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                                                                   Exhibit 10.12


                              EMPLOYMENT AGREEMENT


              THIS EMPLOYMENT AGREEMENT, (this "Agreement"), is made and entered
into as of February 3, 1999, by and between Kenneth Traub (the "Executive") and
American Bank Note Holographics, Inc., a Delaware corporation (the "Company").

                                     RECITAL

              WHEREAS, the Executive has been acting as a consultant to the
Company since December 28, 1998;

              WHEREAS, in light of recent events which are generally described
in the Company's recent press releases of January 19, 1999, January 25, 1999,
and February 1, 1999, the Company desires to formally retain the Executive to
render executive and managerial services and the Executive desires to render
such services; and

              WHEREAS, the Company and the Executive desire to set forth herein
the terms and conditions on which the Company will employ the Executive, and the
Executive will accept employment with the Company.

                                    AGREEMENT

              NOW THEREFORE, in consideration of the mutual promises set forth
in this Agreement and intending to be legally bound, Executive and the Company
agree as follows:

SECTION 1.    EMPLOYMENT. The Company hereby employs Executive and Executive
hereby accepts such employment and agrees to render services to the Company,
upon the terms and conditions set forth in this Agreement.

SECTION 2.    POSITION AND DUTIES. Executive shall assume the responsibilities
and perform the duties of President and Chief Operating Officer of the Company.
The Executive shall also serve in such similar capacities as may be assigned to
him in good faith from time to time by the Board of Directors of the Company
(the "Board"). Executive agrees to devote substantially all of his business
time, attention, skill and best efforts to the diligent performance of his
duties hereunder and shall be loyal to the Company and its affiliates and
subsidiaries, and use his best efforts to further their interests. The Executive
shall be responsible for the day to day nationwide general management,
administration and operation


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of all present and future business of the Company, including, without
limitation, those operations set forth in the By-laws of the Company. The
actions of the Executive shall be subject to review only by the Board. In the
event that the Executive shall deem it necessary to consult the entire Board
regarding the performance of his duties, the Executive shall report directly to
the Board and shall not be required to seek the approval of any other officer or
individual director to do so. In the performance of his duties, Executive agrees
to abide by and comply with all policies, practices, handbooks, procedures and
guidelines which are now in effect or which the Company may adopt, modify,
supplement or change from time to time.

SECTION 3.    TERM OF EMPLOYMENT. The term of employment hereunder shall
commence on the date hereof and shall continue thereafter until the earlier of
(i) one year from the date hereof or (ii) termination pursuant to Section 10
hereof (the "Employment Term"). This Agreement shall be automatically renewed
annually for successive one year terms, unless the Company gives written notice
at least sixty (60) days prior to the end of the Employment Term of its election
to terminate such employment at the end of such Employment Term. Notwithstanding
the foregoing, if the Executive's employment is terminated pursuant to Section
10 of this agreement, the automatic renewal provided herein shall be of no
further effect as of the Termination Date (as defined). In the event Executive's
employment is not renewed at the end of the Employment Term (except as otherwise
provided in Section 10 hereof) or renewal term, the Company will pay to the
Executive an amount equal to the Salary and Bonus (both, as defined) of the
Executive for the prior year.

SECTION 4.    EXCLUSIVITY. During the term of Executive's employment with the
Company, Executive shall not without the prior written consent of the Board (i)
perform any managerial, sales, marketing or technical services directly or
indirectly for any person or entity competing directly or indirectly with the
Company or any of its subsidiaries in the holography business; (ii) perform any
such services for any entity owned, directly or indirectly, by anyone competing,
either directly or indirectly, with the Company or any of its subsidiaries in
the holography business; (iii) on his own behalf or that of any other person or
entity, compete, either directly or indirectly, with the Company or any of its
subsidiaries, to sell any products or services marketed or offered by the
Company or any of its subsidiaries; (iv) engage or become interested, directly
or indirectly, as owner, employer, partner, consultant, through stock ownership
(except ownership of less than one percent of the number of shares outstanding
of any securities which are listed for trading on any securities exchange,
Provided that the specific nature and amount of the investment, if over $50,000,
shall be immediately disclosed to the Company in writing), investment of
capital, lending of money or property, or otherwise either alone or in
association with others, in the operation of any type of business or enterprise
which conflicts or interferes with the


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performance of Executive's services hereunder or (v) engage in any activities
which could reasonably be deemed to be a conflict of interest with his duties
hereunder or his obligations to the Company.

