LOAN AGREEMENT

THIS AGREEMENT dated as of the 3rd day of June, 2003

AMONG:

                MEMORIAL GIFT TRUST, a trust established pursuant to the laws of
                California and having as its trustee Sid Marshall of 9229 Sunset
                Blvd., Suite 505, Los Angeles, California, 90069

                ("Memorial")

AND:

                JAMES ACHESON an individual  residing at 134 North Van Ness
                Avenue, Los Angeles, California, 90004,

                (collectively, Memorial and James Acheson, the "Lender")

AND:

                DYNAMOTIVE  ENERGY SYSTEMS  CORPORATION,  a limited  liability
                company under the laws of the province of British Columbia
                having as its records office, 1500-1055 West Georgia  Street,
                Vancouver,  B.C.,  V6E 4N7

                (the  "Borrower")

WHEREAS the Borrower  wishes  to  borrow  from the  Lender,  and the  Lender has
agreed to establish  in favour of the  Borrower a loan with a  principal  amount
equal to $250,000 upon  the  terms  and  conditions set forth in this Agreement;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the  mutual  covenants  and  agreements  herein  contained, the  parties  hereto
covenant and agree as follows:

                                   ARTICLE 1

                         DEFINITIONS AND INTERPRETATION

Definitions

1.1 The terms  defined in this ss. 1.1 shall for all purposes of this  Agreement
(including the recitals  hereto) have the meanings herein  specified  unless the
subject matter or context  otherwise  requires:

(a) "Advance" means the advance obtained under the Credit as provided at ss.2.1;
552173.6

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                                      2

(b) "Borrower's  Account" means one or more accounts established by the Borrower
at  the  Borrower's  Bank  into  which  the  Advance is  to be deposited by the
Lender and from which payments to the Lender are to be made by the Borrower;

(c)"Borrower's Bank" means the Canadian Imperial Bank of Commerce, Branch #00900
at Three West Centre, 6011 No. 3 Road, Richmond, B.C.  V6Y 2B2;

(d)  "Business  Day" means any day excluding  Saturday,  Sunday or any day which
shall  be in the  United  States  or  Canada a legal  holiday  or a day on which
banking institutions are required or authorized by law to close;

(e)  "Change of Control"  means (i) any  transaction  or series of  transactions
that,   individually   or   cumulatively,   together  with  one  or  more  prior
transactions,  result in a transfer of over 50% of Borrower's  assets, or (ii) a
merger,   consolidation,   sale  of  stock  or  other  transaction,   series  of
transactions or cumulative transfers as a result of which,  together with one or
more prior  transactions,  there is a cumulative change in ownership of over 50%
of the equity owners of Borrower,  excluding  any transfer to current  owners of
Borrower  or  the  surviving   entity  or   successor-in-interest   to  Borrower
immediately upon completion of any such future transaction, as measured from the
date of this  Agreement,  or (iii) a change in the Chief  Executive  Officer  of
Borrower other than a change resulting from the death or disability of the Chief
Executive Officer of the Borrower;

(f)      "Credit" has the meaning specified in ss.2.1 hereof,

(g)      "Credit Amount" means the principal amount of the loan from the Lender
to the Borrower which will be equal to $250,000;

(h)      "Default  Interest  Rate"  means 60% per annum, calculated annually in
accordance with generally  accepted actuarial  practices and principles,  or the
maximum  permitted by law;

(i)      "Event of Default" means any of the events specified in ss.6.1;

(j)      "First Advance" has the meaning given that term at 2.1;

(k)      "Interest Rate"  means the  amount of interest that will  accrue and be
payable on the  amount  owed by  Borrower,  equal to 2% per month;

(l)      "Lender Representative" means  Memorial or, if not Memorial, such other
person as all of the Lenders appoint in writing;

(m)    "Lender's Bank" means the ETrade Bank, at P.O. Box 1542 Merryfield, V.A.,
22116-1542;

(n)    "Loan Documents"  means  this Agreement and the other agreements referred
to in Section 1.3 hereof; and

(o)    "Maturity Date" means the first anniversary of the First Advance, or such
other date as the parties may agree in writing.

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                                       3

Interpretation

1.2      For purposes of this Agreement, except as otherwise expressly provided:

(a) "this Agreement" means this agreement,  including the Schedules  hereto,  if
any, and any agreement,  document or instrument  entered into, made or delivered
pursuant  to the  terms  hereof,  as any of  them  may  from  time  to  time  be
supplemented or amended and in effect;

(b) all  references  in this  Agreement  to a designated  "Article",  "Section",
"subsection" or other subdivision or to a Schedule is to the designated Article,
section, subsection or other subdivision of, or Schedule to, this Agreement;

(c) the words  "herein",  "hereof"  and  "hereunder"  and other words of similar
import  refer to this  Agreement as a whole and not to any  particular  Article,
Section, subsection or other subdivision or Schedule;

(d) the division of this Agreement into Articles,  Sections and  subsections and
the insertion of headings are for  convenience  of reference  only and shall not
affect the construction or interpretation of this Agreement;

(e) the word "including",  when following any general statement, term or matter,
is not to be construed to limit such  general  statement,  term or matter to the
specific  items or  matters  set  forth  immediately  following  such word or to
similar items or matters, whether or not non-limiting language (such as "without
limitation"  or "but not  limited  to" or words of similar  import) is used with
reference thereto,  but rather is to be construed to refer to all other items or
matters that could  reasonably  fall within the broadest  possible scope of such
general statement, term or matter;

(f)     all references to currency are deemed to mean lawful money of the United
States of America unless otherwise stated;

(g) any  reference to a statute  includes and is a reference to such statute and
to the regulations made pursuant  thereto,  with all amendments made thereto and
in force from time to time, and to any statute or regulation  that may be passed
which has the  effect of  supplementing  or  superseding  such  statute  or such
regulation;

(h)      any reference to a corporate entity includes and is also a reference to
any corporate entity that is a successor to such entity; and

(i) words  importing the masculine  gender include the feminine or neuter gender
and words in the singular include the plural and vice versa.

Schedules

1.3     The following schedules are attached to and form part of this Agreement:

         Schedule A- Secured Promissory Note
         Schedule B - General Security Agreement
         Schedule C - PPSA Search

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        Schedule D - Form of Warrant Certificate
        Schedule E - Registration Rights Agreement

                                   ARTICLE 2

                         AMOUNT AND TERMS OF THE CREDIT

Establishment of Credit

2.1 Subject to the terms and  conditions  of this  Agreement,  the Lender hereby
establishes a credit (the "Credit") in favour of the Borrower  pursuant to which
the  Borrower  shall be entitled  to obtain from the Lender an Advance  equal to
$250,000  (the  "First  Advance")  of the  Credit  Amount on or before the first
Business Day after the date of this Agreement, provided that the Lender shall be
entitled to withhold up to $10,000 for fourteen (14) days  following the date of
this  Agreement for the payment of Lender  counsel's  reasonable  legal fees and
costs,  and the Lender shall remit any remaining  balance to Borrower at the end
of such fourteen days along with a copy of such account paid.

Purpose of Credit

2.2 The purpose of the Credit will be to provide working capital to Borrower.

 Manner of Making the Advance

2.3 The Lender shall deposit the Advance in the Borrower's Account, or as may be
directed by the Borrower and agreed by the Lender.

Interest on Credit

2.4 Subject to ss.6.2(b),  the aggregate  amounts  outstanding  under the Credit
from time to time shall bear  interest at the Interest  Rate on the daily unpaid
amount of the Advance.

Interest Payment Dates

2.5 Interest  will be payable  monthly on the last day of each month  commencing
June 30,  2003,  and where  interest is payable for less than a full month,  the
interest will be  calculated  pro rata based on the number of days in such month
that there was an outstanding amount under the Credit.

Secured Promissory Note

2.6 The  indebtedness  of the  Borrower  to the Lender  under the Credit will be
evidenced by a secured  promissory  note in the form attached hereto as Schedule
A.

Security

2.7 The  indebtedness  of the  Borrower  to the Lender  under the Credit will be
secured by a general  security  agreement  in the form  attached  as Schedule B,
which, subject to 5.1 (a) and

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                                       5

Schedule  C,  will  form a first  charge  over  all of the  assets  of  Borrower
described in the general security agreement.

Warrant  Consideration

2.8 As part of the  consideration  for the  entering  into of the  Credit,  the
Lender is to receive an aggregate of 2,500,000 warrants, in the form attached as
Schedule D; 2,000,000 of such  warrants to be issued to Memorial and 500,000 to
be issued to James  Acheson,  which warrants will be issued on the date which is
the later of

        (a) the date of the First  Advance,  or

        (b) the date of filing of the Borrower's delinquent  December 31, 2002
        year end financial  statements  and the lifting of any securities
        commission order regarding the Borrower's securities which may be issued
        as a consequence of the delinquent filing.


                                   ARTICLE 3


                              REPAYMENT OF CREDIT


Voluntary Repayment

3.1 The Borrower shall have the option to repay in whole or in part  outstanding
amounts  owed under the Credit  from time to time on any  Business  Day  without
premium or penalty.

Mandatory Repayment on Maturity Date

3.2 Subject to ss.3.3, the  Borrower  will  repay to the  Lender on or  before
the  Maturity  Date all outstanding amounts owed under the Credit.

Alternative Mandatory Repayment

3.3 The Borrower will repay to the Lender all outstanding amounts owed under the
Credit on the first  Business  Day that is not more than 10 days  following  the
earlier of the date that the Borrower

        (a) holds cash or cash  equivalent  assets equal to an amount  greater
        than  $1,300,000,  or

        (b)  successfully  completes a financing,  whether  by way of  equity or
        debt,  or a series of such  financings within a 120 day period, in which
        it raises a minimum of $1,000,000  net of all offering expenses, or

        (c) experiences a Change in Control.

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                                       6

Payments on Non-Business Days

3.4 Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business  Day, the due date thereof shall be extended to the next
succeeding Business Day.

Method and Place of Payment, etc.

3.5  All  payments  by the  Borrower  under  this  Agreement  (unless  otherwise
specified  herein)  shall be made to the  Lender  at the  Lender's  Bank to such
account as may be  specified by Lender,  or as may be otherwise  directed by the
Lender not later than 10:00 a.m. (Vancouver,  Canada time) for value on the date
when due, and shall be made in immediately available funds.


                                   ARTICLE 4

                         REPRESENTATIONS AND WARRANTIES

Representations and Warranties of the Borrower

4.1       The Borrower represents and warrants to the Lender that:

(a) the  Borrower  is a company  duly  incorporated  under  the laws of  British
Columbia,  is validly  existing,  has made all filings required under applicable
legislation,  is duly  registered  in all  jurisdictions  in which it carries on
business,

(b) the U.S. subsidiary of the Borrower, DynaMotive Corporation, owns no assets,
the assets  of  the  U.K. subsidiary of the Borrower, DynaMotive Europe Limited,
consist  only  of  office  furniture,  and  the  only jurisdictions in which the
Borrower owns any property is British Columbia;

(c) the Borrower  has  all requisite corporate power and authority to enter into
and perform its obligations under this Agreement;

(d) the  execution,  delivery and  performance by the Borrower of this Agreement
and each of the  other  Loan  Documents  to which it is a party  have  been duly
authorized by all necessary action on the part of the Borrower;

(e) to the best of its knowledge,  the execution,  delivery,  and performance by
the Borrower of this  Agreement and each of the other Loan Documents to which it
is a party do not and will not (i) violate any provision of federal, provincial,
or local law or regulation applicable to the Borrower,  the charter documents of
the Borrower, or any order, judgment, or decree of any governmental body binding
on the Borrower,  (ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default  under any  material  contractual
obligation of the Borrower,  (iii) other than the lien on its assets  created by
the general security  agreement at Schedule B, result in or require the creation
or imposition of any lien of any nature whatsoever upon any properties or assets
of the Borrower,  (iv) require the approval of the shareholders of the Borrower,
or (v) require any approval or consent of any person under any material contract
of the  Borrower or any  governmental  body under any law,  rule or  regulation;

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(f) other than the  filing of  financing  statements  necessary  to perfect  the
security interest granted by the Borrower under the general security  agreement,
the execution,  delivery,  and performance by the Borrower of this Agreement and
the Loan  Documents to which the Borrower is a party do not and will not require
any registration  with,  consent,  or approval of, or notice to, or other action
with or by, any governmental body or other person;

(g) this Agreement,  together with the agreements  attached  hereto,  constitute
valid and legal binding  obligations of the Borrower,  enforceable against it in
accordance with their terms, subject to the following qualifications:

        (i) an order of specific performance and an injunction are discretionary
        remedies and, in particular, may not be available where damages are
        considered an adequate remedy; and

        (ii)  enforcement may be limited by bankruptcy, insolvency, liquidation,
        reorganization reconstruction and other similar laws generally affecting
        the enforceability of creditors' rights;

(h) the  indebtedness  of the Borrower to the  creditors  set out at Schedule C,
which  amount  is  equal  to  an  aggregate of CDN  $3,632.91,   represents  all
outstanding secured indebtedness of the Borrower as of the date hereof,

(i) to the best of its knowledge, the lien on the assets of the Borrower created
under the general  security  agreement in favour of Lender is a validly  created
and first  priority  lien,  subject  only to the liens  disclosed  in Schedule C
hereto;

(j) to the best of its knowledge,  there are no actions,  suits,  or proceedings
pending or, threatened  against the Borrower,  except for matters that are fully
covered by insurance (subject to customary deductibles);

(k) the Borrower has  delivered to Lender all  available  financial  information
concerning the financial  condition and results of operations of the Borrower on
a  consolidated  basis for the year ended  December  31, 2002 and for the period
from January 1, 2003 to March 31, 2003,  and there has been no material  adverse
change in the financial  condition or results of operations of the Borrower on a
consolidated basis since the date of such financial statements; and

(l) the  Borrower  has  disclosed  to Lender all  material  financial  and other
information  relating to the  Borrower  that,  to the best of its  knowledge,  a
reasonably  prudent  investor  would  deem  material  in  making  a loan  to the
Borrower.

