Document:

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                                                                     Exhibit 4.6

ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS AS EVIDENCED A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

                  AQUATIC CELLULOSE INTERNATIONAL CORPORATION

                                    WARRANT
                                    -------

Warrant No.4                                             Dated: March [  ], 2001

     Aquatic Cellulose International Corporation, a Nevada corporation (the
"Company"), hereby certifies that, for value received, AJW Partners, LLC or its
--------
registered assigns ("Holder"), is entitled, subject to the terms set forth
                     ------
below, to purchase from the Company up to a total of 25,000 shares of common
stock, $.001 par value per share (the "Common Stock"), of the Company (each such
                                       ------------
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
          -------------                            --------------
exercise price equal to [$.35] per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to time
                            --------------
from and after the date hereof and through and including March [ ], 2003 (the
"Expiration Date"), and subject to the following terms and conditions (all
----------------
references to $ (dollars) shall be to US$ (United States Dollars)):

          1.   Registration of Warrant.  The Company shall register this
               -----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
-----------------
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.

          2.   Registration of Transfers and Exchanges.
               ---------------------------------------

               (a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at its address for notice set forth in Section 12. Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a
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"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance of such transferee of all of the rights and obligations of
a holder of a Warrant.

               (b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company at its address for notice set forth in
Section 12 for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.

          3.   Duration and Exercise of Warrants.
               ---------------------------------

               (a) This Warrant shall be exercisable by the registered Holder on
any business day before 6:30 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
6:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant.

               (b) Upon delivery to the Company of an executed Form of Election
to Purchase, together with the grid attached hereto as Annex A duly completed
                                                       -------
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
                                                                      ----------
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
---
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.  The Company shall, upon request of the
Holder, if available, use its best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions.  To effect an exercise
hereunder, the Holder shall not be required to physically surrender this Warrant
to the Company unless all the Warrant Shares have been exercised.  Exercises
hereunder shall have the effect of lowering the number of Warrant Shares in an
amount equal to the applicable exercise, which shall be evidenced by entries set
forth in the Exercise Schedule.  The Holder and the Company shall maintain
records showing the number of Warrant Shares exercised and the

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date of such exercises. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following
exercise of a portion of this Warrant, the number of shares issuable upon
exercise of this Warrant may be less than the amount stated on the face hereof.

               A  "Date of Exercise" means the date on which the Company shall
                   ----------------
have received (i) the Form of Election to Purchase completed and duly signed,
and (ii) payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

               (c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares.

          4.   Piggyback Registration Rights. This Warrant is subject to the
               -----------------------------
piggyback registration rights granted under the Registration Rights Agreement of
even date herewith between the Company and original Holder and such piggyback
registration rights shall continue until all of the Warrant Shares have been
sold in accordance with an effective registration statement or upon the
Expiration Date.  The Company will pay all registration expenses in connection
therewith.

          5.   Payment of Taxes.  The Company will pay all documentary stamp
               ----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder.  The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.

          6.   Replacement of Warrant.  If this Warrant is mutilated, lost,
               ----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it.  Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

          7.   Reservation of Warrant Shares.  The Company covenants that it
               -----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 8).  The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in

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accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.

          8.   Certain Adjustments.  The Exercise Price and number of Warrant
               -------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8.

               (a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. In such event, the number of
Warrant shares issuable under this Warrant shall be equitably adjusted to
reflect such event (e.g. in the event of a 2:1 stock split of the Common Stock,
the number of the Warrant shares shall be increased to twice the number
available for purchase prior to the record date for such stock split). Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.

               (b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 8(b)
upon any exercise following any such reclassification or share exchange.

               (c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of

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indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Company's independent certified public accountants that
regularly examines the financial statements of the Company (an "Appraiser").
                                                                ---------

          (d) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while this
Warrant is outstanding, shall issue shares of Common Stock or rights, warrants,
options or other securities or debt that is convertible into or exchangeable for
shares of Common Stock ("Common Stock Equivalents") entitling any Person to
                         ------------------------
acquire shares of Common Stock, at a price per share less than the Exercise
Price (if the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price less than the Exercise
Price, such issuance shall be deemed to have occurred for less than the Exercise
Price), then, at the option of the Holder, the Exercise Price shall be replaced
with the conversion, exchange or purchase price for such Common Stock or Common
Stock Equivalents (including any reset provisions thereof) at issue.  Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the Holder in writing, no later than the
business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms.

          (e) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of the
assets of the Company (on a book value basis) in one or a series of related
transactions, the Holder shall have the right thereafter to (A) exercise this
Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the Common Stock for which this Warrant could have been exercised
immediately prior to such merger, consolidation or sales would have been
entitled or (B) in the case of a merger or consolidation, (x) require the
surviving entity to issue common stock purchase warrants equal to the number
Warrant Shares to which this Warrant then permits, which newly warrant shall be
identical  to this Warrant, and (y) simultaneously with the issuance of such
warrant, the Holder of such warrant shall have the right to exercise such
warrant only into shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock  following such
merger or consolidation or (C) require the surviving entity from such merger,
acquisition or business combination to pay to the Holder, in cash, the Black
Scholes value of this Warrant.   In the case of clause (B), the exercise price
for such new warrant shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction and
the Exercise Price of this Warrant immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale or
consolidation shall include such terms so as continue to give the Holder the
right to receive the securities, cash and property set forth in

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this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.

               (f)  For the purposes of this Section 8, the following clauses
shall also be applicable:

                    (i)  Record Date. In case the Company shall take a record of
                         -----------
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.

                    (ii) Treasury Shares.  The number of shares of Common Stock
                         ---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

               (g)  All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.

               (h)  Whenever the Exercise Price is adjusted pursuant to Section
8(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.

