exhibit1012.htm


     

    
      

      

    

    
      Exhibit 10.12

      
 

      ASSIGNMENT
        AGREEMENT

       

      THIS
        ASSIGNMENT AGREEMENT
(this "Agreement"),
        is made
        on November ___, 2007,
        (the “Effective
        Date”) STARAIM
        ENTERPIRSES LTD., a limited liability Company duly incorporated and
        validly existing under the laws of  the Republic of Cyprus (the "Assignor"),
        and XENTENIAL HOLDINGS LTD.,
a
        limited liability Company duly incorporated and validly existing under the
        laws
        of  the Republic of Cyprus (the “Assignee”).

       

      WHEREAS,
        Assignor is the legal
        and beneficial owner of that certain convertible debenture of Smartire Systems,
        Inc., a company existing under the laws of the Yukon Territory (the “Company”) held
        by the
        Assignor in the face amount of $2,000,000 under which there remains an
        outstanding  principal balance of $1,770,000 plus outstanding and
        accrued attached hereto as Exhibit A (the “Debenture”) and that
        certain warrant to purchase four million one hundred sixty two thousand five
        hundred (4,162,500) shares of the Company attached hereto as Exhibit B (the
        “Warrant”),
        which was acquired by the Assignor pursuant to the Amended and Restated
        Securities Purchase Agreement (“SPA”) between
        the
        Company and Assignor, dated December 30, 2005;

       

      WHEREAS,
        Assignor desires to
        assign to Assignee and Assignee desires to accept such assignment from Assignor
        of the Debenture and Warrant and its rights as a holder of the Debenture
        and the
        Warrant as well as all of Assignor’s rights and obligations pursuant to the all
        of the transaction documents issued in connection with the SPA and the Debenture
        including but not limited to the Amended Registration Rights Agreement between
        the Company and Assignor, dated December 30, 2005 (the “RRA”), and
        the
        Amended and Restated Irrevocable Transfer Agent Instructions between the
        Company
        and Assignor, dated December 30, 2005 (the “ITAI”) (collectively
        the SPA, CD, Warrant, RRA, and ITAI shall be referred to as the “Transaction
        Documents”) on the basis of the representations, warranties and
        agreements contained in this Agreement, and upon the terms but subject to
        the
        conditions set forth herein; and

       

      NOW,
        THEREFORE, in
        consideration of the foregoing and for other good and valuable consideration,
        the adequacy of which is hereby acknowledged, the parties hereto agree as
        follows:

       

      1)  Assignment.  For
        the purchase price as set forth on Schedule I attached hereto,
        the Assignor hereby absolutely, irrevocably and unconditionally sells, assigns,
        conveys, contributes and transfers to the Assignee the Debenture and the
        Warrant
        as set forth on Schedule
        I and all of its rights and benefits thereunder and conferred therein
        as
        well as all of the Assignor’s rights, obligations and benefits under the SPA,
        RRA and ITAI and the Assignee accepts such assignment as of the date
        hereof.

       

      This
        assignment is made free and clear of any and all claims, liens, demands,
        restrictions or encumbrances of any kind whatsoever.

       

      2)  Delivery
        of Debenture and
        Warrant, Closing.  The assignment and transfer of the
        Debenture and Warrant as herein contemplated and all actions required to
        be
        completed hereunder shall take place on a date hereof (the “Closing
        Date”).  On the Closing Date the Assignee shall pay to the
        Assignor the full Purchase Price in immediately available funds in US Dollars
        and upon receipt of the Purchase Price the Assignor shall deliver to the
        Assignee the Debenture and Warrant which are the subject of this Agreement
        duly
        endorsed for transfer to the Assignor.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

         

      

      3)  Additional
        Documents.  The Assignor and the Company agree to take
        such further action and to execute and deliver, or cause to be executed and
        delivered, any and all other documents which are, in the opinion of the Assignee
        or its counsel, necessary to carry out the terms and conditions of this
        Assignment.

       

      4)  Effective
        Date and
        Counterpart Signature.  This Agreement shall be
        effective as of the Closing Date.  This Agreement, and acceptance of
        same, may be executed in one or more counterparts, each of which shall be
        deemed
        an original, but all of which together shall constitute one and the same
        instrument.  Confirmation of execution by telex or by telecopy or
        telefax of a facsimile signature page shall be binding upon that party so
        confirming.

       

      5)  Representations
        and
        Warranties of the Assignor.

       

      The
        Assignor hereby warrants and represents as follows:

       

      a)  Organization;
        Authority
The Assignor is an entity duly organized, validly existing and in
        good
        standing under the laws of the jurisdiction of its organization with full
        right,
        corporate, partnership or other applicable power and authority to enter into
        and
        to consummate the transactions contemplated by this Agreement and otherwise
        to
        carry out its obligations thereunder; and the execution, delivery and
        performance by the Assignor of the transactions contemplated by this Agreement
        have been duly authorized by all necessary corporate,  partnership or
        similar action on the part of the Assignor. This Agreement, when executed
        and
        delivered by the Assignor, will constitute a valid and legally binding
        obligation of the Assignor, enforceable against the Assignor in accordance
        with
        its terms, except (a) as limited by applicable bankruptcy, insolvency,
        reorganization, moratorium, fraudulent conveyance, and any other laws of
        general
        application affecting enforcement of creditors’ rights generally, (b) as limited
        by laws relating to the availability of specific performance, injunctive
        relief,
        or other equitable remedies, or (c) to the extent the indemnification provisions
        contained herein may be limited by federal or state securities
        laws.

       

       

      b)  Ownership
        of Debenture and
        Warrant.  Assignor is the sole owner and holder of the
        Debenture and Warrant to be transferred hereby.  There are no liens,
        claims or encumbrances affecting any of the Debenture and Warrant except
        with
        respect to restrictions on the further transfer of the Debenture and Warrant
        as
        may be imposed by the Securities Act of 1933, as amended.  The
        Debenture and Warrant have been held by the Assignor exclusively since their
        acquisition and the Assignor has not pledged or created any lien with respect
        to
        the Debenture and Warrant during the term of its ownership.

       

       

      c)  Consents.  No
        authorization, consent, approval or other order of, or declaration to or
        filing
        with, any governmental agency or body or other person is required for the
        valid
        authorization, execution, delivery and performance by the Assignor of this
        Agreement and the consummation of the transactions contemplated
        hereby.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

         

      

      6)  Representations
        and
        Warranties of the Assignee.

       

      a)  Organization;
        Authority.  The Assignee, if not a natural person, is an entity
        duly organized, validly existing and in good standing under the laws of the
        jurisdiction of its organization with full right, corporate, partnership
        or
        other applicable power and authority to enter into and to consummate the
        transactions contemplated by this Agreement and otherwise to carry out its
        obligations thereunder, and the execution, delivery and performance by the
        Assignee of the transactions contemplated by this Agreement have been duly
        authorized by all necessary corporate or similar action on the part of the
        Assignee.  This Agreement, when executed and delivered by the
        Assignee, will constitute a valid and legally binding obligation of the
        Assignee, enforceable against the Assignee in accordance with its terms,
        except
        (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
        fraudulent conveyance, and any other laws of general application affecting
        enforcement of creditors’ rights generally, (b) as limited by laws relating to
        the availability of specific performance, injunctive relief, or other equitable
        remedies, or (c) to the extent the indemnification provisions contained herein
        may be limited by federal or state securities laws.

