EXHIBIT 10.65

                                                           Dated:  April 4, 2006

         NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
         CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
         COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
         AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
         SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
         SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
         TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

No. 3                                                             U.S.$2,000,000

                              SMARTIRE SYSTEMS INC.

                              Amended and Restated

                              Convertible Debenture


                                Due June 23, 2008

         This Amended and Restated Convertible Debenture (this "Debenture") is
issued by SMARTIRE SYSTEMS INC., a corporation organized and existing under the
laws of the Yukon Territory (the "Obligor"), to Staraim Enterprises Limited
 (the "Holder"), a corporation organized under the laws of The Republic of
Cyprus, pursuant to that certain Securities Purchase Agreement (the "Securities
Purchase Agreement") dated June 23, 2005 and the Amendment to the Securities
Purchase Agreement.

         FOR VALUE RECEIVED, the Obligor hereby unconditionally promises to pay
to the Holder or its successors and assigns the principal sum of Two Million
United States Dollars ($2,000,000), together with accrued but unpaid interest on
the following terms:

         Maturity Date. On June 23, 2008 (the "Maturity Date"), so long as an
Event of Default is not then continuing, the Holder shall be required to convert
all amounts of principal and accrued interest due and outstanding hereunder into
shares of the Company's Common Stock as outlined in Section 3(c) (i) herein and
subject to the limitations of Section 3(a)(ii)(A). All amounts of principal and
accrued and unpaid interest due hereunder which the Holder is unable to convert,
at the Maturity Date, due to the Section 3(a)(ii)(A) limitations shall be due in
cash on the Maturity Date (i.e., after the limitations of Section 3(a)(ii)(A)
have applied, all of the remaining portion of principal and accrued and unpaid
interest due hereunder shall be paid in full in cash).


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         Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to ten percent (10%) from June 23, 2005. Interest
shall be calculated on the basis of a 360-day year and the actual number of days
elapsed, to the extent permitted by applicable law. Interest hereunder will be
paid to the Holder or its assignee in whose name this Debenture is registered on
the records of the Obligor regarding registration and transfers of Debentures
(the "Debenture Register") as outlined herein. In the event the Holder has
elected to convert interest due hereunder into shares of the Company's Common
Stock, or so long as such shares are eligible for immediate resale pursuant to
an effective registration statement pursuant to the Securities Act, the amount
of Common Stock to be issued will be calculated as follows: the value of the
stock shall be ninety-five and one half percent (95.5%) of the average of the
Closing Bid Prices of the Common Stock for the five (5) trading days immediately
preceding the date the interest conversion is made (the "Interest Conversion
Price"). A number of shares of Common Stock with a value equal to the amount of
interest due shall be issued to the Holder within five (5) days of the
conversion date .

         Consent of Holder to Sell Capital Stock or Grant Security Interests.
Except for the capital stock to be issued pursuant to the conversion of the
Convertible Debentures or the exercise of the Buyers' Warrants (as such terms
are defined in the Securities Purchase Agreement), the Series A Preferred Shares
issued and outstanding to Cornell Capital Partners, LP ("Cornell") pursuant to
the Investment Agreement dated March 22, 2005, or pursuant to a commitment
arising on or prior to the date hereof, so long as any of the principal amount
or interest on this Debenture remains unpaid and unconverted, the Obligor shall
not, without the prior consent of the Holder, (i) issue or sell any common stock
or preferred stock with or without consideration, (ii) issue or sell any
preferred stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire common stock with or
without consideration, (iii) enter into any security instrument granting the
holder a security interest or other lien or encumbrances in or on any of the
assets of the Obligor, or (iv) file any registration statements on Form S-8.
Provided the Obligor gives the Holder two (2) days prior written notice, the
foregoing restriction shall exclude options, warrants or other securities
convertible or exchangeable into shares of common stock of the Obligor that were
outstanding prior to the date hereof.

Right of Redemption. The Obligor at its option shall have the right, with three
(3) business days advance written notice (the "Redemption Notice"), to redeem a
portion or all amounts outstanding under this Debenture prior to the Maturity
Date provided that the Closing Bid Price of the Obligor's Common Stock, as
reported by Bloomberg, LP, is less than the Fixed Conversion Price at the time
of the Redemption Notice. The Obligor shall pay an amount equal to the principal
amount being redeemed plus a redemption premium ("Redemption Premium") equal to
twenty percent (20%) of the principal amount being redeemed, and accrued
interest, (collectively referred to as the "Redemption Amount"). The Obligor
shall deliver to the Holder the Redemption Amount on the third (3rd) business
day after the Redemption Notice.