               (i)  If:

                    (i)    the Company shall declare a dividend (or any other
                           distribution) on its Common Stock; or

                    (ii)   the Company shall declare a special nonrecurring cash
                           dividend on or a redemption of its Common Stock; or

                    (iii)  the Company shall authorize the granting to all
                           holders of the Common Stock rights or warrants to
                           subscribe for or purchase any shares of capital stock
                           of any class or of any rights; or

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                    (iv)   the approval of any stockholders of the Company shall
                           be required in connection with any reclassification
                           of the Common Stock, any consolidation or merger to
                           which the Company is a party, any sale or transfer of
                           all or substantially all of the assets of the
                           Company, or any compulsory share exchange whereby the
                           Common Stock is converted into other securities, cash
                           or property; or

                    (v)    the Company shall authorize the voluntary
                           dissolution, liquidation or winding up of the affairs
                           of the Company,

then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
               --------  -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.

               (j)  Upon each adjustment of the Exercise Price pursuant to
Section 8 hereof, the number of shares of Common Stock purchasable upon exercise
of this Warrant shall be adjusted to the number of shares of Common Stock,
calculated to the nearest one-hundredth of a share, obtained by (i) multiplying
the number of shares of Common Stock purchasable immediately prior to such
adjustment upon the exercise of this Warrant by the Exercise Price in effect
prior to such adjustment, and (ii) dividing the product so obtained by the
Exercise Price in effect after such adjustment of the Exercise Price.

          9.   Payment of Exercise Price.  The Holder shall pay the Exercise
               -------------------------
Price in one of the following manners:

               (a)  Cash Exercise.  The Holder may deliver immediately available
                    -------------
funds; or
               (b)  Cashless Exercise. At any time after the earlier to occur of
                    -----------------
the Effectiveness Date (as defined in the Registration Rights Agreement) and the
date the initial registration statement filed pursuant to the Registration
Rights Agreement is declared effective by the Commission, when a registration
statement covering the resale of the Warrant Shares and

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naming the Holder as a selling stockholder thereunder is not then effective,
then the Holder may indicate in the Form of Election to Purchase its election to
utilize a "net" or "cashless" exercise to pay for Warrant Shares, and the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:

                    X = Y [(A-B)/A]
     where:
                    X = the number of Warrant Shares to be issued to the Holder.

                    Y = the number of Warrant Shares with respect to which this
                    Warrant is being exercised.

                    A = the average of the closing sale prices of the Common
                    Stock for the five (5) trading days immediately prior to
                    (but not including) the Date of Exercise.

                    B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.

          10.  Certain Exercise Restrictions.
               -----------------------------

               (a)  A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
                                                  ------------
promulgated thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock, including shares issuable upon such exercise and held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of an exercise hereunder, unless the exercise at issue would
result in the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular exercise hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of this Warrant is exercisable shall
be the responsibility and obligation of the Holder. If the Holder has delivered
a Form of Election to Purchase for a number of Warrant Shares that, without
regard to any other shares that the Holder or its affiliates may beneficially
own, would result in the issuance in excess of the permitted amount hereunder,
the Company shall notify the Holder of this fact and shall honor the exercise
for the maximum portion of this Warrant permitted to be exercised on such Date
of Exercise in accordance with the periods described

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herein and, at the option of the Holder, either keep the portion of the Warrant
tendered for exercise in excess of the permitted amount hereunder for future
exercises or return such excess portion of the Warrant to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

               (b)  A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of an exercise hereunder, unless
the exercise at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.

          11.  Fractional Shares.  The Company shall not be required to issue or
               -----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented.  If any fraction of
a Warrant Share would, except for the provisions of this Section, be issuable on
the exercise of this Warrant, the Company shall pay an amount in cash equal to
the Exercise Price multiplied by such fraction.

          12.  Notices.  Any and all notices or other communications or
               -------
deliveries 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, (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
Section later than 6:30

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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 service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The addresses
for such communications shall be: (i) if to the Company, to 3704 32/nd/ Street,
Suite 301, Vernon, B.C. VIT SN6, facsimile: (250) 558-5470, attention: Gary
Ackles, or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in
accordance with this Section.

          13.  Warrant Agent.  The Company shall serve as warrant agent under
               -------------
this Warrant.  Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.  Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act.  Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.

          14.  Miscellaneous.
               -------------

               (a)  This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.

               (b)  Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.

               (c)  The corporate laws of the State of Nevada shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit 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 of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service

                                     -27-
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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. Each party
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Warrant, then
the prevailing party in such action or proceeding shall be reimbursed by the
other party for its' attorneys fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such action or proceeding.

          (d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

          (e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

                                     -28-
<PAGE>

          IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

               AQUATIC CELLULOSE INTERNATIONAL CORPORATION

               By: /s/ Gary Ackles
                   -----------------------------
                   Name: Gary Ackles
                   Title: Chief Executive Officer
<PAGE>

                          FORM OF ELECTION TO PURCHASE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the Warrant to which this form applies, issued by Aquatic Cellulose
International Corporation ("Aquatic"))
                            -------

To Aquatic Cellulose International Corporation:

     The undersigned hereby irrevocably elects to purchase  _____________ shares
of common stock, $.001 par value per share, of Aquatic (the "Common Stock") and,
                                                             ------------
if such Holder is not utilizing the cashless exercise provisions set forth in
this Warrant, encloses herewith $________ in cash, certified or official bank
check or checks, which sum represents the aggregate Exercise Price (as defined
in the Warrant) for the number of shares of Common Stock to which this Form of
Election to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of

                                    PLEASE INSERT SOCIAL SECURITY OR

                                    TAX IDENTIFICATION NUMBER

                                    ____________________________________________

________________________________________________________________________________

                        (Please print name and address)

Dated:_______, _____             Name of Holder:

                                    (Print)________________________________

                                    (By:)__________________________________
                                    (Name:)
                                    (Title:)
                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Warrant)
<PAGE>

                              FORM OF ASSIGNMENT

          [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase  ____________ shares of Common Stock of Aquatic Cellulose
International Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Aquatic
Cellulose International Corporation with full power of substitution in the
premises.