SECTION 5.    COMPENSATION AND BENEFITS.

              (a)    Salary and Bonus. As compensation for the performance of
the Executive's services hereunder, during the Employment Term, the Company will
pay to the Executive an annual base salary of $250,000 per annum; provided that
the Executive's annual base salary shall be increased by not less than 3% per
annum in the event this Agreement is renewed pursuant to Section 3 above (the
"Salary"). Within 30 days following the end of each of the Company's fiscal
quarters, the Board shall determine if the Executive is eligible to receive a
bonus (the "Bonus"). While the payment of any Bonus (or no Bonus) shall be
determined by the Board or a committee designated by the Board to make such
determination (the "Compensation Committee") in its sole discretion, and shall
be based on certain performance measures which shall be determined by the Board
or the Compensation Committee in its sole discretion, the parties agree that a
target bonus of $25,000 per quarter would be appropriate. The Executive's Salary
and any Bonus will be payable in accordance with the customary payroll practices
of the Company for its senior management personnel.

              (b)    Benefits. During the Employment Term, the Executive shall
be eligible to participate, on the same basis and subject to the same
qualifications as other senior management personnel of the Company, in any
pension, profit sharing, savings, bonus, life insurance, health insurance,
hospitalization, dental, drug prescription, disability, accidental death and
dismemberment and other benefit plans and policies as may from time to time be
in effect with respect to senior management personnel of the Company
(collectively, the "Benefits"). The Executive shall also be entitled to vacation
days (including the right to accrue unused vacation time from year to year if
the Agreement is renewed pursuant to Section 3 above), holidays and sick days in
accordance with the policies of the Company as may be in effect from time to
time; provided, however, that termination of Executive's employment for any
reason (including resignation by the Executive), the Company shall pay Executive
for accrued vacation time unused as of the last date of employment, on a pro
rated basis calculated on the basis of the Executive's Salary and Bonus in
effect on the Termination Date. Upon mutual agreement of the Company and the
Executive that it would be beneficial to both parties for the Executive to
relocate his personal residence in connection with his employment hereunder, the
Company shall reimburse the Executive for the reasonable expenses related to
such relocation upon the submission of supporting documentation for such
expenses.


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              (c)    Stock Options.  As additional compensation hereunder, the
Executive shall be granted stock options to purchase up to 250,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant
to the Company's 1998 Stock Incentive Plan (the "1998 Plan"), at an exercise
price equal to the closing market price of the Common Stock on the last date on
which the New York Stock Exchange was open for trading immediately prior to the
date hereof. The options and any shares of Common Stock underlying the options
may be subject to certain restrictions as disclosed in the 1998 Plan (the
"Restricted Stock"). Subsequent grants of options to purchase equity in the
Company during the Employment Term will be made at the sole discretion of the
Board or the Compensation Committee. The Company will use reasonable efforts to
file a registration statement on Form S-8 under the Securities Act of 1933, as
amended, to register all shares of Common Stock issued to the Executive under
the 1998 Plan.

              (d)    Expenses. The Company will pay or promptly reimburse the
Executive for all reasonable out-of-pocket business, entertainment and travel
expenses incurred by the Executive in the performance of his duties hereunder
upon presentation of appropriate supporting documentation and otherwise in
accordance with the expense reimbursement policies of the Company in effect from
time to time.

              (e)    Taxes and Withholdings. All appropriate deductions,
including federal, state and local taxes and social security, shall be deducted
from any amount paid by the Company to the Executive hereunder in conformity
with applicable laws.

