STANDBY EQUITY DISTRIBUTION AGREEMENT

      AGREEMENT dated as of the 19th day of May 2004 (the  "Agreement")  between
CORNELL CAPITAL PARTNERS,  LP, a Delaware limited  partnership (the "Investor"),
and SMARTIRE  SYSTEMS  INC., a  corporation  incorporated  under the laws of the
Yukon Territory (the "Company").

      WHEREAS,  the  parties  desire  that,  upon the terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Investor,
from time to time as provided  herein,  and the Investor shall purchase from the
Company up to Fifteen  Million  Dollars  ($15,000,000)  of the Company's  common
stock, no par value per share (the "Common Stock"); and

      WHEREAS, such investments will be made in reliance upon the provisions of:

      (i)   Regulation D  ("Regulation  D") of the  Securities  Act of 1933,  as
            amended, and the regulations promulgated thereunder (the "Securities
            Act"),  and or upon  such  other  exemption  from  the  registration
            requirements  of the Securities Act as may be available with respect
            to any or all of the investments to be made hereunder.

      (ii)  Multilateral  Instrument  45-103  adopted  by the  British  Columbia
            Securities Commission (the "BCSC")

      WHEREAS,  the Company has engaged Newbridge Securities Inc., to act as the
Company's exclusive placement agent in connection with the sale of the Company's
Common Stock to the Investor hereunder pursuant to the Placement Agent Agreement
dated the date  hereof by and among the  Company,  the  Placement  Agent and the
Investor (the "Placement Agent Agreement").

      NOW, THEREFORE, the parties hereto agree as follows:


                                   ARTICLE I.
                               CERTAIN DEFINITIONS

      Section 1.1.  "Advance"  shall mean the portion of the  Commitment  Amount
requested by the Company in the Advance Notice.

      Section 1.2. "Advance Date" shall mean the date Butler Gonzalez LLP Escrow
Account is in receipt of the funds from the Investor and Butler Gonzalez LLP, as
the Investor's Counsel, is in possession of free trading shares from the Company
and  therefore  an Advance by the Investor to the Company can be made and Butler
Gonzalez LLP can release the free  trading  shares to the  Investor.  No Advance
Date shall be less than six (6) Trading Days after an Advance Notice Date.

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      Section 1.3.  "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.

      Section  1.4.  "Advance  Notice  Date"  shall  mean each date the  Company
delivers to the  Investor an Advance  Notice  requiring  the Investor to advance
funds to the Company,  subject to the terms of this Agreement. No Advance Notice
Date shall be less than seven (7) Trading  Days after the prior  Advance  Notice
Date.

      Section 1.5.  "Bid Price" shall mean,  on any date,  the closing bid price
(as reported by Bloomberg  L.P.) of the Common Stock on the Principal  Market or
if the Common Stock is not traded on a Principal  Market,  the highest  reported
bid price for the Common  Stock,  as furnished by the  National  Association  of
Securities Dealers, Inc.

      Section  1.6.  "Closing"  shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.

      Section 1.7.  "Commitment Amount" shall mean the aggregate amount of up to
Fifteen Million Dollars  ($15,000,000)  which the Investor has agreed to provide
to the Company in order to purchase the Company's  Common Stock  pursuant to the
terms and conditions of this Agreement.

      Section 1.8.  "Commitment  Period" shall mean the period commencing on the
earlier to occur of (i) the  Effective  Date,  or (ii) such  earlier date as the
Company and the  Investor  may  mutually  agree in writing,  and expiring on the
earliest to occur of (x) the date on which the Investor  shall have made payment
of  Advances  pursuant  to this  Agreement  in the  aggregate  amount of Fifteen
Million  Dollars  ($15,000,000),  (y) the  date  this  Agreement  is  terminated
pursuant to Section 2.5, or (z) the date occurring twenty-four (24) months after
the Effective Date.

      Section 1.9.  "Common Stock" shall mean the Company's common stock, no par
value per share.

      Section 1.10.     "Condition  Satisfaction  Date" shall have the meaning
set forth in Section 7.2.

      Section 1.11.  "Damages" shall mean any loss,  claim,  damage,  liability,
costs and expenses (including,  without limitation,  reasonable  attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).

      Section 1.12.  "Effective Date" shall mean the date on which the SEC first
declares  effective  a  Registration  Statement  registering  the  resale of the
Registrable Securities as set forth in Section 7.2(a).

      Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Butler Gonzalez LLP dated the date hereof.

      Section 1.14.  "Exchange  Act" shall mean the  Securities  Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

                                       2
<PAGE>

      Section  1.15.   "Material  Adverse  Effect"  shall  mean  any  condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this  Agreement  or the  Registration  Rights  Agreement  in any  material
respect.

      Section 1.16.  "Market  Price" shall mean the lowest  closing Bid Price of
the Common Stock during the Pricing Period.

      Section 1.17.  "Maximum  Advance  Amount"  shall be Five Hundred  Thousand
Dollars ($500,000) per Advance Notice .

      Section  1.18 "NASD"  shall mean the National  Association  of  Securities
Dealers, Inc.

      Section  1.19  "Person"  shall  mean  an  individual,  a  corporation,   a
partnership, an association, a trust or other entity or organization,  including
a government or political subdivision or an agency or instrumentality thereof.

      Section 1.20  "Placement  Agent" shall mean Newbridge  Securities  Inc., a
registered broker-dealer.

      Section 1.21 "Pricing Period" shall mean the five (5) consecutive  Trading
Days after the Advance Notice Date.

      Section 1.22 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market,  the American Stock Exchange,  the OTC Bulletin Board or
the New York Stock  Exchange,  whichever  is at the time the  principal  trading
exchange or market for the Common Stock.

      Section 1.23  "Purchase  Price" shall be set at ninety eight percent (98%)
of the Market Price during the Pricing Period.

      Section  1.24  "Registrable  Securities"  shall  mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration  Statement
has not been declared  effective by the SEC, (ii) which have not been sold under
circumstances  meeting  all of the  applicable  conditions  of Rule  144 (or any
similar  provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise  transferred to a holder who may trade such shares
without  restriction  under the Securities  Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.

      Section 1.25  "Registration  Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.

      Section 1.26 "Registration  Statement" shall mean a registration statement
on Form  S-1 or  SB-2  (if use of such  form is then  available  to the  Company
pursuant to the rules of the SEC and, if not, on such other form  promulgated by
the SEC for which the Company then  qualifies  and which counsel for the Company
shall deem appropriate,  and which form shall be available for the resale of the
Registrable  Securities  to be  registered  there under in  accordance  with the
provisions  of this  Agreement and the  Registration  Rights  Agreement,  and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable  Securities  under
the Securities Act.

                                       3
<PAGE>

      Section  1.27  "Regulation  D" shall  have the  meaning  set  forth in the
recitals of this Agreement.

      Section 1.28 "SEC" shall mean the Securities and Exchange Commission.

      Section  1.29  "Securities  Act" shall have the  meaning  set forth in the
recitals of this Agreement.

      Section  1.30 "SEC  Documents"  shall mean Annual  Reports on Form 10-KSB,
Quarterly  Reports on Form  10-QSB,  Current  Reports on Form 8-K,  Registration
Statements  and Proxy  Statements  of the  Company as  supplemented  to the date
hereof,  filed by the  Company  for a  period  of at least  twelve  (12)  months
immediately  preceding  the date hereof or the Advance Date, as the case may be,
until such time as the  Company  no longer has an  obligation  to  maintain  the
effectiveness  of a  Registration  Statement  as set  forth in the  Registration
Rights Agreement.

      Section  1.31  "Trading  Day" shall mean any day during which the New York
Stock Exchange shall be open for business.


                                 ARTICLE II.
                                   ADVANCES

      Section 2.1. Investments.

            (a)  Advances.  Upon the  terms  and  conditions  set  forth  herein
(including,  without  limitation,  the provisions of Article VII hereof), on any
Advance  Notice Date the  Company may request an Advance by the  Investor by the
delivery  of an Advance  Notice.  The number of shares of Common  Stock that the
Investor  shall  receive for each Advance  shall be  determined  by dividing the
amount of the Advance by the  Purchase  Price.  No  fractional  shares  shall be
issued.  Fractional  shares  shall be rounded to the next higher whole number of
shares.  The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.

