exhibit1096.htm


     

    
      

      

    

    Exhibit
      10.96

     

    

      SECURITIES
        PURCHASE AGREEMENT

       

      THISSECURITIES
        PURCHASE AGREEMENT (this “Agreement”), dated as of
        April 27, 2007, by and among SMARTIRE SYSTEMS INC. (the
“Company”), a corporation continued
        under the
        laws of British Columbia, and the purchasers listed on Schedule I attached
        hereto (individually, a “Buyer” or collectively
“Buyers”).

       

      WITNESSETH

       

      WHEREAS,
        the Company and the Buyer(s) are executing and delivering this Agreement
        in
        reliance upon an exemption from securities registration pursuant
        to:

       

      
        	
                 

              	
                (i)

              	
                Section
                  4(2) and/or Rule 506 of Regulation D (“Regulation
                  D”) as promulgated by the U.S. Securities and Exchange Commission
                  (the “SEC”) under the Securities Act of 1933, as amended
                  (the “Securities Act”);
                  and

              


      

       

      
        	
                 

              	
                (ii)

              	
                National
                  Instrument 45-106 (“NI45-106”) adopted by the British
                  Columbia Securities Commission (the
                  “BCSC”);

              


      

       

      WHEREAS,
        the parties desire that, upon the terms and subject to the conditions contained
        herein, the Company shall issue and sell to each of the Buyers, as provided
        herein, and each of the Buyers shall purchase up to One Million Five Hundred
        Thousand Dollars ($1,500,000) (the “Purchase Price”) of secured
        convertible debentures (the “Convertible Debentures”), which
        shall be convertible into shares (the “Conversion Shares”) of
        the Company’s common stock, no par value (the “Common Stock”)
        which shall be funded on multiple closings (individually referred to as a
        “Closing,” collectively referred to as the
“Closings”) as set forth on Exhibit “A” hereto (the
“Funding Schedule”).

       

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are amending the registration rights agreement entered into between
        them
        on January 23, 2007 (the “Registration Rights Agreement”) to
        extend certain registration rights to the Buyer in respect of the securities
        issued hereunder;

       

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement (i) the
        security agreement (the “Security Agreement”) entered into
        between the Company and Cornell Capital Partners, LP, Starome Investments
        Limited, Xentenial Holdings Limited and Staraim Enterprises Limited
        (collectively, the “Secured Parties”) is being amended to
        extend the security interest granted therein to secure all the obligations
        of
        the Company owed to the Buyer under the Transaction Documents (as defined
        herein), and (ii) the Company and the Secured Parties are executing and
        delivering a patent security agreement (the “Patent Security
        Agreement”) pursuant to which the Company has agreed to extend and
        perfect its grant to the Secured Parties of a security interest in all patents,
        patent applications and licenses to patented technology owned by the Company
        (as
        set forth in the Patent Security Agreement) to secure certain obligations
        of the
        Company; and

       

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are executing and delivering irrevocable transfer agent instructions
        (the
“Irrevocable Transfer Agent Instructions”) to the transfer
        agent.

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      NOW,
        THEREFORE, in consideration of the mutual covenants and other
        agreements contained in this Agreement, the Company and the Buyer(s) hereby
        agree as follows:

       

      1.           PURCHASE
        AND SALE OF CONVERTIBLE DEBENTURES.

       

      (a)           Purchase
        of Convertible Debentures.  Subject to the satisfaction (or
        waiver) of the terms and conditions of this Agreement, each Buyer agrees,
        severally and not jointly, to purchase at each Closing, and the Company agrees
        to sell and issue to each Buyer, severally and not jointly, at each Closing,
        Convertible Debentures in amounts up to the Purchase Price.

       

      (b)           Closing
        Date.  Each Closing shall take place at 10:00 a.m. (Eastern
        Standard time) on the date specified on the Funding Schedule, or such other
        time
        mutually agreed to by the parties, subject to notification of satisfaction
        of
        the conditions to such Closing set forth herein and in Sections 6 and 7
        below.  Each Closing shall occur on the respective Closing Dates at
        the offices of Buyer(s), or such other place as is mutually agreed to by
        the
        Company and the Buyer(s).

       

      (c)           Form
        of Payment.  Subject to the satisfaction of the terms and
        conditions of this Agreement, on the Closing Date

       

      
        	
                 

              	
                (i)

              	
                the
                  Buyers shall deliver to the Company a bank draft payable to the
                  Company in
                  such amount equal to the aggregate proceeds for the Convertible
                  Debentures
                  subscribed for by the Buyer(s), minus the fees to be paid directly
                  from
                  the proceeds at Closing as set forth in section 5(g) herein;
                  and

              


      

       

      
        	
                 

              	
                (ii)

              	
                the
                  Company shall deliver to each Buyer, certificates representing
                  the
                  Convertible Debentures and registered in the name of the Buyer
                  and in such
                  amounts indicated opposite such Buyer’s name on Schedule I, duly executed
                  on behalf of the Company.

              


      

       

      2.           BUYER’S
        REPRESENTATIONS AND WARRANTIES.

       

      (a)           Each
        Buyer represents and warrants, severally and not jointly, that:

       

      (i)            Investment
        Purpose.  Each Buyer is acquiring the Convertible Debentures and,
        upon conversion of Convertible Debentures, the Buyer will acquire the Conversion
        Shares then issuable, for its own account for investment only and not with
        a
        view towards, or for resale in connection with, the public sale or distribution
        thereof; provided, however, that by making the representations herein, such
        Buyer reserves the right to dispose of the Conversion Shares at any time
        in
        accordance with or pursuant to an effective registration statement covering
        such
        Conversion Shares or an available exemption under the Securities
        Act.

       

      (ii)       
            Eligible Investor Status.  By
        completing the U.S. Accredited Investor Questionnaire (the “U.S.
        Questionnaire”) attached hereto as Schedule “A-1”, the
        Buyer  represents that it is both an “accredited investor” as defined
        in Rule

       

      (iii)           501(a)(3)
        of Regulation D and a Qualified Institutional Buyer as defined in Rule
        144A(a)(1) promulgated under the Securities Act and, by completing the Canadian
        certificate (the “Canadian Certificate”) attached hereto as
        Appendix “A-2”, the Buyer represents that it is eligible to purchase the
        Convertible Debentures under the Securities Act (British Columbia) (the
“B.C. Act”) pursuant to section 2.3 of NI45-106 because
        it is
        an accredited investor as defined in section 1.1 of NI45-106.  In
        addition, the Buyer is representing that it is eligible to purchase the
        Convertible Debentures pursuant to section 2.10 of NI45-106 because each
        Convertible Debenture has an aggregate purchase price of not less than
        Cdn.$150,000.