SECTION 6.    CONFIDENTIALITY. The Executive acknowledges and agrees that (a) in
connection with his employment by the Company, the Executive will be involved in
the Company's and its subsidiaries' (if any) operations; (b) in order to permit
him to carry out his responsibilities, the Company may disclose, to the
Executive, in strict confidence, or the Executive may develop, confidential
proprietary information and trade secrets of the Company and its affiliates,
including without limitation (i) unpublished information with respect to the
Company concerning marketing or sales plans, operational techniques, strategic
plans and the identity of suppliers and supply contacts; (ii) unpublished
financial information with respect to the Company, including information
concerning revenues, profits and profit margins; (iii) internal confidential
manuals and memos; and (iv) "material inside information" as such phrase is used
for purposes of the Securities Exchange Act of 1934, as amended (collectively,
"Confidential Information"); and (c) the Company and its affiliates derive
significant economic value and competitive advantage by reason of the fact that
such Confidential Information, in whole or in part, is not generally known or
readily ascertainable by the Company's or its affiliates' actual or potential
competitors and, as such, constitutes the Company's and its affiliates' valuable
trade secrets.


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              In addition to any obligations set forth herein, and in
recognition of the foregoing acknowledgments, for himself and on behalf of his
affiliates, the Executive agrees that he will not, directly or indirectly, use,
disseminate or disclose, any Confidential Information (other than for the
legitimate business purposes of the Company), and that he will not knowingly
permit any of his affiliates to, directly or indirectly, use, disseminate or
disclose, any Confidential Information. At the end of the Employment Term, the
Executive agrees to deliver immediately to the Company the originals and all
copies of Confidential Information in his possession or control, whether in
written form, on computers or discs or otherwise.

              The restrictions set forth in this Section 6 shall not apply to
those particular portions of Confidential Information, if any, that (a) have
been published by any of the Company or any of its affiliates in a patent,
article or other similar tangible publication or (b) become available to the
Executive from a source other than the Company, provided that the source of such
Confidential Information was not known by the Executive, after reasonable
inquiry, to be bound by a confidentiality agreement with or other obligation of
confidentiality to the Company or any of its affiliates.

              The foregoing restrictions on the disclosure of Confidential
Information set forth in this Section 6 shall not apply to those particular
portions of Confidential Information, if any, that are required to be disclosed
in connection with any legal process; provided that, at least ten (10) days in
advance of any required disclosure, or such lesser time as may be required by
circumstances, the Executive shall furnish the Company with a copy of the
judicial or administrative order requiring that such information be disclosed
together with a written description of the information proposed to be disclosed
(which description shall be in sufficient detail to enable the Executive and its
affiliates to determine the nature and scope of the information proposed to be
disclosed), and the Executive covenants and agrees to cooperate with the Company
and its affiliates to deliver the minimum amount of information necessary to
comply with such order.

              This Section 6 shall survive any termination of this Agreement.

SECTION 7.    COVENANT NOT TO COMPETE.

              (a)    Scope. In order to fully protect the Company's Confidential
Information, during the Employment Term and for a period of one year thereafter
(the "Noncompetition Period"), the Executive shall not, except as authorized in
writing by the Board, directly or indirectly, render services to, assist,
participate in the affairs of, or otherwise be connected with, any person or
enterprise (other than the Company and its subsidiaries, if


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any), which person or enterprise is engaged in, or is planning to engage in, and
shall not personally engage in, any business that is competitive with the
business of the Company or any of its subsidiaries, if any, with respect to any
products or services of the Company or any of its subsidiaries, if any, in any
capacity which would utilize the Executive's services with respect to any
products or services of the Company or any of its subsidiaries, if any, that
were within the Executive's management responsibility at any time within the
twelve (12) month period immediately prior to the Termination Date.