      Section 2.2. Mechanics.

            (a) Advance Notice.  At any time during the Commitment  Period,  the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section  7.2;  provided,  however,  the amount for each  Advance as
designated by the Company in the applicable  Advance  Notice,  shall not be more
than the Maximum Advance Amount.  The aggregate amount of the Advances  pursuant
to  this  Agreement  shall  not  exceed  the  Commitment   Amount.  The  Company
acknowledges  that the  Investor may sell shares of the  Company's  Common Stock
corresponding  with a particular Advance Notice on the day the Advance Notice is
received  by the  Investor.  There will be a minimum of seven (7)  Trading  Days
between each Advance Notice Date.

                                       4
<PAGE>

            (b) Date of Delivery of Advance  Notice.  An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received  prior to 12:00 noon Eastern Time, or
(ii) the  immediately  succeeding  Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered,  on a day
that is not a Trading Day.

            (c)  Pre-Closing  Share Credit.  Within four (4) business days after
the Advance Notice Date, the Company shall issue shares of the Company's  Common
Stock to the  Investor's  Counsel's  , in an amount  equal to the  amount of the
requested Advance divided by the closing Bid Price of the Company's Common Stock
as of the Advance Notice Date multiplied by one point one (1.1). Any adjustments
to the number of shares to be  delivered  to the  Investor  at the  Closing as a
result of  fluctuations  in the closing Bid Price of the Company's  Common Stock
shall be made as of the date of the Closing. Any excess shares shall be credited
to the next  Advance.  In no event  shall the number of shares  issuable  to the
Investor  pursuant to an Advance cause the Investor to own in excess of nine and
9/10 percent (9.9%) of the then outstanding Common Stock of the Company.

            (d) Hardship.  In the event the Investor sells the Company's  Common
Stock  pursuant to  subsection  (c) above and the  Company  fails to perform its
obligations  as mandated in Section 2.5 and 2.2 (c), and  specifically  fails to
provide the Investor with the shares of Common Stock for the applicable Advance,
the Company  acknowledges that the Investor shall suffer financial  hardship and
therefore  shall  be  liable  for any  and all  losses,  commissions,  fees,  or
financial hardship caused to the Investor.

      Section  2.3.  Closings.  On each  Advance  Date,  which  shall be six (6)
Trading Days after an Advance  Notice Date, (i) the Company shall deliver to the
Investor's Counsel,  as defined pursuant to the Escrow Agreement,  shares of the
Company's  Common Stock,  representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein,  registered  in the name of the  Investor  which
shall be delivered to the Investor,  or otherwise in accordance  with the Escrow
Agreement  and (ii) the  Investor  shall  deliver  to Butler  Gonzalez  LLP (the
"Escrow  Agent") the amount of the Advance  specified  in the Advance  Notice by
wire  transfer of  immediately  available  funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement.  In addition,  on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other  through the  Investor's  Counsel all  documents,  instruments  and
writings  required to be delivered by either of them pursuant to this  Agreement
in order to implement and effect the transactions  contemplated herein.  Payment
of funds to the  Company  and  delivery  of the  Company's  Common  Stock to the
Investor shall occur in accordance with the conditions set forth above and those
contained in the Escrow  Agreement;  provided,  however,  that to the extent the
Company  has not paid the fees,  expenses,  and  disbursements  of the  Investor
and/or the  Investor's  counsel in accordance  with Section 12.4,  the amount of
such fees,  expenses,  and  disbursements  may be deducted by the Investor  (and
shall be paid to the  relevant  party)  from the amount of the  Advance  with no
reduction in the amount of shares of the Company's  Common Stock to be delivered
on such Advance Date.

                                       5
<PAGE>

      Section 2.4. Termination of Investment.  The obligation of the Investor to
make an  Advance to the  Company  pursuant  to this  Agreement  shall  terminate
permanently  (including  with  respect  to an  Advance  Date  that  has  not yet
occurred)  in the event that (i) there shall occur any stop order or  suspension
of the  effectiveness  of the  Registration  Statement for an aggregate of fifty
(50)  Trading  Days,  other  than due to the acts of the  Investor,  during  the
Commitment  Period,  and (ii) the Company  shall at any time fail  materially to
comply with the  requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written  notice from the  Investor,  provided,
however,  that  this  termination  provision  shall  not  apply  to  any  period
commencing upon the filing of a  post-effective  amendment to such  Registration
Statement  and ending upon the date on which such post  effective  amendment  is
declared effective by the SEC.

      Section 2.5. Agreement to Advance Funds.

            (a) The  Investor  agrees to  advance  the amount  specified  in the
Advance  Notice to the Company  after the  completion  of each of the  following
conditions and the other conditions set forth in this Agreement:

                  (i)  the  execution  and  delivery  by the  Company,  and  the
Investor, of this Agreement, and the Exhibits hereto;

                  (ii)  Investor's  Counsel  shall have  received  the shares of
Common Stock applicable to the Advance in accordance with Section 2.2(c) hereof;

                  (iii) the Company's Registration Statement with respect to the
resale  of the  Registrable  Securities  in  accordance  with  the  terms of the
Registration Rights Agreement shall have been declared effective by the SEC;

                  (iv) the Company shall have obtained all material  permits and
qualifications  required by any  applicable  state for the offer and sale of the
Registrable Securities,  or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable  Securities shall be legally  permitted
by all laws and regulations to which the Company is subject;

                  (v) the  Company  shall have filed  with the  Commission  in a
timely manner all reports,  notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;

                  (vi) the fees as set forth in Section  12.4  below  shall have
been paid or can be withheld as provided in Section 2.3; and

                  (vii) the  conditions set forth in Section 7.2 shall have been
satisfied.

      Section 2.6. Lock Up Period.

                  (i) On the date  hereof,  the Company  shall  obtain from each
officer and director a lock-up agreement,  as defined below, in the form annexed
hereto as  Schedule  2.6  agreeing  to only sell in  compliance  with the volume
limitation of Rule 144.

                                       6
<PAGE>

                                  ARTICLE III.
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

      Investor  hereby  represents and warrants to, and agrees with, the Company
that the  following  are true and as of the date  hereof and as of each  Advance
Date:

      Section  3.1.  Organization  and  Authorization.   The  Investor  is  duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and has all  requisite  power and  authority to
purchase and hold the securities issuable hereunder.  The decision to invest and
the execution and delivery of this Agreement by such Investor,  the  performance
by such  Investor of its  obligations  hereunder  and the  consummation  by such
Investor of the transactions  contemplated  hereby have been duly authorized and
requires no other  proceedings on the part of the Investor.  The undersigned has
the right,  power and  authority to execute and deliver this  Agreement  and all
other  instruments  (including,  without  limitations,  the Registration  Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and,  assuming the  execution and delivery  hereof and
acceptance thereof by the Company,  will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.

      Section 3.2.  Evaluation  of Risks.  The Investor has such  knowledge  and
experience in financial tax and business  matters as to be capable of evaluating
the  merits  and risks of,  and  bearing  the  economic  risks  entailed  by, an
investment  in the Company and of protecting  its  interests in connection  with
this  transaction.  It recognizes that its investment in the Company  involves a
high degree of risk.

      Section 3.3. No Legal Advice From the Company.  The Investor  acknowledges
that it had the  opportunity  to  review  this  Agreement  and the  transactions
contemplated  by this Agreement with his or its own legal counsel and investment
and tax  advisors.  The Investor is relying  solely on such counsel and advisors
and  not on any  statements  or  representations  of the  Company  or any of its
representatives  or agents for legal,  tax or investment  advice with respect to
this  investment,  the  transactions  contemplated  by  this  Agreement  or  the
securities laws of any jurisdiction.

      Section 3.4. Investment Purpose. The securities are being purchased by the
Investor  for its own  account,  for  investment  and  without  any  view to the
distribution, assignment or resale to others or fractionalization in whole or in
part.  The Investor  agrees not to assign or in any way transfer the  Investor's
rights to the  securities  or any  interest  therein and  acknowledges  that the
Company  will not  recognize  any  purported  assignment  or transfer  except in
accordance with applicable  Federal and state  securities  laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor  agrees not to sell,  hypothecate or otherwise  transfer the Investor's
securities  unless the securities  are  registered  under Federal and applicable
state securities laws or unless,  in the opinion of counsel  satisfactory to the
Company, an exemption from such laws is available.