       

      (iv)           Reliance
        on Exemptions.  The Buyer understands that the Convertible
        Debentures are being offered and sold to it in reliance on specific exemptions
        from the prospectus and registration requirements of United States federal
        and
        state securities laws and British Columbia securities laws and that the Company
        is relying in part upon the truth and accuracy of, and the Buyer’s compliance
        with, the representations, warranties, agreements, acknowledgments and
        understandings of the Buyer set forth herein, in the Canadian Certificate
        and in
        the U.S. Questionnaire in order to determine the availability of such exemptions
        and the eligibility of the Buyer to acquire such securities.  The
        Company has advised the Buyer that the Company is relying on an exemption
        from
        the requirements to provide the Buyer with a prospectus and to sell the
        Convertible Debentures through a person registered to sell securities under
        the
Securities Act (British Columbia) (the “B.C. Act”) and
        as a consequence of acquiring Convertible Debentures 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
        Buyer.

       

      (v)       
            Information.  Each Buyer and its
        advisors (and his or its counsel), if any, have been furnished with all
        materials relating to the business, finances and operations of the Company
        and
        information he deemed material to making an informed investment decision
        regarding his purchase of the Convertible Debentures and the Conversion
        Shares.  Each Buyer 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 Buyer or its advisors, if any, or its
        representatives shall modify, amend or affect such Buyer’s right to rely on the
        Company’s representations and warranties contained in Section 4
        below.  Each Buyer understands that its investment in the Convertible
        Debentures and the Conversion Shares involves a high degree of
        risk.  Each Buyer is in a position regarding the Company, which, based
        upon employment, family relationship or economic bargaining power, enabled
        and
        enables such Buyer to obtain information from the Company in order to evaluate
        the merits and risks of this investment.  Each Buyer has sought such
        accounting, legal and tax advice, as it has considered necessary to make
        an
        informed investment decision with respect to its acquisition of the Convertible
        Debentures and the Conversion Shares.

       

      (vi)           No
        Governmental Review.  Each Buyer understands that no United States
        federal or state agency or any other government or governmental agency has
        passed on or made any recommendation or endorsement of the Convertible
        Debentures or the Conversion Shares, or the fairness or suitability of the
        investment in the Convertible Debentures or the Conversion Shares, nor have
        such
        authorities passed upon or endorsed the merits of the offering of the
        Convertible Debentures or the Conversion Shares.

       

      (vii)          Transfer
        or Resale.  Each Buyer understands that except as provided in the
        Registration Rights Agreement: (i) the Convertible Debentures have not been
        and
        are not being registered under the Securities Act or any state securities
        laws,
        and may not be offered for sale, sold, assigned or transferred unless (A)
        subsequently registered thereunder, or (B) pursuant to an exemption from,
        or in
        a transaction not subject to, the registration requirements of the Securities
        Act and in each case in accordance with applicable state and provincial
        securities laws and such Buyer shall have delivered to the Company an opinion
        of
        counsel to the Company or of other counsel reasonably acceptable to the Company
        to the effect that such securities may be sold, assigned or transferred pursuant
        to an exemption from such registration requirements; (ii) any sale of such
        securities made in reliance on Rule 144 under the Securities Act (or a successor
        rule thereto) (“Rule 144”) may be made only in
        accordance with the terms of Rule 144 and further, if Rule 144 is not
        applicable, any resale of such securities under circumstances in which the
        seller (or the person through whom the sale is made) may be deemed to be an
        underwriter (as that term is defined in the Securities Act) may require
        compliance with some other exemption under the Securities Act or the rules
        and
        regulations of the SEC thereunder; and (iii) neither the Company nor any
        other
        person is under any obligation to register such securities under the Securities
        Act or any state securities laws or to comply with the terms and conditions
        of
        any exemption thereunder.

       

      (viii)         Legends.  Each
        Buyer understands that the certificates or other instruments representing
        the
        Convertible Debentures and or the Conversion Shares shall bear a restrictive
        legend in substantially the following form (and a stop ­transfer order may
        be placed against transfer of such stock certificates):

       

      THESE
        SECURITIES AND ANY SECURITIES INTO WHICH THESE SECURITIES MAY BE CONVERTED
        HAVE
        NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
        SECURITIES COMMISSION OF ANY STATE AND HAVE BEEN ISSUED IN RELIANCE UPON
        AN
        EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
        TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
        TO
        AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      SECURITIES
        ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

       

      The
        legend set forth above shall be removed and the Company within three (3)
        business days shall issue a certificate without such legend to the holder
        of the
        Conversion Shares upon which it is stamped, if, unless otherwise required
        by
        state securities laws, (i) in connection with a sale transaction, provided
        the
        Conversion Shares are registered under the Securities Act and the holder
        has
        undertaken to sell the Conversion Shares pursuant to the effective registration
        statement or (ii) in connection with a sale transaction where there is no
        registration statement in effect as to the Conversion Shares, pursuant to
        an
        exemption from the applicable securities laws and after such holder provides
        the
        Company with an opinion of the Company’s counsel, reasonably acceptable to the
        Company, which opinion shall be in form, substance and scope customary for
        opinions of counsel in comparable transactions, to the effect that a public
        sale, assignment or transfer of the Conversion Shares may be made without
        registration under the Securities Act.

       

      (ix)                    
          Authorization, Enforcement.  This Agreement has
        been duly and validly authorized, executed and delivered on behalf of such
        Buyer
        and is a valid and binding agreement of such Buyer enforceable in accordance
        with its terms, except as such enforceability may be limited by general
        principles of equity or applicable bankruptcy, insolvency, reorganization,
        moratorium, liquidation and other similar laws relating to, or affecting
        generally, the enforcement of applicable creditors’ rights and
        remedies.

       

      (x)                    
           Receipt of Documents.  Each Buyer and his or
        her counsel has received and read in its entirety and acknowledges that he
        is
        familiar with:  (i) this Agreement and each representation, warranty
        and covenant set forth herein and in the Transaction Documents (as defined
        in
        section 4(a)(ii) herein); (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 fiscal year ended July 31,
        2006; (iv) the Company’s Form 10-QSB for the fiscal quarter ended January 31,
        2007 and (v) answers to all questions each Buyer submitted to the Company
        regarding an investment in the Company, and each Buyer has relied on the
        information contained therein and has not been furnished any other documents,
        literature, memorandum or prospectus.

       

      (xi)                 
             Due Formation of Corporate and Other
        Buyers.  If the Buyer(s) is a corporation, trust, partnership or
        other entity that is not an individual person, it has been formed and validly
        exists and has not been organized for the specific purpose of purchasing
        the
        Convertible Debentures and is not prohibited from doing so.

       

      (xii)                   
          No Legal or Tax Advice From the Company.  Each
        Buyer 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

       

      (xiii)                      and
        tax advisors.  Each Buyer 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.