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<PAGE>

         In the event the Obligor exercises a redemption of either all or a
portion of the outstanding principal amounts plus accrued interest due and
outstanding under this Debenture as outlined herein, the Holder shall also
receive from the Obligor, on the date of payment of the Redemption Amount, a
warrant to purchase one million (1,000,000) shares (as adjusted for splits,
reverse splits, stock dividends, share combinations and the like) of the
Company's Common Stock for every One Hundred Thousand Dollars ($100,000) (or
portion thereof) redeemed, pro rata (the "Redemption Warrant"). The Redemption
Warrant shall be exercisable on a "cash basis" and have an exercise price of one
hundred ten percent (110%) of the Closing Bid Price per share of the Company's
Common Stock on the date the Obligor provides the Redemption Notice (the
"Redemption Notice Date"), as quoted by Bloomberg, LP. The shares issuable upon
exercise of the Redemption Warrants (the "Redemption Warrant Shares") shall have
"piggy-back" and demand registration rights as to the shares underlying the
Redemption Warrant, and shall survive for five (5) years from the Redemption
Notice Date and the Redemption Warrants shall be in the form attached as Exhibit
I to the Securities Purchase Agreement.

         This Debenture is subject to the following additional provisions:

         Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.

         Section 2.        Events of Default.

         (a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

                  (i)   Any default in the payment of the principal of, interest
on or other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
remains uncured for a period of ten (10) days after such default;

                  (ii)  The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by Section
2(a)(i) hereof or any Transaction Document (as defined in Section 4) which is
not cured within the time (if any) prescribed;

                  (iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any subsidiary of
the Obligor any case or proceeding under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Obligor or
any subsidiary of the Obligor commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Obligor or any subsidiary of the Obligor or
there is commenced against the Obligor or any subsidiary of the Obligor any such
bankruptcy, insolvency or other proceeding which remains undismissed for a
period of sixty (60) days; or the Obligor or any subsidiary of the Obligor is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor suffers any appointment of any custodian, private or
court appointed receiver or the like for it or any substantial part of its
property which continues, if voluntary, undischarged or unstayed for a period of
sixty (60) days; or the Obligor or any subsidiary of the Obligor makes a general
assignment for the benefit of creditors; or the Obligor or any subsidiary of the
Obligor shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or any corporate or other
action is taken by the Obligor or any subsidiary of the Obligor for the purpose
of effecting any of the foregoing;

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<PAGE>

                  (iv)   The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other debenture or any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Obligor or any subsidiary of
the Obligor in an amount exceeding $250,000, whether such indebtedness now
exists or shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;

                  (v)    The Common Stock shall cease to be quoted for trading
or listed for trading on the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmallCap
Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market (each, a "Subsequent Market") and shall not again be quoted or listed for
trading thereon within twenty (20) Trading Days of such delisting;

                  (vi)   The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 4);

                  (vii)  The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 4) with the Commission (as defined
in Section 4), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Investor Registration Rights Agreement of even date herewith
between the Obligor and the Holder;

                  (viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
the Underlying Shares Registration Statement, in either case, for more than five
(5) consecutive Trading Days or an aggregate of eight Trading Days (which need
not be consecutive Trading Days);

                  (ix)   The Obligor shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date or the Obligor shall provide notice to the Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversions of this Debenture in accordance with the terms hereof;


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<PAGE>

                  (x)    The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3) days
after notice is claimed delivered hereunder;

          (b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election (except in the
case of clause (iii), with respect to which acceleration shall be automatic),
immediately due and payable in cash, provided however, the Holder may request
(but shall have no obligation to request) payment of such amounts in Common
Stock of the Obligor. In addition to any other remedies, the Holder shall have
the right (but not the obligation) to convert this Debenture at any time after
(x) an Event of Default or (y) subject to the limitations set forth in the
"Maturity Date" section on page 1 of this Debenture, the Maturity Date at the
Conversion Price then in-effect. The Holder need not provide and the Obligor
hereby waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded and
annulled by Holder at any time prior to payment hereunder. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon. Upon an Event of Default, notwithstanding any other
provision of this Debenture or any Transaction Document, the Holder shall have
no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.

         Section 3.        Conversion.

         (a)      (i) Conversion at Option of Holder.