       

      b)  Investment
        Intent.  The Assignee is acquiring the Debenture and the
        Warrant for investment for his own account, not as a nominee or agent, and
        not
        with a view to, or for sale in connection with, any distribution, resale
        or
        public offering of such Warrants or any part thereof in violation of the
        United
        States Securities and Exchange Act of 1933, as amended (“Securities
        Act”).  The Assignee does not presently have any contract,
        undertaking, agreement or arrangement with any entity, organization or
        individual (each a “Person”) to sell,
        tansfer or grant participations to any Person with respect to the Debenture
        and
        the Warrant.

       

      c)  General
        Solicitation.  The Assignee is not accepting such Assignment as
        a result of any advertisement, article, notice or other communication regarding
        the Warrants published in any newspaper, magazine or similar media or broadcast
        over television or radio or presented at any seminar or any other general
        solicitation or general advertisement.

       

      d)  Consents.  No
        authorization, consent, approval or other order of, or declaration to or
        filing
        with, any governmental agency or body or other person is required for the
        valid
        authorization, execution, delivery and performance by the Assignor of this
        Agreement and the consummation of the transactions contemplated
        hereby.

       

      e)  The
        Assignee hereby acknowledges that the Debenture and the Warrant, and the
        shares
        issuable there under, may only be disposed of in compliance with United States
        Federal and State Securities Laws.  The Assignee further acknowledges
        that in connection with any transfer of the Debenture and Warrant subsequent
        to
        the date hereof and other than pursuant to an effective registration statement,
        the Company and/or the Company’s transfer agent may require an opinion of
        counsel, the form and substance of which opinion shall be reasonably
        satisfactory to the Company and/or the Company’s transfer agent, as
        applicable.

       

      f)  Stop
        Transfer
        Notices.  The Assignee agrees that, in order to ensure
        compliance with the restrictions referred to herein, appropriate “stop transfer”
        instructions may be issued to the Company’s transfer agent.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

         

      

      7)  Governing
        Law; Submission to
        Jurisdiction.  THIS AGREEMENT SHALL BE GOVERNED BY AND
        CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT
        REGARD
        TO CONFLICT OF LAW PRINCIPLES.  EACH PARTY AGREES THAT ANY ACTION OR
        PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL
        BE
        BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING
        IN
        THE HUDSON COUNTY, IN THE STATE OF NEW JERSEY.  EACH PARTY HEREBY
        IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT
        AND
        HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT
        FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION
        OR
        PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE
        OF
        RESIDENCE OR DOMICILE OF ANY PARTY HERETO.  EACH PARTY HEREBY
        IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
        TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
        OR
        ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
        HEREBY.

       

      8)  Amendments.  No
        provision hereof may be waived or modified other than by an instrument in
        writing signed by the party against whom enforcement is sought.

       

      9)  Severability.  If
        any provision of this Agreement shall be invalid or unenforceable in any
        jurisdiction, such invalidity or unenforceability shall not affect the validity
        or enforceability of the remainder of this Agreement in that jurisdiction
        or the
        validity or enforceability of any provision of this Agreement in any other
        jurisdiction.

       

      10)  Waiver
        and
        Consent.  The Company hereby waives compliance with 2(f)
        of the SPA and Section 7 of the Warrant in connection with this Agreement
        and
        consents to the assignment of the Debenture and Warrant and all rights and
        interests that the Assignor has under the Transaction Documents from the
        Assignor to the Assignee.

       

       

      [SIGNATURE
        PAGE TO IMMEDIATELY
        FOLLOW]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      IN
        WITNESS WHEREOF, the
        parties hereto have executed this Agreement the day and year first above
        written.

       

      ASSIGNOR

      


      STARAIM
        ENTERPIRSES
        LTD.

      


      By:           /s/Nairy
        Merheje                                           

      Name:      Nairy
        Merheje

      Title:        
        Director

      


      By:                                                      

      Name:

      Title:    Director

      


      ASSIGNEE

      


      XENTENIAL
        HOLDINGS
        LTD.

      


      By:          /s/Nairy
        Merheje

      Name:    
        Nairy Merheje

      Title:    Director

      


      By:                                                      

      Name:

      Title:    Director

      


      COMPANY

      


      SMARTIRE
        SYSTEMS
        INC.

      


      By:        /s/Jeff
        Finkelstein                                          

      Name:  Jeff
        Finkelstein

      Title:     Chief
        Financial Officer 

       

       

      SCHEDULE
        I

       

       

      
        	
                 

                Assignee
                  Name

                 

              	
                 

                Company
                  Name

                 

              	
                 

                Convertible
                  Debenture

                 

              	
                 

                Warrant

                 

              	
                 

                Purchase
                  Price

                 

              
	
                 

                Xentential
                  Holdings, Ltd.

                 

              	
                 

                Smartire
                  Systems Inc.

                 

              	
                 

                Debenture
                  No.3

                Dated
                  December 30, 2005

              	
                Warrant
                  No. 001

                Dated
                  December 30, 2005

                Warrant
                  Shares 4,162,500

              	
                 

                $1,770,000

                 

              


      

       

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        
          	
                   Exhibit
                    A

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  SMARTIRE
                    SYSTEMS
                    INC.

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  IInterest
                    on Convertible Debentures

                	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Nov
                    30, 2007

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	
                  Interest

                	 	 	
                  Number

                	 	 	
                  Total

                	 	 	 	 
	
                   Gross

                	 	 	 	 	 	
                  rate
                    per

                	 	 	
                  of
                    days

                	 	 	
                  #
                    of

                	 	 	 	 
	
                         
                     Proceeds

                	 	 	
                  Date

                	 	
                  annum

                	 	 	
                  in
                    the year

                	 	 	
                  days

                	 	 	
                  TOTAL

                	 
	
                   USD

                	
                   From

                	
                   To

                	 	 	 	 	 	 	 	 	 	 	 	 	
                  USD

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                   2,000,000

                	
                  June
                    23 05

                	
                  Sept
                    19 2007

                	 	 	 	10	%	 	 	
                  360

                	 	 	 	
                  806

                	 	 	 	
                  447,778

                	 
	
                  1,885,000

                	
                  Sept
                    20 07

                	
                  Sept
                    28 2007

                	 	 	 	10	%	 	 	
                  360

                	 	 	 	
                  8

                	 	 	 	
                  4,189

                	 
	
                  1,770,000

                	
                  Sept
                    28 2007

                	
                  November
                    30 2007

                	 	 	 	10	%	 	 	
                  360

                	 	 	 	
                  64

                	 	 	 	
                  31,467

                	 
	 	 	 	
                   Interest
                    paid ($1M allocated to $30M)

                	
                  Oct
                    2005

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(66,667	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
                  416,767

                	 


        

      

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    Exhibit B

     

    
      
        


         

        WARRANT

         

        THE
          SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
          LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
          OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
          AS
          AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
          IN A FORM
          REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
          UNDER
          SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
          RULE 144
          UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE
          PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

         

         

        SMARTIRE
          SYSTEMS
          INC.