              (b)    Remedies. The parties recognize, acknowledge and agree that
(i) any breach or threatened breach of the provisions of this Section 7 shall
cause irreparable harm and injury to the Company and that money damages will not
provide an adequate remedy for such breach or threatened breach and (ii) the
duration, scope and geographical application of this Agreement are fair and
reasonable under the circumstances, and are reasonably required to protect the
legitimate business interests of the Company. Accordingly, Executive agrees that
the Company shall be entitled to have the provisions of this Agreement
specifically enforced by any court having jurisdiction, and that such a court
may issue a temporary restraining order, preliminary injunction or other
appropriate equitable relief, without having to prove the inadequacy of
available remedies at law. In addition, the Company shall be entitled to avail
itself of all such other actions and remedies available to it or any of its
affiliates under law or in equity and shall be entitled to such damages as it
sustains by reason of such breach or threatened breach. It is the express desire
and intent of the parties that the provisions of this Agreement be enforced to
the full extent possible.

              (c)    Severability. If any provision of Section 7(a) is held to
be unenforceable because of the duration of such provision, the area covered
thereby or the scope of the activity restrained, the parties hereby expressly
agree that the court making such determination shall have the power to reduce
the duration and/or areas of such provision and/or the scope of the activity to
be restrained contained in such provision and, in its reduced form, such
provision shall then be enforceable. The parties hereto intend and agree that
the covenants contained in Section 7(a) shall be construed as a series of
separate covenants, one for each municipality, community or county included
within the area designated by Section 7(a). Except for geographic coverage, the
terms and conditions of each such separate covenant shall be deemed identical to
the covenant contained in Section 7(a). Furthermore, if any court shall refuse
to enforce any of the separate covenants deemed included in Section 7(a), then
such unenforceable covenant shall be deemed eliminated from the provisions
hereof to the extent necessary to permit the remaining separate covenants to be
enforced in accordance with their terms. The prevailing party in any action
arising out of a dispute in respect of any provision of this Agreement shall be
entitled to recover from the


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non-prevailing party reasonable attorneys' fees and costs and disbursements
incurred in connection with the prosecution or defense, as the case may be, of
any such action.

SECTION 8.    RESPONSIBILITY UPON TERMINATION. Upon the termination of his
employment for any reason and irrespective of whether or not such termination is
voluntary on his part:

              (a)    The Executive shall advise the Company of the identity of
his new employer within ten (10) days after accepting new employment and further
agrees to keep the Company so advised of any change in employment during the
Non-competition Period;

              (b)    The Company in its sole discretion may notify any new
employer of the Executive that he has an obligation not to compete with the
Company during the Noncompetition Period; and

              (c)    The Executive shall deliver to the Company any and all
records, forms, contracts, memoranda, work papers, customer data and any other
documents (whether in written form, on computers or discs or otherwise) which
have come into his possession by reason of his employment with the Company,
irrespective of whether or not any of said documents were prepared for him, and
he shall not retain memoranda in respect of or copies of any of said documents.

SECTION 9.    NONSOLICITATION. The Executive agrees that during the term of his
employment with the Company and for a period of twelve (12) months thereafter,
he will not, and will not assist any of his affiliates to, directly or
indirectly, recruit or otherwise solicit or induce any executive, customer,
subscriber or supplier of the Company or any of its subsidiaries about whom or
which he gained Confidential Information while at the Company to terminate its
employment or arrangement with the Company or any of its subsidiaries, otherwise
change its relationship with the Company or any of its subsidiaries, or
establish any relationship with the Executive or any of his affiliates for any
business purpose deemed materially competitive with the business of the Company
or any of its subsidiaries, if any.

SECTION 10.   TERMINATION.

