**Dated:  August
        20, 2007**
  **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.
        SMTR-6-2 $350,000
  **SMARTIRE
        SYSTEMS INC.**
  **Convertible
        Debenture**
  **Due:
        April 27, 2010**
  This
        Convertible Debenture (the
“**Debenture**”) is issued by **SMARTIRE SYSTEMS,
        INC.**,****a corporation continued under the laws of
        the Province of British Columbia (the “**Company**”), to
**XENTENIAL HOLDINGS LIMITED** (the “**Holder**”),
        pursuant to that certain securities purchase agreement (the “**Securities
        Purchase Agreement**”) dated April 27, 2007.
  **FOR
        VALUE RECEIVED**,
        the Company hereby promises to pay to the Holder or its successors and assigns
        the principal sum of Three Hundred Fifty Thousand Dollars ($350,000) together
        with accrued but unpaid interest on or before April 27, 2010 (the
“**Maturity Date**”) in accordance with the following
        terms:
  *Section
        1*.                                Definitions.  For
        the purposes hereof, the following terms shall have the following
        meanings:
  “**Approved
        Stock Plan**” means any stock option plan that has been approved by the
        Board of Directors of the Company, pursuant to which the Company’s securities
        may be issued only to any employee, officer or director for services provided
        to
        the Company.
  “**Business
        Day**” means any day except Saturday, Sunday and any day which shall be
        a
        federal legal holiday in the United States or Canada or a provincial holiday
        in
        the Province of British Columbia 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 Company,
        by contract or otherwise) of in excess of fifty percent (50%) of the voting
        securities of the Company (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 Company 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 Company or any subsidiary of the Company in one or a series
        of
        related transactions with or into another entity, or (d) the execution by
        the
        Company of an agreement to which the Company 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 a Primary Market or on the exchange  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 Company and stock
        of any other class into which such shares may hereafter be changed or
        reclassified.
  “**Conversion
        Date**” shall mean the date upon which the Holder gives the Company
        notice of their intention to effectuate a conversion of this Debenture into
        shares of the Company’s Common Stock as outlined herein.
  “**Exchange
        Act**” means the Securities Exchange Act of 1934, as
        amended.
  “**Excluded
        Securities**” means, (a) shares, options or other securities or interests
        issued or deemed to have been issued by the Company pursuant to an Approved
        Stock Plan, (b) shares of Common Stock issued or deemed to be issued by the
        Company upon the conversion, exchange or exercise of any right, option, warrant,
        obligation or security outstanding on the date immediately prior to date
        of the
        Securities Purchase Agreement, including, pursuant to the convertible debentures
        dated May 20, 2005 issued to Cornell Capital Partners, LP and Highgate House
        Funds, Ltd, all convertible debentures issued to Xentenial Holdngs Limited,
        the
        convertible debentures dated June 23, 2005, later amended and restated on
        December 30, 2005, issued to Staraim Enterprises Limited, the convertible
        debentures dated June 23, 2005, later amended and restated on December 30,
        2005,
        issued to Starome Investments Limited, the convertible debentures dated November
        7, 2006, issued to TAIB Bank B.S.C., the Series A Preferred Shares of stock
        issued to Cornell Capital Partners, LP, and all warrants issued by the Company
        in connection with the foregoing, and the Standby Equity Distribution Agreement
        dated December 30, 2005 by and between the Company and Cornell Capital Partners,
        LP (collectively, the “**Previous Financing Documents**”), provided
        (excluding any right, option, warrant, obligation or security issued pursuant
        to
        the Previous Financing Documents) that the terms of such right, option, warrant,
        obligation or security are not amended or otherwise modified on or after
        the
        date of the Securities Purchase Agreement, and provided (excluding any right,
        option, warrant, obligation or security issued pursuant to the Previous
        Financing Documents) that the conversion price, exchange price, exercise
        price
        or other purchase price is not reduced, adjusted or otherwise modified and
        the
        number of shares of Common Stock issued or issuable is not increased (whether
        by
        operation of, or in accordance with, the relevant governing documents or
        otherwise) on or after the date of the Securities Purchase
        Agreement,  and (c) the shares of Common Stock issued or deemed
        to be issued by the Company upon conversion of this Debenture.
  