         

         

        AMENDED
          AND
          RESTATED

         

         

        Warrant
          to Purchase Common
          Stock

         

        Warrant
          No.: 001 Number of Shares: 4,162,500

        


        Date
          of
          Issuance: December _, 2005

        


        Smartire
          Systems Inc., a
          corporation organized and existing under the laws of the Yukon
          Territory  (the “Company”), hereby
          certifies that, for Ten United States Dollars ($10.00) and other good and
          valuable consideration, the receipt and sufficiency of which are hereby
          acknowledged, Staraim Enterprises Limited (“Staraim”), a corporation organized
          under the laws of Cyprus, the registered holder hereof or its permitted
          assigns,
          is entitled, subject to the terms set forth below, to purchase from the
          Company
          upon surrender of this Warrant, at any time or times on or after the date
          hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
          defined herein) four million one hundred sixty two thousand five hundred
          sixty
          six   (4,162,500) fully paid and nonassessable shares of Common
          Stock (as defined herein) of the Company (the “Warrant Shares”) at
          the exercise price per share provided in Section 1(b) below or as
          subsequently adjusted; provided, however, that in no event shall the holder
          be
          entitled to exercise this Warrant for a number of Warrant Shares in excess
          of
          that number of Warrant Shares which, upon giving effect to such exercise,
          would
          cause the aggregate number of shares of Common Stock beneficially owned
          by the
          holder and its affiliates to exceed 4.99% of the outstanding shares of
          the
          Common Stock following such exercise, except within sixty (60) days of
          the
          Expiration Date.  For purposes of the foregoing proviso, the aggregate
          number of shares of Common Stock beneficially owned by the holder and its
          affiliates shall include the number of shares of Common Stock issuable
          upon
          exercise of this Warrant with respect to which the determination of such
          proviso
          is being made, but shall exclude shares of Common Stock which would be
          issuable
          upon (i) exercise of the remaining, unexercised Warrants beneficially owned
          by the holder and its affiliates and (ii) exercise or conversion of the
          unexercised or unconverted portion of any other securities of the Company
          beneficially owned by the holder and its affiliates (including, without
          limitation, any convertible notes or preferred stock) subject to a limitation
          on
          conversion or exercise analogous to the limitation contained
          herein.  Except as set forth in the preceding sentence, for purposes
          of this paragraph, beneficial ownership shall be calculated in accordance
          with
          Section 13(d) of the Securities Exchange Act of 1934, as amended.  For
          purposes of this Warrant, in determining the number of outstanding shares
          of
          Common Stock a holder may rely on the number of outstanding shares of Common
          Stock as reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB,
          as the case may be, (2) a more recent public announcement by the Company
          or (3)
          any other notice by the Company or its transfer agent setting forth the
          number
          of shares of Common Stock outstanding.  Upon the written request of
          any holder, the Company shall promptly, but in no event later than one
          (1)
          Business Day following the receipt of such notice, confirm in writing to
          any
          such holder the number of shares of Common Stock then outstanding.  In
          any case, the number of outstanding shares of Common Stock shall be determined
          after giving effect to the exercise of Warrants (as defined below) by such
          holder and its affiliates since the date as of which such number of outstanding
          shares of Common Stock was reported.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Section
          1.  

         

        (a)  This
          Warrant is the common stock purchase warrant (the “Warrant”) issued
          in
          connection with an amended and restated convertible debenture dated December
          _,
          2005 by and between the Company and Staraim (the “Convertible
          Debenture”).

         

        (b)  Definitions.  The
          following words and terms as used in this Warrant shall have the following
          meanings:

         

        (i)  “Approved
          Stock Plan”
means any employee benefit plan which has been approved by the Board
          of
          Directors of the Company, pursuant to which the Company’s securities may be
          issued to any employee, officer or director for services provided to the
          Company.

         

        (ii)  “Business
          Day” means
          any day other than Saturday, Sunday or other day on which commercial banks
          in
          the City of New York are authorized or required by law to remain
          closed.

         

        (iii)  “Closing
          Bid Price”
means the closing bid price of Common Stock as quoted on the Principal
          Market
          (as reported by Bloomberg Financial Markets (“Bloomberg”) through
          its “Volume at Price” function).

         

        (iv)  “Common
          Stock” means
          (i) the Company’s common stock, no par value per share, and (ii) any
          capital stock into which such Common Stock shall have been changed or any
          capital stock resulting from a reclassification of such Common
          Stock.

         

        (v)  “Excluded
          Securities”
means, provided such security is issued at a price which is greater
          than or
          equal to the arithmetic average of the Closing Bid Prices of the Common
          Stock
          for the ten (10) consecutive trading days immediately preceding the date
          of
          issuance, any of the following: (a) any issuance by the Company of securities
          in
          connection with a strategic partnership or a joint venture (the primary
          purpose
          of which is not to raise equity capital), (b) any issuance by the Company
          of
          securities as consideration for a merger or consolidation or the acquisition
          of
          a business, product, license, or other assets of another person or entity,
          (c)
          any shares of capital stock or other securities exercisable for or convertible
          into shares of capital stock pursuant to a commitment arising on or prior
          to the
          date hereof and (d) options to purchase shares of Common Stock, provided
          (I)
          such options are issued after the date of this Warrant to employees of
          the
          Company within thirty (30) days of such employee’s starting his employment with
          the Company, and (II) the exercise price of such options is not less than
          the
          Closing Bid Price of the Common Stock on the date of issuance of such
          option.

         

        (vi)  “Expiration
          Date”
means June 23, 2010 or, if such date falls on a Saturday, Sunday
          or other day on
          which banks are required or authorized to be closed in the City of New
          York or
          the State of New York or on which trading does not take place on the Principal
          Exchange or automated quotation system on which the Common Stock is traded
          (a
“Holiday”), the
          next date that is not a Holiday.

         

        (vii)  “Issuance
          Date” means
          June 23, 2005.

         

        (viii)  “Options”
means
          any
          rights, warrants or options to subscribe for or purchase Common Stock or
          Convertible Securities.

         

        (ix)  “Other
          Securities”
means (i) those options and warrants of the Company issued prior to, and
          outstanding on, the Issuance Date of this Warrant, (ii) the shares of Common
          Stock issuable on exercise of such options and warrants, provided such
          options
          and warrants are not amended after the Issuance Date of this Warrant and
          (iii) the shares of Common Stock issuable upon exercise of this
          Warrant.

         

        (x)  “Person”
means
          an
          individual, a limited liability company, a partnership, a joint venture,
          a
          corporation, a trust, an unincorporated organization and a government or
          any
          department or agency thereof.

         

        (xi)  “Principal
          Market”
means the New York Stock Exchange, the American Stock Exchange,
          the Nasdaq
          National Market, the Nasdaq SmallCap Market, whichever is at the time the
          principal trading exchange or market for such security, or the over-the-counter
          market on the electronic bulletin board for such security as reported by
          Bloomberg or, if no bid or sale information is reported for such security
          by
          Bloomberg, then the average of the bid prices of each of the market makers
          for
          such security as reported in the “pink sheets” by the National Quotation Bureau,
          Inc.

         

        (xii)           “Registration
          Rights”
the shares of the Company’s Common Stock underlying this warrant shall have
“piggy-back” and demand registration rights.

        


        (xiii)  “Securities
          Act” means
          the Securities Act of 1933, as amended.

         

        (xiv)  “Warrant”
means
          this
          Warrant and all Warrants issued in exchange, transfer or replacement
          thereof.

         

        (xv)  “Warrant
          Exercise
          Price” shall be Sixteen Cents ($0.16) or as subsequently adjusted as
          provided in Section 8 hereof.

         

        (xvi)  “Warrant
          Shares” means
          the shares of Common Stock issuable at any time upon exercise of this
          Warrant.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        (c)  Other
          Definitional Provisions.

         

        (i)  Except
          as
          otherwise specified herein, all references herein (A) to the Company shall
          be deemed to include the Company’s successors and (B) to any applicable law
          defined or referred to herein shall be deemed references to such applicable
          law
          as the same may have been or may be amended or supplemented from time to
          time.