      Section 3.5. Accredited Investor. The Investor is an "Accredited Investor"
as that term is defined in Rule  501(a)(3) of Regulation D of the Securities Act
and, in Multilateral Instrument 45 103 adopted by the BCSC.

                                       7
<PAGE>

      Section 3.6.  Reliance on Exemptions.  The Investor  understands  that the
Common  Stock is being  offered  and sold to it pursuant  to this  Agreement  in
reliance on specific exemptions from registration  requirements of United States
and  federal,  state,  and  provincial  securities  laws and that the Company is
relying in part upon the truth and  accuracy of, and the  Investor's  compliance
with, the  representations,  warranties,  acknowledgements and understandings of
the Investor set forth  herein and in the  questionnaires  in order to determine
the  availability  of such  exemptions  and the  eligibility  of the Investor to
acquire such  securities.  The Company has advised the Investor that the Company
is relying on an exemption from the  requirements to provide the Investor with a
prospectus  and to sell the Common  Stock  through a person  registered  to sell
securities under the Securities Act (British  Columbia) (the "B.C. Act") and, as
a consequence  of acquiring  Common Stock  pursuant to this  exemption,  certain
protections,  rights and remedies provided by the B.C. Act, including  statutory
rights of rescission or damages will not be available to the Investor.



      Section 3.7. Information. The Investor and its advisors (and its counsel),
if any,  have  been  furnished  with all  materials  relating  to the  business,
finances and  operations of the Company and  information  it deemed  material to
making an informed investment decision.  The Investor and its advisors,  if any,
have been  afforded  the  opportunity  to ask  questions  of the Company and its
management.  Neither such  inquiries nor any other due diligence  investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify,  amend  or  affect  the  Investor's  right  to  rely  on  the  Company's
representations  and  warranties  contained  in  this  Agreement.  The  Investor
understands that its investment  involves a high degree of risk. The Investor is
in a position  regarding  the  Company,  which,  based upon  employment,  family
relationship or economic bargaining power,  enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting,  legal and tax advice,
as it has  considered  necessary to make an informed  investment  decision  with
respect to this transaction.

      Section  3.8.  Receipt of  Documents.  The  Investor  and its  counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto;  (ii) all due  diligence and other  information  necessary to verify the
accuracy and  completeness  of such  representations,  warranties and covenants;
(iii) the Company's  Form 10-KSB for the year ended year ended July 30, 2003 and
Form 10-QSB for the periods  ended  October 31, 2003 and January 31,  2004;  and
(iv) answers to all questions the Investor submitted to the Company regarding an
investment  in the  Company;  and the  Investor  has  relied on the  information
contained  therein and has not been furnished any other  documents,  literature,
memorandum or prospectus.

      Section 3.9.  Registration  Rights  Agreement  and Escrow  Agreement.  The
parties have  entered  into the  Registration  Rights  Agreement  and the Escrow
Agreement, each dated the date hereof.

      Section 3.10. No General Solicitation. Neither the Company, nor any of its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation D under the Securities  Act) in connection  with the offer or sale of
the shares of Common Stock offered hereby.

                                       8
<PAGE>

      Section 3.11. Not an Affiliate.  The Investor is not an officer,  director
or a person that  directly,  or indirectly  through one or more  intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate"  of the  Company  (as  that  term  is  defined  in  Rule  405 of the
Securities  Act).  Neither the  Investor  nor its  Affiliates  has an open short
position in the Common  Stock of the Company,  and the  Investor  agrees that it
will not,  and that it will  cause its  Affiliates  not to,  engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company  acknowledges  and agrees that upon receipt of an Advance Notice the
Investor  will sell the  Shares to be issued  to the  Investor  pursuant  to the
Advance Notice, even if the Shares have not been delivered to the Investor.

      Section 3.12. Trading  Activities.  The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal  and state  securities  laws,  rules and  regulations  and the rules and
regulations  of the  Principal  Market on which the  Company's  Common  Stock is
listed or traded.  Neither the  Investor  nor its  affiliates  has an open short
position in the Common Stock of the Company and, except as set forth below,  the
Investor shall not and will cause its affiliates not to engage in any short sale
as defined in any applicable SEC or National  Association of Securities  Dealers
rules on any hedging  transactions  with  respect to the Common  Stock.  Without
limiting the  foregoing,  the  Investor  agrees not to engage in any naked short
transactions  in excess of the  amount of shares  owned (or an  offsetting  long
position) during the Commitment  Period.  The Investor shall be entitled to sell
Common Stock during the applicable Pricing Period.

      Section 3.13. British Columbia Resale Restrictions.

            a. The  Investor  acknowledges  that the Common  Stock is subject to
resale  restrictions  in  British  Columbia  and may not be  traded  in  British
Columbia except as permitted by the B.C. Act and the rules made there under.

            b. Pursuant to  Multilateral  Instrument  45-102,  as adopted by the
BCSC a subsequent  trade in Common Stock will be a  distribution  subject to the
Prospectus  and  registration  requirements  of applicable  Canadian  Securities
legislation  (including  the  B.C.  Act)  unless  certain  conditions  are  met,
including the following:

                  i. at least four (4) months (the "Canadian Hold Period") shall
have elapsed from the date on which the Common Stock was issued to the Investor;

                  ii.  during the  currency of the  Canadian  Hold  Period,  any
certificate  representing  the  Common  Stock is  imprinted  with a legend  (the
"Canadian Legend") stating:

                " Unless permitted under securities legislation,

                the holder of the securities shall not trade the

                securities before [insert the date that is four

                months and a day after the distribution date]."

                                       9
<PAGE>

                  iii.  The trade is not a control  distribution  (as defined in
Multilateral Instrument 45-102);

                  iv. No  unusual  effort is made to  prepare  the  market or to
create a demand for the Common Stock that is the subject of the trade;

                  v. No  extraordinary  commission or consideration is paid to a
person or company in respect of the trade; and

                  vi. If the selling security holder is an insider or officer of
the Company,  the selling  security holder has no reasonable  grounds to believe
that the Company is in default of securities legislation; and

            c. By executing and  delivering  this  Agreement,  the Investor will
have directed the Company not to include the Canadian Legend on any certificates
representing the Common Stock to be issued to the Investor,

            d. As a  consequence,  the Investor  will not be able to rely on the
resale provisions of Multilateral Instrument 45-102, and any subsequent trade in
the  Conversion  Shares  during  or  after  the  Canadian  Hold  Period  will be
distribution  subject to the prospectus and registration of Canadian  securities
legislation,  to the  extent  that the  trade is  subject  to any such  Canadian
securities legislation.


                                   ARTICLE IV.
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      Except as stated below, on the disclosure  schedules attached hereto or in
the SEC  Documents  (as defined  herein),  the  Company  hereby  represents  and
warrants to, and  covenants  with,  the Investor that the following are true and
correct as of the date hereof:

      Section  4.1.   Organization  and  Qualification.   The  Company  is  duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and  has  all  requisite  power  and  authority
corporate  power to own its properties and to carry on its business as now being
conducted.  Each of the  Company and its  subsidiaries  is duly  qualified  as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the  business  conducted  by it makes such  qualification
necessary,  except to the extent  that the failure to be so  qualified  or be in
good standing  would not have a Material  Adverse  Effect on the Company and its
subsidiaries taken as a whole.

      Section   4.2.   Authorization,   Enforcement,   Compliance   with   Other
Instruments.  (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement,  the Registration  Rights Agreement,  the
Escrow Agreement,  the Placement Agent Agreement and any related agreements,  in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement,  the Registration  Rights Agreement,  the Escrow Agreement,  the

                                       10
<PAGE>

Placement  Agent  Agreement  and any related  agreements  by the Company and the
consummation by it of the  transactions  contemplated  hereby and thereby,  have
been duly  authorized by the Company's Board of Directors and no further consent
or  authorization  is required by the  Company,  its Board of  Directors  or its
stockholders,  (iii) this Agreement,  the  Registration  Rights  Agreement,  the
Escrow Agreement,  the Placement Agent Agreement and any related agreements have
been duly  executed  and  delivered  by the Company,  (iv) this  Agreement,  the
Registration  Rights  Agreement,  the  Escrow  Agreement,  the  Placement  Agent
Agreement and assuming the execution and delivery  thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company  enforceable  against the Company in accordance with their terms,
except as such  enforceability may be limited by general principles of equity or
applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation or
similar laws relating to, or affecting generally,  the enforcement of creditors'
rights and remedies.