 “**Original
        Issue Date**” shall mean the date of the first issuance of this Debenture
        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.
  “**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 Primary 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 or any other
        agreement delivered in connection with the Securities Purchase Agreement,
        including, without limitation, the Irrevocable Transfer Agent Instructions,
        the
        Security Agreement, the Patent Security Agreement, and the Registration Rights
        Agreement.
  “**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
        2*.                                General
        Terms
  (a)           *Interest*.  Interest
        shall accrue on the outstanding principal balance hereof at an annual rate
        equal
        to ten percent (10%).  Interest shall be calculated on the basis of a
        365-day year and the actual number of days elapsed, to the extent permitted
        by
        applicable law.  Interest hereunder shall be paid on the Maturity Date
        (or sooner as provided herein) to the Holder or its assignee in whose name
        this
        Debenture is registered on the records of the Company regarding registration
        and
        transfers of Debentures in cash or in Common Stock (valued at the Closing
        Bid
        Price on the Trading Day immediately prior to the date paid) at the option
        of
        the Company.
  (b)           Security.  This
        Debenture is secured by a security interest in all of the assets of the Company
        and of each of the Company's subsidiaries, including all patents and patent
        applications, as evidenced by the security agreement dated January 23, 2007,
        as
        amended (the “**Security Agreement**”) and the patent security
        agreement dated April 27, 2007 (the “**Patent Security
        Agreement**”).
  
 *Section
        3*.                                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 (not waived by the Holder) in the payment of the principal of, interest
        on or other charges in respect of this Debenture, or any convertible debenture
        issued by the Company to the Holder, free of any claim of subordination,
        as and
        when the same shall become due and payable whether upon an Optional Redemption
        (as defined in *Section 3(a)*), the Maturity Date, by acceleration, or
        otherwise;
  (ii)  The
        Company or any subsidiary of the Company shall commence, or there shall be
        commenced against the Company or any subsidiary of the Company, under any
        applicable bankruptcy or insolvency laws as now or hereafter in effect or
        any
        successor thereto, or the Company or any subsidiary of the Company 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 Company or
        any
        subsidiary of the Company or there is commenced against the Company or any
        subsidiary of the Company any such bankruptcy, insolvency or other proceeding
        which remains undismissed for a period of 61 days, or the Company or any
        subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
        of
        relief or other order approving any such case or proceeding is entered; or
        the
        Company or any subsidiary of the Company 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 undischarged or unstayed
        for a
        period of sixty one (61) days; or the Company or any subsidiary of the Company
        makes a general assignment for the benefit of creditors; or the Company or
        any
        subsidiary of the Company shall fail to pay, or shall state that it is unable
        to
        pay, or shall be unable to pay, its debts generally as they become due; or
        the
        Company or any subsidiary of the Company shall call a meeting of its creditors
        with a view to arranging a composition, adjustment or restructuring of its
        debts; or the Company or any subsidiary of the Company shall by any act or
        failure to act expressly indicate its consent to, approval of or acquiescence
        in
        any of the foregoing; or any corporate or other action is taken by the Company
        or any subsidiary of the Company for the purpose of effecting any of the
        foregoing;
  (iii)  The
        Company or any subsidiary of the Company 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 Company or any subsidiary of the Company in an amount
        exceeding $100,000, 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;
  
