied  Holographics  shall be the joint  owners of all
worldwide  rights,  titles  and  interests  to any  and all  Partnership  Future
Non-Holographic  Developments.  This ownership  shall be without any restriction
whatsoever and each of CFC International and Applied  Holographics will have the
right to sell, assign,  transfer,  or otherwise exploit its non-exclusive rights
to develop,  manufacture,  have  manufactured,  import,  export,  market,  sell,
sublicense  agents  and   distributors,   and  otherwise  exploit  any  and  all
Partnership Future Non-Holographic Developments.

     4.4 Further Assurances of the Partnership.

          4.4.1 Execution of Documents. Upon the request of either CFC
     International or Applied Holographics, the Research Partnership shall
     perform, execute, acknowledge and deliver all such further acts, deeds,
     bills of sale, assignments,  transfers, conveyances, powers of attorney
     and assurances as may be required to convey and transfer to and vest in
     CFC  International  and Applied  Holographics and protect their rights,
     titles  and  interests  in all of the  Partnership  Future  Holographic
     Developments and Partnership Future Non-Holographic  Developments,  and
     as may be  appropriate  to carry out the  ownership  provisions of this
     Agreement.

          4.4.2 Holographic Developments. Without limiting the generality  of 
     the  foregoing,  the  Research  Partnership  shall  make application  for  
     a  patent  or  other  statutory   protection  of  any Partnership Future   
     Holographic   Developments   on  behalf  of  CFC International in the 
     Territory and on behalf of Applied Holographics in any   jurisdiction   
     outside  of  the   Territory   requested   by  CFC International or 
     Applied Holographics,  respectively,  provided that if the  Research  
     Partnership  does not make  application  for a patent or other statutory 
     protection,  any of the other parties hereto shall have the right to make 
     such  application  on behalf of such  party  with the full cooperation of 
     the other parties hereto.

          4.4.3 Non-Holographic Developments. Similarly, the Research
     Partnership  shall  make  application  for a patent or other  statutory
     protection of any Partnership  Future  Non-Holographic  Developments on
     behalf of CFC  International  and on behalf of Applied  Holographics in
     any   jurisdiction   requested   by  CFC   International   or   Applied
     Holographics,  respectively,  provided that if the Research Partnership
     does not make  application for a patent or other statutory  protection,
     any of the  other  parties  hereto  shall  have the  right to make such
     application  on behalf of such party with the full  cooperation  of the
     other parties hereto.

5.   Technical and Other Assistance.

     5.1 Applied Holographics. While this Agreement is in effect (and subject  
to  the  agreements   referred  to  in  Schedules  A  and  B),  Applied
Holographics  shall  make  available  to CFC  International  the AH  Holographic
Proprietary  Rights and AH Future  Holographic  Developments  for the purpose of
enabling CFC International to develop, manufacture,  market and sell Holographic
Products in the Territory,  including without limitation making available to CFC
International  all drawings,  specifications  and other  information  in Applied
Holographics' possession.

     5.2 CFC International. While this Agreement is in effect, CFC International
shall make available to Applied  Holographics the CFC Holographic Proprietary  
Rights and CFC Future  Holographic  Developments for the purpose of enabling  
Applied  Holographics  to  develop,   manufacture,   market  and  sell
Holographic Products outside the Territory,  including without limitation making
available  to  Applied  Holographics  all  drawings,  specifications  and  other
information in the possession of CFC International.

     5.3 Patent Application. Applied Holographics shall have the exclusive
right to make  application for a patent or other statutory  protection of all AH
Future Holographic  Product  Developments in any jurisdiction  (provided that if
such party does not make application for a patent or other statutory  protection
and does not have reasonable  grounds for not doing so, any of the other parties
hereto shall have on giving not less than 60 days notice to such party the right
to make such  application  on behalf of such party with the full  cooperation of
such party).  Similarly CFC International shall have the exclusive right to make
application  for a  patent  or  other  statutory  protection  of all CFC  Future
Holographic  Product  Developments  in any  jurisdiction  (provided that if such
party does not make  application for a patent or other statutory  protection and
does not have  reasonable  grounds  for not doing so,  any of the other  parties
hereto shall have on giving not less than 60 days notice to such party the right
to make such  application  on behalf of such party with the full  cooperation of
such party).

     5.4 Execution of Documents. Upon the request of either CFC International  
or  Applied  Holographics  (the  "Requesting   Party"),   Applied Holographics 
or CFC  International  (the "Other Party") shall perform,  execute, acknowledge 
and  deliver  all  such  further  acts,   deeds,   bills  of  sale, assignments,
transfers, conveyances, powers of attorney and assurances as may be required to 
convey and transfer to and vest in the Requesting  Party and protect its rights,
titles and interests in all of the Partnership  Future  Holographic Developments
and Partnership  Future  Non-Holographic  Developments,  as may be appropriate 
to carry out the ownership provisions of this Agreement.

6.   Limitations on Use of Proprietary Rights and Future Developments.

     6.1 Restrictive Covenant of Applied Holographics. Applied Holographics
agrees that it will not during the term of this  Agreement,  except  through the
Research  Partnership  or except as described in Schedules A and B,  directly or
indirectly engage in the Territory in the business of developing, manufacturing,
marketing or selling any Holographic Products or acquire or retain any financial
interest  having  a value in  excess  of  $10,000  in any  business  which is so
engaged.