         

        (ii)  When
          used
          in this Warrant, the words “herein”, “hereof”,
          and “hereunder”
          and words of similar import,
          shall refer to this Warrant as a whole and not to any provision of this
          Warrant,
          and the words “Section”, “Schedule”,
          and “Exhibit”
shall
          refer
          to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
          specified.

         

        (iii)  Whenever
          the context so requires, the neuter gender includes the masculine or feminine,
          and the singular number includes the plural, and vice versa.

         

        Section
          2.  Exercise
          of
          Warrant.  Subject to the terms and conditions hereof, this
          Warrant may be exercised by the holder hereof then registered on the books
          of
          the Company, pro rata as hereinafter provided, at any time on any Business
          Day
          on or after the opening of business on such Business Day, commencing with
          the
          first day after the date hereof, and prior to 11:59 P.M. Eastern Time on
          the Expiration Date, by (i) delivery of a written notice, in the form of
          the subscription notice attached as Exhibit A hereto
          (the
“Exercise
          Notice”), of such holder’s election to exercise this Warrant, which
          notice shall specify the number of Warrant Shares to be purchased,
          (ii) payment to the Company of an amount equal to the Warrant Exercise
          Price(s) applicable to the Warrant Shares being purchased, multiplied by
          the
          number of Warrant Shares (at the applicable Warrant Exercise Price) as to
          which this Warrant is being exercised (plus any applicable issue or
          transfer taxes) (the “Aggregate Exercise
          Price”) in cash or wire transfer of immediately available funds and (iii)
          the surrender of this Warrant (or an indemnification undertaking with respect
          to
          this Warrant in the case of its loss, theft or destruction) to a common
          carrier
          for overnight delivery to the Company as soon as practicable following
          such
          date.  In the event of any exercise of the rights represented by this
          Warrant in compliance with this Section 2(a), the Company shall on the
          fifth (5th) Business Day following the date of receipt of the Exercise
          Notice, the Aggregate Exercise Price and this Warrant (or an indemnification
          undertaking with respect to this Warrant in the case of its loss, theft
          or
          destruction) and the receipt of the representations of the holder specified
          in
          Section 6 hereof, if requested by the Company (the “Exercise Delivery
          Documents”), and if the Common Stock is DTC eligible credit such
          aggregate number of shares of Common Stock to which the holder shall be
          entitled
          to the holder’s or its designee’s balance account with The Depository Trust
          Company; provided, however, if the holder who submitted the Exercise Notice
          requested physical delivery of any or all of the Warrant Shares, or, if
          the
          Common Stock is not DTC eligible  then the Company shall, on or before
          the fifth (5th)
          Business Day
          following receipt of the Exercise Delivery Documents, issue and surrender
          to a
          common carrier for overnight delivery to the address specified in the Exercise
          Notice, a certificate, registered in the name of the holder, for the number
          of
          shares of Common Stock to which the holder shall be entitled pursuant to
          such
          request.  Upon delivery of the Exercise Notice and Aggregate Exercise
          Price referred to in clause (ii) above the holder of this Warrant shall be
          deemed for all corporate purposes to have become the holder of record of
          the
          Warrant Shares with respect to which this Warrant has been
          exercised.  In the case of a dispute as to the determination of the
          Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation
          of
          the Warrant Shares, the Company shall promptly issue to the holder the
          number of
          Warrant Shares that is not disputed and shall submit the disputed determinations
          or arithmetic calculations to the holder via facsimile within one (1) Business
          Day of receipt of the holder’s Exercise Notice.  If the holder and the
          Company are unable to agree upon the determination of the Warrant Exercise
          Price
          or arithmetic calculation of the Warrant Shares within one (1) day of such
          disputed determination or arithmetic calculation being submitted to the
          holder,
          then the Company shall immediately submit via facsimile (i) the disputed
          determination of the Warrant Exercise Price or the Closing Bid Price to
          an
          independent, reputable investment banking firm or (ii) the disputed arithmetic
          calculation of the Warrant Shares to its independent, outside
          accountant.  The Company shall cause the investment banking firm or
          the accountant, as the case may be, to perform the determinations or
          calculations and notify the Company and the holder of the results no later
          than
          forty-eight (48) hours from the time it receives the disputed determinations
          or
          calculations.  Such investment banking firm’s or accountant’s
          determination or calculation, as the case may be, shall be deemed conclusive
          absent manifest error.

         

        (a)  Unless
          the rights represented by this Warrant shall have expired or shall have
          been
          fully exercised, the Company shall, as soon as practicable and in no event
          later
          than five (5) Business Days after any exercise and at its own expense,
          issue a
          new Warrant identical in all respects to this Warrant exercised except
          it shall
          represent rights to purchase the number of Warrant Shares purchasable
          immediately prior to such exercise under this Warrant exercised, less the
          number
          of Warrant Shares with respect to which such Warrant is exercised.

         

        (b)  No
          fractional Warrant Shares are to be issued upon any pro rata exercise of
          this
          Warrant, but rather the number of Warrant Shares issued upon such exercise
          of
          this Warrant shall be rounded up or down to the nearest whole
          number.

         

        (c)  If
          the
          Company or its Transfer Agent shall fail for any reason or for no reason
          to
          issue to the holder within ten (10) days of receipt of the Exercise
          Delivery Documents, a certificate for the number of Warrant Shares to which
          the
          holder is entitled or to credit the holder’s balance account with The Depository
          Trust Company for such number of Warrant Shares to which the holder is
          entitled
          upon the holder’s exercise of this Warrant, the Company shall, in addition to
          any other remedies under this Warrant or the Placement Agent Agreement
          or
          otherwise available to such holder, pay as additional damages in cash to
          such
          holder on each day the issuance of such certificate for Warrant Shares
          is not
          timely effected an amount equal to 0.025% of the product of (A) the sum
          of the
          number of Warrant Shares not issued to the holder on a timely basis and
          to which
          the holder is entitled, and (B) the Closing Bid Price of the Common Stock
          for
          the trading day immediately preceding the last possible date which the
          Company
          could have issued such Common Stock to the holder without violating this
          Section 2.

         

        (d)  If
          within
          ten (10) days after the Company’s receipt of the Exercise Delivery Documents,
          the Company fails to deliver a new Warrant to the holder for the number
          of
          Warrant Shares to which such holder is entitled pursuant to Section 2 hereof,
          then, in addition to any other available remedies under this Warrant or
          the
          Placement Agent Agreement, or otherwise available to such holder, the Company
          shall pay as additional damages in cash to such holder on each day after
          such
          tenth (10th)
          day that such
          delivery of such new Warrant is not timely effected in an amount equal
          to 0.25%
          of the product of (A) the number of Warrant Shares represented by the
          portion of this Warrant which is not being exercised and (B) the Closing
          Bid Price of the Common Stock for the trading day immediately preceding
          the last
          possible date which the Company could have issued such Warrant to the holder
          without violating this Section 2.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Section
          3.  Covenants
          as to Common
          Stock.  The Company hereby covenants and agrees as
          follows:

         

        (a)  This
          Warrant is, and any Warrants issued in substitution for or replacement
          of this
          Warrant will upon issuance be, duly authorized and validly issued.

         

        (b)  All
          Warrant Shares which may be issued upon the exercise of the rights represented
          by this Warrant will, upon issuance, be validly issued, fully paid and
          nonassessable and free from all taxes, liens and charges with respect to
          the
          issue thereof.