 (iv)  The
        Common Stock shall cease to be quoted for trading or listing for trading
        on any
        of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
        Nasdaq
        National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
        Board (“**OTC**”) (each, a “**Primary Market**”) and
        shall not again be quoted or listed for trading on any Primary Market within
        five (5) Trading Days of such delisting;
  (v)  The
        Company or any subsidiary of the Company shall be a party to any Change of
        Control Transaction;
  (vi)  The
        Company shall fail to file the Underlying Shares Registration Statement with
        the
        Commission, or the Underlying Shares Registration Statement shall not have
        been
        declared effective by the Commission, in each case as the direct result of
        the
        Company’s failure to use its reasonably best efforts under Section 2(b) of the
        Registration Rights Agreement (defined below), within the time periods set
        forth
        in the investor registration rights agreement (“**Registration Rights
        Agreement**”) dated January 23, 2007, as amended between the Company and
        the Holder;
  (vii)  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);
  (viii)  The
        Company 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 Company 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 in accordance with the terms hereof;
  (ix)  The
        Company shall fail for any reason to deliver the payment in cash pursuant
        to a
        Buy-In (as such term is defined in section 5(d)(vi)) within three (3) days
        after
        notice is claimed delivered hereunder;
  (x)  The
        Company shall fail to observe or perform any other material covenant, agreement
        or warranty contained in, or otherwise commit any material breach or default
        of
        any provision of this Debenture (except as may be covered by Section 3(a)(i)
        through 3(a)(ix) hereof) or any Transaction Document which is not cured with
        in
        the time prescribed, or an Event of Default under any other debenture issued
        to
        the Holder in connection with the Securities Purchase Agreement shall
        occur;
  (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, 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
        Company.  Furthermore, in addition to any other remedies, the Holder
        shall have the right (but not the obligation) to convert this Debenture at
        any
        time after (i) an Event of Default or (ii) the Maturity Date at the Conversion
        Price then in-effect.  The Holder need not provide and the Company
        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.  Except with respect to the limitation set forth in Section
        4(b)(i) hereof, 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
        4*.                                Redemptions.  *Company’s
        Optional Cash Redemption*.  The Company, at its sole option,
        shall have the right to redeem (“**Optional Redemption**”) a
        portion or all amounts outstanding under this Debenture prior to the Maturity
        Date *provided that* as of the date of the Holder’s receipt of a
        Redemption Notice (as defined herein) (i) the Closing Bid Price of the of
        the
        Common Stock, as reported by Bloomberg, LP, is less than the Conversion Price,
        (ii) the Underlying Share Registration Statement is effective, and (iii)
        no
        Event of Default has occurred.  The Company 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**”).  In order to make a
        redemption, the Company shall first provide written notice (the
“**Redemption Notice**”) to the Holder of its intention to make a
        redemption setting forth the amount of principal it desires to
        redeem.  After receipt of the Redemption Notice, the Holder shall have
        three (3) business days to elect to convert all or any portion of this
        Debenture, subject to the limitations set forth in Section 4(b).  On
        the fourth (4th) business
        day
        after the Redemption Notice, the Company shall deliver to the Holder the
        Redemption Amount with respect to the principal amount redeemed after giving
        effect to conversions effected during the three (3) business day
        period.
  *Section
        5*.                                Conversion.
  (a)           Conversion
        at Option of Holder.
  (i)           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 (subject to the limitations on conversion set forth in
        Section 5(b) hereof).  The number of shares of Common Stock issuable
        upon a conversion hereunder equals the quotient obtained by dividing (x)
        the
        outstanding amount of this Debenture to be converted by (y) the Conversion
        Price
        (as defined in Section 5(c)(i)).  The Company shall deliver Common
        Stock certificates to the Holder prior to the Fifth (5th) Trading
        Day after
        a Conversion Date.
  (ii)           Notwithstanding
        anything to the contrary contained herein, if on any Conversion Date or with
        respect thereto:  (1) the number of shares of Common
        Stock  authorized and unissued, or held as treasury stock, is
        insufficient to satisfy the payment of all principal and interest hereunder
        in
        shares of Common Stock; (2) the Common Stock is not listed or quoted for
        trading
        on a Primary Market; or (3) the Company has failed to timely satisfy a
        conversion; then, at the option of the Holder, the Company, in lieu of
        delivering shares of Common Stock pursuant to Section 5(a)(i), shall deliver,
        within three (3) Trading Days of each applicable Conversion Date, an amount
        in
        cash equal to the product of the outstanding principal amount to be converted
        divided by the applicable Conversion Price, and multiplied by the highest
        Closing Bid Price of the stock from the date of the Conversion Notice till
        the
        date that such cash payment is made.
  