       

      (xiv)                      Further
        Representations by Foreign Buyers.  If the Buyer is not a U.S.
        Person (as defined below), the Buyer hereby represents that it  is in
        compliance with and in full observance of the laws of the Buyer’s jurisdiction
        in connection with any invitation to subscribe for the securities or any
        use of
        this Agreement, including: (i) the legal requirements of
        its  jurisdiction for the purchase of the securities, (ii) any foreign
        exchange restrictions applicable to such purchase, (iii) any governmental
        or
        other consents that may need to be obtained, and (iv) the income tax and
        other
        tax consequences, if any, which may be relevant to the purchase, holding,
        redemption, sale, or transfer of the securities.  The Buyer’s
        subscription and payment for, and the Buyer’s continued beneficial ownership of,
        the securities will not violate any applicable securities or other laws of
        the
        Buyer’s jurisdiction.  The term “U.S. Person” as used herein shall
        mean any person who is a citizen or resident of the United States or Canada,
        or
        any state, territory or possession thereof, including, but not limited to,
        any
        estate of any such person, or any corporation, partnership, trust or other
        entity created or existing under the laws thereof, or any entity controlled
        or
        owned by any of the foregoing.

       

      (xv)           BC
        Accredited Investor Exemption. If the Buyer is purchasing the Convertible
        Debentures pursuant to an exemption from the prospectus and registration
        provisions of the BC Act pursuant to section 2.3 of NI45-106, then the Buyer
        represents and warrants to the Company (which representations and warranties
        shall survive closing) that the Buyer is an “accredited investor” as that term
        is defined in section 1.1 of NI45-106 and the Buyer has duly completed and
        executed the Canadian Certificate.

       

      (xvi)                      B.C.
        Minimum Purchase Exemption. If the Buyer is purchasing the Convertible
        Debentures pursuant to an exemption from the prospectus and registration
        provisions of the BC Act pursuant to section 2.10 of NI45-106, then the Buyer
        has duly completed and executed the Canadian Certificate and the Buyer
        additionally represents, warrants and covenants to the Company (which
        representations, warrants and covenants shall survive closing)
        that:

       

      
        	
                 

              	
                A.

              	
                the
                  Buyer is purchasing as principal for its own account, and not for
                  the
                  benefit of any other person, or company, a sufficient number of
                  Convertible Debentures such that the aggregate acquisition cost
                  to the
                  Buyer is not less than CDN$150,000;

              


      

       

      
        	
                 

              	
                B.

              	
                if
                  the Buyer is not an individual or a corporation, each member of
                  the
                  partnership, syndicate or other unincorporated organization which
                  is the
                  purchaser, or each beneficiary of the trust which is the purchaser,
                  as
                  the

              


      

       

      
        	
                 

              	
                C.

              	
                case
                  may be, is an individual who has an aggregate acquisition cost
                  for the
                  Convertible Debentures of not less than CDN $150,000;
                  and

              


      

       

      
        	
                 

              	
                D.

              	
                neither
                  the Buyer nor any party on whose behalf the Buyer is acting has
                  been
                  created, established formed or incorporated solely, or is used
                  primarily
                  to acquire securities or to permit the purchase of the Convertible
                  Debentures without a prospectus in reliance on an exemption from
                  the
                  prospectus requirements of applicable securities legislation;
                  and

              


      

       

      
        	
                 

              	
                E.

              	
                the
                  aggregate acquisition cost for the Convertible Debentures is not
                  less than
                  CDN$150,000.

              


      

       

      (xvii)                      Not
        Principal Buyer. If the Buyer is purchasing pursuant to the exemption from
        prospectus requirements available under either section 2.3 or 2.10 of NI45-106
        and is not purchasing Convertible Debentures for its own account, then the
        Buyer
        is:

       

      
        	
                 

              	
                A.

              	
                a
                  trust company or an insurer which has received a business authorization
                  under the Financial Institutions Act (British Columbia) or is a
                  trust
                  company or an insurer authorized under the laws of another province
                  or
                  territory of Canada to carry on such business in such province
                  or
                  territory, and the Buyer is purchasing the Convertible Debentures
                  as an
                  agent or trustee for accounts that are fully managed by the Buyer;
                  or

              


      

       

      
        	
                 

              	
                B.

              	
                an
                  advisor who manages the investment portfolios of clients through
                  discretionary authority granted by one or more clients and the
                  Buyer
                  is:

              


      

       

      I.           registered
        as an advisor under the B.C. Act or the laws of another province or territory
        of
        Canada or the Buyer is exempt from such registration and the Buyer is purchasing
        the Convertible Debentures as an agent for accounts that are fully managed
        by
        the Buyer; or

       

      II.           carrying
        on the business of an advisor outside of Canada in which case:

       

      a.           it
        was not created solely or primarily for the purpose of purchasing Convertible
        Debentures of the Company;

       

      b.           the
        total asset value of the investment portfolios it manages on behalf of clients
        is not less than CDN$20,000,000; or

       

      c.           it
        does not believe and has no reasonable grounds to believe that any resident
        of
        British Columbia or any directors, senior officers or other insiders of the
        Company or any persons carrying on investor relations activities for the
        Company
        has a beneficial interest in any of the managed accounts for which it is
        purchasing, and

       

      d.           the
        aggregate acquisition cost for the Convertible Debentures is not less than
        CDN$150,000.

       

      3.           BRITISH
        COLUMBIA RESALE RESTRICTIONS

       

      (a)           The
        Buyer acknowledges that the Convertible Debentures are subject to resale
        restrictions in Canada and may not be traded in a jurisdiction of Canada
        except
        as permitted by National Instrument 45-102
        (“NI45-102”).

       

      (b)           Pursuant
        to NI45-102, a subsequent trade in the Conversion Shares will be a distribution
        subject to prospectus and registration requirements of applicable Canadian
        securities legislation (including the B.C. Act) unless certain conditions
        are
        met, including the following:

       

      (i)           The
        issuer is and has been a reporting issuer in a jurisdiction of Canada for
        the
        four months immediately preceding the trade;

       

      (ii)           at
        least four months have elapsed from the date that the Convertible Debentures
        were distributed;

       

      (iii)           the
        Certificate representing the Convertible Debentures has the following legend
        imprinted on it (the “Canadian Legend”) stating:

       

      “Unless
        permitted under securities legislation, the holder of this security must
        not
        trade the security before the date that is 4 months and one day after the
        later
        of (i) [the distribution date], and (ii) the date the issuer became a reporting
        issuer in any province or territory.”

       

      Provided
        that at the time of the trade,

       

      (iv)           the
        trade is not a control distribution (as defined in NI45-102);

       

      (v)           no
        unusual effort is made to prepare the market or to create a demand for the
        security that is the subject of the trade;

       

      (vi)           no
        extraordinary commission or consideration is paid to a person or company
        in
        respect of the trade; and

       

      (vii)           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.