     6.2 Restrictive Covenant of CFC International. CFC International agrees
that it will not during the term of this Agreement directly or indirectly engage
outside of the Territory in the business of developing, manufacturing, marketing
or selling any Holographic  Products or acquire or retain any financial interest
having a value in excess of $10,000 in any business which is so engaged.

     6.3 Sales Outside of Respective Territories. Notwithstanding the other
provisions  of  this   Agreement,   if  either  Applied   Holographics   or  CFC
International  obtains a contract from a customer  within its permitted  area to
supply  embossed  holographic  foils and films and the  customer  wishes to have
Applied  Holographics  or CFC  International  supply  product for use and resale
outside its permitted area, each of Applied  Holographics and CFC  International
shall have the right to sell its products to such customer for use and resale by
the customer  throughout the world. If such a situation arises,  the contracting
party (Applied  Holographics  or CFC  International)  agrees to notify the other
party of its arrangement with the customer and to recommend to the customer that
it use the other  party as a second  supplier.  However,  for the  avoidance  of
doubt,  neither Applied Holographics (or any Affiliate) or CFC International (or
any  Affiliate)  shall supply and invoice  customers  outside  their  respective
permitted areas for embossed  holographic foils and films with the other's prior
written consent.

     6.4 Enforcement of Provisions. If any provision of this Section, as
applied  to any  party or to any  circumstances,  is  adjudged  by a court to be
invalid or unenforceable,  the same will in no way affect any other provision of
this Section,  the application of such provision in any other  circumstances  or
the validity or enforceability of this Agreement.  If any such provision, or any
part  thereof,  is held to be  unenforceable  because  of the  duration  of such
provision or the area covered  thereby,  the parties agree that the court making
such  determination  will have the power to reduce the  duration  and/or area of
such provision,  and/or to delete specific words or phrases,  and in its reduced
form such provision will then be enforceable  and will be enforced.  Upon breach
of this Section,  the non-breaching party will be entitled to injunctive relief,
since the remedy at law would be inadequate and insufficient.  In addition,  the
non-breaching  party  will be  entitled  to such  damages  as it can show it has
sustained by reason of such breach.

7.   Confidentiality.

     7.1 Protection of Proprietary Information. Each of the parties hereto
agrees that it shall maintain in confidence  all  confidential  and  proprietary
information and data disclosed to it by any other party hereto and identified in
writing as being  confidential  (the  "Confidential  Information").  Each of the
parties hereto further agrees that it shall not use the Confidential Information
for any purpose  other than the exercise of its or their rights as  contemplated
by this  Agreement.  The  parties  hereto  shall  take all  reasonable  measures
necessary to prevent any unauthorized disclosure of the Confidential Information
by any of their Affiliates, employees, agents or consultants.

     7.2 Non-disclosure of Confidential Information. Nothing herein shall
prevent any party hereto,  or any  Affiliate,  employee,  agent or consultant of
such  party  from  using,  disclosing,  or  authorizing  the  disclosure  of any
information which:

          (i) becomes publicly available without default hereunder by the 
     receiving party;

          (ii) is lawfully acquired by the receiving party from a source not 
     under any obligation to the disclosing  party regarding  disclosure
     of such information;

          (iii) is in the possession of the receiving party in written or other 
     recorded form at the time of its disclosure hereunder;

          (iv) is non-confidentially disclosed to any third party by or with the
     permission of the disclosing party; or

          (v) the receiving party believes in good faith to be required to be 
     disclosed by law or by the terms of any listing  agreement with a
     securities  exchange,  provided that the receiving  party consults with
     the other parties prior to making such disclosure.

8.   Change in Control.

     8.1 Right to Terminate Upon Change in Control. In the event of a Change
in Control  of either CFC  International  or Applied  Holographics,  each of CFC
International  and Applied  Holographics  shall have the right for a period from
the date of the Change in Control  expiring six weeks  following  receipt of the
required notice described in Section 8.4 below (the "Right to Terminate Election
Period") to terminate this 1998 License  Agreement in accordance  with the terms
hereof.  Thus if Applied  Holographics  has a Change in Control,  either Applied
Holographics  or CFC  International  shall  have  the  right to  terminate  this
Agreement.  Similarly,  if CFC  International  has a Change in Control,  each of
Applied  Holographics  and CFC  International  shall have the right to terminate
this Agreement.

          8.1.2 Manner of Termination. During the Right to Terminate Election 
     Period,  each of Applied  Holographics  and CFC  International shall have 
     the right to  terminate  this  Agreement  by giving  written notice of  
     termination  to the other parties  hereto of its exercise of its right to 
     terminate,  such termination to be effective not less than six  weeks  
     following  the  date of the  notice,  or in the case of the exercise  by 
     CFC  International  of its  right to  purchase  joint  and non-exclusive  
     ownership  of the AH Worldwide  Holographic  Proprietary Rights in 
     accordance  with this  Agreement  prior to the stated date of termination, 
     on the date of closing of such purchase.

          8.1.3 Survival of Obligations. Upon such termination, the obligation  
     of CFC  International  to pay  royalties  on Net  Sales  of Products 
     through the day prior to the date of closing shall survive.

     8.2 CFC Obligation to Purchase Worldwide Rights after Termination. If
this  Agreement  is  terminated  in  accordance  with its terms  (including  any
termination  following a Change in Control in accordance with Section 8.1 or any
termination  following an Event of Default in accordance with Section 9.3), then
CFC International will (unless Applied Holographics agrees otherwise in writing)
be obliged to purchase the joint and non-exclusive ownership of the AH Worldwide
Holographic Proprietary Rights then held by Applied Holographics, subject to the
terms and conditions hereinafter set forth.