      Section 4.3. Capitalization. As of the date hereof, the authorized capital
stock of the Company  consists of  300,000,000  shares of Common  Stock,  no par
value per share and 100,000 shares of Preferred Stock of which 82,915,316 shares
of Common Stock and Nil shares of Preferred  Stock were issued and  outstanding.
All of such  outstanding  shares have been validly issued and are fully paid and
nonassessable.  Except as  disclosed in the SEC  Documents,  no shares of Common
Stock are subject to preemptive  rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC  Documents,  as of the date hereof,  (i) there are no  outstanding  options,
warrants,  scrip,  rights to subscribe to, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into, any shares of
capital  stock  of  the  Company  or  any of  its  subsidiaries,  or  contracts,
commitments,  understandings  or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company  or  any  of its  subsidiaries,  (ii)  there  are  no  outstanding  debt
securities (iii) there are no outstanding  registration statements other than on
Form S-8 and (iv)  there  are no  agreements  or  arrangements  under  which the
Company or any of its  subsidiaries  is obligated to register the sale of any of
their  securities  under the Securities Act (except pursuant to the Registration
Rights  Agreement).  Except  as  disclosed  in the SEC  Documents,  there are no
securities or instruments  containing  anti-dilution or similar  provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions  described  herein or therein.  The Company has furnished to
the  Investor  true  and  correct   copies  of  the  Company's   Certificate  of
Incorporation,  as amended and as in effect on the date hereof (the "Certificate
of  Incorporation"),  and the Company's By-laws, as in effect on the date hereof
(the "By-laws"), and the terms of all securities convertible into or exercisable
for  Common  Stock and the  material  rights of the  holders  thereof in respect
thereto.

      Section 4.4. No Conflict.  Except as disclosed in the SEC  Documents,  the
execution,  delivery and  performance  of this  Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the  Certificate of  Incorporation,  any certificate of
designations  of any  outstanding  series of  preferred  stock of the Company or
By-laws or (ii)  conflict  with or  constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of  termination,  amendment,  acceleration  or  cancellation  of, any

                                       11
<PAGE>

agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, or result in a violation of any law, rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations and the rules and  regulations of the Principal  Market on which the
Common Stock is quoted)  applicable to the Company or any of its subsidiaries or
by  which  any  material  property  or  asset  of  the  Company  or  any  of its
subsidiaries  is bound or  affected  and which  would  cause a Material  Adverse
Effect.  Except as disclosed in the SEC  Documents,  neither the Company nor its
subsidiaries  is in violation of any term of or in default under its Certificate
of  Incorporation  or  By-laws  or  their  organizational  charter  or  by-laws,
respectively,  or any  material  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable to the Company or its  subsidiaries.  The business of the
Company and its subsidiaries is not being conducted in violation of any material
law, ordinance,  regulation of any governmental  entity.  Except as specifically
contemplated  by this Agreement and as required under the Securities Act and any
applicable  state  securities  laws,  the Company is not  required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute,  deliver or perform any
of its obligations  under or contemplated by this Agreement or the  Registration
Rights  Agreement in accordance with the terms hereof or thereof.  All consents,
authorizations,  orders, filings and registrations which the Company is required
to obtain  pursuant to the preceding  sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
fact or circumstance which might give rise to any of the foregoing.

      Section 4.5. SEC Documents;  Financial Statements.  Since May 6, 1998, the
Company has filed all reports,  schedules, forms, statements and other documents
required to be filed by it with the SEC under of the  Exchange  Act. The Company
has delivered to the Investor or its representatives,  or made available through
the SEC's  website at  http://www.sec.gov,  true and complete  copies of the SEC
Documents. As of their respective dates, the financial statements of the Company
disclosed in the SEC Documents (the "Financial  Statements") complied as to form
in all  material  respects  with  applicable  accounting  requirements  and  the
published rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally  accepted  accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise  indicated in such financial  statements or the notes  thereto,  or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary  statements) and, fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the  Investor  which is not  included in the SEC  Documents  contains any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they were made, not misleading.

                                       12
<PAGE>

      Section 4.6. 10b-5. The SEC Documents do not include any untrue statements
of material  fact,  nor do they omit to state any material  fact  required to be
stated  therein  necessary  to  make  the  statements  made,  in  light  of  the
circumstances under which they were made, not misleading.

      Section 4.7. No Default.  Except as disclosed  in the SEC  Documents,  the
Company is not in default  in the  performance  or  observance  of any  material
obligation,  agreement,  covenant  or  condition  contained  in  any  indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its  property is bound and  neither the  execution,
nor the  delivery  by the  Company,  nor the  performance  by the Company of its
obligations  under this Agreement or any of the exhibits or  attachments  hereto
will  conflict  with or result in the breach or violation of any of the terms or
provisions  of, or  constitute a default or result in the creation or imposition
of any lien or  charge on any  assets or  properties  of the  Company  under its
Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other  material  agreement  applicable  to the Company or instrument to
which the  Company is a party or by which it is bound,  or any  statute,  or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having  jurisdiction  over the Company or its  properties,  in each case
which  default,  lien or charge is likely to cause a Material  Adverse Effect on
the Company's business or financial condition.

      Section 4.8. Absence of Events of Default. Except for matters described in
the SEC Documents and/or this Agreement,  no Event of Default, as defined in the
respective  agreement to which the Company is a party, and no event which,  with
the giving of notice or the  passage of time or both,  would  become an Event of
Default (as so  defined),  has occurred  and is  continuing,  which would have a
Material  Adverse  Effect  on the  Company's  business,  properties,  prospects,
financial condition or results of operations.

      Section  4.9.   Intellectual   Property   Rights.   The  Company  and  its
subsidiaries  own or possess  adequate  rights or licenses  to use all  material
trademarks,  trade names,  service marks,  service mark  registrations,  service
names, patents,  patent rights,  copyrights,  inventions,  licenses,  approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted.  The Company and its subsidiaries do not
have any knowledge of any  infringement  by the Company or its  subsidiaries  of
trademark,  trade name rights, patents, patent rights,  copyrights,  inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others,  and, to the knowledge of the Company,  there
is no claim,  action or  proceeding  being  made or brought  against,  or to the
Company's  knowledge,  being threatened against, the Company or its subsidiaries
regarding trademark,  trade name, patents, patent rights, invention,  copyright,
license, service names, service marks, service mark registrations,  trade secret
or other  infringement;  and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

      Section  4.10.  Employee  Relations.  Neither  the  Company nor any of its
subsidiaries  is involved in any labor  dispute  nor,  to the  knowledge  of the
Company or any of its subsidiaries,  is any such dispute threatened. None of the
Company's or its subsidiaries'  employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.

                                       13
<PAGE>

      Section 4.11. Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable material foreign,  federal,  state and
local  laws and  regulations  relating  to the  protection  of human  health and
safety,  the environment or hazardous or toxic substances or wastes,  pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other  approvals  required  of them under  applicable  Environmental  Laws to
conduct their  respective  businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.

      Section 4.12. Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge,  lien,  security interest,  encumbrance,  claim or
equitable  interest  other than such as are not  material to the business of the
Company.  Any real property and  facilities  held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such  exceptions as are not material and do not interfere with the use made
and proposed to be made of such  property  and  buildings by the Company and its
subsidiaries.

      Section  4.13.  Insurance.  The Company and each of its  subsidiaries  are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Company  believes  to be
prudent  and  customary  in  the   businesses  in  which  the  Company  and  its
subsidiaries  are engaged.  Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such  subsidiary has any reason to believe that it will not be able to renew
its existing  insurance  coverage as and when such coverage expires or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its subsidiaries, taken as a whole.