       

      (c)           By
        executing and delivering this Agreement, the Buyer will have directed the
        Company not to include the Canadian Legend on any certificates representing
        the
        Convertible Debentures and any Conversion Shares that are issued to the
        Buyer.

       

      (d)           As
        a consequence, the Buyer will not be able to rely on the resale provisions
        of
        NI45-102, and any subsequent trade in the Convertible Debentures and the
        Conversion

       

      (e)           Shares,
        if any, will be distribution subject to the prospectus and registration
        requirements of Canadian securities legislation, to the extent that the trade
        at
        that time is subject to any such Canadian securities legislation.

       

      4.           REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY.

       

      (a)           The
        Company represents and warrants as of the date hereof to each of the Buyers
        that, except as set forth in the SEC Documents (as defined herein) or in
        the
        Disclosure Schedule attached hereto (the “Disclosure
        Schedule”):

       

      (i)           Organization
        and Qualification.  The Company and its subsidiaries are
        corporations duly organized and validly existing in good standing under the
        laws
        of the jurisdiction in which they are incorporated, and have the requisite
        corporate power to own their properties and to carry on their 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.

       

      (ii)          Authorization,
        Enforcement, Compliance with Other Instruments.  (i) The
        Company has the requisite corporate power and authority to enter into and
        perform this Agreement, the Convertible Debentures, the Security Agreement,
        as
        amended, the Patent Security Agreement the Registration Rights Agreement,
        as
        amended, the Irrevocable Transfer Agent Agreement and any related agreements
        (collectively the “Transaction Documents”) and to issue the
        Convertible Debentures and the Conversion Shares in accordance with the terms
        hereof and thereof, (ii) the execution and delivery of the Transaction Documents
        by the Company and the consummation by it of the transactions contemplated
        hereby and thereby, including, without limitation, the issuance of the
        Convertible Debentures and the issuance of the Conversion Shares issuable
        upon
        conversion or exercise thereof, 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) the Transaction Documents
        have
        been duly executed and delivered by the Company, and (iv) the Transaction
        Documents 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.  The authorized officer of the Company executing the
        Transaction Documents knows of no reason arising from a lack of corporate
        power
        or authority that would prevent the Company from being in a position to file
        a
        registration statement as required under the Registration Rights Agreement
        or
        perform any of the Company’s other obligations under such document.

       

      (iii)         Capitalization.  The
        authorized capital stock of the Company consists of an unlimited number of
        shares of Common Stock and 100,000 shares of preferred stock with no par
        value,
        of which, as of the date hereof, 345,872,135 shares of Common Stock and 23,131
        shares of Series “A” preferred stock were issued and outstanding.  All
        of such outstanding shares have been validly issued and are fully paid and
        non-assessable.  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.  As of the date of this Agreement, other
        than as described in the Company’s 10-QSB for the period ended January 31, 2007
        and other than the aggregate of $1.2 million in convertible 10% debentures
        issued to TAIB Bank, B.S.C. on November 8, 2006, (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 outstanding debt securities
        and (iii) there are 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)
        and (iv) there are outstanding registration statements and there are no
        outstanding comment letters from the SEC or any other regulatory agency to
        a
        registration statement that has not been withdrawn.  There are no
        securities or instruments containing anti-dilution or similar provisions
        that
        will be triggered by the issuance of the Convertible Debentures as described
        in
        this Agreement.

       

      (iv)        Issuance
        of Securities.  The Convertible Debentures are duly authorized
        and, upon issuance in accordance with the terms hereof, shall be duly issued
        as
        fully paid and non-assessable securities, free from all taxes, liens and
        charges
        with respect to the issue thereof.  The Conversion Shares issuable
        upon conversion of the Convertible Debentures are duly authorized for issuance
        and when issued in accordance with the terms of the Transaction Documents,
        will
        be fully paid and non-assessable securities, free from all taxes, liens and
        charges imposed by the Company.

       

      (v)         No
        Conflicts.  The execution, delivery and performance of the
        Transaction Documents by the Company and the consummation by the Company
        of the
        transactions contemplated hereby will not (i) result in a violation of the
        Notice of Articles, the Articles, any certificate of designation of any
        outstanding series of preferred stock of the Company 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 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 National Association of
        Securities Dealers Inc.’s OTC Bulletin Board on which the Common Stock is
        quoted) applicable to the Company or any of its subsidiaries or by which
        any
        property or asset of the Company or any of its subsidiaries is bound or
        affected.  Neither the Company nor its subsidiaries is in violation of
        any term of or in default under its Notice of Articles, its Articles or its
        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, and shall not be conducted in violation of any material
        law,
        ordinance, or regulation of any governmental entity.  Except as
        specifically contemplated by this Agreement or the Registration Rights 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 facts or circumstance, which might give rise to any of the
        foregoing.

       

      (vi)       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 the Securities Exchange Act of 1934,
        as
        amended (the “Exchange Act”) (all of the foregoing filed prior
        to the date hereof or amended after the date hereof and all exhibits included
        therein and financial statements and schedules thereto and documents
        incorporated by reference therein, and the Company’s Annual Report on Form
        10-KSB for the fiscal year ended July 31, 2006 and its Quarterly Reports
        on Form
        10-QSB for the quarters ended October 31, 2006 and January 31, 2007 being
        hereinafter referred to as the “SEC Documents”).  The
        Company has delivered to the Buyers or their 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 Buyer which is
        not
        included in the SEC Documents, including, without limitation, information
        referred to in this Agreement, 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.

       

      (vii)         10(b)-5.  Neither
        the Transaction Documents nor the SEC Documents include any statements of
        material fact that were not true when they were made, 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.

       

      (viii)      Absence
        of Litigation.  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) have a material adverse effect on the business, operations, properties,
        financial condition or results of  operations of the Company and its
        subsidiaries taken as a whole.

       

      (ix)         Acknowledgment
        Regarding Buyer’s Purchase of the Convertible Debentures.  The
        Company acknowledges and agrees that the Buyer(s) is acting solely in the
        capacity of an arm’s length purchaser with respect to this Agreement and the
        transactions contemplated hereby.  The Company further acknowledges
        that the Buyer(s) is not acting as a financial advisor or fiduciary of the
        Company (or in any similar capacity) with respect to this Agreement and the
        transactions contemplated hereby.  The Company further represents to
        the Buyer that the Company’s decision to enter into this Agreement has been
        based solely on the independent evaluation by the Company and its
        representatives.

       

      (x)          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 Convertible Debentures or the Conversion Shares.