Dated:

_______________, ____

                         _______________________________________
                         (Signature must conform in all respects to name of
                         holder as specified on the face of the Warrant)

                         _______________________________________
                         Address of Transferee

                         _______________________________________

                         _______________________________________

In the presence of:

__________________________
<PAGE>

                                    Annex A
                                    -------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
        Date              Number of Warrant        Number of Warrant Shares    Number of Warrant
                        Shares Available to be            Exercised             Shares Remaining
                              Exercised                                         to be Exercised
---------------------------------------------------------------------------------------------------
<S>                     <C>                        <C>                         <C>

---------------------------------------------------------------------------------------------------
</TABLE><PAGE>

                                                                   Exhibit 10.10

     SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January [ ],
                                          ---------
2001, among Aquatic Cellulose International Corporation, a Nevada corporation
(the "Company"), and the investors signatory hereto (each such investor is a
      -------
"Purchaser" and all such investors are, collectively, the "Purchasers").
----------                                                 ----------

     WHEREAS, subject to the terms and conditions set forth in this Agreement
and in accordance with (S) 4(2) and Rule 506  under the Securities Act of 1933,
as amended (the "Securities Act"), the Company desires to issue and sell to the
Purchasers and the Purchasers, severally and not jointly, desire to purchase
from the Company (i) an aggregate principal amount of $500,000 of the Company's
12% Secured Convertible Debentures, due twelve months from issuance, which shall
be in the form of Exhibit A (the "Debentures"), and (ii) certain warrants to
                  ---------       ----------
acquire shares of the Company's common stock, $ .001 par value per share (the
"Common Stock"). All references to $ (dollars) shall be to US$ (United States
-------------
Dollars).

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:

                                   ARTICLE I
                               PURCHASE AND SALE

     I.1  The Closing; Settlements.
          ------------------------

          (a)  Subject to the terms and conditions of this Agreement, the
Company agrees to issue and sell to the Purchasers and the Purchasers severally
agree to purchase from the Company the Debentures and Warrants (as defined
below) for an aggregate purchase price of $500,000. The closing of the purchase
and sale of the Debentures and the Warrants (the "Closing") shall take place at
                                                  -------
the offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
                                                                 --------
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
---------
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date." The
                                                           ------------
issuance of and payment for Debentures and Warrants shall occur on three
settlement dates as described in this Section. The first such settlement date is
the Closing Date.

          (b)  On the Closing Date, the parties shall deliver or cause to be
delivered the following:

          (i)  The Company shall deliver to each Purchaser (1) Debentures,
registered in the name of such Purchaser, in principal amount equal to 30% of
the purchase price indicated below such Purchaser's name on the signature page
to this Agreement, (2) a Common Stock purchase warrant, in the form of Exhibit
                                                                       -------
C, dated the Closing Date, pursuant to which such Purchaser shall have the right
-
to acquire one share of Common Stock for every two dollars ($2) of principal
amount of the Debentures acquired by such Purchaser on the Closing Date, (3) the
<PAGE>

legal opinion of Owen M. Naccarato, Esq., outside counsel to the Company, in
agreed form, (4) an executed Registration Rights Agreement, dated the date
hereof,  among the Company and the Purchasers, in the form of Exhibit B (the
                                                              ---------
"Registration Rights Agreement"), (5) the Transfer Agent Instructions, in the
------------------------------
form of Exhibit D, delivered to and acknowledged by the Company's transfer agent
        ---------
(the "Transfer Agent Instructions"), (6) an executed Security Agreement, dated
      ---------------------------
the date hereof, between the Company and the Purchasers, in the Form of Exhibit
                                                                        -------
E (the "Security Agreement") and (7) an executed copy of this Agreement.
-       ------------------

     (ii) Each Purchaser will deliver to the Company (1) 30% of the purchase
price indicated below such Purchaser's name on the signature page to this
Agreement in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and (2) an executed copy
of each of this Agreement, the Registration Rights Agreement and the Security
Agreement.

     (c)  The second settlement date shall be the third Trading Day (as defined
below) following the date on which the Company notifies the Purchasers that it
has duly amended its Certificate of Incorporation to increase the number of
authorized shares of Common Stock to at least [ ] shares; provided, that, on the
second settlement date the conditions set forth in Section 1.2(a) shall have
been satisfied. On the second settlement date the parties shall deliver or cause
to be delivered the following:

          (i)  The Company deliver to each Purchaser (1) Debentures, registered
in the name of such Purchaser, in principal amount equal to 20% of the purchase
price indicated below such Purchaser's name on the signature page to this
Agreement, and (2) a Common Stock purchase warrant in the form of Exhibit C,
                                                                  ---------
dated the second settlement date, pursuant to which such Purchaser shall have
the right to acquire one share of Common Stock for every two dollars ($2) of
principal amount of the Debentures acquired by such Purchaser on the second
settlement date.

          (ii) Each Purchaser shall deliver or cause to be delivered to the
Company 20% of the purchase price indicated below such Purchaser's name on the
signature page to this Agreement in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose.

     (d)  The third settlement date shall be the second Trading Day following
Effective Date, provided, that, on the Effective Date the conditions set forth
in Section 1.2(b) shall have been satisfied. On the third settlement date, the
parties shall deliver or cause to be delivered the following:

          (i) The Company shall deliver to each Purchaser(1) Debentures,
registered in the name of such Purchaser, in principal amount equal to 50% of
the purchase price indicated below such Purchaser's name on the signature page
to this Agreement, and (2) a Common Stock purchase warrant in the form of
Exhibit C, dated the third settlement date, pursuant to which such Purchaser
---------
shall have the right to acquire one share of Common Stock for every two dollars
($2) of principal amount of the Debentures acquired by such Purchaser on the
third settlement date.

                                     -35-
<PAGE>

          (ii)  Each Purchaser shall deliver or cause to be delivered to the
Company 50% of the purchase price indicated below such Purchaser's named on the
signature page to this Agreement in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose.

     I.2  Conditions.  The obligation of a Purchaser to acquire Debentures and
          ----------
Warrants (as defined below) on the second or third settlement date shall be
subject to the satisfaction or waiver by such Purchaser of the following
conditions:

          (a)   Second Settlement Date Conditions.
                ---------------------------------

                (i)   The Certificate of Incorporation of the Company shall have
been amended by The Company by [    , 2001].