              (a)    Termination for Cause. Notwithstanding anything contained
herein to the contrary, the Board may terminate the Executive's employment with
the Company for cause; provided that the Executive shall be given notice of the
Company's intent to terminate his employment for cause, the nature of the cause
and, if cureable, a reasonable opportunity to remedy the cause. For the purposes
of this Section 10(a), the term "reasonable" shall mean


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that amount of time deemed reasonable by the Board acting in good faith and in
light of the nature of the cause. For purposes of this Agreement, the term
"cause" shall mean, the occurrence of any one or more of the following (i) the
commission of any act of willful and material embezzlement or fraud on the part
of Executive against the Company, (ii) any act or omission which constitutes a
willful and material breach by Executive of this Agreement, including a refusal
or failure by Executive to perform his duties and obligations hereunder, (iii)
Executive has been convicted of a crime, which conviction has, or is reasonably
likely to have a material adverse effect on the Company, or its business or will
prevent the Executive from performing his duties for a sustained period of time,
(iv) Executive becomes Disabled (as hereinafter defined), or (v) the death of
Executive; provided, however, that "cause" shall not include any act or omission
by the Executive undertaken in the good faith exercise of the Executive's
business judgment as President and Chief Operating Officer or in good faith
reliance on the advice of counsel. For purposes of this Agreement, "Disabled"
shall mean Executive's inability, due to illness, accident or any other physical
or mental condition, to fully perform the essential functions of his position or
this Agreement for more than 26 weeks consecutively or for intermittent periods
aggregating 39 weeks during any 78-week period during the Employment term,
except as otherwise required by law.

              If, during the Employment Term the Company terminates the
Executive's employment pursuant to clauses (i), (ii) or (iii) of this paragraph
(a), then, from and after the date the Executive's termination is effective (the
"Termination Date"), the Executive shall (a) have no right to receive any
further Salary following the Termination Date, (b) be entitled to receive any
Bonus, payable on a pro rata basis, which may have accrued or which otherwise
would have been granted by the Board had the Executive not been terminated, for
the year in which the Executive was terminated (c) cease to be covered under or
be permitted to participate in any Benefits (except payments due to the
Executive or the Executive's beneficiaries or representatives under any
applicable life or disability insurance plans or policies) and (d) shall have no
further right to purchase shares of Common Stock pursuant to the 1998 Plan;
provided however, that all restrictions on Restricted Stock purchased by the
Executive shall, subject to applicable securities laws, rules and regulations,
lapse on the Termination Date.

              If during the Employment Term the Company terminates the Executive
employment pursuant to clause (iv) or (v) of this paragraph (a), (a) the Company
shall continue to pay the Executive (or his beneficiaries, as applicable) Salary
then in effect, for a period of one year following the Termination Date in
accordance with the customary payroll practices of the Company for its senior
management personnel, (b) the Executive shall be entitled to receive any Bonus,
payable on a pro rata basis, which may have accrued or which otherwise would
have been granted by the Board had the Executive not been


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terminated, for the year in which the Executive was terminated, and (c) the
Executive shall be entitled to all rights with respect to any options granted or
Common Stock purchased under the 1998 Plan for a period of two years following
the Termination Date and all restrictions on Restricted Stock purchased by the
Executive shall, subject to applicable securities laws, rules and regulations,
lapse on the Termination Date.

              (b)    Termination Without Cause and Resignation For Good Reason.
The Company shall have the right to terminate this Agreement and the employment
of Executive with the Company for any reason or no reason and without cause upon
written notice to Executive of such termination, and the Executive shall have
the right to resign for Good Reason (as hereinafter defined); provided that,
except as otherwise provided in paragraph (c) below, (i) the Company shall
continue to pay to the Executive the Salary then in effect, together with any
Bonus which may have accrued or which otherwise would have been granted by the
Board had the Executive not been terminated or resigned for two years following
the Termination Date, in accordance with the customary payroll practices of the
Company for its senior management personnel (except in the event the Executive
resigns for Good Reason as defined in paragraph (e)(ii)(d) below, in which case
the amount otherwise payable under this clause (i) will be reduced by 50%), (ii)
the Company shall continue any benefits in which the Executive then participates
on the same basis of participation and subject to all terms and conditions of
such plans as applied prior to such termination or resignation, and (iii) all
non-vested options to purchase shares of Common Stock granted under the 1998
Plan shall vest on the Termination Date and the Executive shall be entitled to
all rights with respect to such options or Common Stock purchased under the 1998
Plan for a period of two years following the Termination Date. All restrictions
on Restricted Stock purchased by the Executive shall, subject to applicable
securities laws, rules and regulations, lapse on the Termination Date.

              (c)    Termination Upon Change of Control or Resignation for Good
Reason Following a Change of Control. In the event Executive's employment is
terminated by the Company subsequent to a Change of Control (as hereinafter
defined) or the Executive resigns from the Company for Good Reason (as
hereinafter defined) within one year following a Change of Control, the Company
will pay the Executive a severance amount equal to the product of (x) the Salary
multiplied by (y) two (2). In the event Executive's employment is terminated by
the Company subsequent to a Change of Control (as hereinafter defined) or the
Executive resigns from the Company for Good Reason (as hereinafter defined) at
any time after one year following a Change of Control, the Company will pay the
Executive a severance amount equal to the product of (x) the Salary multiplied
by (y) three (3). If a payment is made to the Executive pursuant to this
paragraph (c), in no event shall the Executive receive any payments pursuant
paragraph (b) of this Section 10. To the extent


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that such amounts are in excess of the amount allowable as a deduction under
Section 280(G) of the Code, or are subject to excise tax pursuant to Section
4999 of the Code, the Company will gross-up any additional amounts due, and
(iii) all non-vested options to purchase shares of Common Stock granted under
the 1998 Plan shall vest on the Termination Date and all restrictions on
Restricted Stock purchased by the Executive shall, subject to applicable
securities laws, rules and regulations, lapse on the Termination Date.

              (d)    Resignation. Executive shall have the right to terminate
this Agreement and his employment with the Company upon fourteen (14) calendar
days prior written notice to the Company. Except if the Executive's resignation
is for Good Reason in accordance with paragraphs (b) and (c) above, from and
after the effective date of such resignation, Executive shall (i) have no right
to receive any further Salary or bonus hereunder; (ii) cease to be covered under
or by permitted to participate in any Benefits (except payments due the
Executive or the Executive's beneficiaries or representatives under any
applicable pension, profit sharing, life or disability insurance plans or
policies); and (iii) forfeit any and all non-vested options granted or
non-vested Common Stock purchased under the 1998 Plan.

              (e)    Definitions. For purposes of this Section 10 the terms
listed below shall mean the following:

                     (i)    "Change in Control" shall mean:

                     (a)    the direct or indirect acquisition, whether by sale,
       merger, consolidation, or purchase of assets or stock, by any person,
       corporation, or other entity or group thereof of the beneficial ownership
       (as that term is used in Section 13(d)(l) of the Securities Exchange Act
       of 1934, as amended, and the rules and regulations promulgated
       thereunder) of shares in the Company which, when added to any other
       shares the beneficial ownership of which is held by the acquiror, shall
       result in the acquirer's having more than 33% of the votes that are
       entitled to be cast at meetings of stockholders as to matters on which
       all outstanding shares are entitled to be voted as a single class;
       provided, however, that such acquisition shall not constitute a Change of
       Control for purposes of this Agreement if prior to such acquisition a
       resolution declaring that the acquisition shall not constitute a Change
       of Control is adopted by the Board with the support of a majority of the
       Board members who either were members of the Board for at least two years
       prior to the date of the vote on such resolution or were nominated for
       election to the Board by at least two-thirds of the directors then still
       in office who were members of the Board at least two years prior to the
       date of the vote on such resolution; and provided


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       further, that neither the Company, nor any person who as of the date
       hereof was a director or officer of the Company, nor any trustee or other
       fiduciary holding securities under an employee benefit plan of the
       Company, nor any corporation owned, directly or indirectly, by the
       shareholders of the Company in substantially the same proportions as
       their ownership of shares of the Company shall be deemed to be an
       "acquirer" for purposes of this Section.