       

      (xi)         No
        Integrated Offering.  Neither the Company, nor any of its
        affiliates, nor any person acting on its or their behalf has, directly or
        indirectly, made any offers or sales of any security or solicited any offers
        to
        buy any security, under circumstances that would require registration of
        the
        Convertible Debentures or the Conversion Shares under the Securities Act
        or
        cause this offering of the Convertible
        Debentures or the Conversion Shares to be integrated with prior offerings
        by the
        Company for purposes of the Securities Act.

       

      (xii)    
           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.

       

      (xiii)       Intellectual
        Property Rights.  The Company and its subsidiaries own or possess
        adequate rights or licenses to use all 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.

       

      (xiv)   
           Environmental Laws.  The Company and its
        subsidiaries are (i) in compliance with any and all applicable 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.

       

      (xv)       
        Title.  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.

       

      (xvi)       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.

       

      (xvii)      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.

       

      (xviii)     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,
        and (iii) the recorded amounts for assets is compared with the existing assets
        at reasonable intervals and appropriate action is taken with respect to any
        differences.

       

      (xix)       No
        Material Adverse Breaches, etc.  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 of the Company or its
        subsidiaries.  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.

       

      (xx)        Tax
        Status.  The Company and each of its subsidiaries has made and
        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.

       

      (xxi)       Certain
        Transactions.  Except for arm’s length transactions pursuant to
        which the Company makes payments in the ordinary course of business upon
        terms
        no less favorable than the Company could obtain from third parties and other
        than the grant of stock options disclosed 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.

       

      (xxii)      Fees
        and Rights of First Refusal.  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.

       

      5.           COVENANTS.

       

      (a)           Reasonable
        Best Efforts.  Each party shall use its reasonable best efforts to
        timely satisfy each of the conditions to be satisfied by it as provided in
        Sections 6 and 7 of this Agreement.

       

      (b)           Form
        D.  If required, the Company agrees to file a Form D with respect
        to the Convertible Debentures and the Conversion Shares as required under
        Regulation D and to provide a copy thereof to the Buyer promptly after such
        filing, and the Company shall, on or before the Closing Date, take such action
        as the Company shall reasonably determine is necessary to qualify the Conversion
        Shares, or obtain an exemption for the Conversion Shares for sale to the
        Buyers
        at the time of conversion pursuant to this Agreement and the Convertible
        Debenture under applicable securities or “Blue Sky” laws of the states of the
        United States, and shall provide evidence of any such action so taken to
        the
        Buyers on or prior to the conversion.

       

      (c)           Reporting
        Status.  Until the earlier of (i) the date as of which the
        Buyer(s) may sell all of the Conversion Shares then held by it, after giving
        effect to the restrictions on conversion established in the Convertible
        Debenture, without restriction pursuant to Rule 144(k) promulgated under
        the
        Securities Act (or successor thereto), or (ii) the date on which (A) the
        Buyer(s) shall have sold all the Conversion Shares and (B) none of the
        Convertible Debentures are outstanding (the “Registration
        Period”), the Company shall file in a timely manner all reports
        required to be filed with the SEC pursuant to the Exchange Act and the
        regulations of the SEC thereunder, and the Company shall not terminate its
        status as an issuer required to file reports under the Exchange Act even
        if the
        Exchange Act or the rules and regulations thereunder would otherwise permit
        such
        termination.

       

      (d)           Use
        of Proceeds.  The Company will use the proceeds from the sale of
        the Convertible Debentures for general corporate and working capital purposes
        only as authorized by SKS Consulting of South Florida Corporation (“SKS
        Consulting”) as consultants to the Company.

       

      (e)           Reservation
        of Shares.  The Company shall take all action reasonably necessary
        to at all times have authorized, and reserved for the purpose of issuance
        such
        number of shares of Common Stock as shall be necessary to effect the full
        conversion of the Convertible Debentures outstanding (without taking into
        account any conversion limitations or ownership limitations).  If at
        any time the Company does not have available such shares of Common Stock
        as
        shall from time to time be sufficient to effect the issuance of all of the
        Conversion Shares, the Company shall call and hold a special meeting of the
        shareholders within sixty (60) days of such occurrence, for the sole purpose
        of
        increasing the number of shares authorized.  The Company’s management
        shall recommend to the shareholders to vote in favor of increasing the number
        of
        shares of Common Stock authorized.  Management shall also vote all of
        its shares in favor of increasing the number of authorized shares of Common
        Stock.

       

      (f)      
             Listings or Quotation.  The
        Company shall promptly secure the listing or quotation of the Conversion
        Shares
        upon each national securities exchange, automated quotation system or The
        National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin
        Board (“OTCBB”) or other market, if any, upon which shares of
        Common Stock are then listed or quoted (subject to official notice of issuance)
        and shall use its best efforts to maintain, so long as any other shares of
        Common Stock shall be so listed, such listing of all Conversion Shares from
        time
        to time issuable under the terms of this Agreement.  The Company shall
        maintain the Common Stock’s authorization for quotation on the
        OTCBB.

       

      (g)           Fees
        and Expenses.

       

      A.           Each
        of the Company and the Buyer(s) shall pay all costs and expenses incurred
        by
        such party in connection with the negotiation, investigation, preparation,
        execution and delivery of the Transaction Documents; provided however, the
        Company shall pay to Yorkville Advisors, LLC a fee equal to ten percent (10%)
        of
        the Purchase Price directly from the proceeds of each Closing.

       

      B.           The
        Company shall pay a structuring fee to Yorkville Advisors, LLC of Twenty
        Thousand Dollars ($20,000), directly from the proceeds of the first
        Closing.

       

      (h)           Corporate
        Existence.  So long as any of the Convertible Debentures remain
        outstanding, the Company shall not directly or indirectly consummate any
        merger,
        reorganization, restructuring, reverse stock split consolidation, sale of
        all or
        substantially all of the Company’s assets or any similar transaction or related
        transactions (each such transaction, an “Organizational
        Change”) unless, prior to the consummation of an Organizational Change,
        the Company obtains the written consent of each Buyer.  In any such
        case, the Company will make appropriate provision with respect to such
        holders’

       

      (i)           rights
        and interests to insure that the provisions of this Section 4(g) will thereafter
        be applicable to the Convertible Debentures.