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                                       8

                                   ARTICLE 5

                                   COVENANTS

Positive Covenants

5.1      The Borrower covenants and agrees to, with and in favour of the Lender
that it shall:

(a) within two Business Days of the First Advance,  pay the outstanding amounts,
which are equal to an  aggregate  of  CDN$3,632.91,  under  indebtedness  of the
Borrower  to the  creditors  set  out  at  Schedule  C,  and  make  commercially
reasonable efforts to obtain discharges of the security  interests  disclosed in
Schedule C within 30 days following the First Advance;

(b) within two Business Days of the First Advance, file the financing statements
required  pursuant to the British  Columbia  Personal  Property  Security Act to
perfect the security  interest created by the general  security  agreement given
pursuant to ss.2.7  and,  within 30 days of such  filing,  deliver to the Lender
evidence of such filing;

(c) with respect to the Borrower, preserve and maintain its corporate existence,
licenses,   rights,  franchises  and  privileges  in  the  jurisdiction  of  its
incorporation,  amalgamation  or  continuation,  as the  case  may  be,  and all
authorizations,  consents,  approvals,  orders,  licenses,  exemptions  from  or
registrations  or  qualifications  with  any  court or  governmental  authority,
commission,  board,  bureau,  agency or  instrumentality  that are  necessary or
materially valuable in the operation of the business of the Borrower;

(d) duly and punctually  pay to the Lender the principal  amount of the Advance,
interest  thereon,  and all other amounts from time to time payable hereunder on
the dates, at the places and in the manner set forth herein and duly observe and
perform each and every covenant and agreement  contained  herein and on the part
of the Borrower to be observed and performed;

(e) deliver to Lender,  as soon as  available,  but in any event  within 60 days
after  the  date of the  First  Advance,  audited  financial  statements  of the
Borrower on a  consolidated  basis for the year ended  December  31,  2002,  and
unaudited  financial  statements of the Borrower on a consolidated basis for the
quarter ended March 31, 2003;

(f) deliver to Lender,  as soon as  available,  but in any event  within 60 days
after  the end of  each  fiscal  quarter  after  the  First  Advance,  financial
statements of the Borrower on a consolidated basis prepared by management of the
Borrower in accordance with GAAP;

(g) as soon as available,  but in any event within 180 days after the end of the
Borrower's fiscal year ending December 31, 2003, audited financial statements of
the Borrower on a consolidated basis prepared in accordance with GAAP; 552173.6

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                                       9

(h) within 60 days following the First Advance,  file all reports required to be
filed by the Borrower with the Securities and Exchange  Commission for all prior
periods for which such reports are delinquent; and

(i)      until full and final payment of the outstanding balance of the Credit
Amount and interest, the Borrower will not do any of the following:

        (i) create,  incur, assume,  permit,  guarantee,  or otherwise become or
        remain, directly or indirectly, liable with respect to any indebtedness,
        except payables in the ordinary course of business;

        (ii) create, incur, assume, or permit to exist, directly or indirectly,
        any lien on or with respect to any of its assets, of any kind, whether
        now owned or hereafter acquired, or any income or profits therefrom;

        (iii)    enter into any merger, consolidation, reorganization, or
        recapitalization;

        (iv)   liquidate, wind up, or dissolve itself (or suffer any liquidation
        or dissolution).

        (v) convey, sell, lease, license, assign, transfer, or otherwise dispose
        of, in one transaction or a series of transactions,  all or any
        substantial part of its assets.

        (vi) loan money to any third person or guarantee or otherwise  become in
        any way liable with respect to the obligations of any third person.

                                   ARTICLE 6

                               EVENTS OF DEFAULT

Events of Default

6.1    Each of the following events constitutes an "Event of Default" under this
Agreement:

(a) if the warrants to be issued to the Lender  pursuant to ss.2.8 have not been
issued by July 30, 2003, provided that the Lender has made the First Advance;

(b)      if the discharges of the security interests disclosed in Schedule C
have not been obtained within 90 days of the First Advance;

(c)      if the Borrower defaults in the payment when due of principal of the
Advance;

(d) if the  Borrower  defaults in observing or  performing  any other  covenant,
agreement or condition of this Agreement on its part to be observed or performed
and such default is not remedied  within ten Business  Days after receipt by the
Borrower of written notice of such default;

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                                       10

(e)  if any  misrepresentation  exists  now or  hereafter  in  any  warranty  or
representation  made to Lender by the Borrower herein;

(f) if any or a material portion of the Borrower's  assets are attached, seized,
subjected to a writ or distress  warrant,  or are  levied  upon,  or come  into
the  possession  of any trustee, receiver, controller,  custodian, assignee for
the benefit of creditor;

(g) if a notice of lien, levy, or assessment is filed with respect to any of the
Borrower's assets by any governmental body or if any taxes or debts owing at any
time  hereafter  to any one or more of such  entities  becomes  a lien,  whether
choate or otherwise,  upon any of the Borrower's assets and the same is not paid
before such payment is  delinquent;  and

(h) if an order is made or a resolution is passed or a petition is filed for the
liquidation,  dissolution or winding-up of the Borrower or if the Borrower makes
a voluntary  assignment or proposal in bankruptcy.

Remedies Upon Event of Default

6.2      Upon the occurrence and during the continuance of any Event of Default,

(a) the Lender may  declare  the Credit to be  terminated  forthwith  and demand
payment of the Advance  whereupon the same shall be due and payable  immediately
without protest, presentment, demand or further notice of any kind, all of which
are  expressly  waived by the  Borrower,  and the Lender,  without  notice to or
demand  upon the  Borrower,  which are  expressly  waived by the  Borrower,  may
proceed to protect,  exercise  and enforce  its rights and  remedies  under this
Agreement, the general security agreement, and such other rights and remedies as
are  provided by law or by equity or by statute,  and

(b) the  aggregate amount outstanding under the Credit shall bear interest at
the Default Interest Rate on the daily unpaid amount of the Advance.

                                   ARTICLE 7

                                    GENERAL

Authority of the Lender Representative

7.1 All of the persons identified herein as the Lender hereby appoint the Lender
Representative  as their  sole  representative  for the  purposes  of taking all
actions  and  delivering  all notices  provided  for under this  Agreement.  Any
actions   required  or  allowed  by  the  Lender  may  be  made  by  the  Lender
Representative on behalf of all of the Lenders,  any obligations of the Borrower
with respect to the Lender may be fulfilled by  completing  such action with the
Lender  Representative,  and the Borrower may rely on and assume that the Lender
Representative  has the exclusive  authority to act for and represent all of the
Lenders. The Lender  Representative shall forward any payments made to it by the
Borrower to each Lender in the  proportion  that such Lender has invested in the
Credit. The Lender Representative shall have no liability to any

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                                       11

Lender or the Borrower  for any action or inaction of the Lender  Representative
with  respect  to this  Agreement,  except to the  extent  that  such  action or
inaction constitutes negligence or wilful misconduct.

No Waiver

7.2 No  indulgence or  forbearance  by the Lender  hereunder  shall be deemed to
constitute  a waiver of its  rights to  insist on  performance  in full and in a
timely manner of all covenants of the Borrower hereunder and any such waiver, in
order to be binding  upon the Lender,  must be express and in writing and signed
by the Lender,  and then such waiver  shall be  effective  only in the  specific
instance  and for the  purpose  for  which  it is  given.  Waiver  of any  term,
condition  or  covenant  shall not be deemed to be a waiver by the Lender of its
right to require  full and timely  compliance  with the same term,  condition or
covenant  thereafter,  or with any other  term,  covenant or  condition  of this
Agreement  at any time.  No single or partial  exercise  of any right,  power or
privilege of the Lender under this Agreement shall preclude any other or further
exercise  thereof or the exercise of any other right,  power or  privilege.  The
rights and remedies herein expressly  specified are cumulative and not exclusive
of any rights or remedies which the Lender would  otherwise  have. Nor shall the
acceptance by the Lender of any security or the  acceptance by the Lender of any
payment  of or on account  of the  Credit  after a default or of any  payment on
account of any partial  default be construed to be a waiver of any right to take
advantage  of any future  default or of any past  default not  completely  cured
thereby.  The Lender may  exercise  any and all  rights,  powers,  remedies  and
recourses available to it under this Agreement, or any other remedy available to
it, concurrently or individually without the necessity of an election.

Governing Law

7.3  This  Agreement  shall be  deemed  to be made  pursuant  to the laws of the
province  of British  Columbia  and the law of Canada  applicable  therein,  and
without regard to principles of conflict of laws.

Attornment to Jurisdiction

7.4 The Borrower  irrevocably  submits to the non-exclusive  jurisdiction of the
courts of British Columbia in any action or proceeding arising out of or related
to this Agreement and  irrevocably  agrees that all such actions and proceedings
may be heard and determined in any of such courts, and irrevocably waive, to the
fullest extent possible,  the defence of inconvenient forum. The Borrower agrees
that a judgment or order in any such action or proceeding may be enforced in any
other jurisdiction in any manner provided by law.

Notice

7.5 A notice  required or permitted to be given  pursuant to this  Agreement may
only be given by delivery or by  facsimile  transmission  to the address of such
party set out below or at such  other  address as that  party may  designate  by
notice under this Agreement:

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                                       12

(a) if to the Borrower:

                DynaMotive Energy Systems Corporation
                Angus Corporate Centre
                105 - 1700 West 75th Ave
                Vancouver, British Columbia
                V6P 6G2

                Attention: Laura Santos
                Facsimile: (604) 267-6005

(b)  if to the Lender:

                Memorial Gift Trust
                C/o Randy Sugarman
                9229 Sunset Boulevard, Suite 505
                Los Angeles, California 90069

                Attention: Randy Sugarman
                Facsimile: (310) 276) 8745

with a copy to:

                James Acheson
                134 North Van Wess Avenue
                Los Angeles, California
                90004

Any notice aforesaid  shall, if actually  delivered be deemed to have been given
and made at the time of delivery and if sent by facsimile transmission be deemed
to have been given or made on the day on which it was sent.

Severability

7.6 Any provision in this Agreement which is prohibited or  unenforceable in any
jurisdiction  shall,  as to such  jurisdiction,  be ineffective to the extent of
such  prohibition  or  unenforceability   without   invalidating  the  remaining
provisions  hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. Notwithstanding any provision to the contrary in this
Agreement, in the event that any rate of interest provided for in this Agreement
is found by a court to exceed the maximum rate allowed by  applicable  law, this
Agreement  shall be modified to provide for a reduction  in the rate of interest
previously charged, with any excess interest being applied to principal, and any
payments in excess of principal being returned to the Borrower.

Assigns

7.7 This Agreement shall not be assigned by the Borrower but may be assigned, in
whole or in part, by the Lender and on such terms as Lender may require. This
Agreement shall

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                                      13

enure to the  benefit of and be  binding  upon the  parties  hereto and shall be
binding  upon and enure to the  benefit of their  respective  heirs,  executors,
successors and permitted assigns

Entire Agreement

7.8  There are no  understandings,  inducements,  re=presentations,  warranties,
collateral  agreements  or conditions  affecting or supported by this  Agreement
other than as expressed in or contemplated by this Agreement.

