Document:

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                                                                    Exhibit 10.3

                          GUARANTY AND PLEDGE AGREEMENT

        GUARANTY AND PLEDGE AGREEMENT (this "AGREEMENT"), dated as of August 6,
2004, among Aquatic Cellulose International Corp., a Nevada corporation (the
"COMPANY"), Sheridan B. Westgarde (the "PLEDGOR"), AJW Partners, LLC, a limited
liability company ("AJW"), AJW Offshore, Ltd., a limited liability company
("OFFSHORE"), and AJW Qualified Partners, LLC, a limited liability company
("QUALIFIED"), New Millennium Capital Partners II, LLC ("NEW MILLENNIUM" and,
together with AJW, Offshore and Qualified, the "PLEDGEES").

                              W I T N E S S E T H:
                              - - - - - - - - - -

        WHEREAS, the Company and the Pledgees are parties to that certain
Securities Purchase Agreement, of even date herewith (the "PURCHASE AGREEMENT"),
pursuant to which the Company (i) has issued (a) 10% secured convertible
debentures in the aggregate principal amount of $250,000 and (b) stock purchase
warrants to purchase an aggregate of 250,000 shares of the Company's common
stock, $.001 par value per share (the "COMMON STOCK"); and

        WHEREAS, as a material inducement to the Pledgees to enter into the
Purchase Agreement, the Pledgees have required and the Pledgor has agreed (i) to
unconditionally guarantee the timely and full satisfaction of all obligations of
the Company, whether matured or unmatured, now or hereafter existing or created
and becoming due and payable (the "OBLIGATIONS") to the Pledgees, their
successors, endorsees, transferees or assigns under the Transaction Documents
(as defined in the Purchase Agreement) to the extent of the Collateral (as
defined in Section 5 hereof), and (ii) to grant to the Pledgees, their
successors, endorsees, transferees or assigns a security interest in the number
of shares of Common Stock currently owned by the Pledgor as set forth below the
Pledgor's signature on the signature page hereto (collectively, the "SHARES"),
as collateral security for Obligations. Terms used and not defined herein shall
have the meaning ascribed to them in the Purchase Agreement.

        NOW, THEREFORE, in consideration of the foregoing recitals, and the
mutual covenants contained herein, the parties hereby agree as follows:

        1.      GUARANTY. To the extent of the Collateral, the Pledgor hereby
absolutely, unconditionally and irrevocably guarantees to the Pledgees, their
successors, endorsees, transferees and assigns the due and punctual performance
and payment of the Obligations owing to the Pledgees, their successors,
endorsees, transferees or assigns when due, all at the time and place and in the
amount and manner prescribed in, and otherwise in accordance with, the
Transaction Documents, regardless of any defense or set-off counterclaim which
the Company or any other person may have or assert, and regardless of whether or
not the Pledgees or anyone on behalf of the Pledgees shall have instituted any
suit, action or proceeding or exhausted its remedies or taken any steps to
enforce any rights against the Company or any other person to compel any such
performance or observance or to collect all or part of any such amount, either
pursuant to the provisions of the Transaction Documents or at law or in equity,
and regardless of

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any other condition or contingency. The Pledgor shall have no obligation
whatsoever to the Pledgees beyond the Collateral pledged for the Obligations set
forth herein.

        2.      WAIVER OF DEMAND. The Pledgor hereby unconditionally: (i) waives
any requirement that the Pledgees, in the event of a breach in any material
respect by the Company of any of its representations or warranties in the
Transaction Documents, first make demand upon, or seek to enforce remedies
against, the Company or any other person before demanding payment of enforcement
hereunder; (ii) covenants that this Agreement will not be discharged except by
complete performance of all the Obligations to the extent of the Collateral;
(iii) agrees that this Agreement shall remain in full force and effect without
regard to, and shall not be affected or impaired, without limitation, by, any
invalidity, irregularity or unenforceability in whole or in part of the
Transaction Documents or any limitation on the liability of the Company
thereunder, or any limitation on the method or terms of payment thereunder which
may now or hereafter be caused or imposed in any manner whatsoever; and (iv)
waives diligence, presentment and protest with respect to, and notice of default
in the performance or payment of any Obligation by the Company under or in
connection with the Transaction Documents.

        3.      RELEASE. The obligations, covenants, agreements and duties of
the Pledgor hereunder shall not be released, affected or impaired by any
assignment or transfer, in whole or in part, of the Transaction Documents or any
Obligation, although made without notice to or the consent of the Pledgor, or
any waiver by the Pledgees, or by any other person, of the performance or
observance by the Company or the Pledgor of any of the agreements, covenants,
terms or conditions contained in the Transaction Documents, or any indulgence in
or the extension of the time or renewal thereof, or the modification or
amendment (whether material or otherwise), or the voluntary or involuntary
liquidation, sale or other disposition of all or any portion of the stock or
assets of the Company or the Pledgor, or any receivership, insolvency,
bankruptcy, reorganization, or other similar proceedings, affecting the Company
or the Pledgor or any assets of the Company or the Pledgor, or the release of
any proper from any security for any Obligation, or the impairment of any such
property or security, or the release or discharge of the Company or the Pledgor
from the performance or observance of any agreement, covenant, term or condition
contained in or arising out of the Transaction Documents by operation of law, or
the merger or consolidation of the Company, or any other cause, whether similar
or dissimilar to the foregoing.

        4.      SUBROGATION.

                (a)     Unless and until complete performance of all the
Obligations to the extent of the Collateral, the Pledgor shall not be entitled
to exercise any right of subrogation to any of the rights of the Pledgees
against the Company or any collateral security or guaranty held by the Pledgees
for the payment or performance of the Obligations, nor shall the Pledgor seek
any reimbursement from the Company in respect of payments made by the Pledgor
hereunder.

                (b)     In the extent that the Pledgor shall become obligated to
perform or pay any sums hereunder, or in the event that for any reason the
Company is now or shall hereafter become indebted to the Pledgor, the amount of
such sum shall at all times be subordinate as to lien, time of payment and in
all other respects, to the amounts owing to the Pledgees under the Transaction
Documents and the Pledgor shall not enforce or receive payment

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thereof until all Obligations due to the Pledgees under the Transaction have
been performed or paid. Nothing herein contained is intended or shall be
construed to give to the Pledgor any right of subrogation in or under the
Transaction Documents, or any right to participate in any way therein, or in any
right, title or interest in the assets of the Pledgees.