                  (A) This Debenture shall be convertible into shares of Common
Stock at the option of the Holder, in whole or in part at any time and from time
to time, after the Original Issue Date (as defined in Section 4) (subject to the
limitations on conversion set forth in Section 3(a)(ii) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder shall be an amount
equal to (i) the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price (as defined
in Section 3(c)(i)) and (ii) the quotient obtained by dividing (r) the
outstanding accrued and unpaid interest under this Debenture to be converted by
(s) the Interest Conversion Price. The Obligor shall deliver Common Stock
certificates to the Holder prior to the Fifth (5th) Trading Day after a
Conversion Date.


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<PAGE>

                  (B) Notwithstanding anything to the contrary contained herein,
if on any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a Subsequent Market; or (3) the Obligor has failed to timely satisfy its
conversion;, then, at the option of the Holder, the Obligor, in lieu of
delivering shares of Common Stock pursuant to Section 3(a)(i)(A), shall deliver,
within three (3) Trading Days of each applicable Conversion Date, an amount in
cash in United States dollars equal to the product of the outstanding principal
amount to be converted plus any interest due therein divided by the Conversion
Price and multiplied by the highest closing price of the stock from date of the
conversion notice till the date that such cash payment is made.

         Further, if the Obligor shall not have delivered any cash due as set
forth in Section 3(a)(i)(B) in respect of conversion of this Debenture or as
payment of interest thereon by the fifth (5th) Trading Day after the Conversion
Date, the Holder may, by notice to the Obligor, require the Obligor to issue
shares of Common Stock pursuant to Section 3(c), except that for such purpose
the Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provisions of this Section.

                  (C) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit A (a
"Conversion Notice"). The date on which a Conversion Notice is delivered is the
"Conversion Date." Unless the Holder is converting the entire principal amount
outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion. The Holder and the Obligor
shall maintain records showing the principal amount converted and the date of
such conversions. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.

                  (ii) Certain Conversion Restrictions.

                       (A) A Holder may not convert this Debenture or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares of Common Stock issuable upon conversion of, and
payment of interest on, this Debenture or upon exercise of, or conversion of,
any other security of the Obligor, held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.9% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially owned by the Holder
or an affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of this Debenture is convertible shall be
the responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that, without regard
to any other shares that the Holder or its affiliates may beneficially own,
would result in the issuance in excess of the permitted amount hereunder, the
Obligor shall notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such Conversion Date
in accordance with the periods described in Section 3(a)(i)(A retain any
principal amount tendered for conversion in excess of the permitted amount
hereunder for future conversions. The provisions of this Section may be waived
by a Holder (but only as to itself and not to any other Holder) upon not less
than 65 days prior notice to the Obligor. Other Holders shall be unaffected by
any such waiver.

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<PAGE>

         (b)   (i)  Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

               (ii)  In addition to any other rights available to the Holder,
if the Obligor fails to deliver to the Holder such certificate or certificates
pursuant to Section 3(a)(i)(A) by the fifth Trading Day after the Conversion
Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Obligor shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
would have received from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the principal amount equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Obligor timely complied with its delivery requirements under
Section 3(a)(i)(A). For example, if the Holder purchases Common Stock having a
total purchase price of Eleven Thousand Dollars ($11,000) to cover a Buy-In with
respect to an attempted conversion of Debentures with respect to which the
market price of the Underlying Shares on the date of conversion was a total of
Ten Thousand Dollars ($10,000) under clause (A) of the immediately preceding
sentence, the Obligor shall be required to pay the Holder One Thousand Dollars
($1,000). The Holder shall provide the Obligor written notice indicating the
amounts payable to the Holder in respect of the Buy-In.

         (c)   (i) The Holder hereunder shall be entitled to convert at any time
a portion or all amounts of principal due and outstanding under this Debenture
into shares of the Company's Common Stock at the lesser of (a) $0.1125 (the
"Fixed Conversion Price") or (b) ninety five and one half percent (95 1/2 %) of
the lowest Closing Bid Price of the Common Stock for the five (5) trading days
immediately preceding the Conversion Date, as quoted by Bloomberg, LP (the
"Floating Conversion Price"). The Fixed Conversion Price and the Floating
Conversion Price are collectively referred to as the "Conversion Price". The
Fixed Conversion Price may be adjusted pursuant to the other terms of this
Debenture.

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              (ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Obligor, then the Fixed
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.