                (ii)  The representations and warranties of the Company
contained in this Agreement shall be true and correct on the date of this
Agreement and on and as of the second settlement date (other than
representations and warranties which relate to a specific date other than the
"date hereof," which representations and warranties shall be true as of such
specific date).

                (iii) The Company shall have performed, satisfied and complied
in all material respects with its obligations and agreements under the
Transaction Documents that are required to be performed or satisfied between the
Closing Date and the second settlement date.

                (iv)  Since the Closing Date, no event or series of events which
has had or which reasonably would be expected to results in a material adverse
effect on the result of operations, assets, prospects or financial condition of
the Company and its Subsidiaries (taken as a whole) shall have occurred.

                (v)   Since the Closing Date, no statute, rule, regulation,
order, decree, ruling or injunction shall have been enacted, entered, amended,
modified or endorsed by any court of governmental authority of competent
jurisdiction or governmental authority, stock market or trading facility which
prohibits the consummation of any of the material transactions contemplated by
the Transaction Documents.

                (vi)  The Common Stock shall be quoted on the OTC Bulletin Board
(the "OTC").
      ---

          (b)   Third Settlement Date Conditions.
                --------------------------------

                (i)   Debentures and Warrants shall have been issued on the
second settlement date.

                (ii)  The Effective Date shall have occurred by the 120/th/ day
following the Closing Date.

                (iii) The representations and warranties of the Company
contained in this Agreement shall be true and correct on the date of this
Agreement and on and as of the third

                                     -36-
<PAGE>

settlement date (other than representations and warranties which relate to a
specific date other than the "date hereof," which representations and warranties
shall be true as of such specific date).

          (iv)  The Company shall have performed, satisfied and complied in all
material respects with its obligations and agreements under the Transaction
Documents that are required to be performed or satisfied between the Closing
Date and the third settlement date.

          (v)   Since the second settlement date, no event or series of events
which has had or which reasonably would be expected to result in a material
adverse effect on the result of operations, assets, prospects or financial
condition of the Company and its Subsidiaries (taken as a whole) shall have
occurred.

          (vi)  Since the second settlement date, no statute, rule, regulation,
order, decree, ruling or injunction shall have been enacted, entered, amended,
modified or endorsed by any court of governmental authority of competent
jurisdiction or governmental authority, stock market or trading facility which
prohibits the consummation of any of material transactions contemplated by the
Transaction Documents.

     I.3. Certain Defined Terms.   As used in this Agreement, the following
          ---------------------
terms shall have the meanings set forth in this Section 1.3.

          (a)   "Business Day" means any day except Saturday, Sunday and any day
                 ------------
which shall be a federal legal holiday in the United States or Canada or a day
on which banking institutions in the State of New York or the province of
British Columbia, Canada are authorized or required by law or other governmental
action to close.

          (b)   "Commission" means the Securities and Exchange Commission.
                 ----------

          (c)   "Conversion Price" shall have the meaning set forth in the
                 ----------------
Debentures.

          (d)   "Original Issue Date" shall have the meaning set forth in the
                 -------------------
Debentures.

          (e)   "Person" means an individual or corporation, partnership, trust,
                 ------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

          (f)   "Trading Day" shall have the meaning set forth in the
                 -----------
Debentures.

          (g)   "Warrants" means, collectively, all of the Common Stock purchase
                 --------
warrants issued or issuable on the settlement dates described in this Section1.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

                                     -37-
<PAGE>

     II.1 Representations and Warranties of the Company.  The Company hereby
          ---------------------------------------------
makes the following representations and warranties to the Purchasers:

          (a) Organization and Qualification.  The Company is a corporation duly
              ------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Nevada with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.  The
Company has no subsidiaries other than as set forth in Schedule 2.1(a)
                                                       ---------------
(collectively the "Subsidiaries").  Each of the Subsidiaries is an entity, duly
                   ------------
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.  Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Security Agreement, the Transfer Agent Instructions or the Warrants
(collectively with the Securities, the "Transaction Documents"), (y) have or
                                        ---------------------
result in a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").
                                      -----------------------

          (b) Authorization; Enforcement.  The Company has the requisite
              --------------------------
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder.  The execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company (except for obtaining
the Required Approvals (as defined in this Agreement).  Each of the Transaction
Documents has been duly executed by the Company and, when delivered (or filed,
as the case may be) in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.  Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation, by-laws or other organizational or charter documents.

          (c) Capitalization.  The number of authorized, issued and outstanding
              --------------
capital stock of the Company is set forth in Schedule 2.1(c), which schedule
                                             ---------------
will be updated as of and on the trading Day prior to each of the second
settlement date and third settlement date.  No shares of Common Stock are
entitled to preemptive or similar rights, nor is any holder of securities of the
Company entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as a result of the purchase and sale of the Debentures and the Warrants
and except as disclosed in Schedule 2.1(c), there are no outstanding options,
                           ---------------
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,

                                     -38-
<PAGE>

any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.  The issue and sale of the Underlying
Shares (as hereinafter defined) will not obligate the Company to issue shares of
Common Stock or other securities to any person other than the Purchaser and will
not result in a right of any holder of Company securities to adjust the exercise
or conversion or reset price under such securities.

          (d)  Issuance of the Debentures and the Warrants.  The Debentures and
               -------------------------------------------
the Warrants are duly authorized and, when issued and paid for in accordance
with the terms hereof,  will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens").  The Company has on each settlement
                                    -----
date hereunder and will, at all times while the Debentures and the Warrants are
outstanding, maintain an adequate reserve of duly authorized shares of Common
Stock, reserved for issuance to the holders of the Debentures and the Warrants,
to enable it to perform its conversion, exercise and other obligations under
this Agreement, the Debentures and the Warrants.  Such number of  reserved and
available shares of Common Stock is not less than the sum of 200% of the number
of shares of Common Stock which would be issuable upon (i) conversion in full of
the Debentures, assuming such conversion occurred on the Original Issue Date,
the Debentures remain outstanding for one year and all interest is paid in
shares of Common Stock and (ii) exercise in full of the Warrants.  All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the  Debentures and the Warrants.  The shares of Common Stock
issuable upon conversion of the Debentures and upon exercise of the Warrants are
collectively referred to herein as the "Underlying Shares."  All Underlying
                                        -----------------
Shares shall be duly reserved for issuance to the holders of the Debentures and
Warrants.  The Debentures, the Warrants and the Underlying Shares are
collectively referred to herein as, the "Securities."  When issued in accordance
                                         ----------
with the Debentures and the Warrants, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
Liens.