          8.2.1 Manner of Purchase and Notice of Closing. If a notice of
     termination is given following a Change in Control, CFC International
     shall be  required  to give  Applied  Holographics  a notice of closing
     within the Right to Terminate Election Period setting forth the closing
     date of the  required  purchase  by it of the joint  and  non-exclusive
     ownership of the AH Worldwide  Holographic  Proprietary  Rights,  which
     date of  closing  shall be  within  six  weeks  following  the Right to
     Terminate  Election Period. If this Agreement is otherwise  terminated,
     except as otherwise agreed by the parties in writing, CFC International
     shall be  required  to give  Applied  Holographics  a notice of closing
     within six weeks  following  the  termination  date  setting  forth the
     closing  date  of  the  required  purchase  by  it  of  the  joint  and
     non-exclusive  ownership  of the AH Worldwide  Holographic  Proprietary
     Rights,  which date shall be within six weeks  following  the  required
     notice of closing.

          8.2.1 Closing and Payment. Payment of the purchase price to Applied  
     Holographics  as  hereinafter  provided  shall be  tendered to Applied  
     Holographics  against delivery of duly executed bills of sale, assignments,
     and documents of transfer (in a form to be agreed between the CFC 
     International and Applied  Holographics,  such agreement not to be 
     unreasonably  withheld or delayed by either of them) at the time and
     place set forth in such written notice.  If Applied  Holographics  does
     not deliver duly executed bills of sale, assignments,  and documents of
     transfer  (in such  agreed  form)  at the  closing  transferring  joint
     ownership in the AH Worldwide  Holographic  Proprietary Rights, free of
     all adverse claims, the transfer and sale of the joint ownership in the
     AH Worldwide Holographic Proprietary Rights shall nonetheless be deemed
     to be effective as of such date  without any further  action,  provided
     that CFC International shall hold the purchase price, without interest,
     for payment at a  subsequent  date  against  delivery of duly  executed
     documents.

          8.2.2 Purchase Price. The purchase price, payable in cash except as 
     provided  below against  delivery of duly  executed  bills of sale, 
     assignments,  and documents of transfer,  shall be computed as of December 
     31 of the year  preceding  the date on which notice of closing is given and
     shall be equal to the  product of (a) eight  times (b) six percent (6%) 
     times (c) the sum of the Net Sales of Products  during the three  preceding
     calendar  years  (computed in the same way as defined herein for the 
     royalty payments to be made under this Agreement) of CFC International  
     (including  consolidated  sales for periods prior to the date of this  
     Agreement,  thus including  sales of the Prior  Operating Partnership)  
     divided  by  three  (3)  (thus  for  example,  for  years beginning  in 
     2002,  eight times the average  royalties  payable by CFC International to 
     Applied  Holographics  under this Agreement during the three prior calendar
     years).

          8.2.3 Payment of Purchase Price in the Event of a Change in Control  
     of  Applied  Holographics.  In  the  event  of  a  termination following a 
     Change in Control of Applied  Holographics,  CFC shall have the right to 
     pay the required purchase price described in the preceding subsection 10% 
     in cash at the closing and 90% in a non-interest bearing promissory  note  
     maturing  nine months  following the date of closing.  This note will be in
     a form agreed upon by the parties in substantially the form of the 
     Installment Note delivered  pursuant to the Purchase of Partnership 
     Agreement.

          8.2.4 Transfer of CFC Worldwide Holographic Proprietary Rights.  
     Concurrently  with and as a condition  to the  purchase by CFC
     International of the AH Worldwide  Holographic  Proprietary Rights, CFC
     International will transfer free of charge to Applied  Holographics the
     joint and  non-exclusive  ownership  in the CFC  Worldwide  Holographic
     Proprietary Rights then held by CFC  International.  In connection with
     such transfer,  CFC International  shall deliver duly executed bills of
     sale,  assignments  and  documents  of transfer (in a form to be agreed
     between CFC International and Applied Holographics,  such agreement not
     to be unreasonably withheld or delayed by either of them) in respect of
     the transfer of the CFC  Worldwide  Holographic  Proprietary  Rights to
     Applied Holographics.

          8.2.5 Effect of Transfer. Following the closing of the purchase  
     provided for in this Section,  CFC  International and Applied
     Holographics shall be the joint owners of all worldwide rights,  titles
     and  interests  to any and  all AH  Worldwide  Holographic  Proprietary
     Rights and CFC Worldwide Holographic Proprietary Rights owned by either
     or both of them prior to termination of this Agreement.  This ownership
     shall  be  without  any   restriction   whatsoever   and  each  of  CFC
     International  and  Applied  Holographics  will have the right to sell,
     assign,  transfer,  sublicense,  or otherwise exploit its non-exclusive
     rights to develop,  manufacture,  have  manufactured,  import,  export,
     market, sell, sublicense agents and distributors, and otherwise exploit
     Holographic  Products in  competition  with each other  anywhere in the
     world.

          8.2.6 Execution of Documents. Upon the request of either CFC
     International or Applied Holographics (the "Requesting Party"), Applied
     Holographics  or CFC  International  (the "Other Party") shall perform,
     execute, acknowledge and deliver all such further acts, deeds, bills of
     sale,  assignments,  transfers,  conveyances,  powers of  attorney  and
     assurances as may be required to convey and transfer to and vest in the
     Requesting Party and protect its rights, titles and interests in all of
     the AH  Worldwide  Holographic  Proprietary  Rights  and CFC  Worldwide
     Holographic  Proprietary Rights, as may be appropriate to carry out the
     ownership provisions of this Agreement.