 Further,
        if the Company shall not have delivered any cash due in respect of conversion
        of
        this Debenture pursuant to the previous paragraph by the fifth (5th) Trading
        Day after
        the Conversion Date, the Holder may, by notice to the Company, require the
        Company to issue shares of Common Stock pursuant to Section 5(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.
  (iii)           The
        Holder shall effect conversions by delivering to the Company a completed
        notice
        (a “**Conversion Notice**”) in the form attached hereto as Exhibit
        A.  The date stated 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 Company 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 Company 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.
  (b)           Certain
        Conversion Restrictions.
  (i)           The
        Company shall not effect any conversions of this Debenture and the Holder
        shall
        not have the right to convert any portion of this Debenture or receive shares
        of
        Common Stock as payment of interest hereunder to the extent that after giving
        effect to such conversion or receipt of such interest payment, the Holder,
        together with any affiliate thereof, would beneficially own (as determined
        in
        accordance with Section 13(d) of the Exchange Act and the rules promulgated
        thereunder) in excess of 4.99% of the number of shares of Common Stock
        outstanding immediately after giving effect to such conversion or receipt
        of
        shares as payment of interest.  Since the Holder will not be obligated
        to report to the Company the number of shares of Common Stock it may hold
        at the
        time of a conversion hereunder, unless the conversion at issue would result
        in
        the issuance of shares of Common Stock in excess of 4.99% 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 sole and exclusive authority and obligation to determine whether
        the
        restriction contained in this section 5(b)(i) 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 Company 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 provisions hereunder and any principal
        amount tendered for conversion in excess of the permitted amount hereunder
        shall
        remain outstanding under this Debenture.  The provisions of this
        section 5(b)(i) 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
        Company.  Other Holders shall be unaffected by any such
        waiver.
  
 (c)           Conversion
        Price and Adjustments to Conversion Price.
  (i)           The
        conversion price in effect on any Conversion Date shall be equal to the lesser
        of (a) $0.0573 (the “**Fixed Conversion Price**”) or (b) eighty
        percent (80%) of the lowest Volume Weighted Average Price of the Common
        Stock during the thirty (30) trading days immediately preceding the Conversion
        Date as quoted by Bloomberg, LP (the “**Market Conversion Price**”)
        (the Fixed Conversion Price and the Market Conversion Price are collectively
        referred to as the “**Conversion Price**”)  The
        Conversion Price may be adjusted pursuant to the other terms of this
        Debenture.
  (ii)           If
        the Company, 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 Company, then the 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)           If
        the Company, 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 Conversion Price, then the 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 the Conversion 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 Conversion Price pursuant to this section 5(c)(iii),
        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 Conversion Price
        made pursuant to the provisions of this section 5(c)(iii) after the issuance
        of
        such rights or warrants) had the adjustment of the 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.
  (iv)           If
        the Company or any subsidiary thereof, as applicable, 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 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 Conversion Price), then, at the sole option of the Holder, the 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 Company shall
        notify the Holder in writing, no later than two (2) business days following
        the
        issuance of any Common Stock or Common Stock Equivalent subject to this section
        5(c)(iv), indicating therein the applicable issuance price, or of applicable
        reset price, exchange price, conversion price and other pricing
        terms.  No adjustment under this section 5(c)(iv) shall be made as a
        result of issuances of Excluded Securities.
  (v)           If
        the Company, 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 Conversion Price at which this Debenture
        shall thereafter be convertible shall be determined by multiplying the
        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, at its option,
        to
        (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 Company 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 Company 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.
  (vii)           Whenever
        the Conversion Price is adjusted pursuant to Section 5 hereof, the Company
        shall
        promptly mail to the Holder a notice setting forth the Conversion Price after
        such adjustment and setting forth a brief statement of the facts requiring
        such
        adjustment.
  (viii)                      If
        (A) the Company shall declare a dividend (or any other distribution) on the
        Common Stock; (B) the Company shall declare a special nonrecurring cash dividend
        on or a redemption of the Common Stock; (C) the Company shall authorize the
        granting to all holders of the Common Stock rights or warrants to subscribe
        for
        or purchase any shares of capital stock of any class or of any rights; (D)
        the
        approval of any stockholders of the Company shall be required in connection
        with
        any reclassification of the Common Stock, any consolidation or merger to
        which
        the Company is a party, any sale or transfer of all or substantially all
        of the
        assets of the Company, of any compulsory share exchange whereby the Common
        Stock
        is converted into other securities, cash or property; or (E) the Company
        shall
        authorize the voluntary or involuntary dissolution, liquidation or winding
        up of
        the affairs of the Company; then, in each case, the Company 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 Company, at least twenty (20) calendar
        days prior to the applicable record or effective date hereinafter specified,
        a
        notice stating (x) the date on which a record is to be taken for the purpose
        of
        such dividend, distribution, redemption, rights or warrants, or if a record
        is
        not to be taken, the date as of which the holders of 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 20-day calendar period commencing the date of such
        notice to the effective date of the event triggering such notice.
  