          (e)  No Conflicts.  The execution, delivery and performance of the
               ------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), 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 (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected; except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.  The business of the Company is not being conducted in
violation of any law, ordinance or regulation

                                     -39-
<PAGE>

of any governmental authority, except for violations which, individually or in
the aggregate, could not have or result in a Material Adverse Effect.

          (f)  Filings, Consents and Approvals.  Neither the Company nor any
               -------------------------------
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.10, (ii) the filing with the Commission of a registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "Underlying Shares
                                                        -----------------
Registration Statement"), (iii) applicable Blue Sky filings and (iv) in all
----------------------
other cases where the failure to obtain such consent, waiver, authorization or
order, or to give such notice or make such filing or registration could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "Required Approvals").
                    ------------------

          (g)  Litigation; Proceedings.  There is no action, suit, inquiry,
               -----------------------
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action") which (i)
                                                              ------
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or result in a
Material Adverse Effect.  The Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement).

          (h)  No Default or Violation.  Neither the Company nor any Subsidiary
               -----------------------
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, in each case of clauses (i), (ii) or (iii) above,
except as could not individually or in the aggregate, have or result in a
Material Adverse Effect. The security interests granted to the Purchasers
pursuant to the Security Agreement will convey and grant to the Purchasers a
first priority security interest in all of the Collateral (as such term is
defined in such agreements).

          (i)  Private Offering.  Assuming the accuracy of the representations
               ----------------
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act.  Neither the
Company nor any Person acting on its behalf has taken or is, to the knowledge of
the Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the

                                     -40-
<PAGE>

Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.

          (j)  SEC Documents; Financial Statements. The Company has filed all
               -----------------------------------
reports required to be filed by it under the Exchange Act of 1934, as amended
(the "Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof, for
      ------------
the two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
                                        -------------
Schedules to this Agreement, the "Disclosure Materials") on a timely basis or
                                  --------------------
has received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension.  As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
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.  All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Documents as required.  The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing.  Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
                                                 ----
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
Since May 31, 1999, except as specifically disclosed in the SEC Documents, (a)
there has been no event, occurrence or development that has or that could result
in a Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (c) the Company
has not altered its method of accounting or the identity of its auditors and (d)
the Company has not declared or made any payment or distribution of cash or
other property to its stockholders or officers or directors (other than in
compliance with existing Company stock option plans) with respect to its capital
stock, or purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock.

          (k)  Investment Company.  The Company is not, and is not an Affiliate
               ------------------
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.

          (l)  Certain Fees.  No fees or commissions will be payable by the
               ------------
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in

                                     -41-
<PAGE>

connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.

          (m)  Solicitation Materials. Neither the Company nor any Person acting
               ----------------------
on the Company's behalf has solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.

          (n)  Exclusivity.  The Company shall not issue and sell the Debentures
               -----------
or the Warrants to any Person other than the Purchasers without  the specific
prior written consent of the Purchasers.

          (o)  Seniority.  No indebtedness of the Company is senior to the
               ---------
Debentures in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise.

          (p)  Listing and Maintenance Requirements Compliance.  Except as set
               -----------------------------------------------
forth in the SEC Documents, the Company has not, in the two years preceding the
date hereof, received notice (written or oral) from the NASDAQ or any other
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange
or market.  The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

          (q)  Patents and Trademarks.  The Company and its Subsidiaries have
               ----------------------
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights which
are necessary or material for use in connection with their respective
businesses, as described in the SEC Documents and which the failure to so have
would have a Material Adverse Effect (collectively, the "Intellectual Property
                                                         ---------------------
Rights").  The Company and its Subsidiaries do not own any Intellectual Property
------
Rights (or applications therefor) but have a right to use the Intellectual
Property Rights described in the Services Agreement (attached hereto as Exhibit
S) between Gary Ackles and the Company.  Neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used by the
Company or its Subsidiaries violates or infringes upon the rights of any Person.
To the best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.  In the event that while the Debentures are
outstanding the Company or a Subsidiary ever owns patents, trademarks or should
make an application therefore, then the Company shall promptly execute and
cooperate to cause to be filed with the Patent and Trademark Office an
Intellectual Property Security Agreement in the form to be prepared by
Purchasers to provide the Purchasers a first priority lien on all such
intellectual property.

                                     -42-
<PAGE>

          (r)  Registration Rights; Rights of Participation. Except as set forth
               --------------------------------------------
on Schedule 6(b) to the Registration Rights Agreement, the Company has not
   -------------
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.

          (s)  Regulatory Permits.  The Company and its Subsidiaries possess all
               ------------------
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("Material Permits"), and neither the Company nor
                               ----------------
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

          (t)  Title.  The Company and the Subsidiaries have good and marketable
               -----
title in fee simple to all real property owned by them which is material to the
business of the Company and its Subsidiaries and good and marketable title in
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, except
for Liens granted to the Purchasers pursuant to the Security Agreement and for
other Liens as do not materially affect the value of such property and do not
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 of which the Company and its Subsidiaries are in compliance
and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.

          (u)  Absence of Certain Proceedings.  Except as described in the SEC
               ------------------------------
Reports, (i) there is no Action pending or, to the knowledge of the Company,
threatened against the Company, in any such case wherein an unfavorable
decision, ruling or finding could have or result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving (A) a claim of
violation of or liability under federal or state securities laws or (B) a claim
of breach of fiduciary duty; (iii) the Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement); and (iv)
there has not been, and to the best of the Company's knowledge there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company.

          (v)  Labor Relations.  No material labor problem exists or, to the
               ---------------
knowledge of the Company, is imminent with respect to any of the employees of
the Company.