             (iii) Except for shares of capital stock or securities convertible
into or exercisable for shares of capital stock issued pursuant to a commitment
dated prior to the date hereof if the Obligor, at any time while this Debenture
is outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Closing Bid Price at the
record date mentioned below, then the Fixed Conversion Price shall be multiplied
by a fraction, of which the denominator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants (plus the number of additional shares of
Common Stock offered for subscription or purchase), and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants, plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Closing Bid Price. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However, upon
the expiration of any such right, option or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Fixed
Conversion Price pursuant to this Section, if any such right, option or warrant
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Fixed Conversion Price made pursuant to
the provisions of this Section after the issuance of such rights or warrants)
had the adjustment of the Fixed Conversion Price made upon the issuance of such
rights, options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights, options or warrants actually exercised.

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              (iv) Except for shares of capital stock or securities convertible
into or exercisable for shares of capital stock issued pursuant to a commitment
dated on or prior to the date hereof, if the Obligor or any subsidiary thereof,
as applicable, with respect to Common Stock Equivalents (as defined below), at
any time while this Debenture is outstanding, shall issue shares of Common Stock
or rights, warrants, options or other securities or debt that are convertible
into or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Fixed Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Fixed
Conversion Price), then, at the sole option of the Holder, the Fixed Conversion
Price shall be adjusted to mirror the conversion, exchange or purchase price for
such Common Stock or Common Stock Equivalents (including any reset provisions
thereof) at issue. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. The Obligor shall notify the Holder in
writing, no later than five (5) business days following the issuance of any
Common Stock or Common Stock Equivalent subject to this Section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. No adjustment under this
Section shall be made as a result of issuances and exercises of options to
purchase shares of Common Stock issued for compensatory purposes pursuant to any
of the Obligor's stock option or stock purchase plans.

               (v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Fixed
Conversion Price at which this Debenture shall thereafter be convertible shall
be determined by multiplying the Fixed Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Closing Bid Price determined as of the record date mentioned above, and of which
the numerator shall be such Closing Bid Price on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

              (vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Obligor into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled, or (B) require the
Obligor to prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.

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             (vii) All calculations under this Section 3 shall be rounded up to
the nearest $0.001 of a share.

            (viii) Whenever the Fixed Conversion Price is adjusted pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the Fixed Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

              (ix) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least ten (10) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
10-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.

               (x) In case of any (1) merger or consolidation of the Obligor
or any subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.

                                       10
<PAGE>

         (d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of Sections 2(b) and 3(c)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

         (e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.

         (f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid. The Holder shall pay any and all
withholding taxes assessed in connection with the transactions contemplated by
this Debenture.

                                       11
<PAGE>

         (g) Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) trading day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:


If to the Company, to:     SmarTire Systems Inc.
                           Richmond Corporate Centre
                           Suite 150-13151 Vanier Place
                           Richmond, British Columbia
                           Canada V6V 2J1
                           Attention:  Jeff Finkelstein Chief Financial Officer
                           Telephone:  (604) 276-9884
                           Facsimile:  (604) 276-2353

With a copy to:            Greenberg Traurig, LLP
                           200 Park Avenue
                           New York, NY  10166
                           Attention:   Michael Pflaum, Esq.
                           Telephone:   (212) 801-9200
                           Facsimile:   (212) 801-6400

If to the Holder:          Staraim Enterprises Limited.
                           Athalassas, 47
                           2nd Floor, Flat Office 202
                           Strovolos, P.C. 2012, Nicosia, Cyprus
                           Attention:   Nairy Merheje
                           Telephone:   +357-22313339
                           Facsimile:   +357-22313346

With a copy to:            David Gonzalez, Esq.
                           101 Hudson Street - Suite 3700
                           Jersey City, NJ 07030
                           Telephone: (201) 985-8300
                           Facsimile: (201) 985-8744


or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

                                       12
<PAGE>

         Section 4.  Definitions. For the purposes hereof, the following terms
shall have the following meanings:

         "Amendment" means Amendment No. 1 to the Securities Purchase Agreement,
dated June 23, 2005.

          "Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.

         "Change of Control Transaction" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Obligor, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Obligor (except that the acquisition of
voting securities by the Holder shall not constitute a Change of Control
Transaction for purposes hereof), (b) a replacement at one time or over time of
more than one-half of the members of the board of directors of the Obligor which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Obligor or any subsidiary of
the Obligor in one or a series of related transactions with or into another
entity, or (d) the execution by the Obligor of an agreement to which the Obligor
is a party or by which it is bound, providing for any of the events set forth
above in (a), (b) or (c).