     8.3 Obligations of Controlling Affiliate. In the event there occurs a
Change of Control  of either CFC  International  or  Applied  Holographics  thus
resulting in a situation where either CFC International or Applied  Holographics
is a Controlled  Affiliate of a  Controlling  Affiliate,  and if following  such
event neither CFC International nor Applied Holographics  exercises its right to
terminate this Agreement and CFC  International  therefore does not purchase the
AH Worldwide Holographic Proprietary Rights, then the Controlled Affiliate shall
be required  to cause its  Controlling  Affiliate  to execute and deliver to the
other party an  appropriate  an  agreement  in which the  Controlling  Affiliate
agrees that the Controlled Affiliate will remain bound by and respect all of the
terms and conditions of this Agreement.

     8.4 Obligation to Give Notice of Change in Control. If either CFC
International or Applied Holographics undergoes a Change in Control, it shall be
required to give the other notice as soon as practical  and in no case more than
14 days following the Change in Control.  The required notice shall include full
details describing the Change in Control.

9.   Term and Termination

     9.1 Perpetual Term. The term of this Agreement shall commence on the
date hereof and shall continue until terminated  either by the agreement of each
of CFC  International  and Applied  Holographics or in accordance with the terms
set forth  herein or in some  other  agreement  between  CFC  International  and
Applied Holographics.

     9.2 Optional Early Termination in the Event of a Change in Control.
This  Agreement  may be  terminated  by either party in the event of a Change in
Control as provided elsewhere herein.

     9.3 Termination in the Event of Breach of CFC International. If an
Event of Default has occurred and is continuing, Applied Holographics shall have
the right to terminate  this  Agreement by 30 days prior  written  notice to CFC
International.  Such  termination  shall  be  without  prejudice  to  all  other
available rights and remedies of Applied Holographics or CFC International under
applicable law and to the ongoing requirements of Section 8.2 hereof.

10.  Miscellaneous

     10.1 Amendment and Modification. The parties hereto may amend, modify
and  supplement  this  Agreement in such manner as may be agreed upon by them in
writing.

     10.2 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and  permitted  assigns,  but  neither  this  Agreement  nor any of the  rights,
interests or  obligations  hereunder  shall be assigned,  by operation of law or
otherwise, by any of the parties hereto without the prior written consent of the
other party. Such consent may be granted or withheld at the absolute  discretion
of the party  required  to give it, and such party  shall not be obliged to give
its reasons for granting or withholding its consent to any other party.

     10.3 Headings. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.

     10.4 Execution in Counterpart. This Agreement may be executed in
counterparts each of which may deemed an original.

     10.5 Notices. Any notice, request, information or other document to be
given  hereunder to any of the parties by any other  parties shall be in writing
and delivered  personally or sent by Federal Express or other reliable  courier,
transmitted by fax, or sent by registered or certified mail, postage prepaid, to
the intended recipient, as follows:

          If to Applied Holographics or AH, addressed to:

                                    David J. Tidmarsh
                                    Managing Director
                                    Applied Holographics PLC
                                    40 Phoenix Road
                                    Crowther Industrial Estate
                                    Washington, District 3, Tyne & Wear
                                    NE38 0AD England
                                    Telephone: 44 191 417 5434
                                    Fax: 44 191 416 3053


With a copy to:

                                    Jamie Pass, Esq.
                                    Dickinson Dees
                                    St. Ann's Wharf
                                    112 Quayside
                                    Newcastle upon Tyne
                                    NE99 1SB England
                                    Telephone: 44 191 279 9000
                                    Fax: 44 191 279 9100

     If to CFC or CFC International, addressed as follows:

                                    Roger F. Hruby, Chairman
                                    and Chief Executive Officer
                                    CFC International, Inc.
                                    500 State Street
                                    Chicago Heights, Illinois 60411
                                    Telephone: 1 (708) 891-3456
                                    Fax: 1 (708) 758-5989

with a copy to:

                                    Bell, Boyd & Lloyd
                                    Three First National Plaza
                                    70 West Madison Street
                                    Chicago, IL 60602
                                    Attention:  William G. Brown
                                    Telephone: 1 (312) 372-1121
                                    Fax: 1 (312) 372-2098

     If to the Research Partnership, then to both AH and CFC as provided
above.

Any such notice  delivered  personally shall be deemed to have been given on the
date that it is so delivered,  and any notice  delivered by other means referred
to above  shall be  deemed to have been  given on the date it is  received.  Any
party may change the address to which notices  hereunder are to be sent to it by
giving  written  notice of such change of address in the manner herein  provided
for giving notice.

     10.6 Governing Law. This Agreement shall be governed by and construed
in  accordance  with the laws of the State of Illinois  applicable  to contracts
made  and to be  performed  therein,  without  regard  to the  conflict  of laws
principles thereof, and the parties submit to the exclusive  jurisdiction of the
United States Federal and Illinois State courts.


     10.7 Governing Language. English shall be the governing language of
this  Agreement  and the English  language  version of this  Agreement  shall be
controlling for all purposes.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

     APPLIED HOLOGRAPHICS PLC


     By________________________________________
          David J. Tidmarsh, Managing Director


     APPLIED HOLOGRAPHICS CORPORATION


     By________________________________________
          David J. Tidmarsh, President


     CFC INTERNATIONAL, INC.


     By________________________________________
          Roger F. Hruby, Chairman and
          Chief Executive Officer


     CFC MANAGEMENT, INC.