         

        (c)  During
          the period within which the rights represented by this Warrant may be exercised,
          the Company will at all times have authorized and reserved at least one
          hundred
          percent (100%) of the number of shares of Common Stock needed to provide
          for the
          exercise of the rights then represented by this Warrant and the par value
          of
          said shares will at all times be less than or equal to the applicable Warrant
          Exercise Price.  If at any time the Company does not have a sufficient
          number of shares of Common Stock authorized and available, then the Company
          shall call and hold a special meeting of its stockholders within thirty
          (30)
          days of that time for the sole purpose of increasing the number of authorized
          shares of Common Stock.

         

        (d)  If
          at any
          time after the date hereof the Company shall file a registration statement,
          the
          Company shall include the Warrant Shares issuable to the holder, pursuant
          to the
          terms of this Warrant and shall maintain, so long as any other shares of
          Common
          Stock shall be so listed, such listing of all Warrant Shares from time
          to time
          issuable upon the exercise of this Warrant; and the Company shall so list
          on
          each national securities exchange or automated quotation system, as the
          case may
          be, and shall maintain such listing of, any other shares of capital stock
          of the
          Company issuable upon the exercise of this Warrant if and so long as any
          shares
          of the same class shall be listed on such national securities exchange
          or
          automated quotation system.

         

        (e)  The
          Company will not, by amendment of its Articles of Incorporation or through
          any
          reorganization, transfer of assets, consolidation, merger, dissolution,
          issue or
          sale of securities, or any other voluntary action, avoid or seek to avoid
          the
          observance or performance of any of the terms to be observed or performed
          by it
          hereunder, but will at all times in good faith assist in the carrying out
          of all
          the provisions of this Warrant and in the taking of all such action as
          may
          reasonably be requested by the holder of this Warrant in order to protect
          the
          exercise privilege of the holder of this Warrant against dilution or other
          impairment, consistent with the tenor and purpose of this
          Warrant.  The Company will not increase the par value of any shares of
          Common Stock receivable upon the exercise of this Warrant above the Warrant
          Exercise Price then in effect, and (ii) will take all such actions as may
          be necessary or appropriate in order that the Company may validly and legally
          issue fully paid and nonassessable shares of Common Stock upon the exercise
          of
          this Warrant.

         

        (f)  This
          Warrant will be binding upon any entity succeeding to the Company by merger,
          consolidation or acquisition of all or substantially all of the Company’s
          assets.

         

        Section
          4.  Taxes.  The
          Company shall pay any and all taxes, except any applicable withholding,
          which
          may be payable with respect to the issuance and delivery of Warrant Shares
          upon
          exercise of this Warrant.

         

        Section
          5.  Warrant
          Holder Not Deemed a
          Stockholder.  Except as otherwise specifically provided herein,
          no holder, as such, of this Warrant shall be entitled to vote or receive
          dividends or be deemed the holder of shares of capital stock of the Company
          for
          any purpose, nor shall anything contained in this Warrant be construed
          to confer
          upon the holder hereof, as such, any of the rights of a stockholder of
          the
          Company or any right to vote, give or withhold consent to any corporate
          action
          (whether any reorganization, issue of stock, reclassification of stock,
          consolidation, merger, conveyance or otherwise), receive notice of meetings,
          receive dividends or subscription rights, or otherwise, prior to the issuance
          to
          the holder of this Warrant of the Warrant Shares which he or she is then
          entitled to receive upon the due exercise of this Warrant.  In
          addition, nothing contained in this Warrant shall be construed as imposing
          any
          liabilities on such holder to purchase any securities (upon exercise of
          this
          Warrant or otherwise) or as a stockholder of the Company, whether such
          liabilities are asserted by the Company or by creditors of the
          Company.  Notwithstanding this Section 5, the Company will provide the
          holder of this Warrant with copies of the same notices and other information
          given to the stockholders of the Company generally, contemporaneously with
          the
          giving thereof to the stockholders.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Section
          6.  Representations
          of
          Holder.  The holder of this Warrant, by the acceptance hereof,
          represents that it is acquiring this Warrant and the Warrant Shares for
          its own
          account for investment only and not with a view towards, or for resale
          in
          connection with, the public sale or distribution of this Warrant or the
          Warrant
          Shares, except pursuant to sales registered or exempted under the Securities
          Act; provided, however, that by making the representations herein, the
          holder
          does not agree to hold this Warrant or any of the Warrant Shares for any
          minimum
          or other specific term and reserves the right to dispose of this Warrant
          and the
          Warrant Shares at any time in accordance with or pursuant to a registration
          statement or an exemption under the Securities Act.  The holder of
          this Warrant further represents, by acceptance hereof, that, as of this
          date,
          such holder is an “accredited investor” as such term is defined in
          Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
          Commission under the Securities Act (an “Accredited
          Investor”).  Upon exercise of this Warrant  the
          holder shall, if requested by the Company, confirm in writing, in a form
          satisfactory to the Company, that the Warrant Shares so purchased are being
          acquired solely for the holder’s own account and not as a nominee for any other
          party, for investment, and not with a view toward distribution or resale
          and
          that such holder is an Accredited Investor.  If such holder cannot
          make such representations because they would be factually incorrect, it
          shall be
          a condition to such holder’s exercise of this Warrant that the Company receive
          such other representations as the Company considers reasonably necessary
          to
          assure the Company that the issuance of its securities upon exercise of
          this
          Warrant shall not violate any United States or state securities
          laws.

         

        Section
          7.  Ownership
          and
          Transfer.

         

        (a)  The
          Company shall maintain at its principal executive offices (or such other
          office
          or agency of the Company as it may designate by notice to the holder hereof),
          a
          register for this Warrant, in which the Company shall record the name and
          address of the person in whose name this Warrant has been issued, as well
          as the
          name and address of each transferee.  The Company may treat the person
          in whose name any Warrant is registered on the register as the owner and
          holder
          thereof for all purposes, notwithstanding any notice to the contrary, but
          in all
          events recognizing any transfers made in accordance with the terms of this
          Warrant.

         

        Section
          8.  Adjustment
          of Warrant
          Exercise Price and Number of Shares.  The Warrant Exercise
          Price and the number of shares of Common Stock issuable upon exercise of
          this
          Warrant shall be adjusted from time to time as follows:

         

        (a)  Adjustment
          of Warrant
          Exercise Price and Number of Shares upon Issuance of Common
          Stock.  If and whenever  after the Issuance Date of
          this Warrant, the Company issues or sells, or is deemed to have issued
          or sold,
          any shares of Common Stock (other than (i) Excluded Securities and (ii)
          shares of Common Stock which are issued or deemed to have been issued by
          the
          Company in connection with an Approved Stock Plan or upon exercise or conversion
          of the Other Securities) for a consideration per share less than a price
          (the
“Applicable
          Price”) equal to the Warrant Exercise Price in effect immediately prior
          to such issuance or sale, then immediately after such issue or sale the
          Warrant
          Exercise Price then in effect shall be reduced to an amount equal to such
          consideration per share.  Upon each such adjustment of the Warrant
          Exercise Price hereunder, the number of Warrant Shares issuable upon exercise
          of
          this Warrant shall be adjusted to the number of shares determined by multiplying
          the Warrant Exercise Price in effect immediately prior to such adjustment
          by the
          number of Warrant Shares issuable upon exercise of this Warrant immediately
          prior to such adjustment and dividing the product thereof by the Warrant
          Exercise Price resulting from such adjustment.