      Section 4.14. Regulatory Permits. The Company and its subsidiaries possess
all material certificates,  authorizations and permits issued by the appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

      Section 4.15.  Internal Accounting  Controls.  The Company and each of its
subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  (iii) access to assets is  permitted  only in  accordance  with
management's   general  or  specific   authorization   and  (iv)  the   recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences.

      Section 4.16. No Material  Adverse  Breaches,  etc. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is subject to
any charter,  corporate or other legal  restriction,  or any  judgment,  decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected  in the future to have a Material  Adverse  Effect on the  business,
properties,  operations, financial condition, results of operations or prospects

                                       14
<PAGE>

of the Company or its  subsidiaries.  Except as set forth in the SEC  Documents,
neither the Company nor any of its  subsidiaries is in breach of any contract or
agreement  which breach,  in the judgment of the Company's  officers,  has or is
expected  to  have  a  Material  Adverse  Effect  on the  business,  properties,
operations,  financial  condition,  results of  operations  or  prospects of the
Company or its subsidiaries.

      Section  4.17.  Absence  of  Litigation.  Except  as set  forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency,  self-regulatory  organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions  contemplated hereby (ii)
adversely affect the validity or enforceability  of, or the authority or ability
of the Company to perform its  obligations  under,  this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents,  have  a  Material  Adverse  Effect  on  the  business,   operations,
properties,  financial  condition or results of operation of the Company and its
subsidiaries taken as a whole.

      Section 4.18. Subsidiaries.  Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly,  any interest
in any other corporation, partnership, association or other business entity.

      Section 4.19. Tax Status.  Except as disclosed in the SEC  Documents,  the
Company  and each of its  subsidiaries  has made or filed all  federal and state
income and all other tax  returns,  reports  and  declarations  required  by any
jurisdiction  to which it is subject and (unless and only to the extent that the
Company  and each of its  subsidiaries  has set  aside on its  books  provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other  governmental  assessments  and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except  those  being  contested  in good  faith  and has set  aside on its books
provision  reasonably  adequate  for  the  payment  of  all  taxes  for  periods
subsequent to the periods to which such returns,  reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction,  and the officers of the Company know of no basis
for any such claim.

      Section  4.20.  Certain  Transactions.  Except  as set  forth  in the  SEC
Documents  none of the  officers,  directors,  or  employees  of the  Company is
presently a party to any  transaction  with the Company (other than for services
as employees,  officers and  directors),  including  any contract,  agreement or
other  arrangement  providing for the furnishing of services to or by, providing
for rental of real or  personal  property  to or from,  or  otherwise  requiring
payments to or from any officer,  director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer,  director,  or any such  employee has a  substantial  interest or is an
officer, director, trustee or partner.

      Section 4.21. Fees and Rights of First Refusal. Except as disclosed in the
SEC  Documents,  the Company is not  obligated to offer the  securities  offered
hereunder on a right of first  refusal  basis or otherwise to any third  parties
including,  but not limited to, current or former  shareholders  of the Company,
underwriters, brokers, agents or other third parties.

                                       15
<PAGE>

      Section  4.22.  Use of  Proceeds.  The  Company  represents  that  the net
proceeds  from  this  offering  will be used  for  general  corporate  purposes.
However,  in no event shall the net proceeds  from this  offering be used by the
Company for the  payment  (or loaned to any such person for the  payment) of any
judgment,  or other  liability,  incurred  by any  executive  officer,  officer,
director or  employee  of the  Company,  except for any  liability  owed to such
person for services rendered,  or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.

      Section 4.23. Further Representation and Warranties of the Company. For so
long  as  any  securities   issuable  hereunder  held  by  the  Investor  remain
outstanding, the Company acknowledges,  represents,  warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market

      Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter
from  Sichenzia  Ross Friedman  Ference LLP,  counsel to the Company on the date
hereof.

      Section  4.25.  Opinion  of  Counsel.  The  Company  will  obtain  for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably  required in order to sell the securities  issuable hereunder without
restriction.

      Section  4.26.  Dilution.  The  Company  is aware  and  acknowledges  that
issuance  of shares of the  Company's  Common  Stock  could  cause  dilution  to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.


                                  ARTICLE V.
                               INDEMNIFICATION

      The Investor and the Company  represent  to the other the  following  with
respect to itself:

      Section 5.1. Indemnification.

            (a) In  consideration  of the  Investor's  execution and delivery of
this Agreement,  and in addition to all of the Company's other obligations under
this Agreement,  the Company shall defend, protect,  indemnify and hold harmless
the Investor, and all of its officers, directors, partners, employees and agents
(including,   without   limitation,   those  retained  in  connection  with  the
transactions  contemplated  by  this  Agreement)  (collectively,  the  "Investor
Indemnitees")  from and against any and all  actions,  causes of action,  suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith  (irrespective of whether any such Investor Indemnitee is a
party  to the  action  for  which  indemnification  hereunder  is  sought),  and
including  reasonable   attorneys'  fees  and  disbursements  (the  "Indemnified
Liabilities"),  incurred by the Investor  Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation  or  warranty  made  by the  Company  in  this  Agreement  or the
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby or thereby,  (b) any breach of any  covenant,  agreement or

                                       16
<PAGE>

obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate,  instrument or document  contemplated hereby
or thereby,  or (c) any cause of action,  suit or claim  brought or made against
such  Investor  Indemnitee  not  arising  out of any  action or  inaction  of an
Investor  Indemnitee,  and  arising  out of or  resulting  from  the  execution,
delivery,  performance or enforcement of this Agreement or any other instrument,
document  or  agreement   executed  pursuant  hereto  by  any  of  the  Investor
Indemnitees.  To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and  satisfaction of each of the Indemnified  Liabilities,  which is
permissible under applicable law.

            (b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement,  the Investor shall defend, protect,  indemnify and hold harmless the
Company and all of its officers, directors,  shareholders,  employees and agents
(including,   without   limitation,   those  retained  in  connection  with  the
transactions  contemplated  by  this  Agreement)  (collectively,   the  "Company
Indemnitees") from and against any and all Indemnified  Liabilities  incurred by
the  Company  Indemnitees  or any of them as a result of, or arising  out of, or
relating  to (a)  any  misrepresentation  or  breach  of any  representation  or
warranty  made  by the  Investor  in this  Agreement,  the  Registration  Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant,  agreement or obligation of the
Investor(s)  contained in this Agreement,  the Registration  Rights Agreement or
any other  certificate,  instrument or document  contemplated  hereby or thereby
executed by the Investor,  or (c) any cause of action,  suit or claim brought or
made against such Company  Indemnitee  based on  misrepresentations  or due to a
breach by the  Investor  and arising  out of or  resulting  from the  execution,
delivery,  performance or enforcement of this Agreement or any other instrument,
document  or  agreement   executed   pursuant  hereto  by  any  of  the  Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason,  the Investor shall make the maximum  contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

            (c) The obligations of the parties to indemnify or make contribution
under this Section 5.1 shall survive termination.


                                  ARTICLE VI.
                            COVENANTS OF THE COMPANY

      Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.

      Section  6.2.  Listing of Common  Stock.  The Company  shall  maintain the
Common  Stock's  authorization  for  quotation  on the National  Association  of
Securities Dealers Inc.'s Over the Counter Bulletin Board.

      Section 6.3. Exchange Act Registration.  The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely  manner all  reports  and other  documents  required of it as a
reporting  company  under the  Exchange Act and will not take any action or file
any document  (whether or not permitted by Exchange Act or the rules  thereunder
to  terminate  or suspend  such  registration  or to  terminate  or suspend  its
reporting and filing obligations under said Exchange Act.

                                       17
<PAGE>

      Section 6.4. Transfer Agent Instructions.  Not later than two (2) business
days  after  each  Advance  Notice  Date  and  prior  to  each  Closing  and the
effectiveness  of the  Registration  Statement and resale of the Common Stock by
the Investor,  the Company will deliver  instructions  to its transfer  agent to
issue shares of Common Stock free of restrictive legends.

      Section  6.5.  Corporate  Existence.  The  Company  will  take  all  steps
necessary to preserve and continue the corporate existence of the Company.