     By________________________________________
          Roger F. Hruby, Chairman and
          Chief Executive Officer


     CFC APPLIED HOLOGRAPHICS RESEARCH PARTNERSHIP
     By APPLIED HOLOGRAPHICS CORPORATION


     By________________________________________
          David J. Tidmarsh, President


     By CFC MANAGEMENT, INC.


     By________________________________________
          Roger F. Hruby, Chairman and
          Chief Executive Officer

     Its General Partners

Schedule "A"

SUMMARY OF RESTRICTIVE OR CONFIDENTIALITY AGREEMENTS WITH THIRD PARTIES WHERE 
CFC INTERNATIONAL MAY NOT BE THE SUPPLIER IN THE TERRITORY

It should be stressed that Applied  Holographics has signed many confidentiality
agreements  with third parties.  Most of these,  however,  relate to information
provided or given and not to developments  affecting  intellectual property, the
products or markets.

Currently there are two main agreements or developments  which have or will have
restrictions:

1)  Portals/Bank of England

Holographic  thread in paper. We work with both  organizations to produce a high
security  paper  product.  Since  Portals  hold a patent  on the  window  thread
process,  we had to concede the world marketing rights to them. They promote the
product to all their licensees.

2)  Nimbus - Compact Discs

We worked with Nimbus to develop processes for incorporating  holograms onto the
whole or part of the surface of a compact disc.

Applied Holographics and Nimbus own and are seeking to gain patents covering the
technologies  they have jointly  developed.  These patents have been (or will be
when granted)  transferred to the AH/Nimbus Joint Venture Company 3DCD LLC. This
joint  venture  company  has the  exclusive  right to sell  the CD  technologies
worldwide.



Schedule "B"

SUMMARY OF AGREEMENTS WITH THIRD PARTIES RELATING TO THE USE OF CERTAIN 
HOLOGRAPHIC PATTERNS

1.   AH and Applied Holographics use certain patterns (EP53, 54, 55, 57, and
     58) for which it pays a  royalty  of 5% under a  non-exclusive  license
     agreement with it's former subsidiary based in Switzerland,  now called
     3D Holographics.

2.   Applied  Holographics  sold the assets of it's Retail division based in
     Bordon,  England  on April  9th 1991 to a  company  called  Honeybatch,
     subsequently Spectraflex, together with the non-exclusive, royalty free
     rights to use any of the patterns supplied  previously to that business
     by Applied  Holographics  Plc as shown on the attached list and covered
     by the Clauses 5.05 and 5.06 of the Purchase Agreement as follow:

     5.05 "The Vendor agrees that the Purchaser shall have the right if
          deemed necessary by the Purchaser to replicate or duplicate
          for the  Purchaser's own use, or have replicated or duplicated
          any products or product  designs  which have  previously  been
          supplied by the vendor to the Business excluding those designs
          which are subject to a license from Walt Disney  Limited dated
          9th October 1990 and those designs which are subject to a
          license from 3D Limited dated 14th August 1989 and it is
          hereby understood that the Vendor by entering this agreement
          does not grant any rights to the Purchaser in respect to those
          designs which are subject to the aforementioned Licenses from
          Walt Disney Limited dated 9th October 1990 and 3D Limited
          dated 14th August 1989."

     5.06 "The Vendor agrees that the Purchaser may use the copy nickel
          holographic or diffraction shims referred to in Schedule 2
          hereof provided that for a period of 12 months from the date
          of completion, the Purchaser agrees to hold the shims and not
          to permit any supplier other than the Vendor to use them to
          manufacture materials unless the Vendor is unable to meet
          orders placed by the Purchaser (at a price which is acceptable
          to the Purchaser where product has not previously been
          supplied according to the Vendor's price list) within a period
          of 4 weeks from receipt of order."


Patterns subject to Agreement with Spectraflex Limited

  Number              Description

    037            Fireworks                                    }
    038            Fish                                         }
    039            Confetti                                     }
    040            Happy Birthday Cocktail                      }
    041            Parrots                                      }
    042            Tulips                                       }
    043            Manhattan                                    }
    044            Flying High (aeroplanes)                     }
    045            Blue Sax                                     }
    046            Kites                                        }
    047            Juke Box                                     }  Large designs
    048            Sweet Hearts                                 }  used on
    049            Change of Hearts                             }  cards
    050            Carmen Miranda                               }
    051            The Beach                                    }
    052            Ice Cream Soda                               }
    053            Dove                                         }
    054            Clown                                        }
    055            Parcels                                      }
    056            Champagne Breakfast                          }
    057            Cake                                         }
    058            Showing Off (Peacock)                        }
    059            Catwalk                                      }
    060            Happy Birthday                               }

                   Alphabet stickers

                   Bells and Holly                              }
                   Merry Christmas                              }
                   Stockings and Bells                          }
                   Santa, Tree, Parcel and Holly                }
                                                                }
    EP 53 (Broken Glass                                         }
                                                                }
                   Wedding Day                                  }  Gift Wrap
                   Congratulations                              }  Patterns
                   Happy Birthday (Exploding Box)               }
                   Pandas and Balloons                          }
                                                                }
                   Happy Birthday 2D/3D                         }
                   Wedding Day 2D/3D                            }
                   Pandas and Balloons 2D/3D                    }
                   Congratulations 2D/3D                        }



Schedule "C"


SUMMARY OF THE POSITION WITH REGARD TO POSSIBLE INFRINGEMENT OF APPLIED 
HOLOGRAPHICS' AND THIRD PARTIES' PROPRIETARY RIGHTS

The field of  holography  is still  relatively  new and  there  have  been,  and
continue  to  be,  many  individuals  or  groups  working  on  originations  and
applications.  There are many patent  applications and patents granted,  some of
which we  regard  as  having  validity,  others  we do not.  There has also been
extensive litigation.