Modification in Writing

7.9      This Agreement may be amend o modified only by a written instrument
signed by each of the parties hereto.

Time of Essence

7.10     Time shall be of the essence of this Agreement.

Counterparts

7.11 This Agreement may be executed in any number of counterparts  with the same
effect as if all parties to this Agreement had signed the same document, and all
counterparts  will  be,  construed  together  and  constitute  one and the  same
instrument.

Attorneys fees

7.12  The  prevailing  party in  any action arising out of or in connection with
this Agreement  shall be entitled to recover  from  the  losing party  the costs
of such action as permitted or  determined by  the Court,  including  attorneys'
and experts fees, costs and other reasonable expenses incurred by the prevailing
party.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the
day and year first above written.

MEMORIAL GIFT TRUST


Per:/s/ Sid Marshall
--------------------                Date: 06/03/03
Authorized Signatory



Signed, sealed and delivered by JAMES ACHESON
in the presence of:

By:/s/ JoAnne Acheson                   By:/s/ James Acheson
----------------------                  --------------------
Witness (Signature)                     JAMES ACHESON

By: JoAnne Acheson
----------------------
Name (please print)

----------------------
Address

----------------------
Occupation


DYNAMOTIVE  ENERGY SYSTEMS  CORPORATION,
----------------------------------------
Per: Andrew Kingston



<PAGE>

                            SECURED PROMISSORY NOTE

US$250,000                                                         June 5, 2003

FOR VALUE RECEIVED, DYNAMOTIVE ENERGY SYSTEMS CORPORATION (the "Maker") promises
to pay to MEMORIAL GIFT TRUST and JAMES ACHESON (collectively, the "Holder"), at
the location  specified in the loan  agreement  dated as of June 3, 2003 between
the Maker and the  Holder  (the  "Loan  Agreement"),  the  principal  sum of TWO
HUNDRED AND FIFTY THOUSAND UNITED STATES DOLLARS (US$250,000),  with interest as
set out in the Loan  Agreement  on June 5,  2O04 (or such  other  date as may be
determined in accordance with the Loan Agreement).

This Secured Promissory Note is secured by a. General Security Agreement as set
out in the Loan Agreement.

This Secured  Promissory Note is governed  governed by and shall be construed in
accordance  with the laws of the  province of British  Columbia  and the laws of
Canada applicable  therein.

This Secured Promissory Note shall be binding upon the Maker and its  successors
and assigns and shall enure to the benefit of the Holder and  its successors and
assigns.

DYNAMOTIVE  ENERGY SYSTEMS  CORPORATION

Per:/s/
--------------------
Authorized Signatory

Per:/s/
--------------------
Authorized Signatory

<PAGE>

SCHEDULE B


                           GENERAL SECURITY AGREEMENT
                                   (General)

THIS AGREEMENT is dated effective the 4th day of June, 2003.

AMONG:

        DYNAMOTIVE  ENERGY SYSTEMS  CORPORATION,  a limited  liability company
        under the laws of the province of British Columbia having as its records
        office, 1500-1055 West Georgia Street, Vancouver, B.C., V6E 4N7

        (the "Debtor")

AND:

        MEMORIAL GIFT TRUST, a trust established  pursuant to the laws of
        California and having as its trustee Sid Marshall of 9229 Sunset Blvd.,
         S-505, Los Angeles, CA 90069,

        ("Memorial")

AND:

        JAMES ACHESON an individual  residing at 134 North Van Ness Avenue, Los
        Angeles, California 90004,

        (collectively, Memorial and James Acheson, the "Secured Party")

1.     Consideration

1.1 For  valuable  consideration,  the  receipt  and  sufficiency  of which  are
acknowledged by each party, the Debtor enters into this security  agreement with
the Secured Party.

2.       Obligations

2.1 The  Security  Interest (as  hereinafter  defined) is granted to the Secured
Party by the Debtor as  continuing  security  for the payment of all present and
future  indebtedness  and  liabilities  of  the  Debtor  to the  Secured  Party,
including  interest  thereon,  and for the payment and  performance of all other
present  and future  obligations  of the Debtor to the  Secured  Party,  whether
direct or  indirect,  contingent  or  absolute,  matured or not, and whether the
Debtor is bound alone or with  another or others,  including  obligations  under
this  Agreement  and the  obligations  of the Debtor  under any bill of exchange
issued, accepted or endorsed by the Debtor of which the Secured Par 552751.2

<PAGE>

                                      2

3.       Creation of Security Interest

3.1 The Debtor hereby grants, mortgages, charges, transfers, assigns and creates
to and in favour of the Secured Party as and by way of a continuing,  fixed, and
specific charge to and in favour of Secured Party, a security interest in all of
the Debtor's  present and after  acquired  personal  property,  and all personal
property in which the Debtor has rights, of whatever nature or kind and wherever
situate,  including,  without  limitation,  all of the following now owned or in
future owned or acquired by or on behalf of the Debtor:

3.2

(a) Equipment: all present and after-acquired equipment of the Debtor, including
all  machinery,  fixtures,  plant,  tools,  furniture,  vehicles  of any kind or
description, all spare parts, accessories installed in or affixed or attached to
any of the  foregoing,  and all  drawings,  specifications,  plans  and  manuals
relating thereto (the "Equipment"),

(b) Inventory: all present and after-acquired inventory of the Debtor, including
all raw  materials,  materials used or consumed in the business or profession of
the Debtor, work-in-progress,  finished goods, goods used for packing, materials
used in the business of the Debtor not intended for sale,  and goods acquired or
held for sale or  lease,  or that have  been  leased by the  Debtor as lessor or
furnished  or  to be  furnished  under  contracts  of  rental  or  service  (the
"Inventory"),

(c) Accounts:  all present and after-acquired  debts, demands and amounts due or
accruing due to the Debtor whether or not earned by  performance,  including its
book debts, accounts receivable, and claims under policies of insurance; and all
contracts,  security  interests and other rights and benefits in respect thereof
(the "Accounts");

(d)  Intangibles:  all present  and  after-acquired  intangibles  of the Debtor,
including all contract rights,  goodwill,  patents, trade marks,  copyrights and
other  intellectual  property,  licences,  and all other choses in action of the
Debtor of every kind, whether due at the present time or hereafter to become due
or owing (the "Intangibles"),

(e) Documents of Title: all present and after-acquired documents of title of the
Debtor, whether negotiable or otherwise including all warehouse receipts and
bills of lading (the "Documents of Title"),

(f) Chattel Paper: all present and after-acquired writings in favour of the
Debtor as secured party which evidence both a monetary obligation and a security
interest in, or a lease of, specific goods or specific goods and accessions (the
"Chattel Paper"),

(g) Instruments:  all present and  after-acquired  bills,  notes and cheques (as
such are  defined  pursuant to the Bills of Exchange  Act  (Canada)),  all other
writings that evidence a right to payment of money and are of a type that in the
ordinary  course of business are  transferred by delivery  without any necessary
endorsement  or assignment  and all letters of credit or advices of credit which
state thereon that the letter of credit or advice of credit must be  surrendered
on claiming payment thereunder (the "Instruments"),

<PAGE>

                                       3

(h) Money: all  present  and after-acquired money whether authorized as a medium
of exchange by the Parliament of Canada or authorized or adopted by  any foreign
government as part of its currency (the "Money"),

(i) Securities:  all present and  after-acquired  securities held by the Debtor,
including shares, options, rights, warrants, joint venture interests,  interests
in limited  partnerships,  bonds,  debentures  and all other  documents that are
recognized  in the  jurisdiction  in which issued or dealt with as  evidencing a
share,  participation  or other interest in property or in an enterprise or that
evidence of an obligation of the issuer (the "Securities"),

(j) Documents: all books, accounts, financial statements, invoices, letters,
papers, documents and other records in any form (the "Documents"),

(k) Undertaking:  as  and  by  way  of a  floating charge all present and after-
acquired personal property, business, and undertaking  of  the Debtor not  being
Inventory, Equipment, Accounts, Intangibles, Documents of Title, Chattel Paper,
Instruments, Money, Securities or Documents (the "Undertaking"), and

(l)  Proceeds:  all  personal  property,  fixtures and crops in any form derived
directly or indirectly from any dealing with Collateral (as hereinafter defined)
or proceeds  therefrom,  including  rights to  insurance  payments and any other
payments  representing  indemnity  or  compensation  for  loss of or  damage  to
Collateral or proceeds therefrom (the "Proceeds").

3.3 All present and  after-acquired  personal property of the Debtor,  including
Equipment, Inventory, Accounts, Intangibles,  Documents of Title, Chattel Paper,
Instruments, Money, Securities,  Documents, Undertaking and Proceeds are, or any
part thereof,  collectively  referred to in this  Agreement as the  "Collateral"
unless the context otherwise requires.

3.4  The  grants,  mortgages,  charges,  transfers,   assignments  and  security
interests herein created are  collectively  referred to in this Agreement as the
"Security Interest".

3.5 The terms "equipment", "inventory", "accounts", "intangibles", "documents of
title" and "securities", as used in this ss.3 have the meanings specified in the
Personal Property Security Act (British Columbia) (the "PPSA").

4.       Further Description of Collateral

4.1 Without  limiting the generality of the description of Collateral as set out
in ss.3, for greater  certainty the  Collateral  includes all present and future
personal property of the Debtor located on or about or in transit to or from the
real  property  described  in Schedule A hereto.  The Debtor  agrees to promptly
inform the  Secured  Party in writing  of the  acquisition  by the Debtor of any
personal property which is not of the nature or type described  herein,  and the
Debtor  agrees to  execute  and  deliver  at its own  expense  from time to time
amendments  to  this  Agreement  or  additional  security  agreements  as may be
reasonably  required by the Secured  Party in order that the  Security  Interest
shall attach to all of the personal property of the Debtor.

<PAGE>

                                      4

5.       Attachment

5.1      The Debtor acknowledges that:

        (a)      value has been given,

        (b)      the Debtor has rights in the Collateral (other than after-
                 acquired property), and

        (c)      the parties have not agreed to postpone the time for attachment
                 of the Security Interest.

6.       Dealings with Collateral

6.1 Until the  occurrence  of an Event of  Default  (hereinafter  defined),  the
Debtor  may sell or lease  the  Inventory  and,  subject  to ss.7,  collect  the
Accounts in the  ordinary  course of its  business;  except that all Accounts so
collected shall be deposited into an account in British  Columbia  maintained by
the Debtor with a deposit-taking  institution  approved by the Secured Party and
shall be held by the Debtor as agent and in trust for the Secured Party and paid
to the Secured Party immediately upon request.

7.       Notification to Account Debtors Before Demand

7.1      The Secured Party may, before as well as after the occurrence of an
Event of Default,

         Notify Debtors

(a)  notify  any  person  obligated  to the  Debtor in  respect  of an  Account,
Intangible,  Chattel Paper or Instrument to make payment to the Secured Party of
all such  present  and future  amounts  due or to become due under any  Account,
Intangible, Chattel Paper or Instrument;

         Control of Proceeds

(b)      take control of the Proceeds; and

         Apply Money

(c)      apply any money taken as Collateral to the satisfaction of the
         Obligations.

8. Exceptions

8.1 The last day of the term of any lease,  sublease  or  agreement  therefor is
specifically excepted from the Security Interest, but the Debtor agrees to stand
possessed  of such last day in trust to assign  and  dispose  of as the  Secured
Party shall direct.

8.2      All Consumer Goods (as defined in the PPSA) are excepted from the
 Security Interest.

<PAGE>

                                        5

9.                Representations of Debtor

9.1            The Debtor represents and warrants that:

(a) this Agreement is granted in accordance with resolutions  of  the  directors
(and  of  the  shareholders  as  applicable) of the Debtor and all other matters
and things have been  done and  performed  so  as  to  authorize  and  make  the
execution  and delivery of this Agreement and the performance of the obligations
of the Debtor hereunder legal, valid and binding; and

(b) the Debtor lawfully owns and possesses all presently held Collateral and has
good title thereto,  free from all security  interests,  charges,  encumbrances,
liens and claims, save only security interests,  if any, consented to in writing
by the  Secured  Party or shown in  Schedule  B hereto,  and the Debtor has good
right and lawful  authority to grant the  Security  Interest.