      Section 6.6. Notice of Certain Events Affecting  Registration;  Suspension
of Right to Make an Advance.  The Company will  immediately  notify the Investor
upon its becoming  aware of the  occurrence  of any of the  following  events in
respect  of a  registration  statement  or  related  prospectus  relating  to an
offering of  Registrable  Securities:  (i) receipt of any request for additional
information  by the SEC or any other  Federal  or state  governmental  authority
during the period of effectiveness of the Registration  Statement for amendments
or supplements to the  registration  statement or related  prospectus;  (ii) the
issuance by the SEC or any other Federal or state governmental  authority of any
stop order suspending the  effectiveness  of the  Registration  Statement or the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding  for  such
purpose;  (iv) the happening of any event that makes any  statement  made in the
Registration  Statement or related  prospectus of any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration  Statement,  related
prospectus or documents so that, in the case of the Registration  Statement,  it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  and that in the case of the related prospectus, it will
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact required to be stated  therein or necessary to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the  Registration  Statement would be appropriate;  and the Company
will promptly make available to the Investor any such supplement or amendment to
the related  prospectus.  The  Company  shall not  deliver to the  Investor  any
Advance Notice during the continuation of any of the foregoing events.

      Section 6.7. Expectations Regarding Advance Notices.  Within ten (10) days
after the  commencement  of each calendar  quarter  occurring  subsequent to the
commencement of the Commitment Period, the Company must notify the Investor,  in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise  during such  calendar  quarter,  if any,  through the issuance of Advance
Notices.  Such  notification  shall  constitute  only the  Company's  good faith
estimate and shall in no way  obligate the Company to raise such amount,  or any
amount,  or otherwise limit its ability to deliver Advance Notices.  The failure
by the  Company  to comply  with this  provision  can be cured by the  Company's
notifying  the  Investor,   in  writing,  at  any  time  as  to  its  reasonable
expectations with respect to the current calendar quarter.

                                       18
<PAGE>

      Section 6.8  Consolidation;  Merger.  The  Company  shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into,  or a transfer  of all or  substantially  all the assets of the Company to
another  entity (a  "Consolidation  Event")  unless the  resulting  successor or
acquiring  entity  (if  not the  Company)  assumes  by  written  instrument  the
obligation to deliver to the Investor such shares of stock and/or  securities as
the Investor is entitled to receive pursuant to this Agreement.

      Section 6.9 Issuance of the Company's Common Stock. The sale of the shares
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.


                                  ARTICLE VII.
                CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING

      Section 7.1. Conditions  Precedent to the Obligations of the Company.  The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the  Investor  incident to each  Closing is subject to the  satisfaction,  or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.

            (a) Accuracy of the Investor's  Representations and Warranties.  The
representations  and warranties of the Investor shall be true and correct in all
material respects.

            (b) Performance by the Investor.  The Investor shall have performed,
satisfied  and  complied in all  respects  with all  covenants,  agreements  and
conditions  required by this Agreement and the Registration  Rights Agreement to
be  performed,  satisfied  or complied  with by the Investor at or prior to such
Closing.

      Section 7.2.  Conditions  Precedent to the Right of the Company to Deliver
an Advance  Notice and the  Obligation  of the  Investor to  Purchase  Shares of
Common  Stock.  The right of the  Company to  deliver an Advance  Notice and the
obligation  of the  Investor  hereunder  to  acquire  and pay for  shares of the
Company's  Common Stock  incident to a Closing is subject to the  fulfillment by
the  Company,  on (i) the date of delivery of such  Advance  Notice and (ii) the
applicable Advance Date (each a "Condition  Satisfaction  Date"), of each of the
following conditions:

            (a) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a  Registration  Statement with respect to the resale of
the  Registrable  Securities  in accordance  with the terms of the  Registration
Rights  Agreement.  As set  forth  in the  Registration  Rights  Agreement,  the
Registration  Statement shall have previously  become effective and shall remain
effective on each  Condition  Satisfaction  Date and (i) neither the Company nor
the Investor  shall have  received  notice that the SEC has issued or intends to
issue a stop order with  respect to the  Registration  Statement or that the SEC
otherwise  has  suspended or withdrawn  the  effectiveness  of the  Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other  suspension of the use or withdrawal of the  effectiveness  of
the Registration  Statement or related  prospectus shall exist. The Registration
Statement  must  have  been  declared  effective  by the SEC  prior to the first
Advance Notice Date.

                                       19
<PAGE>

            (b)  Authority.  The  Company  shall have  obtained  all permits and
qualifications   required  by  any  applicable  state  in  accordance  with  the
Registration  Rights  Agreement  for the offer and sale of the  shares of Common
Stock,  or shall have the  availability  of exemptions  therefrom.  The sale and
issuance of the shares of Common  Stock shall be legally  permitted  by all laws
and regulations to which the Company is subject.

            (c)  Fundamental  Changes.  There  shall not  exist any  fundamental
changes to the information set forth in the  Registration  Statement which would
require  the  Company to file a  post-effective  amendment  to the  Registration
Statement.

            (d)  Performance by the Company.  The Company shall have  performed,
satisfied and complied in all material  respects with all covenants,  agreements
and conditions required by this Agreement  (including,  without limitation,  the
conditions  specified  in  Section  2.5  hereof)  and  the  Registration  Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.

            (e) No Injunction.  No statute, rule,  regulation,  executive order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by any court or governmental  authority of competent  jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect  of   prohibiting  or  adversely   affecting  any  of  the   transactions
contemplated by this Agreement.

            (f) No Suspension  of Trading in or Delisting of Common  Stock.  The
trading of the Common Stock is not suspended by the SEC or the Principal  Market
(if the Common Stock is traded on a Principal Market). The issuance of shares of
Common Stock with respect to the applicable  Closing,  if any, shall not violate
the shareholder  approval  requirements  of the Principal  Market (if the Common
Stock is traded on a Principal Market).  The Company shall not have received any
notice  threatening  the continued  listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).

            (g) Maximum  Advance Amount.  The amount of an Advance  requested by
the Company  shall not exceed the Maximum  Advance  Amount.  In addition,  in no
event shall the number of shares issuable to the Investor pursuant to an Advance
cause the Investor to own in excess of nine and 9/10 percent  (9.9%) of the then
outstanding Common Stock of the Company.

            (h) No  Knowledge.  The Company has no  knowledge of any event which
would be more  likely than not to have the effect of causing  such  Registration
Statement to be suspended or otherwise ineffective.

            (i) Other. On each Condition  Satisfaction  Date, the Investor shall
have received the certificate  executed by an officer of the Company in the form
of Exhibit A attached hereto.

                                       20
<PAGE>

                                  ARTICLE VIII.
         DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION

      Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company  shall make  available  for  inspection  and review by the
Investor,  advisors to and  representatives  of the  Investor,  any  underwriter
participating in any disposition of the Registrable  Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement  thereto or any blue sky,  NASD or other filing,  all
financial and other  records,  all SEC Documents and other filings with the SEC,
and all other  corporate  documents  and  properties  of the  Company  as may be
reasonably  necessary  for the purpose of such review,  and cause the  Company's
officers,  directors  and  employees to supply all such  information  reasonably
requested by the Investor or any such representative,  advisor or underwriter in
connection with such Registration Statement (including,  without limitation,  in
response to all questions and other  inquiries  reasonably  made or submitted by
any of them),  prior to and from time to time after the filing and effectiveness
of the Registration  Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct  initial and ongoing due diligence  with respect to the
Company and the accuracy of the Registration Statement.

      Section 8.2. Non-Disclosure of Non-Public Information.

      (a) The Company shall not disclose non-public information to the Investor,
advisors to or  representatives  of the Investor  unless prior to  disclosure of
such  information the Company  identifies such  information as being  non-public
information and provides the Investor,  such advisors and  representatives  with
the  opportunity to accept or refuse to accept such  non-public  information for
review. The Company may, as a condition to disclosing any non-public information
hereunder,  require the Investor's  advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.