        5.      SECURITY. As collateral security for the punctual payment and
performance, when due, by the Company of all the Obligations, the Pledgor hereby
pledges with, hypothecates, transfers and assigns to the Pledgees all of the
Shares and all proceeds, shares and other securities received, receivable or
otherwise distributed in respect of or in exchange for the Shares, including,
without limitation, any shares and other securities into which such Shares may
be convertible or exchangeable (collectively, the "ADDITIONAL COLLATERAL" and
together with the Shares, the "COLLATERAL"). Simultaneously herewith, the
Pledgor shall deliver to the Pledgees the certificate(s) representing the
Shares, stamped with a bank medallion guarantee, along with a stock transfer
power duly executed in blank by the Pledgor, to be held by the Pledgees as
security. Any Collateral received by the Pledgor on or after the date hereof
shall be immediately delivered to the Pledgees together with any executed stock
powers or other transfer documents requested by the Pledgees, which request may
be made at any time prior to the date when the Obligations shall have been paid
and otherwise satisfied in full.

        6.      VOTING POWER, DIVIDENDS, ETC. AND OTHER AGREEMENTS.

                (a)     Unless and until an Event of Default (as set forth in
Section 7 hereof) has occurred, the Pledgor shall be entitled to:

                        (i)     Exercise all voting and/or consensual powers
        pertaining to the Collateral, or any part thereof, for all purposes;

                        (ii)    Receive and retain dividends paid with respect
        to the Collateral; and

                        (iii)   Receive the benefits of any income tax
        deductions available to the Pledgor as a shareholder of the Company.

                (b)     The Pledgor agrees that it will not sell, assign,
transfer, pledge, hypothecate, encumber or otherwise dispose of the Collateral.

                (c)     The Pledgor and the Company jointly and severally agree
to pay all costs including all reasonable attorneys' fees and disbursements
incurred by the Pledgees in enforcing this Agreement in accordance with its
terms.

        7.      DEFAULT AND REMEDIES.

                (a)     For the purposes of this Agreement, "EVENT OF DEFAULT"
shall mean:

                        (i)     default in or under any of the Obligations after
        the expiration, without cure, of any applicable cure period;

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                        (ii)    a breach in any material respect by the Company
        of any of its representations or warranties in the Transaction
        Documents; or

                        (iii)   a breach in any material respect by the Pledgor
        of any of its representations or warranties in this Agreement.

                (b)     the Pledgees shall have the following rights upon any
Event of Default:

                        (i)     the rights and remedies provided by the Uniform
        Commercial Code as adopted by the State of New York (the "UCC") (as said
        law may at any time be amended);

                        (ii)    the right to receive and retain all dividends,
        payments and other distributions of any kind upon any or all of the
        Collateral;

                        (iii)   the right to cause any or all of the Collateral
        to be transferred to its own name or to the name of its designee and
        have such transfer recorded in any place or places deemed appropriate by
        the Pledgees; and

                        (iv)    the right to sell, at a public or private sale,
        the Collateral or any part thereof for cash, upon credit or for future
        delivery, and at such price or prices in accordance with the UCC (as
        such law may be amended from time to time). Upon any such sale the
        Pledgees shall have the right to deliver, assign and transfer to the
        purchaser thereof the Collateral so sold. The Pledgees shall give the
        Pledgor not less than ten (10) days' written notice of its intention to
        make any such sale. Any such sale, shall be held at such time or times
        during ordinary business hours and at such place or places as the
        Pledgees may fix in the notice of such sale. The Pledgees may adjourn or
        cancel any sale or cause the same to be adjourned from time to time by
        announcement at the time and place fixed for the sale, and such sale may
        be made at any time or place to which the same may be so adjourned. In
        case of any sale of all or any part of the Collateral upon terms calling
        for payments in the future, any Collateral so sold may be retained by
        the Pledgees until the selling price is paid by the purchaser thereof,
        but the Pledgees shall incur no liability in the case of the failure of
        such purchaser to take up and pay for the Collateral so sold and, in the
        case of such failure, such Collateral may again be sold upon like
        notice. The Pledgees, however, instead of exercising the power of sale
        herein conferred upon them, may proceed by a suit or suits at law or in
        equity to foreclose the security interest and sell the Collateral, or
        any portion thereof, under a judgment or decree of a court or courts of
        competent jurisdiction, the Pledgor having been given due notice of all
        such action. The Pledgees shall incur no liability as a result of a sale
        of the Collateral or any part thereof. All proceeds of any such sale,
        after deducting the reasonable expenses and reasonable attorneys' fees
        incurred in connection with such sale, shall be applied in reduction of
        the Obligations, and the remainder, if any, shall be paid to the
        Pledgor.

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        8.      APPLICATION OF PROCEEDS; RELEASE. The proceeds of any sale or
enforcement of or against all or any part of the Collateral, and any other cash
or collateral at the time held by the Pledgees hereunder, shall be applied by
the Pledgees first to the payment of the reasonable costs of any such sale or
enforcement, then to reimburse the Pledgees for any damages, costs or expenses
incurred by the Pledgees as a result of an Event of Default, then to the payment
of the principal amount or stated valued (as applicable) of, and interest or
dividends (as applicable) and any other payments due in respect of, the
Obligations. The remainder, if any, shall be paid to the Pledgor. As used in
this Agreement, "PROCEEDS" shall mean cash, securities and other property
realized in respect of, and distributions in kind of, the Collateral, including
any thereof received under any reorganization, liquidation or adjustment of debt
of any issuer of securities included in the Collateral.

        9.      REPRESENTATIONS AND WARRANTIES.

                (a)     The Pledgor hereby represents and warrants to the
Pledgees that:

                        (i)     the Pledgor has full power and authority and
        legal right to pledge the Collateral to the Pledgees pursuant to this
        Agreement and this Agreement constitutes a legal, valid and binding
        obligation of the Pledgor, enforceable in accordance with its terms.

                        (ii)    the execution, delivery and performance of this
        Agreement and other instruments contemplated herein will not violate any
        provision of any order or decree of any court or governmental
        instrumentality or of any mortgage, indenture, contract or other
        agreement to which the Pledgor is a party or by which the Pledgor and
        the Collateral may be bound, and will not result in the creation or
        imposition of any lien, charge or encumbrance on, or security interest
        in, any of the Pledgor's properties pursuant to the provisions of such
        mortgage, indenture, contract or other agreement.