         

        (b)  Effect
          on Warrant Exercise
          Price of Certain Events.  For purposes of determining the
          adjusted Warrant Exercise Price under Section 8(a) above, the following
          shall be
          applicable:

         

        (i)  Issuance
          of
          Options.  Subject to Section (a) above, if after the date
          hereof, the Company in any manner grants any Options and the lowest price
          per
          share for which one share of Common Stock is issuable upon the exercise
          of any
          such Option or upon conversion or exchange of any convertible securities
          issuable upon exercise of any such Option is less than the Applicable Price,
          then such share of Common Stock shall be deemed to be outstanding and to
          have
          been issued and sold by the Company at the time of the granting or sale
          of such
          Option for such price per share.  For purposes of this Section
          8(b)(i), the lowest price per share for which one share of Common Stock
          is
          issuable upon exercise of such Options or upon conversion or exchange of
          such
          Convertible Securities shall be equal to the sum of the lowest amounts
          of
          consideration (if any) received or receivable by the Company with respect
          to any
          one share of Common Stock upon the granting or sale of the Option, upon
          exercise
          of the Option or upon conversion or exchange of any convertible security
          issuable upon exercise of such Option.  No further adjustment of the
          Warrant Exercise Price shall be made upon the actual issuance of such Common
          Stock or of such convertible securities upon the exercise of such Options
          or
          upon the actual issuance of such Common Stock upon conversion or exchange
          of
          such convertible securities.

         

        (ii)  Issuance
          of Convertible
          Securities.  Subject to Section (a) above, if the Company in
          any manner issues or sells any convertible securities and the lowest price
          per
          share for which one share of Common Stock is issuable upon the conversion
          or
          exchange thereof is less than the Applicable Price, then such share of
          Common
          Stock shall be deemed to be outstanding and to have been issued and sold
          by the
          Company at the time of the issuance or sale of such convertible securities
          for
          such price per share.  For the purposes of this Section 8(b)(ii),
          the lowest price per share for which one share of Common Stock is issuable
          upon
          such conversion or exchange shall be equal to the sum of the lowest amounts
          of
          consideration (if any) received or receivable by the Company with respect
          to one
          share of Common Stock upon the issuance or sale of the convertible security
          and
          upon conversion or exchange of such convertible security.  No further
          adjustment of the Warrant Exercise Price shall be made upon the actual
          issuance
          of such Common Stock upon conversion or exchange of such convertible securities,
          and if any such issue or sale of such convertible securities is made upon
          exercise of any Options for which adjustment of the Warrant Exercise Price
          had
          been or are to be made pursuant to other provisions of this Section 8(b),
          no
          further adjustment of the Warrant Exercise Price shall be made by reason
          of such
          issue or sale.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        (iii)  Change
          in Option Price or
          Rate of Conversion.  If the purchase price provided for in any
          Options, the additional consideration, if any, payable upon the issue,
          conversion or exchange of any convertible securities, or the rate at which
          any
          convertible securities are convertible into or exchangeable for Common
          Stock
          changes at any time, the Warrant Exercise Price in effect at the time of
          such
          change shall be adjusted to the Warrant Exercise Price which would have
          been in
          effect at such time had such Options or convertible securities provided
          for such
          changed purchase price, additional consideration or changed conversion
          rate, as
          the case may be, at the time initially granted, issued or sold and the
          number of
          Warrant Shares issuable upon exercise of this Warrant shall be correspondingly
          readjusted.  For purposes of this Section 8(b)(iii), if the terms of
          any Option or convertible security that was outstanding as of the Issuance
          Date
          of this Warrant are changed in the manner described in the immediately
          preceding
          sentence, then such Option or convertible security and the Common Stock
          deemed
          issuable upon exercise, conversion or exchange thereof shall be deemed
          to have
          been issued as of the date of such change.  No adjustment pursuant to
          this Section 8(b) shall be made if such adjustment would result in an
          increase of the Warrant Exercise Price then in effect.

         

        (c)  Effect
          on Warrant Exercise
          Price of Certain Events.  For purposes of determining the
          adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following
          shall be applicable:

         

        (i)  Calculation
          of Consideration
          Received.  If any Common Stock, Options or convertible
          securities are issued or sold or deemed to have been issued or sold for
          cash,
          the consideration received therefore will be deemed to be the net amount
          received by the Company therefore.  If any Common Stock, Options or
          convertible securities are issued or sold for a consideration other than
          cash,
          the amount of such consideration received by the Company will be the fair
          value
          of such consideration, except where such consideration consists of marketable
          securities, in which case the amount of consideration received by the Company
          will be the market price of such securities on the date of receipt of such
          securities.  If any Common Stock, Options or convertible securities
          are issued to the owners of the non-surviving entity in connection with
          any
          merger in which the Company is the surviving entity, the amount of consideration
          therefore will be deemed to be the fair value of such portion of the net
          assets
          and business of the non-surviving entity as is attributable to such Common
          Stock, Options or convertible securities, as the case may be.  The
          fair value of any consideration other than cash or securities will be determined
          jointly by the Company and the holders of Warrants representing at least
          two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
          then
          outstanding.  If such parties are unable to reach agreement within
          ten (10) days after the occurrence of an event requiring valuation (the
“Valuation
          Event”), the fair value of such consideration will be determined within
          five (5) Business Days after the tenth (10th)
          day following
          the Valuation Event by an independent, reputable appraiser jointly selected
          by
          the Company and the holders of Warrants representing at least two-thirds
          (b) of
          the Warrant Shares issuable upon exercise of the Warrants then
          outstanding.  The determination of such appraiser shall be final and
          binding upon all parties and the fees and expenses of such appraiser shall
          be
          borne jointly by the Company and the holders of Warrants.

         

        (ii)  Integrated
          Transactions.  In case any Option is issued in connection with
          the issue or sale of other securities of the Company, together comprising
          one
          integrated transaction in which no specific consideration is allocated
          to such
          Options by the parties thereto, the Options will be deemed to have been
          issued
          for a consideration of $.01.

         

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

         

        (iv)  Record
          Date.  If the Company takes a record of the holders of Common
          Stock for the purpose of entitling them (1) to receive a dividend or other
          distribution payable in Common Stock, Options or in convertible securities
          or
          (2) to subscribe for or purchase Common Stock, Options or convertible
          securities, then such record date will be deemed to be the date of the
          issue or
          sale of the shares of Common Stock deemed to have been issued or sold upon
          the
          declaration of such dividend or the making of such other distribution or
          the
          date of the granting of such right of subscription or purchase, as the
          case may
          be.

         

        (d)  Adjustment
          of Warrant
          Exercise Price upon Subdivision or Combination of Common
          Stock.  If the Company at any time after the date of issuance
          of this Warrant subdivides (by any stock split, stock dividend, recapitalization
          or otherwise) one or more classes of its outstanding shares of Common Stock
          into
          a greater number of shares, any Warrant Exercise Price in effect immediately
          prior to such subdivision will be proportionately reduced and the number
          of
          shares of Common Stock obtainable upon exercise of this Warrant will be
          proportionately increased.  If the Company at any time after the date
          of issuance of this Warrant combines (by combination, reverse stock split
          or
          otherwise) one or more classes of its outstanding shares of Common Stock
          into a
          smaller number of shares, any Warrant Exercise Price in effect immediately
          prior
          to such combination will be proportionately increased and the number of
          Warrant
          Shares issuable upon exercise of this Warrant will be proportionately
          decreased.  Any adjustment under this Section 8(d) shall become
          effective at the close of business on the date the subdivision or combination
          becomes effective.