              (b)    the election during any two-year period to a majority of
       the seats on the Board of Directors of the Company of individuals who
       were not members of the Board at the beginning of such period unless such
       additional or replacement directors were approved by at least 80% of the
       continuing directors.

              (c)    shareholder approval of a plan of complete liquidation of
       the Company or an agreement for the sale or disposition by the Company of
       all or substantially all of the Company's assets.

              (ii)   "Good Reason" shall mean the occurrence of (a) a material
  breach of this Agreement by the Company, (b) the assignment to the
  Executive of duties inconsistent with his position as described in
  Section 2 herein, or any significant adverse alteration in the status or
  conditions of the Executive's employment or in the nature of the
  Executive's responsibilities as described in Section 2 herein, (c) the
  failure of the Company to continue to provide Executive with benefits
  substantially similar to those described in this Agreement or to continue
  in effect any benefit or stock option plan which is material to the
  Executive's compensation, including but not limited to, the 1998 Plan or
  (d) the failure of the Company to maintain directors' and officers'
  insurance at an aggregate amount at least equal to the level provided as
  of the date hereof; provided, however, in the case of (a), (c) and (d)
  above, Executive shall not be deemed to have Good Reason to terminate his
  employment if the reason for such termination is remedied prior to the
  date of termination specified in the notice of termination pursuant to
  Section 10(d) herein.

SECTION 11.   AUTHORITY. Executive represents and warrants that he has the
ability to enter into this Agreement and perform all obligations hereunder, and
that there are no restrictions on Executive or any obligations owed by him to
third parties which are reasonably likely, in any way, to detract from or
adversely affect his performance hereunder.

SECTION 12.   MISCELLANEOUS.


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              (a)    Separate Agreements. The covenants of Executive contained
in this Agreement shall survive any termination of this Agreement and shall be
construed as separate agreements independent of any other agreement, claim, or
cause of action of Executive against the Company, whether predicated on this
Agreement or otherwise. The covenants contained in this Agreement are necessary
to protect the legitimate business interests of the Company.

              (b)    Entire Agreement. The parties hereto acknowledge and agree
that this Agreement supersedes all previous contracts and agreements between the
Company and Executive relating to the subject matter hereof and that any such
previous contracts or agreements shall become null and void upon execution of
this Agreement. This Agreement constitutes the complete agreement among the
parties hereto with respect to the subject matter hereof and no party has made
or is relying on any promises by any other party or their respective
representatives not contained in this Agreement.

              (c)    Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. If any provision of this Agreement is held to be unenforceable
because of the duration of such provision, the area covered thereby or the scope
of the activity restrained, the parties hereby expressly agree that the court
making such determination shall have the power to reduce the duration and/or
areas of such provision and/or the scope of the activity to be restrained
contained in such provision and, in its reduced form, such provision shall then
be enforceable.

              (d)    Successor and Assigns.

                     (i)    This Agreement is personal in nature and neither
this Agreement nor any rights or obligations arising hereunder may be assigned,
transferred or pledged by Executive. This Agreement shall inure to the benefit
of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

                     (ii)   This Agreement shall be binding upon and inure to
the benefit of the Company and their successors. The rights and obligations of
the Company pursuant to this Agreement are freely assignable and transferable by
Company without the consent of Executive without his being relieved of any
obligations hereunder, including, without


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limitation, an assignment or transfer in connection with a merger or
consolidation of the Company, or a sale or transfer of all or substantially all
of the assets of the Company; provided, the provisions of this Agreement shall
be binding on and shall inure to the benefit of the surviving business entity or
the business entity to which such assets shall be transferred and such successor
shall expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such transaction had taken place.

              (e)    Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of law rules thereof.

              (f)    Amendment. No amendment, waiver, modification or change of
any provision of this Agreement shall be valid unless in writing and signed by
both parties; provided, that any such amendment, waiver, modification or change
must be consented to on behalf of the Company by the Board. The waiver of any
breach of any duty, term or condition of this Agreement shall not be deemed to
constitute a waiver of any preceding or succeeding breach of the same or any
other duty, term or condition of this Agreement.