          (w)  Disclosure.  The Company confirms that neither it nor any other
               ----------
Person acting on its behalf has provided any of the  Purchasers or its agents or
counsel with any information that constitutes or might constitute material non-
public information.  The Company understands and confirms that the Purchasers
shall be relying on the foregoing representations in

                                     -43-
<PAGE>

effecting transactions in securities of the Company. All disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.

          (x)  Solvency.  Based on the financial condition of the Company as of
               --------
the Closing Date, (i) the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid.  The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).

          (y)  Application of Takeover Protections. The Company and its Board of
               -----------------------------------
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-
takeover provision under the Company's Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could
become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.

          (z)  Restriction on Modification or Termination of Services Agreement.
               ----------------------------------------------------------------
The Company agrees that it will not seek to or permit the modification or
termination of any provision of the Services Agreement, dated November 1, 1996,
between the Company and Gary Ackles, until  the Company has fully discharged all
it obligations under the Transaction Documents.

          (aa) Services Agreement in Effect.  The Company confirms that the
               ----------------------------
Services Agreement, dated November 1, 1996, between the Company and Gary Ackles
has not been modified  or terminated since May 4, 2000 and remains in full force
and effect.

     II.2 Representations and Warranties of the Purchasers.  Each Purchaser
          ------------------------------------------------
hereby for itself and for no other Purchaser represents and warrants to the
Company as follows:

          (a)  Organization; Authority.  Such Purchaser is an entity duly
               -----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the

                                     -44-
<PAGE>

transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of the Transaction Documents has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.

          (b)  Investment Intent.  Such Purchaser is acquiring the Securities as
               -----------------
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement, the Registration Rights Agreement and the Warrant, at all times to
sell or otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act  or under an exemption
from such registration and in compliance with applicable federal and state
securities laws.  Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold the Securities for any period of time.

          (c)  Purchaser Status.  At the time such Purchaser was offered the
               ----------------
Securities, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.

          (d)  Experience of such Purchaser.  Such Purchaser, either alone or
               ----------------------------
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.

          (e)  Ability of such Purchaser to Bear Risk of Investment.  Such
               ----------------------------------------------------
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.

          (f)  Access to Information.  Such Purchaser acknowledges that it has
               ---------------------
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials.  Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.

          (g)  General Solicitation.  Such Purchaser is not purchasing the
               --------------------
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding

                                     -45-
<PAGE>

the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

          (h)  Reliance.  Such Purchaser understands and acknowledges that (i)
               --------
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.

          The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.

                                  ARTICLE III
                        OTHER AGREEMENTS OF THE PARTIES

   III.1  Transfer Restrictions.  (a)  The Securities may only be disposed of
          ---------------------
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws.  In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. Notwithstanding the foregoing, the Company, without requiring a
legal opinion as described in the immediately preceding sentence, hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser or to one or more funds or managed
accounts under common management with such Purchaser, and any transfer among any
such Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof).   Any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.

          (b)  The Purchasers agree to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:

          NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
   SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
   SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
   IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
   1933,

                                     -46-
<PAGE>

   AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
   SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
   SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
   TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
   ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
   LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
   WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

          Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Debentures or the exercise of the Warrants, as
the case may be, occurs at any time while an Underlying Shares Registration
Statement is effective under the Securities Act or, if there is not then an
effective Underlying Shares Registration Statement, at such time as such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the Effective Date.  The Company agrees that, following the Effective Date, it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company of a certificate or certificates representing such Underlying
Shares, issued with a restrictive legend, deliver to such Purchaser certificates
representing such Underlying Shares which shall be free from all restrictive and
other legends.  The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.

   III.2  Acknowledgment of Dilution.  The Company acknowledges that the
          --------------------------
issuance of the Underlying Shares upon (i) conversion of the Debentures in
accordance with the terms of the Debentures, and (ii) exercise of the Warrants
in accordance with their terms, will result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions.  The Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Debentures in accordance with the
terms of the Debentures, and (y) exercise of the Warrants in accordance with
their terms, is unconditional and absolute, subject to the limitations set forth
herein in the Debentures or pursuant to the Warrants, regardless of the effect
of any such dilution.

   III.3  Furnishing of Information.  As long as the Purchasers own Securities,
          -------------------------
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchasers to sell the Securities under Rule 144 promulgated under the
Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
causing its attorneys to render and

                                     -47-
<PAGE>

deliver any legal opinion required in order to permit a Purchaser to receive
Underlying Shares free of all restrictive legends and to subsequently sell
Underlying Shares under Rule 144 upon receipt of a notice of an intention to
sell or other form of notice having a similar effect. Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.

   III.4  Integration.  The Company shall not, and shall use its best efforts to
          -----------
ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.

   III.5  Increase in Authorized Shares.  If on any date the Company would be,
          -----------------------------
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing (a) 200% of the number of Underlying
Shares as would then be issuable upon a conversion in full of the Debentures,
and (b) the number of Underlying Shares issuable upon exercise in full of the
Warrants (the "Current Required Minimum"), in either case, due to the
               ------------------------
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, within 30 Business Days from such date) prepare and
mail to the stockholders of the Company proxy materials requesting authorization
to amend the Company's certificate or articles of incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least such number of shares as reasonably requested by the Purchasers in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its issuance, conversion exercise and
reservation of shares obligations as set forth in this Agreement, the Debentures
and the Warrants (the sum of (x) the number of shares of Common Stock then
outstanding plus all shares of Common Stock issuable upon exercise of all
outstanding options, warrants and convertible instruments, and (y) the Current
Required Minimum, shall be a reasonable number).  In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60/th/ day after
delivery of the proxy materials relating to such meeting and the 90/th/ day
after request by a holder of Securities to issue the number of Underlying Shares
in accordance with the terms hereof) and (c) within five Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's certificate or articles of incorporation to evidence such increase.

   III.6  Reservation and Listing of Underlying Shares.  (a) The Company shall
          --------------------------------------------
(i) in the time and manner required by any national securities exchange or
market or trading or quotation facility on which the Common Stock is then
traded, prepare and file with such national securities exchange or market or
quotation facility on which the Common Stock is then listed for trading an
additional shares listing application covering a number of shares of Common
Stock which is not less than the Initial Minimum, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on any such
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed as soon as possible thereafter, and

                                     -48-
<PAGE>

(iii) provide to the Purchasers evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares issuable upon conversion in full of the then outstanding Debentures and
upon exercise of the then unexercised portion of the Warrants exceeds 85% of the
number of Underlying Shares previously listed on account thereof with any such
required exchanges), then the Company shall take the necessary actions to
immediately list a number of Underlying Shares as equals no less than the then
Current Required Minimum.

          (b)  The Company shall maintain a reserve of shares of Common Stock
for issuance upon conversion of the Debentures in full and upon exercise in full
of the Warrants in accordance with this Agreement, in such amount as may be
required to fulfill its obligations in full under the Transaction Documents,
which reserve shall equal no less than the then Current Required Minimum.

   III.7  Conversion and Exercise Procedures.  The Transfer Agent Instructions,
          ----------------------------------
Conversion Notice (as defined in the Debentures) and the Form of Election to
Purchase (as defined in the Warrants) sets forth the totality of the procedures
with respect to the conversion of the Debentures and the exercise of the
Warrants, including the form of legal opinion, if necessary, that shall be
rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchasers to convert
their Debentures their Warrants, as the case may be.

   III.8  Conversion and Exercise Obligations of the Company.  The Company shall
          --------------------------------------------------
honor conversions of the Debentures and exercise of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Debentures and the Warrants.

   III.9  Subsequent Financing; Limitation on Registrations.  (a)  From the date
          -------------------------------------------------
hereof through the ninetieth (90/th/) Trading Day following the Effective Date,
the Company will not offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to purchase or
other disposition) any of its or its Affiliates' equity or equity equivalent
securities (including the issuance of any debt or other instrument at any time
over the life thereof convertible into or exchangeable for Common Stock) other
than to the Purchasers.

          (b)  In addition to the restrictions set forth in 3.9(c) above, the
Company shall not, directly or indirectly, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its equity or equity-equivalent
securities or securities of any of its Affiliates that are exchangeable or
convertible (directly or indirectly) for shares of Common Stock, including the
issuance of any debt or other instrument at any time over the life thereof
convertible into or exchangeable for Common Stock (collectively, a "Subsequent
                                                                    ----------
Placement") from the date hereof until the expiration of the 180/th/ Trading Day
---------
after the Effective Date, unless (A) the Company delivers to each of the
Purchasers a written notice (the "Subsequent Placement Notice") of its intention
                                  ---------------------------
to effect such Subsequent Placement, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such Subsequent Placement,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Placement shall be

                                     -49-
<PAGE>

effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) such Purchaser shall not have notified the Company by
6:30 p.m. (New York City time) on the tenth Trading Day after its receipt of the
Subsequent Placement Notice of its willingness to provide (or to cause its sole
designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If the Purchasers shall fail to notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; provided, that the Company shall provide the Purchasers with a
                  --------
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Placement Notice. If the Purchasers shall indicate a willingness
to provide financing in excess of the amount set forth in the Subsequent
Placement Notice, then each Purchaser shall be entitled to provide financing
pursuant to such Subsequent Placement Notice up to an amount equal to such
Purchaser's pro-rata portion of the aggregate number of Securities purchased by
such Purchaser under this Agreement, but the Company shall not be required to
accept financing from the Purchasers in an amount in excess of the amount set
forth in the Subsequent Placement Notice.

          (c)  Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Section 6(c) of
the Registration Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to Section 3.9 (e), the Company
shall not, for a period of not less than ninety (90) Trading Days after the
Effective Date, without the prior written consent of the Purchasers, register
any securities of the Company.  Any days after the Effective Date that a
Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such ninety (90) Trading Day period.

          (d)  With respect to Section 3.9(a) and (b), the ninety (90)  and one
hundred and eighty (180) Trading Day periods shall be extended for the number of
Trading Days following the Effective Date during such period (A) in which
trading in the Common Stock is suspended by any securities exchange or market or
quotation system on which the Common Stock is then listed, or (B) during which
the Underlying Shares Registration Statement is not effective, or (C) during
which the prospectus included in the Underlying Shares Registration Statement
may not be used by the holders thereof for the resale of Underlying Shares.

          (e)  The restrictions contained in Section 3.9(a), and (b) shall not
apply to (i) the granting of options or warrants to employees, officers and
directors of the Company, and the issuance of Common Stock upon exercise of such
options or warrants granted under any stock option plan heretofore or
hereinafter duly adopted by the Company and (ii)  and (ii) issuances of Common
Stock pursuant to a Strategic Transaction (as defined herein).  A "Strategic
                                                                   ---------
Transaction" shall mean a transaction or relationship in which the Company
-----------
issues shares of Common Stock to a Person which is, itself or through its
subsidiaries, an operating company in a

                                     -50-
<PAGE>

business related to the business of the Company and in which the Company
receives material benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

   III.10  Certain Securities Laws Disclosures; Publicity.  The Company shall:
           ----------------------------------------------
(i) on the Closing Date issue a press release reasonably acceptable to the
Purchasers disclosing the transactions contemplated hereby, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten Business Days after the Closing Date, and (iii) timely file with the
Commission a Form D promulgated under the Securities Act.  The Company shall, no
less than two Business Days prior to the filing of any disclosure required by
clauses (ii) and (iii) above, provide a copy thereof  to the Purchasers for
their review.  The Company and the Purchasers shall consult with each other in
issuing any other press releases or otherwise making public statements or
filings and other communications  with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, except that if such disclosure
is required by law or stock market regulation, in which such case the disclosing
party shall promptly provide the other party with prior notice of such public
statement, filing or other communication.  Notwithstanding the foregoing, the
Company shall not publicly disclose the names of the Purchasers, or include the
names of the Purchasers in any filing with the Commission, or any regulatory
agency, trading facility or stock market  without the prior written consent of
the Purchasers, except to the extent such disclosure (but not any disclosure as
to the controlling Persons thereof) is required by law or stock market
regulation, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.