                        (iii)   the Pledgor is the sole record and beneficial
        owner of all of the Shares; and

                        (iv)    the Pledgor owns the Collateral free and clear
        of all Liens.

                (b)     The Company represents and warrants to the Pledgees
that:

                        (i)     it has no knowledge that any of the
        representations or warranties of the Pledgor herein are incorrect or
        false in any material respect;

                        (ii)    all of the Shares were validly issued, fully
        paid and non-assessable; and

                        (iii)   the Pledgor is the record holder of the Shares.

        10.     NO WAIVER; NO ELECTION OF REMEDIES. No failure on the part of
the Pledgees to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by the Pledgees of any right,

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power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies herein provided are cumulative
and are not exclusive of any remedies provided by law. In addition, the exercise
of any right or remedy of the Pledgees at law or equity or under this Agreement
or any of the documents shall not be deemed to be an election of Pledgee's
rights or remedies under such documents or at law or equity.

        11.     TERMINATION. This Agreement shall terminate on the date on which
all Obligations have been performed, satisfied, paid or discharged in full.

        12.     FURTHER ASSURANCES. The parties hereto agree that, from time to
time upon the written request of any party hereto, they will execute and deliver
such further documents and do such other acts and things as such party may
reasonably request in order fully to effect the purposes of this Agreement. The
Pledgees acknowledge that they are aware that Pledgor shall have no obligations
whatsoever to the Pledgees beyond the Collateral pledged for the Obligations set
forth herein, and no request for further assurance may or shall increase such
Obligations.

        13.     MISCELLANEOUS.

                (a)     MODIFICATION. This Agreement contains the entire
understanding between the parties with respect to the subject matter hereof and
specifically incorporates all prior oral and written agreements relating to the
subject matter hereof. No portion or provision of this Agreement may be changed,
modified, amended, waived, supplemented, discharged, canceled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged.

                (b)     NOTICE. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day (as defined in the Purchase Agreement), (ii)
the Business Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier
services, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:

      If to the Company:       Aquatic Cellulose International Corp.
                               2504 43rd Street
                               Suite 5
                               Vernon, British Columbia
                               Canada VIT 6L1
                               Attention:  President and Chief Executive Officer
                               Telephone:  250-558-4216
                               Facsimile:  250-558-3846

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      With copies to:           Naccarato & Associates
                                1960 Fairchild
                                Suite 260
                                Irvine, California  92612
                                Attention:  Owen Naccarato
                                Telephone:  949-851-9261
                                Facsimile:  949-851-9262

      If to the Pledgor:        Sheridan B. Westgarde
                                c/o Aquatic Cellulose International Corp.
                                2504 43rd Street
                                Suite 5
                                Vernon, British Columbia
                                Canada VIT 6L1
                                Telephone:  250-558-4216
                                Facsimile:  250-558-3846

      If to the Pledgees:       AJW Partners, LLC
                                AJW Offshore, Ltd.
                                AJW Qualified Partners, LLC
                                New Millennium Capital Partners II, LLC
                                1044 Northern Boulevard
                                Suite 302
                                Roslyn, New York  11576
                                Attention:  Corey S. Ribotsky
                                Facsimile No.:  516-739-7115

      With copies to:           Ballard Spahr Andrews & Ingersoll, LLP
                                1735 Market Street, 51st Fl.
                                Philadelphia, PA  19103
                                Attention:  Gerald J. Guarcini, Esquire
                                Facsimile No.:  215-864-8999

                (c)     INVALIDITY. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.

                (d)     BENEFIT OF AGREEMENT. This Agreement shall be binding
upon and inure to the parties hereto and their respective successors and
assigns.

                (e)     MUTUAL AGREEMENT. This Agreement embodies the arm's
length negotiation and mutual agreement between the parties hereto and shall not
be construed against either party as having been drafted by it.

                (f)     NEW YORK LAW TO GOVERN. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York

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without regard to the principals of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and Federal
courts sitting in the city of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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        IN WITNESS WHEREOF, the parties hereto have caused this Guaranty and
Pledge Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

                                AQUATIC CELLULOSE INTERNATIONAL CORP.

                                By: /s/ Sheridan Westgarde
                                    -------------------------------------
                                    Sheridan B. Westgarde
                                    President and Chief Executive Officer

                                PLEDGEES:

                                AJW PARTNERS, LLC
                                By:   SMS Group, LLC

                                      By:/s/ Corey S. Ribotsky
                                         -------------------------------------
                                         Corey S. Ribotsky
                                         Manager

                                AJW OFFSHORE, LTD.
                                By:   First Street Manager II, LLC

                                      By:/s/ Corey S. Ribotsky
                                         -------------------------------------
                                         Corey S. Ribotsky
                                         Manager

                                AJW QUALIFIED PARTNERS, LLC
                                By:   AJW Manager, LLC

                                      By:/s/ Corey S. Ribotsky
                                         -------------------------------------
                                         Corey S. Ribotsky
                                         Manager

                                NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                                By:   First Street Manager II, LLC

                                      By:/s/ Corey S. Ribotsky
                                         -------------------------------------
                                         Corey S. Ribotsky
                                         Manager

                     [Signatures Continue on Following Page]

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                             PLEDGOR:

                                 /s/ Sheridan Westgarde
                                 -------------------------------------
                                 Sheridan B. Westgarde

                                 Number of Shares subject to this pledge:
                                                                         -------

                                 Date such Shares were acquired:
                                                                 -----------

                                       10<PAGE>
                                                                    Exhibit 10.4

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

        INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "AGREEMENT" dated as of
August 6, 2004, by and among Aquatic Cellulose International Corp., a Nevada
corporation (the "COMPANY"), and the secured parties signatory hereto and their
respective endorsees, transferees and assigns (collectively, the "SECURED
PARTY").