         

        (e)  Distribution
          of
          Assets.  If the Company shall declare or make any dividend or
          other distribution of its assets (or rights to acquire its assets) to holders
          of
          Common Stock, by way of return of capital or otherwise (including, without
          limitation, any distribution of cash, stock or other securities, property
          or
          options by way of a dividend, spin off, reclassification, corporate
          rearrangement or other similar transaction) (a “Distribution”), at
          any time after the issuance of this Warrant, then, in each such
          case:

         

        (i)  any
          Warrant Exercise Price in effect immediately prior to the close of business
          on
          the record date fixed for the determination of holders of Common Stock
          entitled to receive
          the
          Distribution shall be reduced, effective as of the close of business on
          such
          record date, to a price determined by multiplying such Warrant Exercise
          Price by
          a fraction of which (A) the numerator shall be the Closing Sale Price of
          the
          Common Stock on the trading day immediately preceding such record date
          minus the
          value of the Distribution (as determined in good faith by the Company’s Board of
          Directors) applicable to one share of Common Stock, and (B) the denominator
          shall be the Closing Sale Price of the Common Stock on the trading day
          immediately preceding such record date; and

         

        (ii)  either
          (A) the number of Warrant Shares obtainable upon exercise of this Warrant
          shall
          be increased to a number of shares equal to the number of shares of Common
          Stock
          obtainable immediately prior to the close of business on the record date
          fixed
          for the determination of holders of Common Stock entitled to receive the
          Distribution multiplied by the reciprocal of the fraction set forth in
          the
          immediately preceding clause (i), or (B) in the event that the Distribution
          is
          of common stock of a company whose common stock is traded on a national
          securities exchange or a national automated quotation system, then the
          holder of
          this Warrant shall receive an additional warrant to purchase Common Stock,
          the
          terms of which shall be identical to those of this Warrant, except that
          such
          warrant shall be exercisable into the amount of the assets that would have
          been
          payable to the holder of this Warrant pursuant to the Distribution had
          the
          holder exercised this Warrant immediately prior to such record date and
          with an
          exercise price equal to the amount by which the exercise price of this
          Warrant
          was decreased with respect to the Distribution pursuant to the terms of
          the
          immediately preceding clause (i).

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        (f)  Certain
          Events.  If any event occurs of the type contemplated by the
          provisions of this Section 8 but not expressly provided for by such
          provisions (including, without limitation, the granting of stock appreciation
          rights, phantom stock rights or other rights with equity features), then
          the
          Company’s Board of Directors will make an appropriate adjustment in the Warrant
          Exercise Price and the number of shares of Common Stock obtainable upon
          exercise
          of this Warrant so as to protect the rights of the holders of the Warrants;
          provided, except as set forth in section 8(d),that no such adjustment pursuant
          to this Section 8(f) will increase the Warrant Exercise Price or decrease
          the
          number of shares of Common Stock obtainable as otherwise determined pursuant
          to
          this Section 8.

         

        (g)  Notices.

         

        (i)  Immediately
          upon any adjustment of the Warrant Exercise Price, the Company will give
          written
          notice thereof to the holder of this Warrant, setting forth in reasonable
          detail, and certifying, the calculation of such adjustment.

         

        (ii)  The
          Company will give written notice to the holder of this Warrant at least
          ten (10)
          days prior to the date on which the Company closes its books or takes a
          record
          (A) with respect to any dividend or distribution upon the Common Stock,
          (B) with respect to any pro rata subscription offer to holders of Common
          Stock or (C) for determining rights to vote with respect to any Organic
          Change (as defined below), dissolution or liquidation, provided that such
          information shall be made known to the public prior to or in conjunction
          with
          such notice being provided to such holder.

         

        (iii)  The
          Company will also give written notice to the holder of this Warrant at
          least ten
          (10) days prior to the date on which any Organic Change, dissolution or
          liquidation will take place, provided that such information shall be made
          known
          to the public prior to or in conjunction with such notice being provided
          to such
          holder.

         

        Section
          9.  Purchase
          Rights;
          Reorganization, Reclassification, Consolidation, Merger or
          Sale.

         

        (a)  In
          addition to any adjustments pursuant to Section 8 above, if at any time
          the
          Company grants, issues or sells any Options, Convertible Securities or
          rights to
          purchase stock, warrants, securities or other property pro rata to the
          record
          holders of any class of Common Stock (the “Purchase Rights”),
          then the holder of this Warrant will be entitled to acquire, upon the terms
          applicable to such Purchase Rights, the aggregate Purchase Rights which
          such
          holder could have acquired if such holder had held the number of shares
          of
          Common Stock acquirable upon complete exercise of this Warrant immediately
          before the date on which a record is taken for the grant, issuance or sale
          of
          such Purchase Rights, or, if no such record is taken, the date as of which
          the
          record holders of Common Stock are to be determined for the grant, issue
          or sale
          of such Purchase Rights.

         

        (b)  Any
          recapitalization, reorganization, reclassification, consolidation, merger,
          sale
          of all or substantially all of the Company’s assets to another Person or other
          transaction in each case which is effected in such a way that holders of
          Common
          Stock are entitled to receive (either directly or upon subsequent liquidation)
          stock, securities or assets with respect to or in exchange for Common Stock
          is
          referred to herein as an “Organic
          Change.”  Prior to the consummation of any (i) sale of all or
          substantially all of the Company’s assets to an acquiring Person or (ii) other
          Organic Change following which the Company is not a surviving entity, the
          Company will secure from the Person purchasing such assets or the successor
          resulting from such Organic Change (in each case, the “Acquiring Entity”) a
          written agreement (in form and substance satisfactory to the holders of
          Warrants
          representing at least two-thirds (iii) of the Warrant Shares issuable upon
          exercise of the Warrants then outstanding) to deliver to each holder of
          Warrants
          in exchange for such Warrants, a security of the Acquiring Entity evidenced
          by a
          written instrument substantially similar in form and substance to this
          Warrant
          and satisfactory to the holders of the Warrants (including an adjusted
          warrant
          exercise price equal to the value for the Common Stock reflected by the
          terms of
          such consolidation, merger or sale, and exercisable for a corresponding
          number
          of shares of Common Stock acquirable and receivable upon exercise of the
          Warrants without regard to any limitations on exercise, if the value so
          reflected is less than any Applicable Warrant Exercise Price immediately
          prior
          to such consolidation, merger or sale).  Prior to the consummation of
          any other Organic Change, the Company shall make appropriate provision
          (in form
          and substance satisfactory to the holders of Warrants representing a
          majority of the
          Warrant Shares issuable upon exercise of the Warrants then outstanding)
          to
          insure that each of the holders of the Warrants will thereafter have the
          right
          to acquire and receive in lieu of or in addition to (as the case may be)
          the
          Warrant Shares immediately theretofore issuable and receivable upon the
          exercise
          of such holder’s Warrants (without regard to any limitations on exercise),
          such shares of stock, securities or assets that would have been issued
          or
          payable in such Organic Change with respect to or in exchange for the number
          of
          Warrant Shares which would have been issuable and receivable upon the exercise
          of such holder’s Warrant as of the date of such Organic Change (without taking
          into account any limitations or restrictions on the exercisability of this
          Warrant).

         

        Section
          10.  Lost,
          Stolen, Mutilated or
          Destroyed Warrant.  If this Warrant is lost, stolen, mutilated
          or destroyed, the Company shall promptly, on receipt of an indemnification
          undertaking (or, in the case of a mutilated Warrant, the Warrant), issue
          a new
          Warrant of like denomination and tenor as this Warrant so lost, stolen,
          mutilated or destroyed.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Section
          11.  Notice.  Any
          notices, consents, waivers or other communications required or permitted
          to be
          given under the terms of this Warrant 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 receipt is received by the sending party transmission is
          mechanically or electronically generated and kept on file by the sending
          party);
          or (iii) one Business 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 Staraim:

                	
                  Staraim
                    Enterprises Ltd.