              (g)    Notices. All notices and communications under this
Agreement shall be in writing and shall be personally delivered or sent by
prepaid certified mail, return receipt requested, or by recognized courier
service, and addressed as follows:

                     (i)    If to the Company to:

                            American Bank Note Holographics, Inc.
                            399 Executive Boulevard
                            Elmsford, NY 10523
                            Attention: Chief Executive Officer
                            Telephone: (212) 593-5700
                            Facsimile: (212) 593-9683

                            with a copy to:

                            Paul, Hastings, Janofsky & Walker LLP
                            399 Park Avenue
                            New York, NY 10022
                            Attention: Daniel Bergstein, Esq.
                            Telephone: (212)318-6000


                                       13
<PAGE>   14

                            Facsimile: (212) 319-4090

                     (ii)   If to the Executive to:

                            Kenneth Traub
                            18 Sleepy Hollow Lane
                            Princeton Junction, NJ 08550
                            Telephone: (609) 716-6101
                            Facsimile: (609) 716-1452

or to such other address as may be specified by notice of the parties.

              (h)    Arbitration. Except as provided for in Section 7(b), the
Company and Executive agree that any claim or controversy arising out of or
relating to this Agreement or any breach thereof ("Arbitrable Dispute") shall be
settled by arbitration if such claim or controversy is not otherwise settled;
provided, however that nothing set forth herein shall in any way limit the
Company's ability to seek and obtain injunctive relief in aid of arbitration
from any court of competent jurisdiction. This arbitration agreement applies
to, among others, disputes about the validity, interpretation, or effect of
this Agreement. The arbitration shall take place in New York, New York, or such
other location as to which the parties may mutually agree. Except as expressly
set forth herein, all arbitration proceedings under this Section 12(h) shall be
undertaken in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") then in force only before individuals who
are (i) lawyers engaged full-time in the practice of law and (ii) on the AAA
register of arbitrators. There shall be one arbitrator who shall be chosen in
accordance with the rules of the AAA. The arbitrator may not modify or change
this Agreement in any way and shall not be empowered to award punitive damages
against any party to such arbitration. Each party shall pay the fees of such
party's attorneys, the expenses of such party's witnesses, and any other
expenses that such party incurs in connection with the arbitration, but all
other costs of the arbitration, including the fees of the arbitrator, the cost
of any record or transcript of the arbitration, administrative fees, and other
fees and costs shall be paid in equal shares by Executive and the Company.
Except as provided for in Section 7(b), arbitration in this manner shall be the
exclusive remedy for any Arbitrable Dispute. Should Executive or the Company
attempt to resolve an Arbitrable Dispute by any method other than arbitration
pursuant to this Section, the responding party will be entitled to recover from
the initiating party all damages, expenses, and attorneys' fees incurred as a
result of that breach.


                                       14
<PAGE>   15


              (i)    Indemnification Agreement. A material breach of that
certain indemnification agreement, entered into as of the date hereof, between
the Company and the Executive, shall constitute a material breach of this
Agreement.

              (j)    Attorneys Fees.  The Company will pay or promptly
reimburse the Executive for all reasonable attorneys fees, up to a maximum
amount of $5,000, incurred by Executive in the preparation, negotiation,
execution and delivery of this Agreement upon presentation to the Board of
appropriate supporting documentation.

              (k)    Counterparts. This Agreement may be executed in
counterparts, each of which will be deemed an original but all of which will
together constitute one and the same agreement.


                                       15
<PAGE>   16
     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.




                                       AMERICAN BANK NOTE HOLOGRAPHICS, INC.



                                              /s/ MORRIS WEISSMAN
                                       By: ___________________________________
                                           Name:  Morris Weissman
                                           Title: Chairman and CEO




                                       KENNEITH TRAUB



                                       /s/ Kenneth Traub
                                       _______________________________________