                              W I T N E S S E T H :

        WHEREAS, pursuant to a Securities Purchase Agreement, dated the date
hereof, between Company and the Secured Party (the "PURCHASE AGREEMENT"),
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from Company certain of Company's 10% Secured Convertible
Debentures, due two years from the date of issue (the "DEBENTURES"), which are
convertible into shares of Company's Common Stock, par value $.001 per share
(the "COMMON STOCK"). In connection therewith, Company shall issue the Secured
Party certain Common Stock purchase warrants dated as of the date hereof to
purchase the number of shares of Common Stock indicated below each Secured
Party's name on the Purchase Agreement (the "WARRANTS"); and

        WHEREAS, in order to induce the Secured Party to purchase the
Debentures, Company has agreed to execute and deliver to the Secured Party this
Agreement for the benefit of the Secured Party and to grant to it a first
priority security interest in certain Intellectual Property (defined below) of
Company to secure the prompt payment, performance and discharge in full of all
of Company's obligations under the Debentures and exercise and discharge in full
of Company's obligations under the Warrants; and

        NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

                1.      DEFINED TERMS. Unless otherwise defined herein, terms
which are defined in the Purchase Agreement and used herein are so used as so
defined; and the following terms shall have the following meanings:

                "COMPANY" shall mean, collectively, Company and all of the
        present and future subsidiaries of Company, a list of which is contained
        in SCHEDULE A, attached hereto.

                "SOFTWARE INTELLECTUAL PROPERTY" shall mean:

                        (a)     all software programs (including all source
code, object code and all related applications and data files), whether now
owned, upgraded, enhanced, licensed or leased or hereafter acquired by the
Company, above;

                        (b)     all computers and electronic data processing
hardware and firmware associated therewith;

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                        (c)     all documentation (including flow charts, logic
diagrams, manuals, guides and specifications) with respect to such software,
hardware and firmware described in the preceding clauses (a) and (b); and

                        (d)     all rights with respect to all of the foregoing,
including, without limitation, any and all upgrades, modifications, copyrights,
licenses, options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications and substitutions, replacements, additions, or model
conversions of any of the foregoing.

                "COPYRIGHTS" shall mean (a) all copyrights, registrations and
        applications for registration, ISSUED or filed, including any reissues,
        extensions or renewals thereof, by or with the United States Copyright
        Office or any similar office or agency of the United States, any state
        thereof, or any other country or political subdivision thereof, or
        otherwise, including, all rights in and to the material constituting the
        subject matter thereof, including, without limitation, any referred to
        in SCHEDULE B hereto, and (b) any rights in any material which is
        copyrightable or which is protected by common law, United States
        copyright laws or similar laws or any law of any State, including,
        without limitation, any thereof referred to in SCHEDULE B hereto.

                "COPYRIGHT LICENSE" shall mean any agreement, written or oral,
        providing for a grant by the Company of any right in any Copyright,
        including, without limitation, any thereof referred to in SCHEDULE B
        hereto.

                "INTELLECTUAL PROPERTY" shall means, collectively, the Software
        Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent
        Licenses, Trademarks, Trademark Licenses and Trade Secrets.

                "OBLIGATIONS" means all of the Company's obligations under this
        Agreement and the Debentures, in each case, whether now or hereafter
        existing, voluntary or involuntary, direct or indirect, absolute or
        contingent, liquidated or unliquidated, whether or not jointly owed with
        others, and whether or not from time to time decreased or extinguished
        and later decreased, created or incurred, and all or any portion of such
        obligations or liabilities that are paid, to the extent all or any part
        of such payment is avoided or recovered directly or indirectly from the
        Secured Party as a preference, fraudulent transfer or otherwise as such
        obligations may be amended, supplemented, converted, extended or
        modified from time to time.

                "PATENTS" shall mean (a) all letters patent of the United States
        or any other country or any political subdivision thereof, and all
        reissues and extensions thereof, including, without limitation, any
        thereof referred to in SCHEDULE B hereto, and (b) all applications for
        letters patent of the United States and all divisions, continuations and
        continuations-in-part thereof or any other country or any political
        subdivision, including, without limitation, any thereof referred to in
        SCHEDULE B hereto.

                "PATENT LICENSE" shall mean all agreements, whether written or
        oral, providing for the grant by the Company of any right to
        manufacture, use or sell any invention covered by a Patent, including,
        without limitation, any thereof referred to in SCHEDULE B hereto.

                                       2
<PAGE>

                "SECURITY AGREEMENT" shall mean the a Security Agreement, dated
        the date hereof between Company and the Secured Party.

                "TRADEMARKS" shall mean (a) all trademarks, trade names,
        corporate names, company \names, business names, fictitious business
        names, trade styles, service marks, logos and other source or business
        identifiers, and the goodwill associated therewith, now existing or
        hereafter adopted or acquired, all registrations and recordings thereof,
        and all applications in connection therewith, whether in the United
        States Patent and Trademark Office or in any similar office or agency of
        the United States, any state thereof or any other country or any
        political subdivision thereof, or otherwise, including, without
        limitation, any thereof referred to in SCHEDULE B hereto, and (b) all
        reissues, extensions or renewals thereof.

                "TRADEMARK LICENSE" shall mean any agreement, written or oral,
        providing for the grant by the Company of any right to use any
        Trademark, including, without limitation, any thereof referred to in
        SCHEDULE B hereto.

                "TRADE SECRETS" shall mean common law and statutory trade
        secrets and all other confidential or proprietary or useful information
        and all know-how obtained by or used in or contemplated at any time for
        use in the business of the Company (all of the foregoing being
        collectively called a "TRADE SECRET"), whether or not such Trade Secret
        has been reduced to a writing or other tangible form, including all
        documents and things embodying, incorporating or referring in any way to
        such Trade Secret, all Trade Secret licenses, including each Trade
        Secret license referred to in SCHEDULE B hereto, and including the right
        to sue for and to enjoin and to collect damages for the actual or
        threatened misappropriation of any Trade Secret and for the breach or
        enforcement of any such Trade Secret license.

                2.      GRANT OF SECURITY INTEREST. In accordance with Section
3(m) of the Security Agreement, to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Party, a continuing security interest in,
a continuing first lien upon, an unqualified right to possession and disposition
of and a right of set-off against, in each case to the fullest extent permitted
by law, all of the Company's right, title and interest of whatsoever kind and
nature in and to the Intellectual Property (the "SECURITY INTEREST").

                3.      REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants, and covenants and agrees with, the Secured Party as
follows:

                        (a)     The Company has the requisite corporate power
and authority to enter into this Agreement and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by the Company
of this Agreement and the filings contemplated therein have been duly authorized
by all necessary action on the part of the Company and no further action is
required by the Company. This Agreement constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor's rights
generally.