10.  Covenants of Debtor

10.1 The Debtor  covenants and agrees:

Disposition of Collateral

(a) not to sell,  exchange,  transfer,  assign, lease or otherwise dispose of or
deal in any  way with Collateral or release, surrender or abandon  possession of
Collateral or move or transfer  Collateral from British Columbia,  or enter into
any  agreement  or  undertaking  to do  any of the  foregoing  except  as may be
permitted in this Agreement;

Other Security Interests

(b) not to create or permit to exist any  encumbrance  or security  interest in,
charge,  encumbrance or lien over, or claim against any of its property,  assets
or  undertaking  which ranks or could rank in priority to or pari passu with the
Security Interest;

Defend Title

(c)      to defend the title to the Collateral for the benefit of the Secured
Party against all claims and demands;

Repair

(d)      to keep the Collateral in good order and repair;

Insurance

(e)      to obtain from insurers acceptable to the Secured Party and maintain:

(i)      public liability insurance;

<PAGE>

                                       6

(ii)     all risks property insurance in respect of the Collateral on a
         replacement cost basis;

(iii)    business interruption insurance; and

(iv)     insurance in respect of such other risks as the Secured Party may
         reasonably require from time to time,

all of which policies of insurance shall be in such amounts as may be reasonably
required  by the  Secured  Party and shall  include a standard  mortgage  clause
approved by the Insurance  Bureau of Canada,  and the Debtor agrees to cause the
interest of the Secured  Party to be noted as a loss payee as its  interest  may
appear on such policies of insurance (except public liability insurance), and to
furnish the Secured Party with certificates of insurance and certified copies of
such policies;

Taxes and Charges

(f) to promptly pay all taxes,  assessments,  rates, levies, payroll deductions,
workers' compensation  assessments,  and any other charges which could result in
the creation of a statutory lien or deemed trust in respect of the Collateral;

Further Assurances

(g) to do,  make,  execute  and  deliver  such  further  and other  assignments,
transfers,  deeds, security agreements and other documents as may be required by
the Secured  Party to establish,  maintain and keep  maintained in favour of the
Secured Party and perfect the Security  Interest  intended to be created  hereby
and to accomplish the intention of this Agreement; and

Payment of Expenses

(h) to pay all expenses,  including  solicitors'  fees and  disbursements  (on a
solicitor and own client basis) and receivers' fees and disbursements,  incurred
by the Secured  Party or its agents  (including  any  Receiver,  as  hereinafter
defined) in connection with inspecting the  Collateral,  investigating  title to
the Collateral, the preparation,  perfection,  preservation,  and enforcement of
this  Agreement,  including  taking,  recovering  and keeping  possession of the
Collateral  and all  expenses  incurred by the  Secured  Party or such agents in
dealing with other creditors of the Debtor in connection with the  establishment
and confirmation of the priority of the Security Interest; all of which expenses
shall be payable forthwith upon demand with interest at 24% per annum calculated
monthly,  not in  advance,  (the  "Interest  Rate")  and shall  form part of the
Obligations.  "Prime" means the annual rate of interest  announced  from time to
time by the  Secured  Party as a reference  rate then in effect for  determining
interest rates on Canadian dollar loans in Canada.

(i) permit the Secured Party and its  representatives,  at all reasonable times,
access to all its  property  and to all its books of account and records for the
purpose of inspection,  and render all assistance necessary for such inspection;
and

<PAGE>

                                       7

(j) deliver to the Secured Party from time to time promptly upon request:

(i) all financial statements prepared by or for the Debtor regarding the
    Debtor's business; and

(ii) any information concerning the Collateral the Debtor, to protect its
     interest in the Collateral, may reasonably require.

11.  Events of Default

11.1  The following shall be events of default (the "Events of Default") under
this Agreement:

(a) if the Debtor  fails to satisfy or perform any of the  Obligations  when due
and such default is not remedied  within ten business  days after receipt by the
Debtor of written notice of such default;

(b) if any  representation or warranty made by or on behalf of the Debtor to the
Secured Party is or becomes incorrect or untrue, or the Debtor breaches or fails
to comply with any term of this Agreement, or any other agreement or undertaking
now or hereafter given by the Debtor to the Secured Party;

(c) if the Debtor becomes  bankrupt or makes a proposal under the Bankruptcy and
Insolvency Act (Canada) or similar  legislation in any jurisdiction,  a petition
in bankruptcy is filed  against the Debtor,  the Debtor makes an assignment  for
the  benefit of  creditors,  a trustee,  receiver,  receiver-manager  or similar
procedure  is  appointed  in  respect  of the  Debtor  or  any  of  its  assets,
proceedings  under  the  Companies'  Creditors   Arrangement  Act  (Canada)  are
commenced  with  respect to the  Debtor,  or steps are taken by or  against  the
Debtor for the  dissolution,  liquidation,  or  winding-up of the affairs of the
Debtor;

(d) if the Debtor  ceases or  threatens to cease to carry on its business or any
material part thereof as presently carried on, or makes or agrees to make a bulk
sale of its assets;

(e) if an  execution  or any similar  process of any court  becomes  enforceable
against  the Debtor,  or a distress  or any  similar  process is levied upon any
property of the Debtor;

(f) if any encumbrance affecting the Collateral becomes enforceable;

(g) if the Secured Party in good faith believes and has commercially  reasonable
grounds  to  believe  that  the  prospect  of  payment  or  performance  of  the
Obligations  is or is  about  to be  impaired  or  that  the  Collateral  is  in
jeopardy or is about to be placed in jeopardy  and the Secured Party  has  given
notice of same to the Debtor and the Debtor fails to remedy the situation within
the time period provided in such notice; and

(h)      if the Debtor is a corporation, there is, in the opinion of the Secured
Party, a change in control of the Debtor, or if the Debtor is a partnership,
there is a dissolution of the partnership.

<PAGE>


                                       8

12.      Enforcement and Remedies

12.1 Upon the  occurrence of one or more Events of Default,  the Debtor shall be
in default under this  Agreement,  the  Obligations  shall, at the option of the
Secured  Party,  be  immediately  due and payable,  the Security  Interest shall
become  enforceable  and the floating  charge  hereof shall  crystallize  at the
option of the Secured Party. Upon the Security  Interest  becoming  enforceable,
the  Secured  Party shall have the  following  remedies in addition to any other
remedies  available under the PPSA or otherwise at law or in equity or contained
in any other  agreement  between the Debtor and the Secured Party,  all of which
remedies shall be independent and cumulative:

(a)      entry of any premises where Collateral may be located;

(b)      possession of Collateral by any method permitted by law;

(c)      the sale or lease of all or any part of the Collateral, whether by
         public or private  sale or lease or  otherwise,  in such  manner,  at
         such price as can be reasonably obtained, and on such terms as to
         credit and with such conditions of sale  and  stipulations as to  title
         or conveyance or evidence of title or otherwise  as to the Secured
         Party may seem  reasonable,  provided that if any sale, lease, or other
         disposition is on credit, the Debtor shall not be entitled to be
         credited with the proceeds of any such sale, lease or other disposition
         until the monies therefor are actually received; and

(d)      the collection of any rents, income, and profits received in connection
         with the business of the Debtor or the Collateral;

(e)      the collection, realization, sale or other dealing with any Accounts of
         the Debtor;

(f)      the appointment by instrument in writing of a receiver, or a receiver-
         manager (each of which is herein called a "Receiver") of the Collateral

(g)      the exercise by the Secured Party of any of the powers set out in ss.
         13, without the appointment of a Receiver;

(h)      proceedings in any court of competent jurisdiction for the appointment
         of a Receiver or for the sale of the Collateral; and

(i)      the filing of proofs of claim and other documents in order to have the
         claims of the Secured Party lodged in any bankruptcy, winding-up, or
         other judicial proceeding relating to the Debtor.

13.      Powers of Receiver

13.1 Any Receiver appointed by the Secured Party may be any person licensed as a
trustee under the Bankruptcy and Insolvency Act (Canada),  and the Secured Party
may remove any Receiver so appointed and appoint another or others instead.  Any
Receiver  appointed shall act as agent for the Secured Party for the purposes of
taking possession of the Collateral, and (except as provided below) as agent for
the Debtor for all other purposes, including the

<PAGE>

                                       9

occupation  of any  premises  of the  Debtor  and in  carrying  on the  Debtor's
business. For the purposes of realizing upon the Security Interest, the Receiver
may sell,  lease, or otherwise  dispose of Collateral as agent for the Debtor or
as agent for the Secured Party as it may determine in its discretion. The Debtor
agrees to ratify and confirm all actions of the Receiver acting as agent for the
Debtor,  and to  release  and  indemnify  the  Receiver  in  respect of all such
actions. Any Receiver so appointed shall have the power:

(a)      to enter upon, use, and occupy all premises owned or occupied by the
         Debtor;

(b)      to take possession of the Collateral;

(c)      to carry on the business of the Debtor;

(d)      to  borrow   money  required   for  the  maintenance,  preservation  or
protection  of  the  Collateral  or  for  the carrying on of the business of the
Debtor,  and  in  the  discretion of such Receiver,  to charge and grant further
security interests in  the Collateral in priority  to  the Security Interest, as
security for the money so borrowed;

(e) to sell,  lease, or otherwise  dispose of the Collateral in whole or in part
and for  cash or  credit,  or part  cash  and  part  credit  on such  terms  and
conditions and in such manner as the Receiver shall determine in its discretion;

(f) to demand,  commence,  continue  or defend any  judicial  or  administrative
proceedings  for the purpose of protecting,  seizing,  collecting,  realizing or
obtaining  possession  or  payment  of the  Collateral,  and to give  valid  and
effectual  receipts and  discharges  therefor and to compromise or give time for
the  payment  or  performance  of all or any part of the  Accounts  or any other
obligation of any third party to the Debtor; and

(g) to exercise  any rights or remedies  which could have been  exercised by the
Secured Party against the Debtor or the Collateral.

14.      Performance of Obligations

14.1 If the  Debtor  fails to  perform  any of its  obligations  hereunder,  the
Secured  Party may,  but shall not be  obliged  to,  perform  any or all of such
obligations  without  prejudice  to any other rights and remedies of the Secured
Party  hereunder,  and any payments  made and any costs,  charges,  expenses and
legal  fees  and  disbursements  (on  a  solicitor/client   basis)  incurred  in
connection  therewith  shall be  payable  by the  Debtor  to the  Secured  Party
forthwith upon demand with interest at the Interest Rate.

14.2 The  Debtor  agrees  that the  Secured  Party may  exercise  its rights and
remedies  under  this  Agreement  immediately  upon  default,  except  as may be
otherwise provided in the Act, and the Debtor expressly confirms that, except as
may be otherwise provided in this Agreement or in the Act, the Secured Party has
not given any covenant,  express or implied, and is under no obligation to allow
the Debtor any period of time to remedy any  default  before the  Secured  Party
exercises its rights and remedies under this Agreement.

<PAGE>

                                       10

14.3 22.1 The Debtor irrevocably appoints the Secured Party or the Receiver,  as
the case may be,  with full power of  substitution,  to be the  attorney  of the
Debtor for and in the name of the Debtor to sign, endorse, or execute under seal
or otherwise any deeds, documents,  transfers,  cheques,  instruments,  demands,
assignments,  assurances,  or  consents  that the  Debtor  is  obliged  to sign,
endorse,  or execute,  and generally to use the name of the Debtor and to do all
things as may be  necessary or  incidental  to the exercise of all or any of the
powers conferred on the Secured Party or the Receiver, as the case may be, under
this Agreement.

15.      Failure to Exercise Remedies

15.1 The  Secured  Party shall not be liable for any delay or failure to enforce
any remedies  available to it or to institute any proceedings for such purposes.
The Secured  Party may waive any Event of Default,  provided that no such waiver
shall be binding  upon the Secured  Party  unless in writing nor shall it affect
the rights of the Secured Party in connection with any other or subsequent Event
of Default.

16.      Application of Payments

16.1 All payments made in respect of the  Obligations and all monies received by
the Secured  Party or any Receiver  appointed by the Secured Party in respect of
the  enforcement of the Security  Interest  (including the receipt of any Money)
may be held as security for the  Obligations or applied in such manner as may be
determined  in the  discretion of the Secured Party and the Secured Party may at
any time apply or change any such  appropriation  of such  payments or monies to
such part or parts of the  Obligations as the Secured Party may determine in its
discretion.  The  Debtor  shall  remain  liable  to the  Secured  Party  for any
deficiency  and  any  surplus  funds  realized  after  the  satisfaction  of all
Obligations  shall be paid in accordance  with  applicable law.