 (ix)           In
        case of any (1) merger or consolidation of the Company or any subsidiary
        of the
        Company with or into another Person, or (2) sale by the Company or any
        subsidiary of the Company of more than one-half of the assets of the Company
        in
        one or a series of related transactions, a Holder shall have the right to
        (A)
        exercise any rights under Section 4(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 Debenture was
        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.
  (d)           Other
        Provisions.
  (i)           The
        Company shall at all times reserve and keep available out of its authorized
        Common Stock the full number of shares of Common Stock issuable upon conversion
        of all outstanding amounts under this Debenture (without taking into account
        any
        conversion limitations); and within three (3) Business Days following the
        receipt by the Company of a Holder's notice that such minimum number of
        Underlying Shares is not so reserved, the Company shall promptly reserve
        a
        sufficient number of shares of Common Stock to comply with such
        requirement.
  (ii)           All
        calculations under this Section 5 shall be rounded up to the nearest $0.0001
        or
        whole share.
  (iii)           The
        Company 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 Company as to reservation of such shares set
        forth in this Debenture or in the Transaction Documents) be issuable (taking
        into account the adjustments and restrictions set forth herein) upon the
        conversion of the outstanding principal amount of this Debenture and payment
        of
        interest hereunder.  The Company covenants that all shares of Common
        Stock that shall be so issuable shall, upon issue, be duly and validly
        authorized, issued and fully paid, non-assessable 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.
  
 (iv)           Upon
        a conversion hereunder the Company 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 Company
        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.
  (v)           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 Company 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 Company 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 Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.
  (vi)           Nothing
        herein shall limit a Holder's right to pursue actual damages or declare an
        Event
        of Default pursuant to Section 3 herein for the Company '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.
  (vii)           In
        addition to any other rights available to the Holder, if the Company fails
        to
        deliver to the Holder such certificate or certificates pursuant to Section
        4(a)(i) by the fifth (5th) 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 Company 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 anticipated
        receiving 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 Company timely complied with its delivery requirements under Section
        4(a)(i).  For example, if the Holder purchases Common Stock having a
        total purchase price of $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 $10,000 under
        clause
        (A) of the immediately preceding sentence, the Company shall be required
        to pay
        the Holder $1,000.  The Holder shall provide the Company written
        notice indicating the amounts payable to the Holder in respect of the
        Buy-In.
  