                                       3
<PAGE>

                        (b)     The Company represents and warrants that it has
no place of business or offices where its respective books of account and
records are kept (other than temporarily at the offices of its attorneys or
accountants) or places where the Intellectual Property is stored or located,
except as set forth on SCHEDULE A attached hereto;

                        (c)     The Company is the sole owner of the
Intellectual Property (except for non-exclusive licenses granted by the Company
in the ordinary course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully authorized to grant the
Security Interest in and to pledge the Intellectual Property. There is not on
file in any governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been filed in favor
of the Secured Party pursuant to this Agreement) covering or affecting any of
the Intellectual Property. So long as this Agreement shall be in effect, the
Company shall not execute and shall not knowingly permit to be on file in any
such office or agency any such financing statement or other document or
instrument (except to the extent filed or recorded in favor of the Secured Party
pursuant to the terms of this Agreement), except for a financing statement
covering assets acquired by the Company after the date hereof, provided that the
value of the Intellectual Property covered by this Agreement along with the
Collateral (as defined in the Security Agreement) is equal to at least 150% of
the Obligations.

                        (d)     The Company shall at all times maintain its
books of account and records relating to the Intellectual Property at its
principal place of business and its Intellectual Property at the locations set
forth on SCHEDULE A attached hereto and may not relocate such books of account
and records unless it delivers to the Secured Party at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that the
necessary documents have been filed and recorded and other steps have been taken
to perfect the Security Interest to create in favor of the Secured Party valid,
perfected and continuing first priority liens in the Intellectual Property to
the extent they can be perfected through such filings.

                        (e)     This Agreement creates in favor of the Secured
Party a valid security interest in the Intellectual Property securing the
payment and performance of the Obligations and, upon making the filings required
hereunder, a perfected first priority security interest in such Intellectual
Property to the extent that it can be perfected through such filings.

                        (f)     Upon request of the Secured Party, the Company
shall execute and deliver any and all agreements, instruments, documents, and
papers as the Secured Party may request to evidence the Secured Party's security
interest in the Intellectual Property and the goodwill and general intangibles
of the Company relating thereto or represented thereby, and the Company hereby
appoints the Secured Party its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest is irrevocable
until the Obligations have been fully satisfied and are paid in full.

                        (g)     The execution, delivery and performance of this
Agreement does not conflict with or cause a breach or default, or an event that
with or without the passage of time

                                       4
<PAGE>

or notice, shall constitute a breach or default, under any agreement to which
the Company is a party or by which the Company is bound. No consent (including,
without limitation, from stock holders or creditors of the Company) is required
for the Company to enter into and perform its obligations hereunder.

                        (h)     The Company shall at all times maintain the
liens and Security Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Intellectual Property to the extent
they can be perfected by filing in favor of the Secured Party until this
Agreement and the Security Interest hereunder shall terminate pursuant to
Section 11. The Company hereby agrees to defend the same against any and all
persons. The Company shall safeguard and protect all Intellectual Property for
the account of the Secured Party. Without limiting the generality of the
foregoing, the Company shall pay all fees, taxes and other amounts necessary to
maintain the Intellectual Property and the Security Interest hereunder, and the
Company shall obtain and furnish to the Secured Party from time to time, upon
demand, such releases and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interest hereunder.

                        (i)     The Company will not transfer, pledge,
hypothecate, encumber, license (except for non-exclusive licenses granted by the
Company in the ordinary course of business), sell or otherwise dispose of any of
the Intellectual Property without the prior written consent of the Secured
Party.

                        (j)     The Company shall, within ten (10) days of
obtaining knowledge thereof, advise the Secured Party promptly, in sufficient
detail, of any substantial change in the Intellectual Property, and of the
occurrence of any event which would have a material adverse effect on the value
of the Intellectual Property or on the Secured Party's security interest
therein.

                        (k)     The Company shall permit the Secured Party and
its representatives and agents to inspect the Intellectual Property at any time,
and to make copies of records pertaining to the Intellectual Property as may be
requested by the Secured Party from time to time.

                        (l)     The Company will take all steps reasonably
necessary to diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect of the
Intellectual Property.

                        (m)     The Company shall promptly notify the Secured
Party in sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Intellectual Property and of
any other information received by the Company that may materially affect the
value of the Intellectual Property, the Security Interest or the rights and
remedies of the Secured Party hereunder.

                        (n)     All information heretofore, herein or hereafter
supplied to the Secured Party by or on behalf of the Company with respect to the
Intellectual Property is accurate and complete in all material respects as of
the date furnished.

                                       5
<PAGE>

                        (o)     SCHEDULE A attached hereto contains a list of
all of the subsidiaries of Company.

                        (p)     SCHEDULE B attached hereto includes all
Licenses, and all Patents and Patent Licenses, if any, owned by the Company in
its own name as of the date hereof. SCHEDULE B hereto includes all Trademarks
and Trademark Licenses, if any, owned by the Company in its own name as of the
date hereof. SCHEDULE B hereto includes all Copyrights and Copyright Licenses,
if any, owned by the Company in its own name as of the date hereof. SCHEDULE B
hereto includes all Trade Secrets and Trade Secret Licenses, if any, owned by
the Company as of the date hereof. To the best of the Company's knowledge, each
License, Patent, Trademark, Copyright and Trade Secret is valid, subsisting,
unexpired, enforceable and has not been abandoned. Except as set forth in
SCHEDULE B, none of such Licenses, Patents, Trademarks, Copyrights and Trade
Secrets is the subject of any licensing or franchise agreement. To the best of
the Company's knowledge, no holding, decision or judgment has been rendered by
any Governmental Body which would limit, cancel or question the validity of any
License, Patent, Trademark, Copyright and Trade Secrets . No action or
proceeding is pending (i) seeking to limit, cancel or question the validity of
any License, Patent, Trademark, Copyright or Trade Secret, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
License, Patent, Trademark, Copyright or Trade Secret. The Company has used and
will continue to use for the duration of this Agreement, proper statutory notice
in connection with its use of the Patents, Trademarks and Copyrights and
consistent standards of quality in products leased or sold under the Patents,
Trademarks and Copyrights.

                        (q)     With respect to any Intellectual Property:

                                (i)     such Intellectual Property is subsisting
                and has not been adjudged invalid or unenforceable, in whole or
                in part;

                                (ii)    such Intellectual Property is valid and
                enforceable;

                                (iii)   the Company has made all necessary
                filings and recordations to protect its interest in such
                Intellectual Property, including, without limitation,
                recordations of all of its interests in the Patents, Patent
                Licenses, Trademarks and Trademark Licenses in the United States
                Patent and Trademark Office and in corresponding offices
                throughout the world and its claims to the Copyrights and
                Copyright Licenses in the United States Copyright Office and in
                corresponding offices throughout the world;

                                (iv)    other than as set forth in SCHEDULE B,
                the Company is the exclusive owner of the entire and
                unencumbered right, title and interest in and to such
                Intellectual Property and no claim has been made that the use of
                such Intellectual Property infringes on the asserted rights of
                any third party; and

                                       6
<PAGE>

                                (v)     the Company has performed and will
                continue to perform all acts and has paid all required fees and
                taxes to maintain each and every item of Intellectual Property
                in full force and effect throughout the world, as applicable.