17. Dealings by Secured Party

17.1  The Secured Party  may grant  extensions  of time and  other  indulgences,
take and give up securities, accept compositions, grant releases and discharges,
and otherwise deal with the  Collateral,  the Debtor,  debtors  of  the  Debtor,
sureties of the Debtor,  and others as the Secured Party may  see  fit,  without
prejudice to the Obligations  and the rights of the Secured  Party to  hold  and
realize upon the Security  Interest. The Secured Party has no obligation to keep
Collateral identifiable,  or to preserve rights against other persons in respect
of any Collateral. The Secured Party shall not be  responsible or liable for any
debts contracted  by it, for damages to persons or property or for  salaries  or
non-fulfilment  of  contracts  during any period  when the  Secured  Party shall
manage the Collateral upon entry,  as provided in this Agreement,  nor shall the
Secured  Party be liable to account as mortgagee in  possession  or for anything
except  actual  receipts  or be liable  for any loss on  realization  or for any
default or  omission  for which a mortgagee  in  possession  may be liable.  The
Secured  Party  shall not be bound to do,  observe,  or perform or to see to the
observance or performance by the Debtor of any obligations or covenants  imposed
upon the  Debtor,  nor  shall  the  Secured  Party,  in the case of  Securities,
Instruments,  or Chattel  Paper,  be obliged to preserve  rights  against  other
persons,  nor shall the Secured  Party be obliged to keep any of the  Collateral
identifiable. The Debtor waives any applicable provision of law

<PAGE>

                                       11

permitted to be waived by it which imposes  higher or greater  obligations  upon
the Secured Party than as contained in this paragraph.

18.      Amalgamation by Debtor

18.1 The Debtor covenants that it shall not amalgamate with any other company or
entity without first  obtaining the written  consent of the Secured  Party.  The
Debtor hereby  acknowledges and agrees that in the event it amalgamates with any
other  corporation  or  corporations,  it is the intention of the parties hereto
that the term Debtor, when used herein,  shall apply to each of the amalgamating
corporations and to the amalgamated corporation, such that the Security Interest
granted hereby:

(a) shall extend to Collateral (as the term is herein  defined) owned by each of
the  amalgamating  corporations  and the amalgamated  corporation at the time of
amalgamation  and  to  any  Collateral  thereafter  owned  or  acquired  by  the
amalgamated corporation;

(b) shall secure the  Obligations (as the term is herein defined) of each of the
amalgamating  corporations and the amalgamated  corporation to the Secured Party
at the time of amalgamation  and any Obligations of the amalgamated  corporation
to the Secured Party arising after the amalgamation; and

(c) shall attached to Collateral owned by each corporation amalgamating with the
Debtor,  and by the amalgamated  corporation,  at the time of amalgamation,  and
shall attach to any Collateral  thereafter  owned or acquired by the amalgamated
corporation when such becomes owned or is acquired.

19.      Notice

19.1 Without prejudice to any other method of giving notice, any notice required
or permitted to be given hereunder to any party shall be conclusively  deemed to
have been received by such party on the date  following  the sending  thereof by
prepaid  private courier to such party at its address noted on the first page of
this Agreement.

20.      Separate Security

20.1 This  Agreement  and the  Security  Interest  are in addition to and not in
substitution  for any other  security now or hereafter held by the Secured Party
in respect of the Debtor, the Obligations or the Collateral.

21.      Secured Party Not Obliged to Advance

21.1 Nothing in this Agreement shall obligate the Secured Party to make any loan
or accommodation  to the Debtor,  or extend the time for payment or satisfaction
of any Obligations.

22.      Severability

22.1 If any  provision of this  Agreement is be deemed by any court of competent
jurisdiction  to be invalid or void,  the remaining  provisions  shall remain in
full force and effect.

<PAGE>

                                      12

23.      Time of Essence

23.1     Time is of the essence of this Agreement.

24.      Grammatical Changes

24.1 This  Agreement  is to be read as if all  changes  in  grammar,  number and
gender rendered necessary by the context had been made, specifically including a
reference to a person as a corporation and vice-versa.

25.      Including

25.1  The  word  "including",  when  following  any  word or  words is not to be
construed  as limiting the  preceding  word or words but the  preceding  word or
words are to be  construed  as referring to all items or matters that could fall
within the broadest possible interpretation of the preceding word or words.

26.      Agreement Unconditional

26.1 There are no  representations,  warranties or collateral  agreements by the
Secured Party to the Debtor relating to the subject-matter hereof and possession
of an  executed  copy  of  this  Agreement  by  the  Secured  Party  constitutes
conclusive evidence that it was executed and delivered by the Debtor free of all
conditions.

27.      Governing Law; Attornment

27.1 This Agreement  shall be interpreted in accordance with the laws of British
Columbia,  and, without prejudice to the ability of the Secured Party to enforce
this Agreement in any other proper  jurisdiction,  the Debtor hereby irrevocably
submits and attorns to the jurisdiction of the courts of British Columbia.

28.      Successors and Assigns

28.1 This Agreement and the  Obligations  may be assigned in whole or in part by
the Secured Party to any person,  firm or  corporation  without notice to or the
consent of the Debtor.  This Agreement may not be assigned by the Debtor without
the prior written  consent of the Secured Party.  This Agreement is binding upon
the parties hereto, and their respective heirs, executors, administrators, legal
personal  representatives,   successors  and  permitted  assigns;   "successors"
includes any corporation resulting from the amalgamation of any corporation with
another corporation.

29.      Joint and Several Liability

29.1     If  this  Agreement has  been  executed  by  more  than one Debtor, the
obligations of the Debtors shall be joint and several.

<PAGE>

                                       13

30.      Copy of Agreement

30.1     The Debtor acknowledges receipt of an executed copy of this Agreement.

31.      Verification Statements; Financing Statements

31.1     The  Debtor  waives  the  right to receive any verification  statement,
financing  statement or financing change statement  related to this Agreement or
related to any other security agreement in respect of the Obligations.

31.2  The Debtor authorizes the Secured Party to file such financing statements.
Financing change statements, and other documents, and do such acts, matters, and
things as the  Secured  Party may deem  appropriate,  to perfect  on  an ongoing
bases and Continue the Security Interest, to protect and reserve the Collateral,
and to realize upon the Security Interest.

IN WITNESS WHEREOF,  this has been executed,  sealed and delivered to, We Debtor
this 4th day of June, 2003,


DYNAMOTIVE  ENERGY SYSTEMS  CORPORATION

Per:/s/
---------------------------
Authorized Signatory

                                      14
MEMORIAL GIFT TRUST

Per:/s/ Sid Marshall                  Date: 6/3/03
   ------------------------
   Authorized Signatory

Per
   ------------------------
Authorized Signatory

Signed, sealed and delivered by JAMES
ACHESON in the presence of

---------------------------                ----------------------------
Witness (Signature)                        JAMES ACHESON

---------------------------
Name (please print)

---------------------------
Address

---------------------------
City, Country

---------------------------
Occupation

<PAGE>


                                   SCHEDULE A

REAL PROPERTY
I .      3650 Westbrook Mall, Vancouver, B.C. V6S 2L2

2.       105 - 1700 West 75`h Avenue, Vancouver, B.C. V6P 6G2

<PAGE>

SCHEDULE B
[attach PPSA search]



















<PAGE>

SCHEDULE C
[attach PPSA registration]

















<PAGE>

SCHEDULE D



UNLESS PERMITTED UNDER SECURITIES LEGISLATION,  THE HOLDER OF THE WARRANTS SHALL
NOT TRADE THESE  WARRANTS IN CANADA  BEFORE THE FIRST  ANNIVERSARY  OF THE ISSUE
DATE.

THIS  WARRANT  AND THE  SECURITIES  ISSUABLE  UPON  ITS  EXERCISE  HAVE NOT BEEN
REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED (THE "ACT"),  OR ANY
APPLICABLE  STATE  LAWS,  AND THIS  WARRANT  MAY NOT BE  EXERCISED,  NOR MAY ANY
INTEREST THEREIN BE SOLD, DISTRIBUTED,  ASSIGNED,  OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED,  UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND  APPLICABLE  STATE  SECURITIES  LAWS COVERING ANY SUCH  TRANSACTION  OR SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS AND LAWS.

                                                     Issue Date: August 31, 2003

                    COMMON SHARE PURCHASE WARRANT SERIES "R"
                          to acquire Common Shares of
                     DYNAMOTIVE ENERGY SYSTEMS CORPORATION
         (incorporated under laws of the Province of British Columbia)
                            105 - 1700 W 75th Avenue
                                 Vancouver, BC
                                    V6P 6G2

THE RIGHT TO PURCHASE  COMMON  SHARES  UNDER THIS  WARRANT  EXPIRES AT 4:30 P.M.
(VANCOUVER TIME) ON THE FIFTH ANNIVERSARY OF THE ISSUE DATE (THE "EXPIRY DATE").

ANY SHARES ACQUIRED BY EXERCISE PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUE DATE
WILL BE SUBJECT TO RESALE RESTRICTIONS IN CANADA UNTIL THAT DATE AND WILL BEAR A
LEGEND TO THIS EFFECT.

Warrant Certificate        CERTIFICATE FOR 2,000,000 Warrants, each Warrant
No. I                      entitling the holder thereof to acquire one Common
                           Share

THIS IS TO CERTIFY THAT,

                               Memorial Gift Trust
                          9229 Sunset Blvd., Suite 505
                             Los Angeles, CA 90069

(the "Holder") is the  registered  holder of the number of common share purchase
warrants (the "Warrants") of DYNAMOTIVE ENERGY SYSTEMS CORP. (the "Company") set
forth above, and is entitled,  on exercise of these Warrants upon and subject to
the terms and  conditions  set forth  herein,  to purchase that number of Common
Shares at any time prior to 4:30 p.m.  (Vancouver  time) on the Expiry Date at a
price of US$0.20  per Common  Share or on a  cash-less  basis upon the terms and
conditions hereinafter set forth.

The rights represented by this Warrant may be exercised by the Holder hereof, in
whole or in part and from time to time (but not for any fractional Common Share)
by  surrendering  this  Warrant and the attached  Warrant  Exercise  Form,  duly
executed, to the offices of the Company with (i) cash or a bank draft, certified
cheque or money order payable to  "DYNAMOTIVE  ENERGY SYSTEMS CORP." for US$0.20
per Common  Share to be  acquired;  or (ii) with  notice of  cash-less  exercise
completed..

<PAGE>

                                       2

Notwithstanding  the  foregoing,  the  Warrants may not be  transferred  into or
within  the  United  States or to or for the  account  or  benefit of any person
within  the  United  States  or to any  "U.S.  Person"  within  the  meaning  of
Regulation S under the U.S. Securities Act without evidence  satisfactory to the
Company of compliance with U.S. securities laws.

The Company covenants and agrees that all Common Shares which may be issued upon
the exercise of the rights  represented by this Warrant will, upon issuance,  be
fully paid and non-assessable  and free of all liens,  charges and encumbrances.
The Company further covenants and agrees that during the period within which the
rights  represented  by this Warrant may be  exercised,  the Company will at all
times have  authorized  and  reserved,  a sufficient  number of Common Shares to
provide for the exercise of the rights represented by this Warrant.

THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT:

I. As used herein, the term "Common Shares" shall mean and include the Company's
presently  authorized  common shares and shall also include any capital stock of
any class of the Company  hereafter  authorized  which shall not be limited to a
fixed sum or  percentage  in  respect of the  rights of the  Holders  thereof to
participate in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company.

2. In case the Company shall at any time subdivide its outstanding Common Shares
into  a  greater  number  of  shares,   the  Warrant  exercise  price  shall  be
proportionately decreased and the number of subdivided Common Shares entitled to
be purchased proportionately  increased, and conversely, in case the outstanding
Common  Shares of the Company  shall be  consolidated  into a smaller  number of
shares,  the Warrant purchase price shall be  proportionately  increased and the
number of combined  Common Shares  entitled to be purchased  hereunder  shall be
adjusted accordingly.