       

      (j)           Transactions
        With Affiliates.  So long as any Convertible Debentures are
        outstanding, the Company shall not, and shall cause each of its subsidiaries
        not
        to, enter into, amend, modify or supplement, or permit any subsidiary to
        enter
        into, amend, modify or supplement any agreement, transaction, commitment,
        or
        arrangement with any of its or any subsidiary’s officers, directors, person who
        were officers or directors at any time during the previous two (2) years,
        stockholders who beneficially own five percent (5%) or more of the Common
        Stock,
        or Affiliates (as defined below) or with any individual related by blood,
        marriage, or adoption to any such individual or with any entity in which
        any
        such entity or individual owns a five percent (5%) or more beneficial interest
        (each a “Related Party”), except for (a) customary employment
        arrangements and benefit programs on reasonable terms, (b) any investment
        in the
        Company or an Affiliate of the Company, (c) any agreement, transaction,
        commitment, or arrangement on an arms-length basis on terms no less favorable
        than terms which would have been obtainable from a person other than such
        Related Party, (d) any agreement, transaction, commitment, or arrangement
        which
        is approved by a majority of the disinterested directors of the Company;
        for
        purposes hereof, any director who is also an officer of the Company or any
        subsidiary of the Company shall not be a disinterested director with respect
        to
        any such agreement, transaction, commitment, or
        arrangement.  “Affiliate” for purposes hereof means,
        with respect to any person or entity, another person or entity that, directly
        or
        indirectly, (i) has a ten percent (10%) or more equity interest in that person
        or entity, (ii) has ten percent (10%) or more common ownership with that
        person
        or entity, (iii) controls that person or entity, or (iv) shares common
        control with that person or entity.  “Control” or
“controls” for purposes hereof means that a person
        or entity
        has the power, direct or indirect, to conduct or govern the policies of another
        person or entity.

       

      (k)           Transfer
        Agent.  The Company covenants and agrees that, in the event that
        the Company’s agency relationship with the transfer agent should be terminated
        for any reason prior to a date which is two (2) years after the Closing Date,
        the Company shall immediately appoint a new transfer agent and shall require
        that the new transfer agent execute and agree to be bound by the terms of
        the
        Irrevocable Transfer Agent Instructions (as defined herein).

       

      (l)           Restriction
        on Issuance of the Capital Stock. So long as any Convertible Debentures are
        outstanding, other than Excluded Securities (as defined in the Convertible
        Debentures), the Company shall not, without the prior written consent of
        the
        Buyer(s), (i) issue or sell shares of Common Stock or preferred stock without
        consideration or for a consideration per share less than the bid price of
        the
        Common Stock determined immediately prior to its issuance, (ii) issue any
        preferred stock, warrant, option, right, contract, call, or other security
        or
        instrument granting the holder thereof the right to acquire Common Stock
        without
        consideration or for a consideration less than such Common Stock’s Bid Price
        determined immediately prior to it’s issuance, or (ii) file any registration
        statement on Form S-8.

       

      (m)           Neither
        the Buyer(s) nor any of its affiliates have an open short position in the
        Common
        Stock of the Company, and the Buyer(s) agrees that it shall 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 as long as any Convertible
        Debentures shall remain outstanding.

       

      (n)           Rights
        of First Refusal.  So long as any portion of Convertible
        Debentures are outstanding, if the Company intends to raise additional capital
        by the issuance or sale of capital stock of the Company, including without
        limitation shares of any class of common stock, any class of preferred stock,
        options, warrants or any other securities convertible or exercisable into
        shares
        of common stock (whether the offering is conducted by the Company, underwriter,
        placement agent or any third party) the Company shall be obligated to offer
        to
        the Buyers such issuance or sale of capital stock, by providing in writing
        the
        principal amount of capital it intends to raise and outline of the material
        terms of such capital raise, prior to the offering such issuance or sale
        of
        capital stock  to any third parties including, but not limited to, current
        or former officers or directors, current or former shareholders and/or investors
        of the Company, underwriters, brokers, agents or other third
        parties.  The Buyers shall have ten (10) business days from receipt of
        such notice of the sale or issuance of capital stock to accept or reject
        all or
        a portion of such capital raising offer.

       

      (o)           Lock
        Up Agreements.  On the date hereof, the Company shall obtain from
        each officer and director a lock up agreement in the form attached hereto
        as
Exhibit B.

       

      (p)           Review
        of Public Disclosures.  All SEC filings (including, without
        limitation, all filings required under the Exchange Act, which include Forms
        10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other public disclosures
        made by
        the Company, including, without limitation, all press releases, investor
        relations materials, and scripts of analysts meetings and calls, shall be
        reviewed and approved for release by the Company’s attorneys.

       

      (q)           Consulting
        Agreement:  While any portion of the Debentures remain
        outstanding, the Company shall not terminate the consulting agreement entered
        into with SKS without the Buyers consent.

       

      (r)           Post-Closing
        Perfection:  The Company shall take all reasonable steps to
        perfect, or cause to be perfected, by registration with the United States
        Patent
        and Trademark Office, if such a method of perfecting a security interest
        is
        available, a security interest in the Company’s patents as set forth in the
        Patent Security Agreement.

       

      (s)           The
        Covenants contained in section 5(p) shall be for the benefit of the Secured
        Parties.

       

      6.           CONDITIONS
        TO THE COMPANY’S OBLIGATION TO SELL.

       

      (a)           The
        obligation of the Company hereunder to issue and sell the Convertible Debentures
        to the Buyer(s) at the Closings is subject to the satisfaction, at or before
        the
        each Closing Date, of each of the following conditions, provided that these
        conditions are

       

      (b)           for
        the Company’s sole benefit and may be waived by the Company at any time in its
        sole discretion:

       

      (i)           Each
        Buyer shall have executed the Transaction Documents and delivered the
        Transaction Documents to the Company;

       

      (ii)           The
        Buyer(s) must have completed, executed and returned to the Company the U.S.
        Questionnaire and the Canadian Certificate.

       

      (iii)           The
        Buyer(s) shall have delivered to the Company the Purchase Price for the
        Convertible Debentures purchased at such Closing, minus any fees to be paid
        directly from the proceeds the such Closing as set forth herein, by wire
        transfer of immediately available U.S. funds pursuant to the wire instructions
        provided by the Company; and

       

      (iv)           The
        representations and warranties of the Buyer(s) shall be true and correct
        in all
        material respects as of the date when made and as of the Closing Dates as
        though
        made at that time (except for representations and warranties that speak as
        of a
        specific date), and the Buyer(s) shall have performed, satisfied and complied
        in
        all material respects with the covenants, agreements and conditions required
        by
        this Agreement to be performed, satisfied or complied with by the Buyer(s)
        at or
        prior to the Closing Dates.

       

      7.           CONDITIONS
        TO THE BUYER’S OBLIGATION TO PURCHASE.

       

      (a)           The
        obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
        at
        the Closing is subject to the satisfaction, at or before each Closing Date,
        of
        each of the following conditions:

       

      (i)           The
        Company shall have executed the Transaction Documents and delivered the same
        to
        the Buyer(s).

       

      (ii)          The
        Common Stock shall be authorized for quotation on the OTCBB, trading in the
        Common Stock shall not have been suspended for any reason.