                        (r)     Except with respect to any Trademark or
Copyright that the Company shall reasonably determine is of negligible economic
value to the Company, the Company shall

                                (i)     maintain each Trademark and Copyright in
                full force free from any claim of abandonment for non-use,
                maintain as in the past the quality of products and services
                offered under such Trademark or Copyright; employ such Trademark
                or Copyright with the appropriate notice of registration; not
                adopt or use any mark which is confusingly similar or a
                colorable imitation of such Trademark or Copyright unless the
                Secured Party shall obtain a perfected security interest in such
                mark pursuant to this Agreement; and not (and not permit any
                licensee or sublicensee thereof to) do any act or knowingly omit
                to do any act whereby any Trademark or Copyright may become
                invalidated;

                                (ii)    not, except with respect to any Patent
                that it shall reasonably determine is of negligible economic
                value to it, do any act, or omit to do any act, whereby any
                Patent may become abandoned or dedicated; and

                                (iii)   notify the Secured Party immediately if
                it knows, or has reason to know, that any application or
                registration relating to any Patent, Trademark or Copyright may
                become abandoned or dedicated, or of any adverse determination
                or development (including, without limitation, the institution
                of, or any such determination or development in, any proceeding
                in the United States Patent and Trademark Office, United States
                Copyright Office or any court or tribunal in any country)
                regarding its ownership of any Patent, Trademark or Copyright or
                its right to register the same or to keep and maintain the same.

                        (s)     Whenever the Company, either by itself or
through any agent, employee, licensee or designee, shall file an application for
the registration of any Patent, Trademark or Copyright with the United States
Patent and Trademark Office, United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof or
acquire rights to any new Patent, Trademark or Copyright whether or not
registered, report such filing to the Secured Party within five business days
after the last day of the fiscal quarter in which such filing occurs.

                        (t)     The Company shall take all reasonable and
necessary steps, including, without limitation, in any proceeding before the
United States Patent and Trademark Office, United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the Patents, Trademarks and

                                       7
<PAGE>

Copyrights, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.

                        (u)     In the event that any Patent, Trademark or
Copyright included in the Intellectual Property is infringed, misappropriated or
diluted by a third party, promptly notify the Secured Party after it learns
thereof and shall, unless it shall reasonably determine that such Patent,
Trademark or Copyright is of negligible economic value to it, which
determination it shall promptly report to the Secured Party, promptly sue for
infringement, misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as it shall reasonably
deem appropriate under the circumstances to protect such Patent, Trademark or
Copyright. If the Company lacks the financial resources to comply with this
Section 3(t), the Company shall so notify the Secured Party and shall cooperate
fully with any enforcement action undertaken by the Secured Party on behalf of
the Company.

                4.      DEFAULTS. The following events shall be "EVENTS OF
                        DEFAULT":

                        (a)     The occurrence of an Event of Default (as
defined in the Debentures) under the Debentures;

                        (b)     Any representation or warranty of the Company in
this Agreement or in the Security Agreement shall prove to have been incorrect
in any material respect when made;

                        (c)     The failure by the Company to observe or perform
any of its obligations hereunder or in the Security Agreement for ten (10) days
after receipt by the Company of notice of such failure from the Secured Party;
and

                        (d)     Any breach of, or default under, the Warrants.

                5.      DUTY TO HOLD IN TRUST. Upon the occurrence of any Event
of Default and at any time thereafter, the Company shall, upon receipt by it of
any revenue, income or other sums subject to the Security Interest, whether
payable pursuant to the Debentures or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Secured Party and shall forthwith endorse
and transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

                6.      RIGHTS AND REMEDIES UPON DEFAULT. Upon occurrence of any
Event of Default and at any time thereafter, the Secured Party shall have the
right to exercise all of the remedies conferred hereunder and under the
Debentures, and the Secured Party shall have all the rights and remedies of a
secured party under the UCC and/or any other applicable law (including the
Uniform Commercial Code of any jurisdiction in which any Intellectual Property
is then located). Without limitation, the Secured Party shall have the following
rights and powers:

                                       8
<PAGE>

                        (a)     The Secured Party shall have the right to take
possession of the Intellectual Property and, for that purpose, enter, with the
aid and assistance of any person, any premises where the Intellectual Property,
or any part thereof, is or may be placed and remove the same, and the Company
shall assemble the Intellectual Property and make it available to the Secured
Party at places which the Secured Party shall reasonably select, whether at the
Company's premises or elsewhere, and make available to the Secured Party,
without rent, all of the Company's respective premises and facilities for the
purpose of the Secured Party taking possession of, removing or putting the
Intellectual Property in saleable or disposable form.

                        (b)     The Secured Party shall have the right to
operate the business of the Company using the Intellectual Property and shall
have the right to assign, sell, lease or otherwise dispose of and deliver all or
any part of the Intellectual Property, at public or private sale or otherwise,
either with or without special conditions or stipulations, for cash or on credit
or for future delivery, in such parcel or parcels and at such time or times and
at such place or places, and upon such terms and conditions as the Secured Party
may deem commercially reasonable, all without (except as shall be required by
applicable statute and cannot be waived) advertisement or demand upon or notice
to the Company or right of redemption of the Company, which are hereby expressly
waived. Upon each such sale, lease, assignment or other transfer of Intellectual
Property, the Secured Party may, unless prohibited by applicable law which
cannot be waived, purchase all or any part of the Intellectual Property being
sold, free from and discharged of all trusts, claims, right of redemption and
equities of the Company, which are hereby waived and released.