To the best of our  knowledge we believe that we do not  currently  infringe any
third  party  rights or  patents  and we believe  we have  patents or  copyright
protection for our intellectual  property.  However,  much of this could only be
decided in a court of law since  there is very  little  established  case law or
precedent.

In this  respect  we have  from  time to time been  asked to  license  the 2D/3D
origination technique from Steve McGrew/Light Impressions.  Along with others in
the industry we believe that the method we use to produce a 2D/3D image does not
infringe their patent and we have informed them accordingly,  declining to pay a
royalty. We do acknowledge,  however, that during the development of our current
2D/3D  origination  method, we were close to the Light  Impressions'  method and
could  possibly have infringed  their patent.  We are confident that our current
method of production is quite different from theirs.






                PURCHASE OF PARTNERSHIP AND TERMINATION AGREEMENT

         This  Purchase  of   Partnership   and   Termination   Agreement   (the
"Agreement")  is made and entered into on October 28, 1998 (but is effective as 
of October 1, 1998), by and among Applied Holographics PLC, a company organized 
and existing under the laws of England and Wales ("Applied  Holographics"),  
Applied Holographics  Corporation,  a  Delaware  corporation  wholly  owned  by 
Applied Holographics  ("AH"),  CFC  International,  Inc., a Delaware  
corporation  ("CFC International"),  and CFC Management Corporation,  a Delaware
corporation wholly owned by CFC International ("CFC").

                                    Recitals

         Applied  Holographics  and AH (the  "Sellers")  desire  to  sell  their
interest in the Prior  Operating  Partnership  among the parties  hereto and CFC
International and CFC (the  "Purchasers")  desire to purchase such interest,  in
each case on the terms set out in this Agreement.

                                    Covenants

         In  consideration  of the  premises  and the  mutual  covenants  of the
parties set forth herein, the parties hereto agree as follows

1.    Definitions.

     "1992 License Agreement" shall mean the License Agreement dated April
1, 1992, among Applied Holographics, AH, CFC International and CFC.

     "1998 License Agreement" shall mean the License Agreement of even date
herewith  effective  October  1,  1998,  among  Applied  Holographics,  AH,  CFC
International, CFC and the Research Partnership.

     "Additional Agreements" shall mean the 1992 License Agreement, the
Formation Agreement, the Security Agreement, and the Representation Agreement.

     "Affiliates" shall mean any entity or person that directly or
indirectly through one or more intermediaries  controls, is controlled by, or is
under common control with, any other entity or person. "Control" (including with
correlative meanings, the terms "controlled by" and "under common control with")
means the  ownership or control of  securities  possessing  more than 50% of the
voting power of all outstanding  voting securities of an entity or person or the
power  otherwise to direct or cause the direction of the management and policies
of such entity or person,  whether  through  the  ownership  of voting  stock or
similar rights or the holding of office in such entity or person, by contract or
otherwise.

     "AH Proprietary Rights" shall mean all of the patents, trademarks,
copyrights,  technology, trade secrets and other intellectual property rights of
AH and Applied Holographics relating to the development,  manufacture, marketing
and sale of  holographic  originations,  films and  foils and other  holographic
products except as set forth in Schedules A and B to the 1992 License  Agreement
and as to which  additional  information  is set forth in Schedule C to the 1992
License Agreement.

     "Closing Time" shall mean the opening of business on October 1, 1998.

     "Formation Agreement" shall mean the Formation Agreement dated April 1,
1992, among Applied  Holographics and CFC International as amended as of October
1, 1994.

     "Partnership Agreement" and "Prior Operating Partnership Agreement"
shall mean the restated  Partnership  Agreement  dated as of October 1, 1994, by
and between AH and CFC.

     "Partnership" and "Prior Operating Partnership" shall mean the general
partnership created pursuant to the Partnership Agreement.

     "Products" shall mean all holographic products.

     "Purchasers" shall mean CFC International and CFC.

     "Representation Agreement" shall mean the Representation Agreement
dated as of April 1, 1992, between CFC International and the Partnership.

     "Research Partnership" shall mean the general partnership created by
the Research Partnership Agreement.

     "Research Partnership Agreement" shall mean the CFC Applied
Holographics  Research Partnership  agreement dated October 1, 1998, between the
Sellers and the Purchasers.

     "Security Agreement" shall mean the Security Agreement dated as of
October 1, 1994, between Applied Holographics and CFC International.

     "Sellers" shall mean Applied Holographics and AH.

     "Territory" shall mean the United States, Mexico and Canada.

     "Usual Selling Prices" shall mean the price at which the Sellers or
Purchasers  offer to sell  similar  quantities  of a  Product.  If the Seller or
Purchaser has recently  offered or is offering a Product at different  prices to
different  customers,  the "Usual  Selling  Price" for the Product  shall be the
lowest  price at which the Seller or  Purchaser  has offered to sell the Product
(taking due account of all relevant  factors  including  the quantity of Product
ordered, packaging and delivery costs).

2.   Purchase, Sale and Termination of Partnership Agreement.

     2.1 Purchase and Sale. Subject to the terms and conditions set forth in
this Agreement,  the Sellers hereby sell, transfer,  convey and assign at and as
of the Closing Time to the Purchasers for the total purchase price  specified in
Section 2.2, all of the Sellers',  right title and interest in the  Partnership.
Without  limiting the  foregoing,  at the Closing Time CFC  International  shall
become a  general  partner  of the  Partnership  replacing  AH,  with all of the
rights,  powers and  obligations of AH  thereunder.  For the avoidance of doubt,
this  Agreement  shall  not  result  in  the  transfer  of  ownership  of the AH
Proprietary  Rights,  ownership  of which  shall  hereafter  be  subject  to the
provisions of the 1998 License Agreement.

     2.2 Purchase Price. The total purchase price (the "Purchase Price")
shall be paid in sixteen  equal  quarterly  payments in the amount of $96,756.44
(totaling  $1,548,103)  on the first day of  January,  April,  July and  October
commencing January 1, 1999.

3.    Product Supply and Transfer Pricing.

     3.1 Product Supply. The parties all agree that it is their non-binding
intention to seek to satisfy all orders for Products which they may receive from
any other party to this Agreement, and undertake not unreasonably to decline any
such  orders.  However,  it is  hereby  expressly  agreed  that no party to this
Agreement  shall be  obliged  to supply any  Products  ordered by another  party
pursuant to this Agreement if, in its sole opinion (which shall be final), it is
not in its best interests to supply such  Products.  For the avoidance of doubt,
this provision allows a party to this Agreement to decline an order for Products
from another party in order to perform its  obligations to supply  Products to a
third  party,  or in order to  pursue  business  to  supply  Products  on a more
profitable  basis to a third party  (provided  that, in each case, any supply of
Products to a third party shall be in  accordance  with this  Agreement  and the
1998 License Agreement).

     3.2 Prices Between Applied Holographics and CFC. Products sold by
Applied Holographics to CFC International and Products sold by CFC International
to Applied  Holographics after the execution and delivery of this Agreement will
be priced at Usual Selling Prices of Applied  Holographics or CFC  International
(as the case may be) less 30% provided,  however, that if the resulting price is
less than the fully absorbed  manufactured cost (not including selling,  general
and administrative expense), then the selling price shall be the selling party's
fully  absorbed   manufactured   cost  (not  including   selling,   general  and
administrative expense).

     3.3 Payment Terms. All outstanding amounts owed to Applied Holographics
by CFC  International  and all outstanding  amounts owed to CFC International by
Applied  Holographics  for Products  supplied in a given month will be repaid on
the  fifteenth  (15th)  following the second (2nd) month after that month ended.
For  example,  Products  purchased  in  August  will be paid  for by the 15th of
November.

4.   Van Leer License  Agreement.  The Purchasers and Sellers agree that they 
will use their  respective  best efforts to cause Van Leer  Metalized  Products 
(USA) Ltd.  ("Van  Leer") to split its royalty  payments  under the License  
Agreement dated January 1, 1994,  between the  Partnership and Van Leer such 
that payments are made to CFC  International  for  sales  into the  Territory  
and to  Applied Holographics  for sales  outside the  Territory.  If Van Leer 
does not split its royalty  payments as  contemplated,  the parties  agree to 
allocate any payments received on the basis of their best estimate of where the 
sales  generating  the payments were effected.

5.   Research  Partnership.  The  Purchasers  and Sellers are  entering  into 
the Research  Partnership  concurrently  with the  execution  and  delivery  of 
this Agreement.

6.   1998 License Agreement. The Purchasers and Sellers are entering into the 
1998 License  Agreement   concurrently  with  the  execution  and  delivery  of 
this Agreement.

7.   Miscellaneous.

     7.1 Assignment by CFC International. Neither CFC International nor CFC
shall assign, sublicense, transfer, hypothecate or otherwise alienate any of its
rights or obligations  under this Agreement without the prior written consent of
Applied  Holographics  except  to an  Affiliate  or  successor  by merger or any
purchaser  of all or  substantially  all of the  assets of CFC which  Affiliate,
successor  or  purchaser  agrees to  execute  a  counterpart  of this  Agreement
agreeing  to be fully  bound by its  terms.  Applied  Holographics  may,  in its
absolute  discretion,  withhold such consent  without being obligated to give to
CFC  International  any reasons for so doing.  Subject to this Section 7.1, this
Agreement  shall be  binding  upon  the  parties  hereto  and  their  respective
successors and assigns.

     7.2 Entire Agreement; Termination of Additional Agreements. This
Agreement,  the Research  Partnership  Agreement and the 1998 License Agreement,
contain the entire  agreement of the parties  hereto with respect to the subject
matter hereof,  supersede all prior understandings and agreements of the parties
with respect thereto,  and are interdependent with each other.  Without limiting
the  generality of the  foregoing,  the  Additional  Agreements  shall be deemed
terminated and of no further force and effect as of the Closing Time.

     7.3 Amendment and Modification. The parties hereto may amend, modify
and  supplement  this  Agreement in such manner as may be agreed upon by them in
writing.

     7.4 Binding Effect Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their  respective  successors and
assigns.

     7.5 Headings. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.

     7.6 Execution in Counterpart. This Agreement may be executed in 
counterparts each of which may deemed an original.

     7.7 Notices. Any notice, request, information or other document to be
given  hereunder to any of the parties by any other  parties shall be in writing
and delivered  personally or sent by Federal Express or other reliable  courier,
transmitted by fax, or sent by registered or certified mail, postage prepaid, to
the intended recipient, as follows:

                           If to Applied Holographics, addressed to

                                    David J. Tidmarsh
                                    Managing Director
                                    Applied Holographics PLC
                                    40 Phoenix Road
                                    Crowther Industrial Estate
                                    Washington, District 3, Tyne & Wear
                                    NE38 0AD England
                                    Telephone: 44 191 417 5434
                                    Fax: 44 191 416 3053


                           With a copy to:

                                    Jamie Pass, Esq.
                                    Dickinson Dees
                                    St. Ann's Wharf
                                    112 Quayside
                                    Newcastle upon Tyne
                                    NE99 1SB England
                                    Telephone: 44 191 279 9000
                                    Fax: 44 191 279 9100

                           If to CFC International, addressed as follows:

                                    Roger F. Hruby, Chairman
                                    and Chief Executive Officer
                                    CFC International, Inc.
                                    500 State Street
                                    Chicago Heights, Illinois 60411
                                    Telephone: 1 (708) 891-3456
                                    Fax: 1 (708) 758-5989

                           with a copy to:

                                    Bell, Boyd & Lloyd
                                    Three First National Plaza
                                    70 West Madison Street
                                    Chicago, IL 60602
                                    Attention  William G. Brown
                                    Telephone: 1 (312) 372-1121
                                    Fax: 1 (312) 372-2098

Any such notice  delivered  personally shall be deemed to have been given on the
date that it is so delivered,  and any notice  delivered by other means referred
to above  shall be  deemed to have been  given on the date it is  received.  Any
party may change the address to which notices  hereunder are to be sent to it by
giving  written  notice of such change of address in the manner herein  provided
for giving notice.

     7.9 Governing Law. This Agreement shall be governed by and construed in
accordance  with the laws of the State of Illinois  applicable to contracts made
and to be performed  therein,  without regard to the conflict of laws principles
thereof,  and the parties  submit to the  exclusive  jurisdiction  of the United
States Federal and Illinois State courts.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

     APPLIED HOLOGRAPHICS PLC


     By________________________________________
          David J. Tidmarsh, Managing Director


     APPLIED HOLOGRAPHICS CORPORATION


     By________________________________________
          David J. Tidmarsh, President


     CFC INTERNATIONAL, INC.


     By________________________________________
          Roger F. Hruby, Chairman and
          Chief Executive Officer

     CFC MANAGEMENT CORPORATION


     By________________________________________
          Roger F. Hruby, Chairman and
          Chief Executive Officer



October 1, 1998                                                      $1,444,738
                                INSTALLMENT NOTE

         For value received, the undersigned CFC International, Inc., a Delaware
corporation  ("CFC  International"),  promises  to pay to the  order of  Applied
Holographics  Corporation,  a Delaware  corporation  ("AH"), by wire transfer in
immediately available funds in United States dollars to the account of AH at its
designated  bank account,  sixteen equal  quarterly  payments of $90,296.13 each
(aggregating  $1,444,738)  on the 1st day of January,  April,  July, and October
commencing  on the 1st day of January,  1999,  with the final payment due on the
1st day of October, 2001.

         The parties  agree that the  payments  made  pursuant to this Note  
include  interest  at the rate of 5.31% and  principal  as follows:

Date Due             Quarterly     Interest       Principal   Balance
                     Payment
January 1, 1999   $  96,756.44  $  18,405.78  $   78,350.65  $1,308,149.12
  April 1, 1999   $  96,756.44  $  17,365.68  $   79,390.76  $1,228,758.37
   July 1, 1999   $  96,756.44  $  16,311.77  $   80,444.67  $1,148,313.70
October 1, 1999   $  96,756.44  $  15,243.86  $   81,512.57  $1,066,801.12
January 1, 2000   $  96,756.44  $  14,161.78  $   82,594.65  $  984,206.47
  April 1, 2000   $  96,756.44  $  13,065.34  $   83,691.10  $  900,515.37
   July 1, 2000   $  96,756.44  $  11,954.34  $   84,802.10  $  815,713.28
October 1, 2000   $  96,756.44  $  10,828.59  $   85,927.84  $  729,785.43
January 1, 2001   $  96,756.44  $   9,687.90  $   87,068.54  $  642,716.90
  April 1, 2001   $  96,756.44  $   8,532.07  $   88,224.37  $  554,492.53
   July 1, 2001   $  96,756.44  $   7,360.89  $   89,395.55  $  465,096.98
October 1, 2001   $  96,756.44  $   6,174.16  $   90,582.28  $  374,514.70
January 1, 2002   $  96,756.44  $   4,971.68  $   91,784.75  $  282,729.95
  April 1, 2002   $  96,756.44  $   3,753.24  $   93,003.20  $  189,726.75
   July 1, 2002   $  96,756.44  $   2,518.62  $   94,237.81  $   95,488.94
October 1, 2002   $  96,756.44  $   1,267.62  $   95,488.82  $        0.11

         Totals   $1,548,103.00  $161,603.34  $1,386,499.66

         Interest on any late payment  shall be due and payable at the base rate
from time to time of Barclays  Bank PLC plus four percent  calculated on a daily
basis from the due date for payment  until  actual  payment  (whether  before or
after any judgment).

         This  Installment Note is being delivered in connection with a Purchase
of Partnership and Termination Agreement among CFC International, CFC Management
Corporation,  and  Applied  Holographics  PLC and AH, and AH is  entitled to the
benefits thereof.

               CFC INTERNATIONAL, INC.



               By_________________________________
                    Roger F. Hruby, Chairman and
                    Chief Executive Officer