       

      (iii)         The
        representations and warranties of the Company shall be true and correct in
        all
        material respects (except to the extent that any of such representations
        and
        warranties is already qualified as to materiality in Section 2 above, in
        which
        case, such representations and warranties shall be true and correct without
        further qualification) as of the date when made and as of such Closing Date
        as
        though made at that time (except for representations and warranties that
        speak
        as of a specific date) and the Company shall have performed, satisfied and
        complied in all material respects with the covenants, agreements and conditions
        required by this Agreement to be performed, satisfied or complied with by
        the
        Company at or prior to such Closing Date.

       

      (iv) 
               The Company shall have executed and
        delivered to the Buyer(s) the Convertible Debentures purchased at such
        Closing.

       

      (v)          The
        Buyer(s) shall have received an opinion of counsel from the Company’s British
        Columbia counsel in the form attached hereto as Exhibit “C”.

       

      (vi)         The
        Company shall have provided to the Buyer(s) a certificate of good standing
        from
        the secretary of state from the state in which the company is incorporated
        and/or the Canadian equivalent of a certificate of good standing.

       

      (vii)        The
        Irrevocable Transfer Agent Instructions, in form and substance satisfactory
        to
        the Buyer, shall have been delivered to and acknowledged in writing by the
        Company’s transfer agent.

       

      (viii)       The
        Company shall have reserved out of its authorized and unissued Common Stock,
        solely for the purpose of effecting the conversion of the Convertible
        Debentures, all the shares of Common Stock required to effect the full
        conversion of all of the Convertible Debentures to be issued at such
        Closing.

       

      (ix)          Any
        additional conditions to a particular Closing set forth on the Funding Schedule
        shall have been satisfied.

       

      (x)       
           The consulting agreement between the Company and SKS
        Consulting shall be in effect as of each Closing Date.

       

      (xi)           The
        Company shall have certified, in a certificate executed by two officers of
        the
        Company and dated as of the such Closing Date, that all conditions to such
        Closing have been satisfied.

       

      8.           INDEMNIFICATION.

       

      (a)           In
        consideration of the Buyer’s execution and delivery of this Agreement and
        acquiring the Convertible Debentures and the Conversion Shares hereunder,
        and in
        addition to all of the Company’s other obligations under this Agreement, the
        Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
        each
        other holder of the Convertible Debentures and the Conversion Shares, and
        all of
        their officers, directors, employees and agents (including, without
        limitation, those retained in connection with the transactions contemplated
        by
        this Agreement) (collectively, the “Buyer 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 Buyer 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 Buyer 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, the Convertible Debentures
        or
        the Registration Rights Agreement or any other certificate, instrument or
        document contemplated hereby or thereby, (b) any breach of any covenant,
        agreement or 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 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 parties hereto, any transaction financed or
        to be
        financed in whole or in part, directly or indirectly, with the proceeds of
        the
        issuance of the Convertible Debentures or the status of the Buyer or holder
        of
        the Convertible Debentures  the Conversion Shares,  as a
        Buyer of Convertible Debentures in the Company.  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 Buyer’s other obligations under this Agreement, the Buyer
        shall defend, protect, indemnify and hold harmless the Company and all of
        its
        officers, directors, 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 Buyer(s) in this
        Agreement, instrument or document contemplated hereby or thereby executed
        by the
        Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s)
        contained in this Agreement,  the Registration Rights Agreement or any
        other certificate, instrument or document contemplated hereby or thereby
        executed by the Buyer, or (c) any cause of action, suit or claim brought
        or made
        against such Company Indemnitee based on material misrepresentations or due
        to a
        material breach and arising out of or resulting from the execution, delivery,
        performance or enforcement of this Agreement, the Registration Rights Agreement
        or any other instrument, document or agreement executed pursuant hereto by
        any
        of the parties hereto.  To the extent that the foregoing undertaking
        by each Buyer may be unenforceable for any reason, each Buyer shall make
        the
        maximum contribution to the payment and satisfaction of each of the Indemnified
        Liabilities, which is permissible under applicable law.

       

      9.           GOVERNING
        LAW: MISCELLANEOUS.

       

      (a)           Governing
        Law.  This Agreement shall be governed by and interpreted in
        accordance with the laws of the State of New Jersey 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 and the United States District Court for the District
        of New Jersey sitting in Newark, New Jersey for the adjudication of any civil
        action asserted pursuant to this Paragraph.

       

      (b)           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.

       

      (c)           Headings.  The
        headings of this Agreement are for convenience of reference and shall not
        form
        part of, or affect the interpretation of, this Agreement.

       

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

       

      (e)           Entire
        Agreement, Amendments.  This Agreement supersedes all other prior
        oral or written agreements between the Buyer(s), 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 any Buyer 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.

       

      (f)           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
        confirmation of receipt, when sent by facsimile; or (iii) 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:                         
             Jeff Finkelstein

       

      Telephone:                       
             (604) 276-9884

      
      

      Facsimile:                                (604)
        276-2353

       

      With
        a
        copy to:

       

      Ethan
        Minsky

       

      Clark
        Wilson LLP

       

      800
–
885
        West Georgia Street,

       

      Vancouver,
        British Columbia V6C 3H1

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Telephone:  (604)
        687-5700

       

      Facsimile:   (604)
        687-6314

       

      If
        to the
        Buyer(s), to its address and facsimile number on Schedule I, with copies
        to the
        Buyer’s counsel as set forth on Schedule I.  Each party shall provide
        five (5) days’ prior written notice to the other party of any change in address
        or facsimile number.

       

      (g)           Successors
        and Assigns.  This Agreement shall be binding upon and inure to
        the benefit of the parties and their respective successors and
        assigns.  Neither the Company nor any Buyer shall assign this
        Agreement or any rights or obligations hereunder without the prior written
        consent of the other party hereto.

       

      (h)           No
        Third Party Beneficiaries.  This Agreement is intended for the
        benefit of the parties hereto and their respective permitted successors and
        assigns, and is not for the benefit of, nor may any provision hereof be enforced
        by, any other person.

       

      (i)           Survival.  Unless
        this Agreement is terminated under Section 9(l), the representations and
        warranties of the Company and the Buyer(s) contained in Sections 2 and 3,
        the
        agreements and covenants set forth in Sections 4, 5 and 9, and the
        indemnification provisions set forth in Section 8, shall survive the Closing
        for
        a period of two (2) years following the date on which the Convertible Debentures
        are converted in full.  The Buyer(s) shall be responsible only for its
        own representations, warranties, agreements and covenants
        hereunder.