 *Section
        6*.                                Notices.                      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 CentreSuite
                  150-13151 Vanier PlaceRichmond,
                  British ColumbiaCanada
                  V6V 2J1Attention:                                Jeff
                  FinkelsteinTelephone:                                (604)
                  276-9884Facsimile:                                (604)
                  276-2353With
                  a copy to:
              Ethan
                  Minsky
                Clark
                  Wilson LLP
                800
                  – 885 West Georgia Street,
                Vancouver,
                  British Columbia V6C 3H1Telephone:  (604)
                  687-5700
                Facsimile:   (604)
                  687-6314
 
 If
                  to the Holder:
              Xentenial
                  Holdings LimitedAthalassas,
                  472nd
                  Floor, Flat
                  Office 202Strovolos,
                  P.C. 2012, Nicosia, CyprusAttention:     Nairy
                  MerhejeTelephone:   +357-22313339Facsimile:    +357-22313346With
                  a copy to:
              David
                  Gonzalez, Esq.101
                  Hudson Street – Suite 3700Jersey
                  City, NJ 07302Telephone:                                (201)
                  985-8300Facsimile:       (201)
                  985-8266
 
 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.
  
 *Section
        7*.                                Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligations of the Company, 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
        Company.  This Debenture ranks *pari passu* with all other
        Debentures now or hereafter issued under the terms set forth
        herein.  As long as this Debenture is outstanding, the Company shall
        not and shall cause their subsidiaries not to, without the consent of the
        Holder, (i) amend its Notice of Articles, Articles 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; or (iii) enter into any agreement
        with respect to any of the foregoing.
  *Section
        8*.                                This
        Debenture shall not entitle the Holder to any of the rights of a stockholder
        of
        the Company, 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 Company, unless
        and to
        the extent converted into shares of Common Stock in accordance with the terms
        hereof.
  *Section
        9*.                                If
        this Debenture is mutilated, lost, stolen or destroyed, the Company 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
        Company.
  *Section
        10*.                                No
        indebtedness of the Company 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 Company 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 there from that is senior
        in
        any respect to the obligations of the Company under this Debenture.
  *Section
        11*.                                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.
  
 *Section
        12*.                                If
        the Company fails to strictly comply with the terms of this Debenture, then
        the
        Company 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
        13*.                                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.
  *Section
        14*.                                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 Company 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 Company 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
        Company (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.
  *Section
        15*.                                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
        16*.                                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
        17*.                                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 AGREEMENT 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.
  
 **[REMAINDER
        OF PAGE INTENTIONLLY LEFT BLANK]**
   
 **IN
        WITNESS WHEREOF**, the Company has caused this Secured Convertible
        Debenture to be duly executed by a duly authorized officer as of the date
        set
        forth above.
  
 **COMPANY:****SMARTIRE
                  SYSTEMS INC.**By:                
                  /*s/Jeff Finkelstein*Name:            Jeff
                  FinkelsteinTitle:              Chief
                  Financial Officer
 
 
  
   **EXHIBIT
        A**
   **FORM
        OF CONVERSION NOTICE**
  Reference
        is made to the Securities Purchase Agreement (the “Securities Purchase
        Agreement”) between SmarTire Systems Inc., (the “Company”), and the
        Buyers set forth on Schedule I attached thereto dated April 24,
        2007.  In accordance with and pursuant to the Securities Purchase
        Agreement, the undersigned hereby elects to convert Debenture No. SMRT-6-2
        into
        shares of common stock, no par value per share (the “Common Stock”), of
        the Company for the amount indicated below as of the date specified
        below.
  Conversion
                  Date:Amount
                  to be converted:
              $Conversion
                  Price:
              $Shares
                  of Common Stock Issuable:Amount
                  of Debenture unconverted:
              $Amount
                  of Interest Converted:
              $Conversion
                  Price of Interest:
              $Shares
                  of Common Stock Issuable:Amount
                  of Liquidated Damages:
              $Conversion
                  Price of Liquidated Damages:
              $Shares
                  of Common Stock Issuable:Total
                  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
                  #:Broker
                  DTC Participant Code:Account
                  Number*:
 
 
 ***
        Note that the receiving broker must initiate transaction on DWAC
        System.**