      (b) Nothing  herein  shall  require  the  Company to  disclose  non-public
information to the Investor or its advisors or representatives,  and the Company
represents that it does not disseminate  non-public information to any investors
who purchase stock in the Company in a public offering,  to money managers or to
securities analysts,  provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided,  immediately notify the
advisors and representatives of the Investor and, if any,  underwriters,  of any
event or the existence of any  circumstance  (without any obligation to disclose
the specific  event or  circumstance)  of which it becomes  aware,  constituting
non-public  information (whether or not requested of the Company specifically or
generally  during  the course of due  diligence  by such  persons or  entities),
which, if not disclosed in the prospectus included in the Registration Statement
would  cause such  prospectus  to include a material  misstatement  or to omit a
material  fact  required to be stated  therein in order to make the  statements,
therein,  in light of the circumstances in which they were made, not misleading.
Nothing  contained  in this  Section  8.2 shall be  construed  to mean that such
persons or entities other than the Investor  (without the written consent of the
Investor  prior to disclosure  of such  information)  may not obtain  non-public
information  in the course of conducting  due  diligence in accordance  with the
terms of this  Agreement  and nothing  herein shall  prevent any such persons or
entities  from  notifying  the Company of their  opinion  that based on such due
diligence by such persons or entities,  that the Registration Statement contains

                                       21
<PAGE>

an untrue  statement of material  fact or omits a material  fact  required to be
stated  in the  Registration  Statement  or  necessary  to make  the  statements
contained  therein,  in light of the  circumstances in which they were made, not
misleading.


                                  ARTICLE IX.
                           CHOICE OF LAW/JURISDICTION

      Section  9.1.  Governing  Law.  This  Agreement  shall be  governed by and
interpreted in accordance with the laws of the State of Delaware  without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in Hudson County,  New Jersey, and expressly consent
to the  jurisdiction  and venue of the Superior Court of New Jersey,  sitting in
Hudson  County,  New Jersey and the United States  District Court of New Jersey,
sitting in Newark, New Jersey, for the adjudication of any civil action asserted
pursuant to this paragraph.


                                   ARTICLE X.
                             ASSIGNMENT; TERMINATION

      Section  10.1.  Assignment.  Neither this  Agreement nor any rights of the
Company hereunder may be assigned to any other Person.

      Section  10.2.  Termination.  The  obligations  of the  Investor  to  make
Advances under Article II hereof shall terminate  twenty-four  (24) months after
the Effective Date.


                                  ARTICLE XI.
                                    NOTICES

      Section  11.1.  Notices.   Any  notices,   consents,   waivers,  or  other
communications  required  or  permitted  to be  given  under  the  terms of this
Agreement  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 a copy is mailed by U.S.  certified  mail,  return  receipt  requested;
(iii) three (3) days after being sent by U.S.  certified  mail,  return  receipt
requested,  or (iv)  one (1) day  after  deposit  with a  nationally  recognized
overnight  delivery  service,  in each case  properly  addressed to the party to
receive the same.  The addresses and facsimile  numbers for such  communications
shall be:

If to the Company, to:          SmarTire Systems Inc.
                                Richmond Corporate Centre
                                Suite 150-13151 Vanier Place
                                Richmond, British Columbia
                                Canada V6V 2J1
                                Attention:  Robert V. Rudman, President
                                Telephone:  (604) 276-9884
                                Facsimile:  (604) 276-2353

                                       22
<PAGE>

                                Sichenzia Ross Friedman Ference LLP
With a copy to:                 1065 Avenue of the Americas
                                New York, NY 10018
                                Attention:  Gregory Sichenzia, Esq.
                                            Darrin M. Ocasio, Esq.
                                Telephone:  (212) 981-6768
                                Facsimile:  (212) 930-9725


If to the Investor(s):          Cornell Capital Partners, LP
                                101 Hudson Street -Suite 3606
                                Jersey City, NJ 07302
                                Attention:  Mark Angelo
                                            Portfolio Manager
                                Telephone:  (201) 985-8300
                                Facsimile:  (201) 985-8266

With a Copy to:                 Butler Gonzalez LLP
                                1416 Morris Avenue - Suite 207
                                Union, NJ 07083
                                Attention:  David Gonzalez, Esq.
                                Telephone:  (908) 810-8588
                                Facsimile:  (908) 810-0973

Each party shall provide five (5) days' prior written  notice to the other party
of any change in address or facsimile number.


                                  ARTICLE XII.
                                 MISCELLANEOUS

      Section 12.1. Counterparts.  This Agreement may be executed in two or more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered  to the other  party.  In the event any  signature  page is
delivered  by  facsimile  transmission,  the party  using such means of delivery
shall  cause  four  (4)  additional  original  executed  signature  pages  to be
physically  delivered to the other party  within five (5) days of the  execution
and delivery hereof,  though failure to deliver such copies shall not affect the
validity of this Agreement.

      Section 12.2. Entire Agreement;  Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor,  the Company, their
affiliates  and  persons  acting on their  behalf  with  respect to the  matters
discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither  the  Company  nor  the  Investor  makes  any  representation,
warranty,  covenant or undertaking with respect to such matters. No provision of
this  Agreement  may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

                                       23
<PAGE>

      Section 12.3.  Reporting Entity for the Common Stock. The reporting entity
relied upon for the  determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this  Agreement  shall
be Bloomberg,  L.P. or any successor thereto.  The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

      Section  12.4.  Fees and  Expenses.  The Company  hereby agrees to pay the
following fees:

            (a)  Legal  Fees.  Each of the  parties  shall  pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection  with this  Agreement and the  transactions
contemplated  hereby,  except that the Company will pay Fifteen Thousand Dollars
($15,000)  to Butler  Gonzalez  LLP for legal,  administrative,  and escrow fees
directly  from the  gross  proceeds  of the  first  closing  of the  Convertible
Debenture  transaction  pursuant to the Securities  Purchase Agreement dated the
date  hereof.  Subsequently  on each advance  date,  the Company will pay Butler
Gonzalez LLP, the sum of Five Hundred  Dollars ($500) for legal,  administrative
and escrow fees directly out the proceeds of any Advances hereunder.

            (b) Commitment Fees.

                  (i)  On  each  Advance  Date  the  Company  shall  pay  to the
Investor,  directly from the gross  proceeds held in escrow,  an amount equal to
five percent (5%) of the amount of each Advance.  The Company hereby agrees that
if such  payment,  as is  described  above,  is not made by the  Company  on the
Advance  Date,  such  payment  will be made at the  direction of the Investor as
outlined and mandated by Section 2.3 of this Agreement.

                  (ii) Upon the  execution of this  Agreement  the Company shall
issue to the Investor shares of the Company's Common Stock in an amount equal to
Three Hundred Sixty Five Thousand Dollars  ($375,000) divided by the closing Bid
Price of the  Company's  Common Stock,  as quoted by Bloomberg,  LP, on the date
hereof (the "Investor's Shares").

                  (iii) Fully  Earned.  The  Investor's  Shares  shall be deemed
fully earned as of the date hereof.

                  (iv)  Registration  Rights.  The  Investor's  Shares will have
"piggy-back" registration rights.

                  (v) Due Diligence  Fee. The Company will pay to the Investor a
non-refundable  due diligence fee of Two Thousand Five Hundred Dollars  ($2,500)
to defray the costs of performing due diligence on the Company directly from the
gross proceeds held in escrow from the First Closing  pursuant to the Securities
Purchase Agreement.

      Section 12.5. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection  with this  transaction  with any finder or broker
who will  demand  payment of any fee or  commission  from the other  party.  The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other  harmless from any and all  liabilities  to
any  person  claiming  brokerage  commissions  or  finder's  fees on  account of
services  purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

                                       24
<PAGE>

      Section  12.6.  Confidentiality.   If  for  any  reason  the  transactions
contemplated by this Agreement are not  consummated,  each of the parties hereto
shall keep  confidential  any information  obtained from any other party (except
information  publicly  available  or in such  party's  domain  prior to the date
hereof,  and except as required by court order) and shall promptly return to the
other  parties  all  schedules,  documents,  instruments,  work  papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       25
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Standby  Equity
Distribution  Agreement  to be  executed  by  the  undersigned,  thereunto  duly
authorized, as of the date first set forth above.

                                     COMPANY:
                                     SMARTIRE SYSTEMS INC.