                
	 	
                  Athalassas,
                    47

                
	 	
                  2nd
                    Floor,
                    Flat/Office 202

                  Strovolos,
                    P.C. 2012, Nicosia, Cyprus

                
	 	
                  Attention:

                
	 	
                  Telephone:

                
	 	
                  Facsimile:

                
	 	 
	
                  With
                    Copy to:

                	
                  Finn
                    Dixon & Herling, LLP

                
	 	
                  One
                    Landmark Square, Suite 1400

                
	 	
                  Stamford,
                    CT 06901

                
	 	
                  Attention:Charles
                    J. Downey III, Esq.

                  Telephone: (203)
                    325-5000

                
	 	
                  Facsimile:   (203)
                    348-5777

                
	 	 
	
                  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

                
	
                  With
                    a copy to:

                	
                  Facsimile:    (604)
                    276-2353

                
	 	 
	 	
                  Greenberg
                    Traurig, LLP

                
	 	
                  200
                    Park Avenue

                
	 	
                  New
                    York, NY  10166

                
	 	
                  Attention:  Michael
                    L. Pflaum, Esq.

                
	 	
                  Telephone:  (212)
                    801-9200

                
	 	
                  Facsimile:  
                     (212) 801-6400

                


        

        


        If
          to a
          holder of this Warrant, to it at the address and facsimile number set forth
          on
Exhibit C
          hereto, with copies to such holder’s representatives as set forth on Exhibit C, or
          at
          such other address and facsimile as shall be delivered to the Company upon
          the
          issuance or transfer of this Warrant.  Each party shall provide five
          days’ prior written notice to the other party of any change in address or
          facsimile number.  Written confirmation of receipt (A) given by
          the recipient of such notice, consent, facsimile, waiver or other communication,
          (or (B) 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
          12.  Date.  The
          date of this Warrant is set forth on page 1 hereof.  This Warrant,
          in all events, shall be wholly void and of no effect after the close of
          business on the Expiration Date, except that notwithstanding any other
          provisions hereof, the provisions of Section 8(b) shall continue in full
          force and effect after such date as to any Warrant Shares or other securities
          issued upon the exercise of this Warrant.

         

        Section
          13.  Amendment
          and
          Waiver.  Except as otherwise provided herein, the provisions of
          the Warrants may be amended and the Company may take any action herein
          prohibited, or omit to perform any act herein required to be performed
          by it,
          only if the Company has obtained the written consent of the holders of
          Warrants
          representing at least two-thirds of the Warrant Shares issuable upon exercise
          of
          the Warrants then outstanding; provided that, except for Section 8(d),
          no such
          action may increase the Warrant Exercise Price or decrease the number of
          shares
          or class of stock obtainable upon exercise of any Warrant without the written
          consent of the holder of such Warrant.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Section
          14.  Descriptive
          Headings;
          Governing Law.  The descriptive headings of the several
          sections and paragraphs of this Warrant are inserted for convenience only
          and do
          not constitute a part of this Warrant.  The corporate laws of the
          State of New Jersey shall govern all issues concerning the relative rights
          of
          the Company and its stockholders.  All other questions concerning the
          construction, validity, enforcement and interpretation of this Agreement
          shall
          be governed by the internal laws of the State of New Jersey, without giving
          effect to any choice of law or conflict of law provision or rule (whether
          of the
          State of New Jersey or any other jurisdictions) that would cause the application
          of the laws of any jurisdictions other than the State of New
          Jersey.  Each party hereby irrevocably submits to the exclusive
          jurisdiction of the state and federal courts sitting in Hudson County and
          the
          United States District Court for the District of New Jersey, for the
          adjudication of any dispute hereunder or in connection herewith or therewith,
          or
          with any transaction contemplated hereby or discussed herein, and hereby
          irrevocably waives, and agrees not to assert in any suit, action or proceeding,
          any claim that it is not personally subject to the jurisdiction of any
          such
          court, that such suit, action or proceeding is brought in an inconvenient
          forum
          or that the venue of such suit, action or proceeding is
          improper.  Each party hereby irrevocably waives personal service of
          process and consents to process being served in any such suit, action or
          proceeding by mailing a copy thereof to such party at the address for such
          notices to it under this Agreement and agrees that such service shall constitute
          good and sufficient service of process and notice thereof.  Nothing
          contained herein shall be deemed to limit in any way any right to serve
          process
          in any manner permitted by law.

         

        Section
          15.  Waiver
          of Jury
          Trial.  AS A
          MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
          PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
          RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
          ASSOCIATED WITH THIS TRANSACTION.

         

        IN
          WITNESS WHEREOF, the
          Company has caused this Warrant to be signed as of the date first set forth
          above.

         

        
          	 	
                  SMARTIRE
                    SYSTEMS
                    INC.

                
	 	 
	 	
                  By:           /s/
                    Jeff
                    Finkelstein                                                      

                
	 	
                  Name:     
                    Jeff Finkelstein

                
	 	
                  Title:        Chief
                    Financial Officer

                


        

        


        


        


        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        


         

        EXHIBIT
          A TO
          WARRANT

         

         

        EXERCISE
          NOTICE

         

         

        TO
          BE EXECUTED

         

         

        BY
          THE REGISTERED HOLDER TO EXERCISE
          THIS WARRANT

         

         

        SMARTIRE
          SYSTEMS
          INC.

         

        The
          undersigned holder hereby exercises the right to purchase ______________
          of the
          shares of Common Stock (“Warrant Shares”) of
          Smartire Systems Inc., a corporation organized and existing under the laws
          of
          the Yukon Territory (the “Company”), evidenced
          by the attached Warrant (the “Warrant”).  Capitalized
          terms used herein and not otherwise defined shall have the respective meanings
          set forth in the Warrant.

         

        1.           Form
          of Warrant Exercise
          Price.  The Holder intends that payment of the Warrant Exercise
          Price shall be made as a “Cash Exercise”
with
          respect to ______________ Warrant Shares.

         

        2.           Payment
          of Warrant Exercise
          Price. The holder shall pay the sum of $______________ to the Company
          in
          accordance with the terms of the Warrant.

         

        3.           Delivery
          of Warrant
          Shares.  The Company shall deliver to the holder _________
Warrant
          Shares in accordance with the terms of the Warrant.

         

        Date:
          _______________ __, ______

        


        


        Name
          of
          Registered Holder

        


        By:                                                      

        Name:                                                                

        Title:                                                                

        


        


        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        


        


         

        EXHIBIT
          B TO
          WARRANT

         

         

        FORM
          OF WARRANT
          POWER

         

        FOR
          VALUE RECEIVED, the
          undersigned does hereby assign and transfer to ________________, Federal
          Identification No. __________, a warrant to purchase ____________ shares of
          the capital stock of Smartire Systems Inc., a corporation organized and
          existing
          under the laws of the Yukon Territory, represented by warrant certificate
          no. _____, standing in the name of the undersigned on the books of said
          corporation.  The undersigned does hereby irrevocably constitute and
          appoint ______________, attorney to transfer the warrants of said corporation,
          with full power of substitution in the premises.

         

        
          	
                  Dated:

                	 
	 	 
	 	
                  By:                                                                

                
	 	
                  Name:

                
	 	
                  Title: