<PAGE>
 
                                                                   EXHIBIT 10.33

                          SECURITIES PURCHASE AGREEMENT


      SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September
30, 1998 by and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a
corporation organized under the laws of the State of Delaware (the "Company"),
with headquarters located at FM 2169, HC 10, Box 116, Junction, Texas 76849, and
each of the purchasers (collectively, the "Purchasers") set forth on the
execution pages hereof (the "Execution Pages").

      WHEREAS:

      A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").

      B. The Purchasers desire to purchase, upon the terms and conditions stated
in this Agreement, up to 1,500 units (the "Units"), each Unit consisting of (i)
one share of the Company's Series A Convertible Preferred Stock, par value $1.00
per share (the "Preferred Shares"), convertible into shares of the Company's
Class A Common Stock, par value $.01 per share (the "Common Stock"), (ii) a
Series X Warrant, in the form attached hereto as Exhibit B-1 (the "Series X
Warrant"), to acquire 555 shares of Common Stock and (iii) a Series Y Warrant,
in the form attached hereto as Exhibit B-2 (the "Series Y Warrant" and, together
with the Series X Warrant, the "Warrants"), to acquire 205 shares of Common
Stock. The rights, preferences and privileges of the Preferred Shares, including
the terms upon which such Preferred Shares are convertible into shares of Common
Stock, are set forth in the form of Certificate of Designations, Rights and
Preferences attached hereto as Exhibit A (the "Certificate of Designation"). The
shares of Common Stock issuable upon conversion of the Preferred Shares or
otherwise pursuant to the Certificate of Designation are referred to herein as
the "Conversion Shares" and the shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants are referred to herein as the "Warrant
Shares." The Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares are collectively referred to herein as the "Securities" and each
of them may individually be referred to herein as a "Security."

      C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.

      NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

1.    PURCHASE AND SALE OF UNITS
<PAGE>
 
            a. Purchase of Units. On the Closing Date (as defined below),
      subject to the satisfaction (or waiver) of the conditions set forth in
      Section 6 and Section 7 below, the Company shall issue and sell to each
      Purchaser, and each Purchaser severally agrees to purchase from the
      Company, that number of Units set forth on such Purchaser's Execution Page
      hereto. The purchase price (the "Purchase Price") per Unit shall be equal
      to One Thousand Dollars ($1,000). Each Purchaser's obligation to purchase
      Units hereunder is distinct and separate from the other Purchasers'
      obligation to purchase Units and no Purchaser shall be required to
      purchase hereunder more than the number of Units set forth on such
      Purchaser's Execution Page hereto notwithstanding any failure by the other
      Purchasers to purchase Units hereunder.

            b. Form of Payment. On the Closing Date, each Purchaser shall pay
      the aggregate Purchase Price of the Units being purchased by such
      Purchaser hereunder in the manner set forth on Schedule 1(b), which manner
      will either be by (i) surrendering promissory notes of the Company payable
      to the Purchasers (the "Notes") or (ii) wire transfer of immediately
      available funds to the Company, in accordance with the Company's written
      wiring instructions, in each case, against delivery of the duly executed
      certificates representing the Preferred Shares and duly executed Warrants
      being purchased by such Purchaser and the Company shall deliver such
      certificates and Warrants against delivery of such aggregate Purchase
      Price.

            c. Closing Date. Subject to the satisfaction (or waiver) of the
      conditions thereto set forth in Section 6 and Section 7 below, the date
      and time of the issuance and sale of the Units pursuant to this Agreement
      (the "Closing") shall be 12:00 noon, New York City time, on November 2,
      1998, or such other time as may be mutually agreed upon by the parties
      (the "Closing Date"). The Closing shall occur at the offices of Klehr,
      Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia,
      Pennsylvania 19102.

2.    PURCHASERS' REPRESENTATIONS AND WARRANTIES

      Each Purchaser severally represents and warrants to the Company as
follows:

            a. Investment Purpose. The Purchaser is purchasing the Securities
      for the Purchaser's own account for investment purposes and not with a
      present view towards the public sale or distribution thereof, except
      pursuant to sales that are exempt from the registration requirements of
      the Securities Act and/or sales registered under the Securities Act. The
      Purchaser understands that the Purchaser must bear the economic risk of
      this investment indefinitely, unless the Securities are registered
      pursuant to the Securities Act and any applicable state securities or blue
      sky laws or an exemption from such registration is available, and that the
      Company has no present intention of registering any such Securities other
      than as contemplated by the Registration Rights Agreement. Notwithstanding
      anything in this Section 2(a) to the contrary, by making the
      representations herein, the Purchaser does not agree to hold the
      Securities for any minimum or other specific term and reserves the right
      to dispose of the Securities at any time in accordance with or pursuant to
      a registration statement or an exemption under the Securities Act.



                                       2
<PAGE>
 
            b. Accredited Investor Status. The Purchaser is an "Accredited
      Investor" as that term is defined in Rule 501(a) of Regulation D.

            c. Reliance on Exemptions. The Purchaser understands that the Units
      are being offered and sold to the Purchaser in reliance upon specific
      exemptions from the registration requirements of United States federal and
      state securities laws and that the Company is relying upon the truth and
      accuracy of, and the Purchaser's compliance with, the representations,
      warranties, agreements, acknowledgments and understandings of the
      Purchaser set forth herein in order to determine the availability of such
      exemptions and the eligibility of the Purchaser to acquire the Units.

            d. Information. The Purchaser and its counsel have been furnished
      all materials relating to the business, finances and operations of the
      Company and materials relating to the offer and sale of the Units which
      have been specifically requested by the Purchaser or its counsel. The
      Purchaser and its counsel have been afforded the opportunity to ask
      questions of the Company and have received what the Purchaser believes to
      be satisfactory answers to any such inquiries. Neither such inquiries nor
      any other due diligence investigation conducted by the Purchaser or its
      counsel or any of its representatives shall modify, amend or affect the
      Purchaser's right to rely on the Company's representations and warranties
      contained in Section 3 below. The Purchaser understands that its
      investment in the Units involves a high degree of risk.

            e. Governmental Review. The Purchaser understands that no United
      States federal or state agency or any other government or governmental
      agency has passed upon or made any recommendation or endorsement of the
      Units.

            f. Transfer or Resale. The Purchaser understands that (i) except as
      provided in the Registration Rights Agreement, the Securities have not
      been and are not being registered under the Securities Act or any state
      securities laws, and may not be transferred unless (a) subsequently
      registered thereunder, or (b) the Purchaser shall have delivered to the
      Company an opinion of counsel (which opinion shall be in form, substance
      and scope customary for opinions of counsel in comparable transactions) to
      the effect that the Securities to be sold or transferred may be sold or
      transferred under an exemption from such registration, or (c) sold under
      Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule
      144"), or (d) sold or transferred to an affiliate of the Purchaser; and
      (ii) neither the Company nor any other person is under any obligation to
      register such Securities under the Securities Act or any state securities
      laws or to comply with the terms and conditions of any exemption
      thereunder (in each case, other than pursuant to the Registration Rights
      Agreement).

            g. Legends. The Purchaser understands that the certificates for the
      Preferred Shares and the Warrants and, until such time as the Conversion
      Shares and Warrant Shares have been registered under the Securities Act as
      contemplated by the Registration Rights Agreement or otherwise may be sold
      by the Purchaser under Rule 144, the certificates for the Conversion
      Shares and Warrant Shares may bear a restrictive legend in substantially
      the following form:

            The securities represented by this certificate have not been
            registered under the Securities Act of 1933, as amended, or the
            securities laws of any state of the United States. The securities
            represented hereby may



                                       3
<PAGE>
 
            not be offered or sold in the absence of an effective registration
            statement for the securities under applicable securities laws unless
            offered, sold or transferred under an available exemption from the
            registration requirements of those laws.

            The legend set forth above shall be removed and the Company shall
      issue a certificate without such legend to the holder of any Security upon
      which such legend is stamped, if, unless otherwise required by state
      securities laws, (a) the sale of such Security is registered under the
      Securities Act or (b) such holder provides the Company with an opinion of
      counsel, in form, substance and scope customary for opinions of counsel in
      comparable transactions, to the effect that a public sale or transfer of
      such Security may be made without registration under the Securities Act or
      (c) such holder provides the Company with reasonable assurances that such
      Security can be sold under Rule 144. The Purchaser agrees to sell all
      Securities, including those represented by a certificate(s) from which the
      legend has been removed, pursuant to an effective registration statement
      or under an exemption from the registration requirements of the Securities
      Act. In the event the above legend is removed from any certificate(s) and
      thereafter the effectiveness of a registration statement covering such
      Security is suspended or the Company determines that a supplement or
      amendment thereto is required by applicable securities laws, then upon
      reasonable advance notice to the Purchaser the Company may require that
      the above legend be placed on any such Security and the Purchaser shall
      cooperate in the prompt replacement of such legend. Such legend shall be
      removed when such Security may be sold pursuant to an effective
      registration statement or sold under Rule 144.

            h. Authorization; Enforcement. This Agreement and the Registration
      Rights Agreement have been duly and validly authorized, executed and
      delivered on behalf of the Purchaser and are valid and binding agreements
      of the Purchaser enforceable in accordance with their terms.

            i. Residency. The Purchaser is a resident of the jurisdiction set
      forth under the Purchaser's name on the Execution Page hereto executed by
      such Purchaser.

3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company represents and warrants to each Purchaser as follows:

            a. Organization and Qualification. The Company and each of its
      subsidiaries is a corporation duly organized and existing in good standing
      under the laws of the jurisdiction in which it is incorporated, and has
      the requisite corporate power to own its properties and to carry on its
      business as it is now being conducted. The Company and each of its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in good standing in every jurisdiction in which the nature of the
      business conducted by it makes such qualification necessary and where the
      failure so to qualify would have a Material Adverse Effect. "Material
      Adverse Effect" means any material adverse effect on (i) the Securities,
      (ii) the ability of the Company to perform its obligations hereunder and
      under the Certificate of Designation, the Warrants or the Registration
      Rights Agreement or (iii) the business, operations, properties, prospects
      or financial condition of the Company and its subsidiaries, taken as a
      whole.



                                       4
<PAGE>
 
            b. Authorization; Enforcement. (i) The Company has the requisite
      corporate power and authority to enter into and perform its obligations
      under this Agreement, the Warrants and the Registration Rights Agreement,
      to issue and sell the Units in accordance with the terms hereof and to
      issue Conversion Shares upon conversion of the Preferred Shares in
      accordance with the terms of the Certificate of Designation and to issue
      the Warrant Shares upon exercise of the Warrants in accordance with the
      terms of such Warrants; (ii) the execution, delivery and performance of
      this Agreement, the Warrants and the Registration Rights Agreement by the
      Company and the consummation by it of the transactions contemplated hereby
      and thereby (including, without limitation, the issuance of the Preferred
      Shares and Warrants and the issuance and reservation for issuance of the
      Conversion Shares and Warrant Shares) have been duly authorized by the
      Company's Board of Directors and no further consent or authorization of
      the Company, its Board or Directors or its stockholders is required (under
      the rules promulgated by the National Association of Securities Dealers
      ("NASD") or otherwise); (iii) this Agreement has been duly executed and
      delivered by the Company; and (iv) this Agreement constitutes, and, upon
      execution and delivery by the Company of the Warrants and the Registration
      Rights Agreement, such agreements will constitute, valid and binding
      obligations of the Company enforceable against the Company in accordance
      with their terms.

            c. Capitalization. The capitalization of the Company as of the date
      hereof, including the authorized capital stock, the number of shares
      issued and outstanding, the number of shares issuable and reserved for
      issuance pursuant to the Company's stock option plans, the number of
      shares issuable and reserved for issuance pursuant to securities
      exercisable for, or convertible into or exchangeable for any shares of
      capital stock and the number of shares to be reserved for issuance
      pursuant hereto is set forth on Schedule 3(c). All of such outstanding
      shares of capital stock have been, or upon issuance will be, validly
      issued, fully paid and nonassessable. No shares of capital stock of the
      Company (including the Preferred Shares, the Conversion Shares and the
      Warrant Shares) are subject to preemptive rights or any other similar
      rights of the stockholders of the Company or any liens or encumbrances.
      Except for the obligation of the Company to issue the Conversion Shares in
      accordance with the terms of the Certificate of Designation and the
      Warrant Shares in accordance with the terms of the Warrants and except as
      disclosed in Schedule 3(c), as of the date of this Agreement, (i) there
      are no outstanding options, warrants, scrip, rights to subscribe to, calls
      or commitments of any character whatsoever relating to, or securities or
      rights convertible into or exercisable or exchangeable for, any shares of
      capital stock of the Company or any of its subsidiaries, or arrangements
      by which the Company or any of its subsidiaries is or may become bound to
      issue additional shares of capital stock of the Company or any of its
      subsidiaries, and (ii) there are no agreements or arrangements under which
      the Company or any of its subsidiaries is obligated to register the sale
      of any of its or their securities under the Securities Act (except the
      Registration Rights Agreement). Except as set forth on Schedule 3(c),
      there are no securities or instruments containing antidilution or similar
      provisions that will be triggered by the issuance of the Securities in
      accordance with the terms of this Agreement, the Certificate of
      Designation or the Warrants. The Company has furnished to each Purchaser
      true and correct copies of the Company's Certificate of Incorporation as
      in effect on the date hereof ("Certificate of Incorporation"), the
      Company's By-laws as in effect on the date hereof (the "By-laws"), and all
      other instruments and agreements governing securities convertible into or
      exercisable or exchangeable for capital stock of the Company.



                                       5
<PAGE>
 
            d. Issuance of Shares. The Preferred Shares are duly authorized and,
      upon issuance in accordance with the terms of this Agreement, will be
      validly issued, fully paid and non-assessable, and free from all taxes,
      liens, claims and encumbrances and will not be subject to preemptive
      rights or other similar rights of stockholders of the Company and will not
      impose personal liability on the holders thereof. The Conversion Shares
      and Warrant Shares are duly authorized and, on and after January 15, 1999
      will be reserved for issuance, and, upon conversion of the Preferred
      Shares in accordance with the terms of the Certificate of Designation, and
      exercise of the Warrants in accordance with the terms thereof, will be
      validly issued, fully paid and non-assessable, and free from all taxes,
      liens, claims and encumbrances and will not be subject to preemptive
      rights or other similar rights of stockholders of the Company and will not
      impose personal liability upon the holder thereof.

            e. No Conflicts. The execution, delivery and performance of this
      Agreement, the Warrants and the Registration Rights Agreement by the
      Company, the performance by the Company of its obligations under the
      Certificate of Designation, and the consummation by the Company of the
      transactions contemplated hereby and thereby (including, without
      limitation, the issuance and reservation for issuance, as applicable, of
      the Preferred Shares, Warrants, Conversion Shares and Warrant Shares) will
      not (i) result in a violation of the Certificate of Incorporation or
      By-laws or (ii) conflict with, or constitute a default (or an event which
      with notice or lapse of time or both would become a default) under, or
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture or instrument to which the
      Company or any of its subsidiaries is a party, or result in a violation of
      any law, rule, regulation, order, judgment or decree (including U.S.
      federal and state securities laws and regulations and rules or regulations
      of any self-regulatory organizations to which either the Company or its
      securities are subject) applicable to the Company or any of its
      subsidiaries or by which any property or asset of the Company or any of
      its subsidiaries is bound or affected (except, with respect to clause
      (ii), for such conflicts, defaults, terminations, amendments,
      accelerations, cancellations and violations as would not, individually or
      in the aggregate, have a Material Adverse Effect). Neither the Company nor
      any of its subsidiaries is in violation of its Certificate of
      Incorporation, By-laws or other organizational documents and neither the
      Company nor any of its subsidiaries is in default (and no event has
      occurred which, with notice or lapse of time or both, would put the
      Company or any of its subsidiaries in default) under, nor has there
      occurred any event giving others (with notice or lapse of time or both)
      any rights of termination, amendment, acceleration or cancellation of, any
      agreement, indenture or instrument to which the Company or any of its
      subsidiaries is a party, except for actual or possible violations,
      defaults or rights as would not, individually or in the aggregate, have a
      Material Adverse Effect. The businesses of the Company and its
      subsidiaries are not being conducted, and shall not be conducted so long
      as a Purchaser owns any of the Securities, in violation of any law,
      ordinance or regulation of any governmental entity, except for actual or
      possible violations, if any, the sanctions for which either singly or in
      the aggregate would not have a Material Adverse Effect. Except as
      specifically contemplated by this Agreement and as required under the
      Securities Act and any applicable state securities laws, the Company is
      not required to obtain any consent, approval, authorization or order of,
      or make any filing or registration with, any court or governmental agency
      or any regulatory or self regulatory agency in order for it to execute,
      deliver or perform any of its obligations under this Agreement, the
      Warrants or the Registration Rights Agreement or to perform its
      obligations under the Certificate of Designation, in each case in
      accordance with the terms hereof or thereof. Except as disclosed in
      Schedule 3(e), the Company is not in violation of the



                                       6
<PAGE>
 
      listing requirements of The Nasdaq Smallcap Market ("NASDAQ") and the
      Company does not reasonably anticipate that the Common Stock will be
      delisted by NASDAQ for the foreseeable future.

            f. SEC Documents, Financial Statements. Since December 31, 1995, the
      Company has timely filed all reports, schedules, forms, statements and
      other documents required to be filed by it with the SEC pursuant to the
      reporting requirements of the Securities Exchange Act of 1934, as amended
      (the "Exchange Act") (all of the foregoing filed prior to the date hereof
      and after December 31, 1995, and all exhibits included therein and
      financial statements and schedules thereto and documents incorporated by
      reference therein, being hereinafter referred to herein as the "SEC
      Documents"). The Company has delivered to the Purchasers true and complete
      copies of the SEC Documents, except for the exhibits and schedules thereto
      and the documents incorporated therein. As of their respective dates, the
      SEC Documents complied in all material respects with the requirements of
      the Exchange Act or the Securities Act, as the case may be, and the rules
      and regulations of the SEC promulgated thereunder applicable to the SEC
      Documents, and none of the SEC Documents, at the time they were filed with
      the SEC, contained any untrue statement of a material fact or omitted to
      state a material fact required to be stated therein or necessary in order
      to make the statements therein, in light of the circumstances under which
      they were made, not misleading. None of the statements made in any such
      SEC Documents is, or has been, required to be updated or amended under
      applicable law. As of their respective dates, the financial statements of
      the Company included in the SEC Documents complied as to form in all
      material respects with applicable accounting requirements and the
      published rules and regulations of the SEC applicable with respect
      thereto. Such financial statements have been prepared in accordance with
      U.S. generally accepted accounting principles, consistently applied,
      during the periods involved (except (i) as may be otherwise indicated in
      such financial statements or the notes thereto, or (ii) in the case of
      unaudited interim statements, to the extent they may not include footnotes
      or may be condensed or summary statements) and fairly present in all
      material respects the consolidated financial position of the Company and
      its consolidated subsidiaries as of the dates thereof and the consolidated
      results of their operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to immaterial year-end
      audit adjustments). Except as set forth in the financial statements of the
      Company included in the SEC Documents filed prior to the date hereof, the
      Company has no liabilities, contingent or otherwise, other than (i)
      liabilities incurred in the ordinary course of business subsequent to the
      date of such financial statements and (ii) obligations under contracts and
      commitments incurred in the ordinary course of business and not required
      under generally accepted accounting principles to be reflected in such
      financial statements, which liabilities and obligations referred to in
      clauses (i) and (ii), individually or in the aggregate, are not material
      to the financial condition or operating results of the Company.

            g. Absence of Certain Changes. Since December 31, 1997, there has
      been no material adverse change and no material adverse development in the
      business, properties, operations, financial condition, results of
      operations or prospects of the Company, except as disclosed in Schedule
      3(g) or in the SEC Documents filed prior to the date hereof.

            h. Absence of Litigation. Except as disclosed in the SEC Documents
      filed prior to the date hereof, there is no action, suit, proceeding,
      inquiry or investigation before or by any court, public board, government
      agency, self-regulatory organization or body pending or, to the knowledge
      of the Company or any of its subsidiaries, threatened against or affecting
      the Company, any of its subsidiaries, or any of their respective directors
      or officers in their capacities as such which will have a Material Adverse



                                       7
<PAGE>
 
      Effect. There are no facts which, if known by a potential claimant or
      governmental authority, could give rise to a claim or proceeding which, if
      asserted or conducted with results unfavorable to the Company or any of
      its subsidiaries, could have a Material Adverse Effect.

            i. Intellectual Property. Each of the Company and its subsidiaries
      owns or is licensed to use all patents, patent applications, trademarks,
      trademark applications, trade names, service marks, copyrights, copyright
      applications, licenses, permits, know-how (including trade secrets and
      other unpatented and/or unpatentable proprietary or confidential
      information, systems or procedures) and other similar rights and
      proprietary knowledge (collectively, "Intangibles") necessary for the
      conduct of its business as now being conducted and as described in the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1997. To the best knowledge of the Company, neither the Company nor
      any subsidiary of the Company infringes or is in conflict with any right
      of any other person with respect to any Intangibles which, individually or
      in the aggregate, if the subject of an unfavorable decision, ruling or
      finding, would have a Material Adverse Effect. Neither the Company nor any
      of its subsidiaries has received written notice of any pending conflict
      with or infringement upon such third party Intangibles. Neither the
      Company nor any of its subsidiaries has entered into any consent,
      indemnification, forbearance to sue or settlement agreements with respect
      to the validity of the Company's or its subsidiaries' ownership or right
      to use its Intangibles and, to the best knowledge of the Company, there is
      no reasonable basis for any such claim to be successful. The Intangibles
      are valid and enforceable and no registration relating thereto has lapsed,
      expired or been abandoned or canceled or is the subject of cancellation or
      other adversarial proceedings, and all applications therefor are pending
      and in good standing. The Company and its subsidiaries have complied, in
      all material respects, with their respective contractual obligations
      relating to the protection of the Intangibles used pursuant to licenses.
      To the best knowledge of the Company, no person is infringing on or
      violating the Intangibles owned or used by the Company of its
      subsidiaries.

            j. Foreign Corrupt Practices. Neither the Company, nor any of its
      subsidiaries, nor any director, officer, agent, employee or other person
      acting on behalf of the Company or any subsidiary has, in the course of
      his actions for, or on behalf of, the Company, used any corporate funds
      for any unlawful contribution, gift, entertainment or other unlawful
      expenses relating to political activity; made any direct or indirect
      unlawful payment to any foreign or domestic government official or
      employee from corporate funds; violated or is in violation of any
      provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
      bribe, rebate, payoff, influence payment, kickback or other unlawful
      payment to any foreign or domestic government official or employee.

            k. Disclosure. All information relating to or concerning the Company
      set forth in this Agreement or provided to the Purchasers pursuant to
      Section 2(d) hereof and otherwise in connection with the transactions
      contemplated hereby is true and correct in all material respects and the
      Company has not omitted to state any material fact necessary in order to
      make the statements made herein or therein, in light of the circumstances
      under which they were made, not misleading. No event or circumstance has
      occurred or exists with respect to the Company or its subsidiaries or
      their respective businesses, properties, prospects, operations or
      financial conditions, which has not been publicly disclosed but, under
      applicable law, rule or regulation, would be required to be disclosed by
      the Company in a registration statement filed on the date hereof by the
      Company under the Securities Act with respect to a primary issuance of the
      Company's securities.



                                       8
<PAGE>
 
            l. Acknowledgment Regarding the Purchasers' Purchase of the
      Securities. The Company acknowledges and agrees that no Purchaser is
      acting as a financial advisor or fiduciary of the Company (or in any
      similar capacity) with respect to this Agreement or the transactions
      contemplated hereby, and the relationship between the Company and each of
      the Purchasers is "arms length" and that any statement made by any
      Purchaser or any of its representatives or agents in connection with this
      Agreement and the transactions contemplated hereby is not advice or a
      recommendation and is merely incidental to each Purchaser's purchase of
      Securities and has not been relied upon by the Company, its officers or
      directors in any way. The Company further represents to each Purchaser
      that the Company's decision to enter into this Agreement has been based
      solely on an independent evaluation by the Company and its
      representatives.

            m. Form S-3 Eligibility. The Company is currently eligible to
      register the resale of its Common Stock on a registration statement on
      Form S-3 under the Securities Act. There exist no facts or circumstances
      that would prohibit or delay the preparation and filing of a registration
      statement on Form S-3 with respect to the Registrable Securities (as
      defined in the Registration Rights Agreement).

            n. No General Solicitation. Neither the Company nor any distributor
      participating on the Company's behalf in the transactions contemplated
      hereby (if any) nor any person acting for the Company, or any such
      distributor, has conducted any "general solicitation," as such term is
      defined in Regulation D, with respect to any of the Securities being
      offered hereby.

            o. No Integrated Offering. Neither the Company, nor any of its
      affiliates, nor any person acting on its or their behalf, has directly or
      indirectly made any offers or sales of any security or solicited any
      offers to buy any security under circumstances that would require
      registration of the Securities being offered hereby under the Securities
      Act or cause this offering of Securities to be integrated with any prior
      offering of securities of the Company for purposes of the Securities Act
      or any applicable stockholder approval provisions.

            p. Brokers. The Company has taken no action which would give rise to
      any claim by any person for brokerage commissions, finder's fees or
      similar payments by any Purchaser relating to this Agreement or the
      transactions contemplated hereby except for dealings with The Zanett
      Securities Corporation, whose commissions and fees will be paid by the
      Company.

            q. Tax Status. Except as set forth in the SEC Documents filed prior
      to the date hereof or on Schedule 3(q), the Company and each of its
      subsidiaries has made or filed all federal, state and local income and all
      other tax returns, reports and declarations required by any jurisdiction
      to which it is subject (unless and only to the extent that the Company and
      each of its subsidiaries has set aside on its books provisions reasonably
      adequate for the payment of all unpaid and unreported taxes) and has paid
      all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and has set aside
      on its books provisions reasonably adequate for the payment of all taxes
      for periods subsequent to the periods to which such returns, reports or
      declarations apply. There are no unpaid taxes in any material amount
      claimed to be due by the taxing authority of any jurisdiction, and the
      officers of the Company know of no basis for any such claim. The Company
      has not executed a



                                       9
<PAGE>
 
      waiver with respect to any statute of limitations relating to the
      assessment or collection of any federal, state or local tax. None of the
      Company's tax returns has been or is being audited by any taxing
      authority.

            r. Title. The Company and its subsidiaries have good and marketable
      title in fee simple to all real property and good and marketable title to
      all personal property owned by them which is material to the business of
      the Company and its subsidiaries, in each case free and clear of all
      liens, encumbrances and defects except such as are described in Schedule
      3(r) or such as do not materially affect the value of such property and do
      not materially interfere with the use made and proposed to be made of such
      property by the Company and its subsidiaries. Any real property and
      facilities held under lease by the Company and its subsidiaries are held
      by them under valid, subsisting and enforceable leases with such
      exceptions as are not material and do not materially interfere with the
      use made and proposed to be made of such property and buildings by the
      Company and its subsidiaries.

            s. Absence of Events of Default. No Event of Default (as defined in
      the Notes) and no event which, with the giving of notice or the passage of
      time or both, would become an Event of Default, has occurred and is
      continuing.

4.    COVENANTS.

            a. Best Efforts. The parties shall use their best efforts timely to
      satisfy each of the conditions described in Section 6 and Section 7 of
      this Agreement.

            b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
      respect to the Securities as required under Regulation D and to provide a
      copy thereof to each Purchaser promptly after such filing. The Company
      shall, on or before the Closing Date, take such action as the Company
      shall reasonably determine is necessary to qualify the Securities for sale
      to the Purchasers pursuant to this Agreement under applicable securities
      or "blue sky" laws of the states of the United States or obtain exemption
      therefrom, and shall provide evidence of any such action so taken to the
      Purchasers on or prior to the Closing Date.

            c. Reporting Status. So long as any Purchaser owns any of the
      Securities, the Company shall timely file all reports required to be filed
      with the SEC pursuant to the Exchange Act, and the Company shall not
      terminate its status as an issuer required to file reports under the
      Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would permit such termination.

            d. Use of Proceeds. The Company shall use the proceeds from the sale
      of the Units to repay $400,000 aggregate principal amount of Notes and as
      otherwise set forth on Schedule 4(d).

            e. Financial Information. The Company agrees to send the following
      reports to each Purchaser until such Purchaser transfers, assigns or sells
      all of its Securities: (i) within ten (10) days after the filing with the
      SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
      Form 10-Q, its proxy statements and any Current Reports on Form 8-K; and
      (ii) within one (1) business day after release, copies of all press
      releases issued by the Company or any of its subsidiaries.



                                       10
<PAGE>
 
            f. Reservation of Shares. The Company shall at all times have
      authorized and reserved for the purpose of issuance a sufficient number of
      shares of Common Stock to provide for the full conversion of the
      outstanding Preferred Shares and issuance of the Conversion Shares in
      connection therewith and the full exercise of the Warrants and the
      issuance of the Warrant Shares in connection therewith, subject to and as
      otherwise required by the Certificate of Designation and the Warrants.

            g. Listing. The Company shall promptly secure the listing of the
      Conversion Shares and Warrant Shares upon each national securities
      exchange or automated quotation system, if any, upon which shares of
      Common Stock are then listed (subject to official notice of issuance) and
      shall maintain, so long as any other shares of Common Stock shall be so
      listed, such listing of all of the Conversion Shares and Warrant Shares.
      The Company will take all action necessary to continue the listing and
      trading of its Common Stock on the NASDAQ, the Nasdaq National Market
      ("NNM"), the New York Stock Exchange ("NYSE") or the American Stock
      Exchange ("AMEX") and will comply in all respects with the Company's
      reporting, filing and other obligations under the bylaws or rules of such
      exchanges and the NASD, as applicable. In the event the Common Stock is
      not eligible to be traded on any of the NASDAQ, NNM, NYSE or AMEX and the
      Common Stock is not eligible for listing on any such exchange or system,
      the Company shall use its best efforts to cause the Common Stock to be
      eligible for trading on the over-the-counter bulletin board at the
      earliest practicable date and remain eligible for trading while any
      Securities are outstanding. The Company shall promptly provide to the
      Purchasers copies of any notices it receives regarding the continued
      eligibility of the Common Stock for trading in the over-the-counter market
      or, if applicable, any securities exchange (including the NASDAQ) on which
      securities of the same class or series issued by the Company are then
      listed or quoted, if any.

            h. Corporate Existence. So long as a Purchaser owns any Securities,
      the Company shall maintain its corporate existence, except in the event of
      a merger, consolidation or sale of all or substantially all of the
      Company's assets, as long as the surviving or successor entity in such
      transaction (i) assumes the Company's obligations hereunder and under the
      Certificate of Designation, the Warrants and the agreements and
      instruments entered into in connection herewith and (ii) is a publicly
      traded corporation whose common stock is listed for trading on the NASDAQ,
      NNM, NYSE or AMEX.

            i. No Integrated Offerings. The Company shall not make any offers or
      sales of any security (other than pursuant to this Agreement and the
      Registration Rights Agreement) under circumstances that would require
      registration of the Securities being offered or sold hereunder under the
      Securities Act or cause the offering of the Securities to be integrated
      with any other offering of securities by the Company for purposes of any
      stockholder approval provision applicable to the Company or its
      securities.

            j. Production Milestones. The Company shall use its best efforts to
      ensure that the following production milestones are achieved:

                  (i) The Company shall transfer its paint production operations
            from its Junction, Texas facility to its Springdale, Arkansas
            facility on or before November 1, 1998, so as to have available two
            production lines as its Junction, Texas facility for the Weyerhauser
            project.



                                       11
<PAGE>
 
                  (ii) So long as the new 6" air system at its Springdale,
            Arkansas facility is operational at such time, the Company shall
            start up one mixer on the second Springdale line by November 15,
            1998 and the full line by January 1, 1999.

                  (iii) The Company shall install two large mixers to the deck
            line at its Junction, Texas facility on or before January 1, 1999.

                  (iv) The Company shall install Line 6 or a third line at its
            Springdale, Arkansas facility and such line shall be operational on
            or before April 1, 1999.

                  (v) The Company's production of internal plastic LDPE shall
            exceed 30,000 pounds per day on or before January 1, 1999.

5.    TRANSFER AGENT INSTRUCTIONS.

            a. The Company shall instruct its transfer agent to issue
      certificates, registered in the name of each Purchaser or its nominee, for
      the Conversion Shares and Warrant Shares in such amounts as specified from
      time to time by such Purchaser to the Company. To the extent and during
      the periods provided in Section 2(f) and Section 2(g) of this Agreement,
      all such certificates shall bear the restrictive legend specified in
      Section 2(g) of this Agreement.

            b. The Company warrants that no instruction other than such
      instructions referred to in this Section 5, and stop transfer instructions
      to give effect to Section 2(f) hereof in the case of the transfer of the
      Conversion Shares or Warrant Shares prior to registration of the
      Conversion Shares and Warrant Shares under the Securities Act or without
      an exemption therefrom, will be given by the Company to its transfer agent
      and that the Securities shall otherwise be freely transferable on the
      books and records of the Company as and to the extent provided in this
      Agreement and the Registration Rights Agreement. Nothing in this Section
      shall affect in any way each Purchaser's obligations and agreement set
      forth in Section 2(g) hereof to resell the Securities pursuant to an
      effective registration statement or under an exemption from the
      registration requirements of applicable securities law.

            c. If a Purchaser provides the Company with an opinion of counsel,
      which opinion of counsel shall be in form, substance and scope customary
      for opinions of counsel in comparable transactions, to the effect that the
      Securities to be sold or transferred may be sold or transferred pursuant
      to an exemption from registration, or a Purchaser provides the Company
      with reasonable assurances that such Securities may be sold under Rule
      144, the Company shall permit the transfer, and, in the case of the
      Conversion Shares and Warrant Shares, promptly instruct its transfer agent
      to issue one or more certificates in such name and in such denominations
      as specified by such Purchaser.

6.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligation of the Company hereunder to issue and sell the Units to a
Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.



                                       12
<PAGE>
 
            a. The applicable Purchaser shall have executed the signature page
      to this Agreement and the Registration Rights Agreement, and delivered the
      same to the Company.

            b. The applicable Purchaser shall have delivered the Purchase Price
      for the Units being purchased by it in accordance with Section 1(b) above.

            c. The representations and warranties of the applicable Purchaser
      shall be true and correct as of the date when made and as of the Closing
      Date as though made at that time (except for representations and
      warranties that speak as of a specific date, which representations and
      warranties shall be true and correct as of such date), and the applicable
      Purchaser shall have performed, satisfied and complied in all material
      respects with the covenants, agreements and conditions required by this
      Agreement to be performed, satisfied or complied with by the applicable
      Purchaser at or prior to the Closing Date.

            d. No statute, rule, regulation, executive order, decree, ruling or
      injunction shall have been enacted, entered, promulgated or endorsed by
      any court or governmental authority of competent jurisdiction or any
      self-regulatory organization having authority over the matters
      contemplated hereby which prohibits the consummation of any of the
      transactions contemplated by this Agreement.

7.    CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.

      The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:

            a. The Company shall have executed the signature page to this
      Agreement and the Registration Rights Agreement, and delivered the same to
      such Purchaser.

            b. The Certificate of Designation shall have been accepted for
      filing with the Secretary of State of the State of Delaware and a copy
      thereof certified by the Secretary of State of the State of Delaware shall
      have been delivered to such Purchaser.

            c. The Company shall have delivered to such Purchaser the duly
      executed Warrants and certificates representing the Preferred Shares being
      purchased by such Purchaser (in such denominations as such Purchaser shall
      request) in accordance with Section 1(b) above.

            d. The Common Stock shall be authorized for quotation on the NASDAQ
      and trading in the Common Stock (or the NASDAQ generally) shall not have
      been suspended by the SEC or the NASDAQ.

            e. The representations and warranties of the Company shall be true
      and correct as of the date when made and as of the Closing Date as though
      made at that time (except for representations and warranties that speak as
      of a specific date, which representations and warranties shall be true and
      correct as of such date) and the Company shall have performed, satisfied
      and complied in all material respects



                                       13
<PAGE>
 
      with the covenants, agreements and conditions required by this Agreement
      to be performed, satisfied or complied with by the Company at or prior to
      the Closing Date. Such Purchaser shall have received a certificate,
      executed by the Chief Executive Officer of the Company, dated as of the
      Closing Date, to the foregoing effect and as to such other matters as may
      be reasonably requested by such Purchaser.

            f. No statute, rule, regulation, executive order, decree, ruling,
      injunction, action or proceeding shall have been enacted, entered,
      promulgated or endorsed by any court or governmental authority of
      competent jurisdiction or any self-regulatory organization having
      authority over the matters contemplated hereby which questions the
      validity of, or challenges or prohibits the consummation of, any of the
      transactions contemplated by this Agreement.

            g. Such Purchaser shall have received an opinion of the Company's
      counsel, dated as of the Closing Date, in form, scope and substance
      reasonably satisfactory to the Purchaser and in substantially the form of
      Exhibit D attached hereto.

            h. The Company shall have delivered evidence reasonably satisfactory
      to the Purchasers that the Company's transfer agent has agreed to act in
      accordance with irrevocable instructions in the form attached hereto as
      Exhibit E.

            i. No material adverse change or development in the business,
      operations, properties, prospects, financial condition, or results of
      operations of the Company shall have occurred since the date hereof.

            j. The Company shall have delivered to each of those Purchasers
      surrendering Notes as Payment of the Purchase Price and those Purchasers
      whose Notes are being repaid in accordance with Section 4(d) hereof,
      certificates representing shares of Common Stock such that the accrued and
      unpaid interest on all such Notes is paid in full in accordance with the
      terms of such Notes.

8.    GOVERNING LAW; MISCELLANEOUS.

            a. Governing Law; Jurisdiction. 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 in the State of Delaware.
      The Company irrevocably consents to the jurisdiction of the United States
      federal courts and the state courts located in the City of New York in the
      State of New York in any suit or proceeding based on or arising under this
      Agreement and irrevocably agrees that all claims in respect of such suit
      or proceeding may be determined in such courts. The Company irrevocably
      waives the defense of an inconvenient forum to the maintenance of such
      suit or proceeding. The Company further agrees that service of process
      upon the Company mailed by first class mail shall be deemed in every
      respect effective service of process upon the Company in any such suit or
      proceeding. Nothing herein shall affect the right of any Purchaser to
      serve process in any other manner permitted by law. The Company agrees
      that a final non-appealable judgment in any such suit or proceeding shall
      be conclusive and may be enforced in other jurisdictions by suit on such
      judgment or in any other lawful manner.

            b. Counterparts. This Agreement may be executed in two or more
      counterparts, all of which shall be considered one and the same agreement
      and shall become effective when counterparts



                                       14
<PAGE>
 
      have been signed by each party and delivered to the other party. This
      Agreement, once executed by a party, may be delivered to the other parties
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement. In the event any
      signature is delivered by facsimile transmission, the party using such
      means of delivery shall cause the manually executed Execution Page(s)
      hereof to be physically delivered to the other party within five (5) days
      of the execution hereof.

            c. Headings. The headings of this Agreement are for convenience of
      reference and shall not form part of, or affect the interpretation of,
      this Agreement.

            d. Severability. If any provision of this Agreement shall be invalid
      or unenforceable in any jurisdiction, such invalidity or unenforceability
      shall not affect the validity or enforceability of the remainder of this
      Agreement or the validity or enforceability of this Agreement in any other
      jurisdiction.

            e. Entire Agreement; Amendments. This Agreement and the other
      agreements and instruments referenced herein contain the entire
      understanding of the parties with respect to the matters covered herein
      and therein and, except as specifically set forth herein or therein,
      neither the Company nor the Purchasers make any representation, warranty,
      covenant or undertaking with respect to such matters. No provision of this
      Agreement may be waived other than by an instrument in writing signed by
      the party to be charged with enforcement and no provision of this
      Agreement may be amended other than by an instrument in writing signed by
      the Company and each Purchaser.

          f. Notices. Any notices required or permitted to be given under the
      terms of this Agreement shall be sent by certified or registered mail
      (return receipt requested) or delivered personally or by courier or by
      confirmed telecopy, and shall be effective five days after being placed in
      the mail, if mailed, or upon receipt or refusal of receipt, if delivered
      personally or by courier or confirmed telecopy, in each case addressed to
      a party. The addresses for such communications shall be:

                  If to the Company:

                  Advanced Environmental Recycling
                    Technologies, Inc.
                  FM 2169
                  HC 10, Box 116
                  Junction, Texas 76849
                  Telecopy: (915) 446-3864
                  Attention: Chief Executive Officer



                                       15
<PAGE>
 
                  With a copy to:

                  Akin, Gump, Strauss, Hauer & Feld, L.L.P.
                  1500 NationsBank Plaza
                  300 Convent Street
                  San Antonio, Texas   78205
                  Telecopy: (210) 224-2035
                  Attention: Pat Ryan, Esq.

            If to a Purchaser, to the address set forth under such Purchaser's
      name on the signature page hereto executed by the Purchaser.

            Each party shall provide notice to the other parties of any change
      in address.

            g. Successors and Assigns. This Agreement shall be binding upon and
      inure to the benefit of the parties and their successors and assigns.
      Except as provided herein, neither the Company nor any Purchaser shall
      assign this Agreement or any rights or obligations hereunder.
      Notwithstanding the foregoing, any Purchaser may assign its rights
      hereunder to any of its "affiliates," as that term is defined under the
      Exchange Act, without the consent of the Company or to any other person or
      entity with the consent of the Company. This provision shall not limit a
      Purchaser's right to transfer the Securities pursuant to the terms of this
      Agreement, the Certificate of Designation, the Warrants or the
      Registration Rights Agreement or to assign such Purchaser's rights
      hereunder and/or thereunder to any such transferee.

            h. Third Party Beneficiaries. This Agreement is intended for the
      benefit of the parties hereto and their respective permitted successors
      and assigns, and is not for the benefit of, nor may any provision hereof
      be enforced by, any other person.

            i. Survival. The representations and warranties of the Company and
      the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
      survive the Closing hereunder notwithstanding any due diligence
      investigation conducted by or on behalf of any Purchasers. Moreover, none
      of the representations and warranties made by the Company herein shall act
      as a waiver of any rights or remedies a Purchaser may have under
      applicable federal or state securities laws.

            j. Publicity. The Company and each Purchaser shall have the right to
      review before issuance any press releases, SEC, NASDAQ or NASD filings, or
      any other public statements with respect to the transactions contemplated
      hereby; provided, however, that the Company shall be entitled, without the
      prior approval of the Purchasers, to make any press release which does not
      name the Purchasers or SEC, NASDAQ or NASD filings with respect to such
      transactions as is required by applicable law and regulations (although
      the Purchasers shall be consulted by the Company in connection with any
      such press release prior to its release and shall be provided with a copy
      thereof).

            k. Further Assurances. Each party shall do and perform, or cause to
      be done and performed, all such further acts and things, and shall execute
      and deliver all such other agreements, certificates, instruments and
      documents, as the other party may reasonably request in order to carry out



                                       16
<PAGE>
 
      the intent and accomplish the purposes of this Agreement and the
      consummation of the transactions contemplated hereby.

            l. Termination. In the event that the Closing Date shall not have
      occurred on or before November 9, 1998, unless the parties agree
      otherwise, this Agreement shall terminate at the close of business on such
      date. Notwithstanding any termination of this Agreement, any party not in
      breach of this Agreement shall preserve all rights and remedies it may
      have against another party hereto for a breach of this Agreement prior to
      or relating to the termination hereof.

            m. Joint Participation in Drafting. Each party to this Agreement has
      participated in the negotiation and drafting of this Agreement, the
      Certificate of Designation, the Warrants and the Registration Rights
      Agreement. As such, the language used herein and therein shall be deemed
      to be the language chosen by the parties hereto to express their mutual
      intent, and no rule of strict construction will be applied against any
      party to this Agreement.

            n. Equitable Relief. The Company acknowledges that a breach by it of
      its obligations hereunder will cause irreparable harm to a Purchaser by
      vitiating the intent and purpose of the transactions contemplated hereby.
      Accordingly, the Company acknowledges that the remedy at law for a breach
      of its obligations hereunder (including, but not limited to, its
      obligations pursuant to Section 5 hereof) will be inadequate and agrees,
      in the event of a breach or threatened breach by the Company of the
      provisions of this Agreement (including, but not limited to, its
      obligations pursuant to Section 5 hereof), that a Purchaser shall be
      entitled, in addition to all other available remedies, to an injunction
      restraining any breach and requiring immediate issuance and transfer,
      without the necessity of showing economic loss and without any bond or
      other security being required.

            o. "Trading day" and "business day" shall mean any day on which the
      New York Stock Exchange is open for trading.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       17
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
   Name: Joe G. Brooks
   Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
   Name: Steve Brooks
   Title: Chief Executive Officer


PURCHASER:

ZANETT LOMBARDIER, LTD.


By:/s/ Gianluca Cicogna
   --------------------------
Name: Gianluca Cicogna
     ------------------------
Title: Director
      -----------------------

RESIDENCE:
          -------------------
ADDRESS:

            Zanett Lombardier, Ltd.
            c/o Bank Julius Baer
            Kirk House, P.O. Box 1100
            Grand Cayman, Cayman Islands
            British West Indies
            Telecopy: (809) 949-0993
            Attention: Peter Goulden



SUBSCRIPTION AMOUNT:

NUMBER OF UNITS                                             275
                                                           ----
PURCHASE PRICE ($1,000 per Unit)                                $275,000
                                                                --------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer

PURCHASER:

HARLOW ENTERPRISES, INC.

By: /s/ Elayne Murphy
   -----------------------------
Name: Elayne Murphy
     ---------------------------
Title: Authorized Representative
      --------------------------

RESIDENCE:              

ADDRESS:





      Telecopy:
      Attention:

SUBSCRIPTION AMOUNT:

NUMBER OF UNITS                                             25
                                                           ---
PURCHASE PRICE ($1,000 per Unit)                                $25,000
                                                                -------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer


PURCHASER:

PARKLAND LIMITED

By: /s/ Raymond O'Reilly
   -----------------------------
Name: Raymond O'Reilly
     ---------------------------
Title: Director
      --------------------------





RESIDENCE:              

ADDRESS:






      Telecopy:
      Attention:


SUBSCRIPTION AMOUNT:

NUMBER OF UNITS                                             25
                                                           ---
PURCHASE PRICE ($1,000 per Unit)                                $25,000
                                                                -------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer

PURCHASER:

/s/ Samuel L. Milbank                          
-------------------------------
SAMUEL L. MILBANK



RESIDENCE:

ADDRESS:    c/o The Zanett Securities Corporation
            Tower 49 - 31st Floor
            12 East 49th Street
            New York, New York 10017
            Telecopy: (212) 343-2121
            Attention: Mr. Samuel L. Milbank


SUBSCRIPTION AMOUNTS:

NUMBER OF UNITS                                             15
                                                           ---
PURCHASE PRICE ($1,000 per Unit)                                $15,000
                                                                -------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer

PURCHASER:

/s/ Bruno Guazzoni
-------------------------------
BRUNO GUAZZONI




RESIDENCE:

ADDRESS:    c/o The Zanett Securities Corporation
            Tower 49 - 31st Floor
            12 East 49th Street
            New York, New York 10017
            Telecopy: (212) 343-2121
            Attention: Mr. Claudio Guazzoni


SUBSCRIPTION AMOUNT:

NUMBER OF UNITS                                             310
                                                           ----
PURCHASE PRICE ($1,000 per Unit)                                $310,000
                                                                --------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer


PURCHASER:

GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
By:   Commodities Corporation LLC, its general partner

By:/s/ Karen M. Judge                         
   -----------------------------
Name: Karen M. Judge
     ---------------------------
Title:Vice President                             
      --------------------------




RESIDENCE:  Cayman Islands

ADDRESS:          P.O. Box 309
                  South Church Street
                  George Town, Grand Cayman
                  Cayman Islands

with copies of all notices to:

                  c/o Commodities Corporation LLC
                  701 Mount Lucas Road
                  CN 850
                  Princeton, NJ 08540


SUBSCRIPTION AMOUNTS:

NUMBER OF UNITS                                          380.80
                                                         ------
PURCHASE PRICE ($1,000 per Unit)                                $380,800
                                                                --------
<PAGE>
 
      IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.

ADVANCED ENVIRONMENTAL RECYCLING
   TECHNOLOGIES, INC.

By:/s/ Joe G. Brooks                
   ---------------------------------
      Name: Joe G. Brooks
      Title: President

By:/s/ Steve Brooks                 
   ---------------------------------
      Name: Steve Brooks
      Title: Chief Executive Officer


PURCHASER:

GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
By:   Commodities Corporation LLC, its general partner

By:/s/ Karen M. Judge                         
   -----------------------------
Name: Karen M. Judge
     ---------------------------
Title:Vice President                             
      --------------------------

RESIDENCE:  Delaware

ADDRESS:          c/o Commodities Corporation LLC
                  701 Mount Lucas Road
                  CN 850
                  Princeton, NJ 08540


SUBSCRIPTION AMOUNTS:

NUMBER OF UNITS                                          469.20
                                                         ------
PURCHASE PRICE ($1,000 per Unit)                                $469,200
                                                                --------