                7.      APPLICATIONS OF PROCEEDS. The proceeds of any such sale,
lease or other disposition of the Intellectual Property hereunder shall be
applied first, to the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like (including, without limitation, any
taxes, fees and other costs incurred in connection therewith) of the
Intellectual Property, to the reasonable attorneys' fees and expenses incurred
by the Secured Party in enforcing its rights hereunder and in connection with
collecting, storing and disposing of the Intellectual Property, and then to
satisfaction of the Obligations, and to the payment of any other amounts
required by applicable law, after which the Secured Party shall pay to the
Company any surplus proceeds. If, upon the sale, license or other disposition of
the Intellectual Property, the proceeds thereof are insufficient to pay all
amounts to which the Secured Party is legally entitled, the Company will be
liable for the deficiency, together with interest thereon, at the rate of 15%
per annum (the "DEFAULT RATE"), and the reasonable fees of any attorneys
employed by the Secured Party to collect such deficiency. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
against the Secured Party arising out of the repossession, removal, retention or
sale of the Intellectual Property, unless due to the gross negligence or willful
misconduct of the Secured Party.

                8.      COSTS AND EXPENSES. The Company agrees to pay all
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements,
continuation statements, partial releases and/or termination statements related
thereto or any expenses of any searches reasonably required by the Secured
Party. The Company shall also pay all other claims and charges which in the
reasonable opinion of the Secured Party might prejudice, imperil or otherwise
affect the Intellectual Property or the

                                       9
<PAGE>

Security Interest therein. The Company will also, upon demand, pay to the
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Secured Party may incur in connection with (i) the enforcement of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Intellectual Property, or (iii) the
exercise or enforcement of any of the rights of the Secured Party under the
Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the Default Rate.

                9.      RESPONSIBILITY FOR INTELLECTUAL PROPERTY. The Company
assumes all liabilities and responsibility in connection with all Intellectual
Property, and the obligations of the Company hereunder or under the Debentures
and the Warrants shall in no way be affected or diminished by reason of the
loss, destruction, damage or theft of any of the Intellectual Property or its
unavailability for any reason.

                10.     SECURITY INTEREST ABSOLUTE. All rights of the Secured
Party and all Obligations of the Company hereunder, shall be absolute and
unconditional, irrespective of: (a) any lack of validity or enforceability of
this Agreement, the Debentures, the Warrants or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any change
in the time, manner or place of payment or performance of, or in any other term
of, all or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from the Debentures, the Warrants or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Intellectual Property, or any release or
amendment or waiver of or consent to departure from any other Intellectual
Property for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Party to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Intellectual Property; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available to the
Company, or a discharge of all or any part of the Security Interest granted
hereby. Until the Obligations shall have been paid and performed in full, the
rights of the Secured Party shall continue even if the Obligations are barred
for any reason, including, without limitation, the running of the statute of
limitations or bankruptcy. The Company expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for performance. In
the event that at any time any transfer of any Intellectual Property or any
payment received by the Secured Party hereunder shall be deemed by final order
of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United
States, or shall be deemed to be otherwise due to any party other than the
Secured Party, then, in any such event, the Company's obligations hereunder
shall survive cancellation of this Agreement, and shall not be discharged or
satisfied by any prior payment thereof and/or cancellation of this Agreement,
but shall remain a valid and binding obligation enforceable in accordance with
the terms and provisions hereof. The Company waives all right to require the
Secured Party to proceed against any other person or to apply any Intellectual
Property which the Secured Party may hold at any time, or to marshal assets, or
to pursue any other remedy. The Company waives any defense arising by reason of
the application of the statute of limitations to any obligation secured hereby.

                                       10
<PAGE>

                11.     TERM OF AGREEMENT. This Agreement and the Security
Interest shall terminate on the date on which all payments under the Debentures
have been made in full and all other Obligations have been paid or discharged.
Upon such termination, the Secured Party, at the request and at the expense of
the Company, will join in executing any termination statement with respect to
any financing statement executed and filed pursuant to this Agreement.

                12.     POWER OF ATTORNEY; FURTHER ASSURANCES.

                        (a)     The Company authorizes the Secured Party, and
does hereby make, constitute and appoint it, and its respective officers,
agents, successors or assigns with full power of substitution, as the Company's
true and lawful attorney-in-fact, with power, in its own name or in the name of
the Company, to, after the occurrence and during the continuance of an Event of
Default, (i) endorse any notes, checks, drafts, money orders, or other
instruments of payment (including payments payable under or in respect of any
policy of insurance) in respect of the Intellectual Property that may come into
possession of the Secured Party; (ii) to sign and endorse any UCC financing
statement or any invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts, and other documents relating to the
Intellectual Property; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Intellectual Property; (iv) to demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the Intellectual
Property; and (v) generally, to do, at the option of the Secured Party, and at
the Company's expense, at any time, or from time to time, all acts and things
which the Secured Party deems necessary to protect, preserve and realize upon
the Intellectual Property and the Security Interest granted therein in order to
effect the intent of this Agreement, the Debentures and the Warrants, all as
fully and effectually as the Company might or could do; and the Company hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding.

                        (b)     On a continuing basis, the Company will make,
execute, acknowledge, deliver, file and record, as the case may be, in the
proper filing and recording places in any jurisdiction, including, without
limitation, the jurisdictions indicated on SCHEDULE C, attached hereto, all such
instruments, and take all such action as may reasonably be deemed necessary or
advisable, or as reasonably requested by the Secured Party, to perfect the
Security Interest granted hereunder and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to the Secured Party
the grant or perfection of a security interest in all the Intellectual Property.

                        (c)     The Company hereby irrevocably appoints the
Secured Party as the Company's attorney-in-fact, with full authority in the
place and stead of the Company and in the name of the Company, from time to time
in the Secured Party's discretion, to take any action and to execute any
instrument which the Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement, including the filing, in its sole discretion, of
one or more financing or continuation statements and amendments thereto,
relative to any of the Intellectual Property without the signature of the
Company where permitted by law.