                                     By: /s/ Robert V. Rudman
                                        ----------------------------------------
                                     Name:  Robert V. Rudman
                                     Title: President


                                     INVESTOR:
                                     CORNELL CAPITAL PARTNERS, LP

                                     BY:   YORKVILLE ADVISORS, LLC
                                     ITS:  GENERAL PARTNER

                                     By: /s/ Mark Angelo
                                        ----------------------------------------
                                     Name:  Mark Angelo
                                     Title: Portfolio Manager

                                       26
<PAGE>

                                   EXHIBIT A

                    ADVANCE NOTICE/COMPLIANCE CERTIFICATE


                            SMARTIRE SYSTEMS INC.


      The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of SmarTire  Systems,  Inc., (the "Company"),
issuable in connection with this Advance Notice and Compliance Certificate dated
___________________  (the  "Notice"),  delivered  pursuant to the Standby Equity
Distribution Agreement (the "Agreement"), as follows:

      1. The undersigned is the duly elected President of the Company.

      2. There are no fundamental  changes to the  information  set forth in the
Registration  Statement which would require the Company to file a post effective
amendment to the Registration Statement.

      3. The Company has  performed in all material  respects all  covenants and
agreements  to be  performed  by the  Company  on or prior to the  Advance  Date
related  to the  Notice  and has  complied  in all  material  respects  with all
obligations and conditions contained in the Agreement.

      4. The Advance requested is _____________________.

      The   undersigned  has  executed  this   Certificate   this  ____  day  of
_________________.

                                   SMARTIRE SYSTEMS INC.


                                   By:
                                      ------------------------------------------
                                   Name:
                                   Title:

<PAGE>

                                 SCHEDULED 2.6

                             SMARTIRE SYSTEMS INC.

      The  undersigned  hereby  agrees that for a period  commencing on the date
hereof and expiring on the  termination  of the  Agreement  dated April __, 2004
between SmarTire Systems,  Inc., (the "Company"),  and Cornell Capital Partners,
LP, (the "Investor") (the "Lock-up Period"), he, she or it will not, directly or
indirectly,  without the prior written  consent of the Investor,  issue,  offer,
agree or offer to sell,  sell,  grant an  option  for the  purchase  or sale of,
transfer,  pledge,  assign,  hypothecate,  distribute  or otherwise  encumber or
dispose of except  pursuant  to Rule 144 of the  General  Rules and  Regulations
under the  Securities  Act of 1933,  any  securities  of the Company,  including
common  stock or  options,  rights,  warrants  or other  securities  underlying,
convertible  into,  exchangeable  or exercisable  for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the  undersigned),  or  any  beneficial  interest  therein  (collectively,   the
"Securities").

      In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or  stop-transfer  orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered  in  the  name  of  the  undersigned  or  beneficially  owned  by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.

Dated: _______________, 2004

                                    Signature


                                    --------------------------------------------
                                    Address:
                                            ------------------------------------
                                    City, State, Zip Code:
                                                          ----------------------


                                    --------------------------------------------
                                    Print Social Security Number
                                    or Taxpayer I.D. Number

<PAGE>

                                     EXHIBIT B

                         ACCREDITED INVESTOR QUESTIONNAIRE

      The purpose of this  Questionnaire is to assure SmarTire Systems Inc. (the
"Company")  that  the   undersigned   (the   "Subscriber")   will  meet  certain
requirements for the registration and prospectus  exemptions  provided for under
Multilateral Instrument 45-103 ("MI 45-103"), as adopted by the British Columbia
Securities  Commission  and the Alberta  Securities  Commission  (each, a "local
jurisdiction"),  in respect of a proposed private placement of securities by the
Company (the "Transaction").  The Company will rely on the information contained
in this Questionnaire for the purposes of such determination.

      The  undersigned  Subscriber  covenants,  represents  and  warrants to the
Company that:

      1.    the  Subscriber  has such  knowledge and experience in financial and
            business matters as to be capable of evaluating the merits and risks
            of the  Transaction  and the Subscriber is able to bear the economic
            risk of loss arising from such Transaction;

      2.    the   Subscriber   satisfies  one  or  more  of  the  categories  of
            "accredited  investor"  (as  that  term  is  defined  in MI  45-103)
            indicated below (please check the appropriate box):

            (a)  |_|    a Canadian financial  institution as defined in National
                        Instrument  14-101, or an authorized foreign bank listed
                        in Schedule III of the Bank Act (Canada);

            (b)  |_|    the  Business  Development  Bank of Canada  incorporated
                        under  the  Business  Development  Bank  of  Canada  Act
                        (Canada);

            (c)  |_|    an association under the Cooperative Credit Associations
                        Act (Canada) located in Canada;

            (d)  |_|    a  subsidiary  of any person or company  referred  to in
                        paragraphs  2(a) to 2(c),  where the  person or  company
                        owns all of the  voting  securities  of the  subsidiary,
                        except the voting securities required by law to be owned
                        by directors of that subsidiary;

            (e)  |_|    a person or company  registered under the Securities Act
                        (British Columbia),  or under securities  legislation of
                        another jurisdiction of Canada, as an adviser or dealer,
                        other than a limited market dealer  registered under the
                        Securities Act (Ontario);

            (f)  |_|    an individual  registered or formerly  registered  under
                        the   Securities  Act  (British   Columbia),   or  under
                        securities   legislation  in  another   jurisdiction  of
                        Canada,  as a  representative  of a  person  or  company
                        registered under the Securities Act (British  Columbia),
                        or under securities  legislation in another jurisdiction
                        of Canada, as an adviser or dealer, other than a limited
                        market  dealer   registered  under  the  Securities  Act
                        (Ontario);

<PAGE>

            (g)  |_|    the  government  of Canada or a  province,  or any crown
                        corporation  or agency of the  government of Canada or a
                        province;

            (h)  |_|    a municipality, public board or commission in Canada;

            (i)  |_|    a national,  federal, state, provincial,  territorial or
                        municipal government of or in any foreign  jurisdiction,
                        or any agency of that government;

            (j)  |_|    a pension fund that is regulated by either the Office of
                        the Superintendent of Financial Institutions (Canada) or
                        a provincial  pension  commission or similar  regulatory
                        authority;

            (k)  |_|    a registered charity under the Income Tax Act (Canada);

            (l)  |_|    an  individual  who  beneficially  owns, or who together
                        with a spouse beneficially owns, directly or indirectly,
                        financial  assets (defined in MI 45-103 to mean cash and
                        securities)  having an aggregate  realizable value that,
                        before taxes but net of any related liabilities, exceeds
                        CDN.$1,000,000;

            (m)  |_|    an  individual  whose net income  before taxes  exceeded
                        CDN.$200,000  in each of the two  most  recent  years or
                        whose net income  before taxes  combined  with that of a
                        spouse exceeded  CDN.$300,000 in each of those years and
                        who, in either  case,  has a reasonable  expectation  of
                        exceeding that net income level in the current year;

            (n)  |_|    a corporation,  limited  partnership,  limited liability
                        partnership,  trust or estate,  other than a mutual fund
                        or  non-redeemable  investment fund, that had net assets
                        of at  least  CDN.$5,000,000  as  reflected  on its most
                        recently prepared financial statements;

            (o)  |_|    a mutual fund or non-redeemable investment fund that, in
                        the local  jurisdiction,  distributes it securities only
                        to persons or companies that are accredited investors;

            (p)  |_|    a mutual fund or non-redeemable investment fund that, in
                        the local jurisdiction, distributes its securities under
                        a prospectus  for which a receipt has been issued by the
                        regulator;

            (q)  |_|    an entity  organized in a foreign  jurisdiction  that is
                        analogous  to  any  of  the  entities   referred  to  in
                        paragraphs  2(a) through 2(e) and paragraph 2(j) in form
                        and function; or

<PAGE>

            (r)  |_|    a person  or  company  in  respect  of which  all of the
                        owners  of  interests,  direct  or  indirect,  legal  or
                        beneficial, are persons or companies that are accredited
                        investors.

      The Subscriber acknowledges and agrees that the Subscriber may be required
by the Company to provide such  additional  documentation  as may be  reasonably
required by the Company and its legal counsel in  determining  the  Subscriber's
eligibility to acquire the Shares under relevant Legislation.

            IN WITNESS WHEREOF,  the undersigned has executed this Questionnaire
as of the day of ,..





If a Corporation, Partnership or Other Entity:    If an Individual:


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Print or Type Name of Entity                      Signature


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Signature of Authorized Signatory                 Print or Type Name


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Type of Entity