          "Closing Bid Price" means the price per share in the last reported
trade of the Common Stock on the OTC or on the Subsequent Market which the
Common Stock is then listed as quoted by Bloomberg, LP.

         "Commission" means the Securities and Exchange Commission.

         "Common Stock" means the common stock, no par value, of the Obligor and
stock of any other class into which shares of Common Stock may hereafter be
changed or reclassified.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Original Issue Date" shall mean June 23, 2005, regardless of the
number of transfers and regardless of the number of instruments, which may be
issued to evidence such Debenture.

          "Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.

                                       13
<PAGE>

          "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

         "Trading Day" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.

         "Transaction Documents" means the Securities Purchase Agreement and the
Amendment or any other agreement delivered in connection with the Securities
Purchase Agreement or Amendment, including, without limitation the Investor
Registration Rights Agreement and the Irrevocable Transfer Agent Instructions.

         "Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.

         "Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.

         Section 5. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other debentures in the
aggregate principal amount of U.S. $30,000,000 originally issued on June 23,
2005 under the terms of the Securities Purchase Agreement. As long as this
Debenture is outstanding, the Obligor shall not and shall cause their
subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; (iii) convey, sell, lease or
otherwise dispose of all or substantially all of its property or assets; (iv)
pay dividends or make any other distribution on its capital stock to any person;
or (v) enter into any agreement with respect to any of the foregoing.

         Section 6. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.

         Section 7. If this Debenture is mutilated, lost, stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.

                                       14
<PAGE>

         Section 8. No indebtedness of the Obligor is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder's consent, the
Obligor will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the obligations of the Obligor under
this Debenture.

         Section 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Hudson County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens to the bringing of any
such proceeding in such jurisdictions. Nothing contained herein shall limit the
right of the Holder to bring an action in the courts of any other jurisdiction
in the event that the courts of New Jersey have declined jurisdiction. Any
judgment obtained by the Holder in any one jurisdiction can be enforced in any
other jurisdiction. The Holder shall have the right to convert any judgment
against the Company in one currency into another currency provided that a
commercially reasonable method of conversion is used.

         Section 10. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.

         Section 11. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
This Debenture may only be waived or modified by a writing executed and
delivered by the party sought to be charged with such waiver or modification.

         Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

                                       15
<PAGE>

         Section 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

         Section 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEBENTURE OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.

         Section 15. This Debenture constitutes an amendment, restatement and
modification of the Convertible Debenture, dated June 23, 2005, issued by the
Obligor in favor of the Holder in the principal amount of Two Million Dollars
($2,000,000) (the "Original Debenture") and (ii) together with the Securities
Purchase Agreement and the amended, restated and modified Investor's
Registration Rights Agreement dated the date hereof, the entire agreement
between the Holder and the Obligor as of the date hereof and supersedes all
other previous agreements and understandings, written or oral, between the
Holder and the Obligor regarding this Debenture other than as set forth in this
Debenture.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

         IN WITNESS WHEREOF, the Obligor has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date set forth above.

                                            SMARTIRE SYSTEMS INC.

                                            By:    /s/Jeff Finkelstein
                                            Name:     Jeff Finkelstein
                                            Title:    Chief Financial Officer















                                       17
<PAGE>

                                  EXHIBIT "A"


                             NOTICE OF CONVERSION


        (To be executed by the Holder in order to Convert the Debenture)



TO:

         The undersigned hereby irrevocably elects to convert $_________________
of the principal amount of the above Debenture into Shares of Common Stock of
SmarTire Systems Inc., according to the conditions stated therein, as of the
Conversion Date written below.

Conversion Date:             ___________________________________________________

Applicable Conversion Price: ___________________________________________________

Signature:                   ___________________________________________________

Name:                        ___________________________________________________

Address:                     ___________________________________________________

Amount to be converted:      $__________________________________________________

Amount of Debenture
unconverted:                 $__________________________________________________

Conversion Price per share:  $__________________________________________________

Number of shares of Common
Stock to be issued:          ___________________________________________________

Amount of Interest
Converted:                   $__________________________________________________

Conversion Price per share:  $__________________________________________________

Number of shares of Common
Stock to be issued:          ___________________________________________________

Please issue the shares of
Common Stock in the
following name and to
the following address:       ___________________________________________________

Issue to:                    ___________________________________________________

Authorized Signature:        ___________________________________________________

Name:                        ___________________________________________________

Title:                       ___________________________________________________

Phone Number:                ___________________________________________________

Broker DTC Participant Code: ___________________________________________________

Account Number:              ___________________________________________________