                                       11
<PAGE>

                13.     NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing, with copies to all the other
parties hereto, and shall be deemed to have been duly given when (i) if
delivered by hand, upon receipt, (ii) if sent by facsimile, upon receipt of
proof of sending thereof, (iii) if sent by nationally recognized overnight
delivery service (receipt requested), the next business day or (iv) if mailed by
first-class registered or certified mail, return receipt requested, postage
prepaid, four days after posting in the U.S. mails, in each case if delivered to
the following addresses:

     If to the Company:        Aquatic Cellulose International Corp.
                               2504 43rd Street
                               Suite 5
                               Vernon, British Columbia
                               Canada VIT 6L1
                               Attention:  President and Chief Executive Officer
                               Telephone:  250-558-4216
                               Facsimile:  250-558-3846

     With copies to:           Naccarato & Associates
                               1960 Fairchild
                               Suite 260
                               Irvine, California  92612
                               Attention:  Owen Naccarato
                               Telephone:  (949) 851-9261
                               Facsimile:   (949) 851-9262

     If to the Secured Party:  AJW Partners, LLC
                               AJW Offshore, Ltd.
                               AJW Qualified Partners, LLC
                               New Millennium Capital Partners II, LLC
                               1044 Northern Boulevard
                               Suite 302
                               Roslyn, New York  11576
                               Attention:  Corey Ribotsky
                               Facsimile:  516-739-7115

     With copies to:           Ballard Spahr Andrews & Ingersoll, LLP
                               1735 Market Street, 51st Floor
                               Philadelphia, Pennsylvania  19103
                               Attention:  Gerald J. Guarcini, Esquire
                               Facsimile:  215-864-8999

                14.     OTHER SECURITY. To the extent that the Obligations are
now or hereafter secured by property other than the Intellectual Property or by
the guarantee, endorsement or property of any other person, firm, corporation or
other entity, then the Secured Party shall have the right, in its sole
discretion, to pursue, relinquish, subordinate, modify or take any other action

                                       12
<PAGE>

with respect thereto, without in any way modifying or affecting any of the
Secured Party's rights and remedies hereunder.

                15.     MISCELLANEOUS.

                        (a)     No course of dealing between the Company and the
Secured Party, nor any failure to exercise, nor any delay in exercising, on the
part of the Secured Party, any right, power or privilege hereunder or under the
Debentures shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.

                        (b)     All of the rights and remedies of the Secured
Party with respect to the Intellectual Property, whether established hereby or
by the Debentures or by any other agreements, instruments or documents or by law
shall be cumulative and may be exercised singly or concurrently.

                        (c)     This Agreement and the Security Agreement
constitute the entire agreement of the parties with respect to the subject
matter hereof and is intended to supersede all prior negotiations,
understandings and agreements with respect thereto. Except as specifically set
forth in this Agreement, no provision of this Agreement may be modified or
amended except by a written agreement specifically referring to this Agreement
and signed by the parties hereto.

                        (d)     In the event that any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction
for any reason, unless such provision is narrowed by judicial construction, this
Agreement shall, as to such jurisdiction, be construed as if such invalid,
prohibited or unenforceable provision had been more narrowly drawn so as not to
be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any
provision of this Agreement is held to be invalid, prohibited or unenforceable
in any jurisdiction, such provision, as to such jurisdiction, shall be
ineffective to the extent of such invalidity, prohibition or unenforceability
without invalidating the remaining portion of such provision or the other
provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this Agreement in
any other jurisdiction.

                        (e)     No waiver of any breach or default or any right
under this Agreement shall be considered valid unless in writing and signed by
the party giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

                        (f)     This Agreement shall be binding upon and inure
to the benefit of each party hereto and its successors and assigns.

                        (g)     Each party shall take such further action and
execute and deliver such further documents as may be necessary or appropriate in
order to carry out the provisions and purposes of this Agreement.

                                       13
<PAGE>

                        (h)     This Agreement shall be construed in accordance
with the laws of the State of New York, except to the extent the validity,
perfection or enforcement of a security interest hereunder in respect of any
particular Intellectual Property which are governed by a jurisdiction other than
the State of New York in which case such law shall govern. Each of the parties
hereto irrevocably submit to the exclusive jurisdiction of any New York State or
United States Federal court sitting in Manhattan county over any action or
proceeding arising out of or relating to this Agreement, and the parties hereto
hereby irrevocably agree that all claims in respect of such action or proceeding
may be heard and determined in such New York State or Federal court. The parties
hereto agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. The parties hereto further waive any
objection to venue in the State of New York and any objection to an action or
proceeding in the State of New York on the basis of forum non conveniens.

                        (i)     EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO
THE SUBJECT MATER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY
HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS.
EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS
RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE,
MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. IN THE EVENT OF A LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

                        (j)     This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>

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

                                        AQUATIC CELLULOSE INTERNATIONAL CORP.

                                        By:/s/ Sheridan Westgarde
                                           -------------------------------------
                                           Sheridan B. Westgarde
                                           President and Chief Executive Officer

                                        AJW PARTNERS, LLC
                                        By:  SMS Group, LLC

                                        By:  /s/ Corey S. Ribotsky
                                             -----------------------------------
                                             Corey S. Ribotsky
                                             Manager

                                        AJW OFFSHORE, LTD.
                                        By:  First Street Manager II, LLC

                                        By:  /s/ Corey S. Ribotsky
                                             -----------------------------------
                                             Corey S. Ribotsky
                                             Manager

                                        AJW QUALIFIED PARTNERS, LLC
                                        By:  AJW Manager, LLC

                                        By:  /s/ Corey S. Ribotsky
                                             -----------------------------------
                                             Corey S. Ribotsky
                                             Manager

                                        NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                                        By:  First Street Manager II, LLC

                                        By:  /s/ Corey S. Ribotsky
                                             -----------------------------------
                                             Corey S. Ribotsky
                                             Manager

                                       15

<PAGE>

                                   SCHEDULE A
                                   ----------

Principal Place Of Business of the Company:
-------------------------------------------

Locations Where Intellectual Property is Located or Stored:
-----------------------------------------------------------

List of Subsidiaries of the Company:
------------------------------------

                                      A-1
<PAGE>

                                   SCHEDULE B
                                   ----------

A.      Licenses, Patents and Patent Licenses
        -------------------------------------

                                                                 Registration or
        Patent       Application or Registration No.   Country   Filing Date
        ------       -------------------------------   -------   -----------

B.      Trademarks and Trademark Licenses
        ---------------------------------
                                                                 Registration or
        Patent       Application or Registration No.   Country   Filing Date
        ------       -------------------------------   -------   -----------

C.      Copyrights and Copyright Licenses
        ---------------------------------
                                                                 Registration or
        Patent       Application or Registration No.   Country   Filing Date
        ------       -------------------------------   -------   -----------

D.      Trade Secrets and Trade Secret Licenses
        ---------------------------------------
                                                                 Registration or
        Patent       Application Or Registration No.   Country   Filing Date
        ------       -------------------------------   -------   -----------

                                      B-1
<PAGE>

                                   SCHEDULE C

Jurisdictions:
--------------

                                      C-1

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