3. If any  capital  reorganization,  reclassification  or  consolidation  of the
capital stock of the Company,  or the merger or amalgamation of the Company with
another   corporation   shall  be   effected,   then  as  a  condition  of  such
reorganization,   reclassification,   consolidation,   merger  or  amalgamation,
adequate  provision shall be made whereby the Holder hereof shall have the right
to  purchase  and  receive  upon the basis  and upon the  terms  and  conditions
specified  in  this  Warrant  and in  lieu  of  the  Common  Shares  immediately
theretofore   purchasable  and  receivable  upon  the  exercise  of  the  rights
represented  hereby,  such shares of stock, or other securities as may be issued
with  respect to or in exchange  for such number of  outstanding  Common  Shares
equal to the  number  of  Common  Shares  purchasable  and  receivable  upon the
exercise   of  this   Warrant   had   such   reorganization,   reclassification,
consolidation,  merger  or  amalgamation  taken  place  immediately  after  such
exercise.  The Company shall not effect any merger or amalgamation  unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company)  resulting from such merger or amalgamation shall assume
by written  instrument  executed  and mailed or  delivered to the Holder of this
Warrant the  obligation to deliver to such Holder such Common Shares of stock or
securities in accordance with the foregoing provisions.

<PAGE>

                                       3

4.       In case at any time:

(a)      the Company shall pay any dividend payable in stock upon its common
         shares or make any distribution to the Holders of its Common Shares;

(b)      the Company shall offer for subscription pro rata to the Holders of its
         Common Shares any additional shares of stock of any class or other
         rights;

(c)     there  shall be any capital reorganization, or reclassification  of  the
        capital stock of the Company, or consolidation or merger or amalgamation
        of the Company  with,  or sale of all or substantially all of its assets
        to,  another corporation; or

(d)     there  shall  be  a voluntary or involuntary dissolution, liquidation or
        winding-up of the Company;

then, and in any one or more of such cases, the Company shall give to the Holder
of this Warrant, at least twenty days' prior written notice of the date on which
the  books  of the  Company  shall  close or a  record  shall be taken  for such
dividend, distribution or subscription rights, or for determining rights to vote
with respect to such reorganization, reclassification,  consolidation, merger or
amalgamation, dissolution, liquidation or winding-up and in the case of any such
reorganization,   reclassification,   consolidation,   merger  or  amalgamation,
dissolution,  liquidation  or  winding-up,  at least twenty days' prior  written
notice of the date when the same shall take  place.  Such  notice in  accordance
with the foregoing clause, shall also specify, in the case of any such dividend,
distribution  or  subscription  rights,  the date on which the Holders of Common
Shares  shall be  entitled  thereto,  and such  notice  in  accordance  with the
foregoing  shall also  specify  the date on which the  Holders of Common  Shares
shall be entitled  thereto,  and such notice in  accordance  with the  foregoing
shall  also  specify  the date on which the  Holders of Common  Shares  shall be
entitled  to exchange  their  Common  Shares for  securities  or other  property
deliverable upon such reorganization, reclassification, consolidation, merger or
amalgamation,  dissolution,  liquidation  or winding-up as the case may be. Each
such  written  notice  shall be given by first  class mail,  registered  postage
prepaid,  addressed to the Holder of this Warrant at the address of such Holder,
as shown on the books of the Company.

5.       This  Warrant  in  and of itself shall not entitle the Holder hereof to
any rights as a shareholder of the Company, including without limitation, voting
rights.

6. This Warrant and all rights  hereunder  are  transferable  in Canada from and
after the first  anniversary  of the Issue  Date.  The  Company may require as a
condition to any consent to transfer this Warrant made  thereafter an opinion of
counsel in the  jurisdiction  of residence of the transferee  and/or  transferor
that the proposed transfer is in compliance with the applicable securities laws.

7. This Warrant is exchangeable,  upon the surrender hereof by the Holder hereof
at the offices of the Company,  for new Warrants of like tenor  representing  in
aggregate  the right to subscribe  for and purchase the number of Common  Shares
which may be subscribed for and purchased  hereunder,  each of such new Warrants
to represent the right to subscribe for and

<PAGE>

                                       4

purchase  such  number of Common  Shares as shall be  designated  by such Holder
hereof at the time of such surrender.

Certificates for the Common Shares  subscribed for will be mailed to the persons
specified in the exercise form at their respective  addresses  specified therein
or, if so  specified  in the  exercise  form,  delivered  to such persons at the
office where this Warrant Certificate is surrendered. If fewer Common Shares are
purchased  than  the  number  that can be  purchased  pursuant  to this  Warrant
Certificate,  the Holder hereof will be entitled to receive without charge a new
Warrant  Certificate  in  respect of the  balance  of the  Common  Shares not so
purchased.

IN WITNESS WHEREOF DYNAMOTIVE ENERGY SYSTEMS CORP.    has  caused  this  Warrant
Certificate to be duly signed and it shall bear  the Issue Date, notwithstanding
its ' later date of actual issue or reissue of a certificate for a lesser number
of Warrants.


DYNAMOTIVE ENERGY SYSTEMS CORP.


By:/s/
-------------------------------
Authorized Signatory

<PAGE>

                             WARRANT EXERCISE FORM


To:     DYNAMOTIVE ENERGY SYSTEMS CORPORATION
        105 - 1700 W 75th Avenue
        Vancouver, BC
        V6P 6G2

1    The  undersigned Holder of the within Warrant Certificate hereby subscribes
for         common shares ("Common  Shares") of DYNAMOTIVE  ENERGY SYSTEMS CORP.
(or such number of Common Shares or other securities or property to  which  such
subscription  entitles  him in lieu  thereof or in  addition  thereto  under the
provisions of the Warrant Certificate) at the price determined under, and on the
terms specified in, the Warrant Certificate and encloses herewith cash or a bank
draft,  certified  cheque or money  order  payable  at par to or to the order of
DYNAMOTIVE  ENERGY SYSTEMS CORP. in payment  therefor at the rate of US$0.20 per
Common Share.

2. The  undersigned is aware that any shares acquired by exercise of the Warrant
before the First Anniversary of the Issue Date will bear the following legends:

"Unless  permitted under  securities  legislation,  the holder of the securities
shall not trade the  securities  in Canada before the First  Anniversary  of the
Issue Date.

3.If the undersigned is a U.S. person, he is aware that the certificate issuable
hereunder will bear the following legend:

"The  securities  represented  hereby  have not been and will not be  registered
under the United States Securities Act of 1933, as Amended (the "U.S. Securities
Act"). The holder hereof, by purchasing such securities,  agrees for the benefit
of the Issuer that such  securities may be offered,  sold,  pledged or otherwise
transferred  only (a) outside the United States in  accordance  with Rule 904 of
Regulation S under the U.S. Securities Act if applicable,  (b) inside the United
Sates (1) pursuant to the exemption from the registration requirements under the
U.S.  Securities  Act  provided by Rule 144  thereunder,  if  available,  and in
accordance with applicable  State  securities laws, or (2) in a transaction that
does not require  registration  under the U.S.  Securities Act or any applicable
State laws and regulations  governing the offer and sale of securities,  and the
holder has prior to such sale furnished to the Company an opinion of counsel."

4.       Cash-less Exercise:

The holder hereby elects cash less  exercise for the maximum  number  or
(indicate percentage).

The holder may exercise this warrant  without  further cash payment for a number
of Common Shares calculated as:

[(A-B)x C]-A

<PAGE>

2
where   A = Market Value of Company's Common Shares
        B = US$0.20
        C = Number of unexercised warrants remaining on this certificate

Market Value of Company's  Common Shares shall be the five day weighted  average
closing trade price of the Company's  shares on the OTC bulletin  board or other
exchange on the day prior to the date of the exercise  notice,  provided that at
least one trade occurred during that five day period. If no trades have occurred
during the five day period on the day prior to the date of the exercise  notice,
Market Value shall be the five day weighted  average  closing trade price of the
Company's  shares on the OTC bulletin board or other exchange  ending on the day
that the last trade on the OTC bulletin  board occurred prior to the date of the
exercise notice. If at the time of exercise, the Company's Common Shares are not
traded on the OTC bulletin board or other exchange,  then the Market Value shall
be the  value  of the  Company's  Common  Shares  used  in any  bona  fide  sale
transaction in the Company's  Common Shares between two unrelated third parties.
Unless  marked to the  contrary,  this Warrant will be exercised for the maximum
number of Common Shares.

5. The  undersigned  hereby  irrevocably  directs that the said Common Shares be
issued and  delivered  as follows:

                                                                Number(s) of
Names(s) in Full          Address(es) (Include  Postal  Code)   Common  Shares
----------------          ----------------------------------    ---------------
----------------          ----------------------------------    ---------------

(Please  print full name in which share certificates  are to be  issued.  If any
shares are to be issued to a person or persons other than the Warrantholder, the
Warrantholder must pay to the Trustee all exigible transfer taxes or other
government charges.)

DATED this              day of
          --------------      ---------------, -----------
(If Common Shares are being
registered to other than the
registered warrantholder a
signature guarantee is required.)


-----------------------                 ------------------------
Signature Guaranteed By:                Signature of Subscriber*


                                        ------------------------
                                        Name of Subscriber


                                        ------------------------
                                        Address of Subscriber
                                        (Include Postal Code)

* This signature must correspond exactly with the name appearing on the first
page.

<PAGE>

Please check box if the share  certificates are to be delivered (at subscriber's
expense) failing which the certificates will be mailed.


SCHEDULE E


                         REGISTRATION RIGHTS AGREEMENT


This Registration Rights Agreement (this "Agreement") is entered into as of June
3,  2003  by and  among  Dynamotive  Energy  systems  Corporation.,  a  Canadian
corporation (the "Company"), Memorial Gift Trust ("MGT") u/t/a dated December 6,
1995, and James Acheson  ("Acheson" and,  collectively  with MGT, the "Lender").
MGT,  Acheson,  or any of their  assignees,  are hereinafter  referred to as the
"Holder".

                                    RECITALS
                                    --------

A. The  Company and Lender  have  entered  into that  certain  loan  transaction
evidenced by a Loan  Agreement,  Secured  Promissory  Note and General  Security
Agreement,  of even date herewith (the "Loan Documents"),  pursuant to which the
Company  is  obligated  to  issue  to  the  Lender  warrants  (the   "Warrants")
exercisable  for an aggregate  2,500,000  shares of the Company's  common shares
(the "Warrant Shares"); and

B. The consummation of  the transactions  contemplated by the Loan Documents  is
conditioned upon the Company's extension to the Holder of  the  rights set forth
herein.

                                   AGREEMENT
                                   ---------

NOW,  THEREFORE,  in  consideration  of the  foregoing  recitals  and the mutual
promises set forth in this Agreement, the parties hereto agree as follows:

I.       General.
         --------

1.1      Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:

"Affiliate"  shall have the meaning  set forth in Rule 405 under the  Securities
Act.

"Change in Control"  shall mean (1) any  consolidation  or merger of the Company
with or into any  other  corporation  or other  entity or  person,  or any other
corporate  reorganization,  in which the Company shall not be the  continuing or
surviving entity of such consolidation, merger or reorganization and the holders
of the Company's  outstanding capital stock immediately preceding such event own
less than fifty percent (50%) of the outstanding  capital stock of the surviving
corporation, or any transaction or series of related transactions by the Company
in which in excess  of fifty  percent  (50%) of the  Company's  voting  power is
transferred;  or (2) a sale,  lease,  license  or  other  disposition  of all or
substantially all of the assets of the Company.

"Holder" means MGT, Acheson and any of their assignees.

                                      1

<PAGE>


"NASD" means the National Associate of Securities Dealers.

"Register," "registered," and "registration" refer to a registration effected by
preparing and filing a registration  statement in compliance with the Securities
Act and applicable  rules and  regulations  thereunder,  and the  declaration or
ordering of effectiveness of such registration statement or document.

"Registrable  Securities"  means all Warrants and Warrant Shares (whether issued
or issuable under Warrants) now or hereafter held by the Holder.

"Registration Expenses" shall have the meaning set forth in Sections 2.2 hereof.

"Securities  Act"  shall  mean the  United  States  Securities  Act of 1933,  as
amended.

"SEC" means the Securities and Exchange Commission.