   III.11  Transfer of Intellectual Property Rights.  Except in connection with
           ----------------------------------------
the sale of all or substantially all of the assets of the Company or licensing
arrangements in the ordinary course of the Company's business, the Company shall
not transfer, sell or otherwise dispose of any Intellectual Property Rights, or
allow any of the Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and it would
otherwise lapse if not renewed), without the prior written consent of the
Purchasers.

   III.12  Use of Proceeds.  The Company shall use the net proceeds from the
           ---------------
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.

   III.13  Reimbursement.  If any Purchaser, other than by reason of its gross
           -------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred.  In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such

                                     -51-
<PAGE>

Purchaser, for the time of any officers or employees of such Purchaser devoted
to appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearings, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.

   III.14  Non-Disclosure of Non-Public Information (a) The Company shall not
           ----------------------------------------
disclose non-public information to the Purchasers or their advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being non-public information and the Purchasers
enter into a non-disclosure agreement in form mutually acceptable to the Company
and the Purchasers.

          (b)  The Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts.  Notwithstanding the
foregoing or anything herein to the contrary, the Company will immediately
notify the Purchasers of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, which, if not disclosed in the prospectus included in the
Underlying Shares Registration Statement would cause such prospectus to include
a material misstatement or to omit a material fact required to be stated therein
in order to make the statements, therein in light of the circumstances in which
they were made, not misleading.

   III.15  Shareholder Rights Plan.  No claim will be made or enforced by the
           -----------------------
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities or shares of Common Stock under the Transaction Documents.

                                  ARTICLE IV
                                 MISCELLANEOUS

   IV.1   Fees and Expenses.  At the Closing, the Company shall reimburse the
          -----------------
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $15,000 (less $5,000 delivered

                                     -52-
<PAGE>

prior to the Closing Date) for the preparation and negotiation of the
Transaction Documents. The amount contemplated by the immediately preceding
sentence shall be retained by the Purchasers and shall not be delivered to the
Company at the Closing. Other than the amount contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.

     IV.2  Entire Agreement; Amendments.  The Transaction Documents, together
           ----------------------------
with the Exhibits and Schedules thereto and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.

     IV.3  Notices.  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, (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 service, 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 Corporation
                            3704 32/nd/ Street, Suite 301
                            Vernon, British Columbia
                            Canada VIT 5N6
                            Facsimile No.: (250) 558-5470
                            Attn:  Chief Financial Officer

     With copies to:        Owen M. Naccarato, Esq.
                            19600 Fairchild, Suite 260
                            Irvine, CA 92612
                            Facsimile No.: (949) 851-9262

     If to a Purchaser:     To the address set forth under such Purchaser's name
                            on the signature pages hereto.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

                                     -53-
<PAGE>

     IV.4  Amendments; Waivers.  No provision of this Agreement may be waived or
           -------------------
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.

     IV.5  Headings.  The headings herein are for convenience only, do not
           --------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

     IV.6  Successors and Assigns.  This Agreement shall be binding upon and
           ----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers.  Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company.  This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.

     IV.7  No Third-Party Beneficiaries.  This Agreement is intended for the
           ----------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

     IV.8  Governing Law. The corporate laws of the State of Nevada shall govern
           -------------
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles 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 (including with respect to the enforcement of the any of the
Transaction Documents), 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, 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 via registered or certified mail or overnight delivery
(with evidence of delivery) 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.

     IV.9  Survival.  The representations, warranties, agreements and covenants
           --------
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Debentures and the Warrants.

                                     -54-
<PAGE>

     IV.10  Execution.  This Agreement may be executed in two or more
            ---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
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
page were an original thereof.

     IV.11  Severability.  In case any one or more of the provisions of this
            ------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.

     IV.12  Remedies.  In addition to being entitled to exercise all rights
            --------
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents.  The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.

     IV.13  Independent Nature of Purchasers' Obligations and Rights.  The
            --------------------------------------------------------
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document.  Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

     IV.14  Representation By Counsel. Each party hereto represents that it has
            -------------------------
been represented by counsel of its own selection in connection with the
transaction contemplated hereby.  Each purchaser is relying solely on its own
due diligence conducted in connection with the contemplated transaction and the
representations and warranties of the Company.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                           SIGNATURE PAGES FOLLOWS]

                                     -55-
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                         AQUATIC CELLULOSE
                         INTERNATIONAL CORPORATION

                         By: /s/ Gary Ackles
                            -----------------------------
                          Name:   Gary Ackles
                          Title:  Chief Executive Officer

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGE FOR PURCHASER FOLLOWS]
<PAGE>

                              AJW PARTNERS, LLC
                              By: SMS Group, LLC

                              By: /s/ Corey S. Ribotsky
                                 ----------------------
                                 Name: Corey S. Ribotsky
                                 Title:

                              Purchase Price for Debentures:      $250,000

                              Address for Notice:

                              AJW Partners, LLC
                              155 First Street
                              Suite B
                              Mineola, New York 11501
                              Facsimile No.: (516) 739-7115
                              Attn: Corey S. Ribotsky

          With copies to:     Robinson Silverman Pearce Aronsohn &
                                Berman LLP
                              1290 Avenue of the Americas
                              New York, NY 10104
                              Facsimile No.: (212) 541-4630 and (212) 541-1432
                              Attn: Eric L. Cohen, Esq.
<PAGE>

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

                              By: /s/ Glenn A. Arbeitman
                                      ------------------
                                 Name: Glenn A. Arbeitman
                                 Title:

                              Purchase Price for Debentures:      $250,000

                              Address for Notice:

                              New Millennium Capital Partners II, LLC
                              155 First Street
                              Suite B
                              Mineola, New York 11501
                              Facsimile No.: (516) 739-7115
                              Attn: Glenn A. Arbeitman

          With copies to:     Robinson Silverman Pearce Aronsohn &
                                Berman LLP
                              1290 Avenue of the Americas
                              New York, NY 10104
                              Facsimile No.: (212) 541-4630 and (212) 541-1432
                              Attn: Eric L. Cohen, Esq.

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