2.       Piggyback Registration Rights
         ------------------------------

2.1      Piggyback Registrations.

(a) The  Company  shall  notify the Holder in writing at least  thirty (30) days
prior to the filing of any  registration  statement  under the Securities Act or
applicable  securities laws of Canada or British Columbia (referred to herein as
"Canadian  Securities  Laws") for purposes of a public offering of securities of
the  Company in the United  States or Canada  (including,  but not  limited  to,
registration  statements in connection with secondary offerings of securities of
the  Company  on behalf of the  Company  or any  other  holder of the  Company's
securities)  and will  afford  the  Holder an  opportunity  to  include  in such
registration  statement all or part of the  Registrable  Securities  held by the
Holder. If Holder desires to include in any such  registration  statement all or
any part of the  Registrable  Securities  held by it, then Holder shall,  within
fifteen (15) days after receipt of the above-described  notice from the Company,
so notify the Company in writing. Such notice shall state the intended method of
disposition of the Registrable  Securities by the Holder.  If the Holder decides
not to include all of its Registrable  Securities in any registration  statement
thereafter filed by the Company, the Holder shall nevertheless  continue to have
the right to include any Registrable  Securities in any subsequent  registration
statement or registration statements as may be filed by the Company with respect
to  offerings of its  securities,  all upon the terms and  conditions  set forth
herein.

(b) If the  Registrable  Securities  that are the  subject  of the  registration
statement  to be filed  pursuant to this  Section 2.1 are to be  distributed  by
means of an underwriting, the Holder shall further have the right to participate
in the underwriting. If Holder proposes to distribute its Registrable Securities
through such underwriting, then it shall enter into an underwriting agreement in
customary form with the

                                      2

<PAGE>

underwriter  or  underwriters  selected  for such  underwriting.  If the  Holder
disapproves  of the  terms of the  underwriting,  Holder  may  elect to sell the
Holder's  Registrable  Securities pursuant to such registration  statement,  but
without the benefit of an underwriter or Holder may elect to withdraw  therefrom
by written notice to the Company.  Notwithstanding  any other  provision of this
Agreement, if the underwriter(s)  determine in good faith that marketing factors
require a limitation of the number of shares to be underwritten at the price and
upon the terms  approved  by or on behalf of the  Company,  the number of shares
that may be  included  in the  underwriting  shall be reduced to that  number of
shares  that the  underwriters  determine  in  their  sole  discretion  will not
jeopardize  the  offering.  In such case,  the  securities to be included in the
registration  shall be reduced in the following order: (i) first, any securities
that  are  not  Registrable  Securities  pro  rata  among  the  holders  of such
securities in proportion (as nearly as  practicable) to the amount of securities
owned by each holder requesting inclusion therein,  (ii) second, the Registrable
Securities requested to be included therein by the Holder; but in no event shall
the amount of Registrable  Securities  included in the offering be reduced below
twenty five  percent  (25%) of the total amount of  securities  included in such
offering,  and (iii) third,  the securities the Company  proposes to be included
therein

2.2 Expenses of  Registration.  All  expenses  incurred in  connection  with any
registration,  qualification or compliance pursuant to Section 2.1, herein shall
be borne by the Company  including,  without limitation (i) all registration and
filing fees, all fees and expenses  associated with filings  required to be made
with the NASD,  as may be required by rules and  regulations  of the NASD (other
than fees required in excess of fees which would otherwise  pertain in the event
that Shareholders is a member of the NASD), fees and expenses of compliance with
securities or blue sky laws and Canadian  Securities  Laws  (including  fees and
disbursements  of counsel in  connection  with blue sky  qualifications  for the
Shares),  if any, rating agency fees,  printing expenses  (including expenses of
printing  certificates  for the Shares in a form  eligible  for deposit with the
Depository  Trust Company and of printing  prospectuses,  messenger and delivery
expenses,  (ii) internal expenses (including,  without limitation,  all salaries
and expenses of their  officers and  employees  performing  legal or  accounting
duties),  (iii) fees and expenses of counsel for the Company and its independent
certified  public  accountants;  (iv)  printing and related  costs;  and (v) any
direct  out-of-pocket  expenses of Shareholders,  including fees and expenses of
counsel or accountants for the  Shareholders  (collectively,  the  "Registration
Expenses") will be borne by the Company.  The Holder shall solely be responsible
for, any underwriting  discounts or commissions  attributable to the sale of the
Registrable   Shares.   In  the  event  that  following   effectiveness  of  the
Registration Statement, it becomes necessary for the Company to prepare and file
a  supplemental  prospectus  or  amended  prospectus  in order to  maintain  the
effectiveness  of  such  Registration  Statement,  the  Company  shall  pay  all
Registration  Expenses associated with the supplemental or amended Prospectus to
be distributed in connection with sales of their securities pursuant thereto.

                                       3
<PAGE>

2.3 Obligations of the Company.  Whenever required to effect the registration of
any Registrable  Securities,  the Company shall, as  expeditiously as reasonably
possible:

(a)  Prepare  and file with the SEC (or as  otherwise  required  under  Canadian
Securities Law with respect to any offering in Canada) a registration  statement
with respect to such  Registrable  Securities  and use its best efforts to cause
such registration  statement to be declared effective,  and, upon the request of
the Holder, keep such registration statement effective for up to 180 days.

(b)  Prepare  and file with the SEC (or as  otherwise  required  under  Canadian
Securities  Law with  respect to any  offering in Canada)  such  amendments  and
supplements to such registration statement and the prospectus used in connection
with  such  registration  statement  as may be  necessary  to  comply  with  the
provisions of the  Securities Act and Canadian  Securities  Law, with respect to
the  disposition  of all  securities  covered  by such  registration  statement;
provided  that,  nothing herein shall require the Company to keep a registration
statement effective for more than 120 days.

(c)  Furnish to the Holder such  number of copies of a  prospectus,  including a
preliminary  prospectus,  in conformity with the  requirements of the Securities
Act or Canadian  Securities Law, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable  Securities  owned
by them.

(d) Use its best efforts to register and qualify the securities  covered by such
registration  statement  under  such other  securities  or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holder,  provided that the
Company shall not be required in connection  therewith or as a condition thereto
to qualify to do business or to file a general  consent to service of process in
any such jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its
obligations under an underwriting  agreement,  in usual and customary form, with
the managing  underwriter(s) of such offering.  The Holder shall also enter into
and perform its obligations under such an agreement.

(f) Notify the Holder any time when a prospectus relating thereto is required to
be  delivered  under  the  Securities  Act  or  Canadian  Securities  Law of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes an untrue  statement of a
material fact or omits to state a material fact required to be stated therein or
necessary  to make the  statements  therein not  misleading  in the light of the
circumstances then existing.

(g) Furnish, at  the  request of  the  Holder, on the date that such Registrable
Securities are delivered to the underwriter(s) for sale, if  such securities are

                                       4

<PAGE>

being  sold  through  underwriters,  or, if such  securities  are not being sold
through underwriters,  on the date that the registration  statement with respect
to such securities becomes effective,  (i) an opinion, dated as of such date, of
the counsel  representing the Company for the purposes of such registration,  in
form and substance as is customarily  given to  underwriters  in an underwritten
public  offering and  reasonably  satisfactory  to the Holder,  addressed to the
underwriter(s)  and (ii) a letter  dated as of such date,  from the  independent
certified  public  accountants  of the  Company,  in form  and  substance  as is
customarily given by independent certified public accountants to underwriters in
an  underwritten  public  offering and  reasonably  satisfactory  to the Holder,
addressed to the underwriter(s).

(h) Cause all such Registrable  Securities  registered  pursuant hereunder to be
listed on each  securities  exchange on which similar  securities  issued to the
Company are then listed.

2.4 Delay of Registration. The Holder shall not have any right to obtain or seek
an  injunction  resisting or otherwise  delaying  any such  registration  as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.

2.5  Indemnification.  In the event any Registrable Securities are included in a
registration statement under Section 2.1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless
the Holder, the partners, officers,  directors, legal counsel and accountants of
the Holder,  any  underwriter  (as defined in the Securities Act) for the Holder
and each  person,  if any, who  controls  the Holder or  underwriter  within the
meaning of the  Securities Act or the United States  Securities  Exchange Act of
1934, as amended,  (the "1934 Act"),  against any losses,  claims,  damages,  or
liabilities  (joint or  several)  to which  they may  become  subject  under the
Securities  Act, the 1934 Act, any applicable  Canadian  Securities Law or other
U.S.,  Canadian ,  provincial  or state law,  insofar  as such  losses,  claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following  statements,  omissions or violations  (collectively a
"Violation")  by the  Company:  (i)  any  untrue  statement  or  alleged  untrue
statement of a material fact contained in such registration statement, including
any  preliminary  prospectus  or  final  prospectus  contained  therein  or  any
amendments  or  supplements  thereto,  (ii) the omission or alleged  omission to
state  therein a material fact  required to be stated  therein,  or necessary to
make the statements  therein not  misleading,  or (iii) any violation or alleged
violation  by the Company of the  Securities  Act,  the 1934 Act,  any  Canadian
Securities  Law,  provincial or state  securities  law or any rule or regulation
promulgated  under the Securities Act, the 1934 Act,  Canadian  Securities Labor
any provincial or state  securities law in connection with the offering  covered
by such  registration  statement;  and the Company  will  reimburse  the Holder,
partner,   officer,   director,  legal  counsel,   accountant,   underwriter  or
controlling person for any legal or

                                     5
<PAGE>

other expenses  reasonably  incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,  however,
that the indemnity agreement contained in this Section 2.5(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage,  liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation  which occurs in reliance upon and in
conformity with written  information  furnished  expressly for use in connection
with  such  registration  statement  by  the  Holder  or any  partner,  officer,
director, underwriter or controlling person of the Holder.

(b) To the extent  permitted by law, the Holder will indemnify and hold harmless
the  Company,  each of its  partners,  directors,  officers,  legal  counsel and
accountants, each person, if any, who controls the Company within the meaning of
the  Securities  Act or the 1934 Act and any  underwriter,  against  any losses,
claims,  damages or  liabilities  (joint or several) to which the Company or any
such  director,  officer,  controlling  person,  or  underwriter  who may become
subject  under the  Securities  Act,  the 1934 Act,  , any  applicable  Canadian
Securities  Law or other U.S.,  Canadian , provincial  or state law,  insofar as
such losses,  claims,  damages or  liabilities  (or actions in respect  thereto)
arise out of or are based upon any  Violation,  in each case to the extent  (and
only  to the  extent)  that  such  Violation  occurs  in  reliance  upon  and in
conformity  with  written  information  furnished  by or on behalf of the Holder
under an instrument  duly  executed by the Holder and stated to be  specifically
for use in  connection  with such  registration  statement;  and the Holder will
reimburse any legal or other expenses  reasonably incurred by the Company or any
such  director,  officer,  legal counsel,  accountant,  controlling  person,  or
underwriter in connection with  investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation;  provided,  however,  that the indemnity  agreement contained in this
Section  2.5(b) shall not apply to amounts paid in  settlement of any such loss,
claim,  damage,  liability or action if such settlement is effected  without the
consent  of the  Holder,  which  consent  shall  not be  unreasonably  withheld;
provided  further,  that in no event shall any indemnity  under this Section 2.5
exceed the net proceeds from the offering received by such Holder.

(c) Promptly  after  receipt by an  indemnified  party under this Section 2.5 of
notice of the commencement of any action  (including any  governmental  action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.5, deliver to the indemnifying party
a written notice of the commencement  thereof and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however,  that an  indemnified  party  shall  have the right to  retain  its own
counsel,  with the fees and expenses to be paid by the  indemnifying  party,  if
representation of such indemnified party by the counsel retained

                                       6

<PAGE>

by the  indemnifying  party would be  inappropriate  due to actual or  potential
conflicting  interests  between  such  indemnified  party  and any  other  party
represented by such counsel in such  proceeding.  The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying  party of any liability to the indemnified party
under this Section 2.5,  but the  omission so to deliver  written  notice to the
indemnifying  party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.5.

(d) If the  indemnification  provided for in this Section 2.5 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to  any  losses,   claims,  damages  or  liabilities  referred  to  herein,  the
indemnifying  party, in lieu of indemnifying  such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such  indemnified  party as a result of such loss,  claim,  damage or
liability in such  proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability.  The relative fault of the indemnifying  party and of the indemnified
party shall be determined by a court of law by reference to, among other things,
whether  the  untrue or  alleged  untrue  statement  of a  material  fact or the
omission  to state a  material  fact  relates  to  information  supplied  by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
statement.

(e)  Notwithstanding  the  foregoing,  to the  extent  that  the  provisions  on
indemnification and contribution contained in the underwriting agreement entered
into in connection  with the  underwritten  public offering are in conflict with
the foregoing  provisions,  the provisions in the  underwriting  agreement shall
control.

(f) The  obligations  of the  Company  and Holder  under this  Section 2.4 shall
survive  the  completion  of  any  offering  of  Registrable   Securities  in  a
registration statement or otherwise.

2.6  Assignment  of  Registration  Rights.  The  rights to cause the  Company to
register Registrable Securities pursuant to this Section 2 may be transferred or
assigned by the Holder to a transferee or assignee of Registrable Securities.

2.7  Amendment of  Registration  Rights.  Any provision of this Section 2 may be
amended and the  observance  thereof  may be waived  (either  generally  or in a
particular  instance and either  retroactively or prospectively),  only with the
written  mutual  consent  of the  Company  and the  Holder,  either of which may
withhold its consent in it sole discretion.  By acceptance of any benefits under
this  Section  2,  the  Holder  hereby  agrees  to be  bound  by the  provisions
hereunder.

                                       7

<PAGE>

2.8  Limitation on Subsequent  Registration  Rights.  From and after the date of
this Agreement,  the Company shall not, without the prior written consent of the
Holder enter into any  agreement  with any holder or  prospective  holder of any
securities of the Company which would provide registration rights to such holder
or prospective  holder that are superior to the  registration  rights granted to
the Holder under  Section 2.1 of this  Agreement,  without also  providing  such
superior registration rights to the Holder.

2.9  Termination  of  Registration  Rights.  The Holder shall not be entitled to
exercise  any right  provided  for in this  Section 2 after  five (5) years have
expired from the date of this Agreement.

3.       Covenants of the Company.
         -------------------------
3.1 Corporate  Existence.  The Company will maintain its corporate existence and
use best  efforts to comply  with all laws,  government  regulations,  rules and
ordinances and judicial orders, judgments and decrees applicable and material to
the Company, its business and properties.

3.2      Basic Financial Information and Reporting.

(a) The Company  will  maintain  true books and records of account in which full
and correct entries will be made of all its business  transactions pursuant to a
system of accounting  established and  administered in accordance with generally
accepted accounting  principles  consistently applied, and will set aside on its
books all such proper accruals and reserves as shall be required under generally
accepted accounting principles consistently applied.

(b) The Company will furnish to Holders as soon as practicable  after the end of
each fiscal year of the Company, and in any event within 140 days thereafter,  a
balance sheet of the Company,  as of the end of such fiscal year, and statements
of  income  and cash  flows  of the  Company  for such  year,  all  prepared  in
accordance with generally accepted accounting  principles  consistently applied,
and audited and  certified by  independent  public  accountants  selected by the
Company's Board of Directors.

(c) The Company will furnish to Holders as soon as practicable  after the end of
the first, second and third quarterly  accounting periods in each fiscal year of
the Company,  and in any event within 60 days thereafter,  an unaudited  balance
sheet of the Company as of the end of each such quarterly period,  and unaudited
statements  of income and cash flows of the  Company for such period and for the
current fiscal year to date (a "Quarterly  Report"),  all prepared in accordance
with generally accepted accounting  principles  consistently  applied,  with the
exception  that no notes need be attached to such  statements and year-end audit
adjustments may not have been made.

                                       8

<PAGE>

3.3  Inspection  Rights.  The Company  shall  permit  Holders,  at the  Holders'
expense, to visit and inspect the Company's properties,  to examine its books of
account and records and to discuss the Company's affairs,  finances and accounts
with its officers, all at such reasonable times as may be requested by Holders.

3.4 Pooling and Escrow  Restrictions.  In the event that the Company proposes to
effect  a  public  offering  under  Canadian  Securities  Law,  it will  use all
commercially  reasonable  efforts to exclude  the  Holders'  Common  Shares from
pooling  and escrow  restrictions,  or if such  restrictions  are  required as a
condition  of  issuing  a  receipt  for a  prospectus  or  required  by the lead
underwriters  of the Initial  Public  Offering,  then to obtain  most  favorable
treatment for the Investors'  Common Shares and to mitigate the adverse  effects
of any pooling and escrow requirements on each Investor. The Company agrees that
commercially  reasonable  efforts will include,  without  limitation,  selecting
escrow  treatment (as between the policy  statements  of the Ontario  Securities
Commission  and the Founder's  Stock Policy of The Toronto Stock  Exchange) most
favorable to the  Investors if such a policy choice is available to the Company,
and obtaining such exemption orders,  decisions,  rulings or  interpretations of
any of the  securities  regulators  or stock  exchanges  that may  reasonably be
expected to be granted or given if applied for;  provided  that  nothing  herein
will be construed as obligating  the Company to abandon a Toronto Stock Exchange
listing.

3.5  Canadian  Public  Offering.  Subject to all  regulatory  requirements,  the
Company  will  arrange for the listing of any  outstanding  Warrants and Warrant
Shares in the prospectus or other securities  disclosure  document in respect of
any public offering of shares or other  securities of the Company under Canadian
Securities  Law, and the Company will seek approval for the escrow period of any
Warrant Shares issued on the exercise of the Warrants to commence on the date of
acceptance of the  prospectus  and not from the date of exercise of the Warrant.
In the  event of a public  listing  being  completed  by  merger,  amalgamation,
reverse  takeover of another company or any method other than a public offering,
the Company will ensure that the Holders will be left in substantially  the same
position after such merger,  amalgamation,  reverse  takeover or other method of
obtaining a public listing,  as if an initial public offering had occurred.  The
Company  further  agrees that in the event any of its securities are listed on a
Canadian  stock  exchange,  the Company  will also list the  Warrant  Shares for
trading on such exchange,  at its own expense,  and take such further actions as
will permit the Holders to trade the Warrant Shares on such exchange.

4.       Representations and Warranties.
         --------------------------------
Company and Holder represent and warrant to one another as follows:

4.1 Holder has full power and  authority  to execute,  deliver and perform  this
Agreement and the transactions  contemplated hereby, and this Agreement has been
duly authorized, executed and delivered by Holder and constitutes a legal, valid
and binding obligation of Holder,  enforceable against it in accordance with its
terms except as the

                                       9

<PAGE>

same may be  limited by  bankruptcy,  insolvency,  reorganization  or other laws
relating to or affecting creditors' rights generally.

4.2 No consent, approval, authorization, order, registration or qualification of
or with any court or government agency or body having  jurisdiction over Holder,
is required for the  execution,  delivery and  performance  of this Agreement by
Holder.

4.3 The execution, delivery and performance of this Agreement by Holder has been
approved  by all  necessary  action,  corporate  or  otherwise,  and neither the
execution,  delivery nor  performance  of this  Agreement  will conflict with or
result in a material  breach of or default  under any of the terms or provisions
of its  certificate  of  incorporation,  bylaws,  any  statute,  order,  rule or
regulation of any court or government  agency or body having  jurisdiction  over
Holder or any  indenture,  mortgage,  deed of  trust,  loan  agreement  or other
material agreement to which Holder is a party.

4.4 Company has full power and  authority  to execute,  deliver and perform this
Agreement and the transactions  contemplated hereby, and this Agreement has been
duly  authorized,  executed and  delivered by Company and  constitutes  a legal,
valid and binding  obligation of Company,  enforceable  against it in accordance
with its terms  except as the same may be  limited  by  bankruptcy,  insolvency,
reorganization  or  other  laws  relating  to  or  affecting  creditors'  rights
generally.

4.5 No consent, approval, authorization, order, registration or qualification of
or with any court or government agency or body having jurisdiction over Company,
is required for the  execution,  delivery and  performance  of this Agreement by
Company.

4.6 The  execution,  delivery and  performance  of this Agreement by Company has
been approved by all necessary action,  corporate or otherwise,  and neither the
execution,  delivery nor  performance  of this  Agreement  will conflict with or
result in a material  breach of or default  under any of the terms or provisions
of its  certificate  of  incorporation,  bylaws,  any  statute,  order,  rule or
regulation of any court or government  agency or body having  jurisdiction  over
Company or any  indenture,  mortgage,  deed of trust,  loan  agreement  or other
material agreement to which Company is a party.

5.       Miscellaneous.
         --------------

5.1  Governing  Law.  This  Agreement  shall be  governed  by and  construed  in
accordance  with  the laws of  California  concerning  contracts  made and to be
whollyperformed  in  that  jurisdiction,  without  regard  to  conflicts  of law
principles. The parties agree to resolve any and all disputes arising under this
Agreement in the manner provided in the Loan Documents.

                                      10

<PAGE>

5.2 Survival. The representations,  warranties,  covenants,  and agreements made
herein shall survive the  execution  and delivery  hereof and the closing of the
transactions  contemplated  hereby.

5.3  Titles and  Subtitles.  The titles and subtitles used in this Agreement are
used  for  convenience  only  and  are  not  to  be  considered in construing or
interpreting this Agreement.

5.4 Successors and Assigns.  Except as otherwise  expressly provided herein, the
provisions  hereof  shall  inure to the  benefit  of, and be binding  upon,  the
successors,  assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be  enforceable  by the Company and Holder
from time to time.  Upon a Change in Control of the Company,  the Company  shall
require any  successor-in-interest  of the Company to assume the  obligations of
the Company under this  Agreement.  Nothing  herein shall be construed as making
the  Warrants  or  Warrant  Shares  transferable  except  pursuant  to  a  valid
registration.

5.5   Entire  Agreement.               This Agreement  constitutes  the full and
entire  understanding  and  agreement  between  the  parties  with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by  any  representations,   warranties,   covenants  and  agreements  except  as
specifically set forth herein.  In the event of a conflict between the terms and
conditions of this Agreement and the Loan Documents, the terms and conditions of
this  Agreement  shall prevail  insofar as such conflict  relates to the subject
matter of this Agreement.

5.6  Severability.  In the event one or more of the provisions of this Agreement
should,  for any reason, be held to be invalid,  illegal or unenforceable in any
respect, such invalidity,  illegality,  or unenforceability shall not affect any
other provisions of this Agreement,  and this Agreement shall be construed as if
such  invalid,  illegal or  unenforceable  provision  had never  been  contained
herein.

5.7  Expenses.  If any  action at law or in equity is  necessary  to  enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.

5.8      Amendment and Waiver.
         ---------------------
(a)      This Agreement may be amended or modified only upon the written consent
         of the Company and the Holder.
(b)      The obligations of the Company and the rights of the Holder under this
        Agreement may be waived only with the written consent of the Holder. The

                                      11

<PAGE>

obligations  of the Holder under this  Agreement and rights of the Company under
this Agreement may be waived only with the prior written consent of the Company.

(c) Notwithstanding the foregoing, if the Company grants any person registration
rights which are more  favorable  to such person than the rights  granted to the
Holder pursuant to Section 2 hereof,  respectively  (the "Superior  Registration
Rights"),  then  Section  2, as the case may be,  shall be deemed  automatically
amended,  without any further action by the Company or the Holder, such that the
rights  granted  to the Holder in  Section  2, as the case may be,  shall  fully
conform with and be equal in all respects to the Superior Registration Rights.

5.9 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified,  (ii) when sent by confirmed  facsimile if sent during normal business
hours of the  recipient;  if not, then on the next business day,  (iii) five (5)
days after having been sent by  registered  or certified  mail,  return  receipt
requested, postage prepaid, or (iv) two (2) days after deposit with a nationally
recognized  overnight  courier,   with  written  verification  of  receipt.  All
communications  shall be sent to the party to be  notified at the address as set
forth on the  signature  pages hereof or at such other address as such party may
designate by ten (10) days  advance  written  notice to the other party  hereto.

5.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original,  but all of which together shall  constitute
one instrument.

                                      12

<PAGE>


[N WITNESS  WHEREOF,  the parties  hereto have executed this Agreement as of the
date set forth in the first paragraph hereof

COMPANY                                             HOLDER:
---------------------------------------             ----------------------------
DYNAMOTIVE ENERGY SYSTEMS                           MEMORIAL GIFT TRUST
CORPORATION


By:/s/Andrew Kingston                    By:/s/ Sid Marshall
----------------------------             ------------------------------
Name: Andrew Kingston                    Name: Sid Marshall
Title: President and CEO                 Title: Trustee




Address for Notices:                    Address for Notices:
---------------------                   --------------------------------
Attention:                              c/o Randy Sugarman
---------------------                   9229 Sunset Boulevard, Suite 505
---------------------                   Attention: Randy Sugarman
Telephone                               Telephone: 310 276 0500
Facsimile:                              Facsimile: 310 276-8745

                                        By:/s/ James Acheson
                                        ---------------------------------
                                        JAMES ACHESON



                                        Address for Notices:
                                        ---------------------------------
                                        134 North Van Ness Avenue Los Angeles,
                                        California 90004
                                        Telephone: 323 465-2614
                                        Facsimile: 323 465-2617


                                      13