       

      (j)           Publicity.  The
        Company and the Buyer(s) shall have the right to approve, before issuance
        any
        press release or any other public statement with respect to the transactions
        contemplated hereby made by any party; provided, however, that the Company
        shall
        be entitled, without the prior approval of the Buyer(s), to issue any press
        release or other public disclosure with respect to such transactions required
        under applicable securities or other laws or regulations (the Company shall
        use
        its reasonable best efforts to consult the Buyer(s) in connection with any
        such
        press release or other public disclosure prior to its release and Buyer(s)
        shall
        be provided with a copy thereof upon release thereof).

       

      (k)           Further
        Assurances.  Each party shall do and perform, or cause to be done
        and performed, all such further acts and things, and shall execute and deliver
        all such other agreements, certificates, instruments and documents, as the
        other
        party may reasonably request in order to carry out the intent and accomplish
        the
        purposes of this Agreement and the consummation of the transactions contemplated
        hereby.

       

      (l)           Termination.  In
        the event that the Closing shall not have occurred with respect to the Buyers
        on
        or before five (5) business days from the date hereof due to the Company’s or
        the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
        above (and the non-breaching party’s failure to waive such unsatisfied
        condition(s)), the non-breaching party shall have the option to terminate
        this
        Agreement with respect to such breaching party at the close of business on
        such
        date without liability of any party to any other party; provided, however,
        that
        if this Agreement is terminated by the Company pursuant to
        this
        Section 9(l), the Company shall remain obligated to pay the fees and expenses
        described in Section 5(g) above.

       

      (m)           Brokerage.  The
        Company represents that no broker, agent, finder or other party has been
        retained by it in connection with the transactions contemplated hereby and
        that
        no other fee or commission has been agreed by the Company to be paid for
        or on
        account of the transactions contemplated hereby.

       

      (n)           No
        Strict Construction.  The language used in this Agreement will be
        deemed to be the language chosen by the parties to express their mutual intent,
        and no rules of strict construction will be applied against any
        party.

       

      


       

      


       

      


       

      


       

      


       

      


       

      [REMAINDER
        PAGE INTENTIONALLY LEFT BLANK]

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      


       

      IN
        WITNESS WHEREOF, the Buyers and the Company have caused this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      


       

      
        	 	
                COMPANY:

              
	 	
                SMARTIRE
                  SYSTEMS INC.

              
	 	 
	 	
                By:           
                  /s/ Jeff Finkelstein

              
	 	
                Name:       Jeff
                  Finkelstein

              
	 	
                Title:         Chief
                  Financial Officer

              
	 	 


      

      


       

      


       

      


       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


       

      IN
        WITNESS WHEREOF, the Buyers and the Company have caused this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

      


       

      Xentenial
        Holdings Limited

       

      


       

      


       

      Per:      
        /s/ Mark Angelo

       

      Name:  Mark
        Angelo

       

      Title:

      


       

      


       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      SCHEDULE
        I

       

      SCHEDULE
        OF BUYERS

       

      


       

      
        	
                
                  Buyer

                   

                

              	
                
                  Legal
                    Representative’s Address and Facsimile Number

                   

                

              	
                
                  Amount
                    of Subscription

                   

                

              
	
                Xentenial
                  Holdings Limited

              	
                David
                  Gonzalez, Esq.

              	
                Up
                  to $1,500,000

              
	
                Athalassas,
                  47

              	
                101
                  Hudson Street, Suite 3700

              	 
	
                2nd
                  Floor, Flat Office 202

              	
                Jersey
                  City, New Jersey 07302

              	 
	
                Strovolos,
                  P.C. 2012, Nicosia, Cyprus

              	
                Telephone:
                  (201) 985-8300

              	 
	
                Attention:     Nairy
                  Merheje

              	
                Facsimile:   
                  (201) 985-8266

              	 
	
                Telephone:   +357-22313339

              	 	 
	
                Facsimile:     
                  +357-22313346

              	 	 


      

      


       

      


       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

                

                    A
              -
      
      

                    
      
    

        

      


      Appendix
        A-1

       

      U.S.
        Accredited Investor Questionnaire

       

      (to
        be
        supplied)

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

                

                    A
              -
      
      

                    
      
    

        

      


      


       

      APPENDIX
        “A-2”

       

      CANADIAN
        CERTIFICATE

       

      TO:                      Smartire
        Systems Inc. (the “Issuer”)

       

      1.  MINIMUM
        PURCHASE DECLARATION (TO BE COMPLETED BY ALL BUYERS RELYING ON THE
        MINIMUM PURCHASE EXEMPTION PURSUANT TO SECTION 2.10 OF
        NI45-106)

       

      SYMBOL                      By
        checking the box to the left and completing and executing this Canadian
        Certificate below, the Buyer is eligible to purchase the Convertible Debentures
        pursuant to an exemption from the prospectus and registration provisions
        of the
        B.C. Act pursuant to section 2.10 of NI45-106 and represent and warrants
        to the
        Issuer that:

       

      
        	
                 

              	
                (a)

              	
                the
                  Buyer, or each of the beneficial purchasers for whom the Buyer
                  is acting,
                  is subject to the securities laws of the Province of British
                  Columbia;

              


      

       

      
        	
                 

              	
                (b)

              	
                the
                  Buyer is purchasing the Convertible Debentures as principal for
                  its own
                  account and not for the benefit of any other
                  person;

              


      

       

      
        	
                 

              	
                (c)

              	
                the
                  Convertible Debentures have an acquisition cost to the Purchaser
                  of not
                  less than Cdn$150,000, payable in cash at the Closing of the Offering;
                  and

              


      

       

      
        	
                 

              	
                (d)

              	
                the
                  Buyer was not created and is not being used solely to purchase
                  or hold
                  securities in reliance on the registration and prospectus exemptions
                  provided under Section 2.10 of NI45-106, it pre-existed the offering
                  of
                  Convertible Debentures and has a bona fide purpose other than investment
                  in the Convertible Debentures.

              


      

       

      2.  ACCREDITED
        INVESTOR DECLARATION (TO BE COMPLETED BY ALL BUYERS RELYING ON
        THE ACCREDITED INVESTOR EXEMPTION PURSUANT TO SECTION 2.3 OF
        NI45-106)

       

      The
        categories listed herein contain certain specifically defined
        terms.  If you are unsure as to the meanings of those terms, or are
        unsure as to the applicability of any category below, please contact your
        legal
        advisor before completing this certificate.

       

      In
        connection with the purchase by the undersigned Buyer of the Convertible
        Debentures, the Buyer, on its own behalf and on behalf of each of the beneficial
        purchasers for whom the Buyer is acting, hereby represents, warrants, covenants
        and certifies to the Issuer (and acknowledges that the Issuer and its counsel
        are relying thereon) that:

       

      
        	
                 

              	
                (a)

              	
                the
                  Buyer, or each of the beneficial purchasers for whom the Buyer
                  is acting,
                  is subject to the securities laws of the Province of British
                  Columbia;

              


      

       

      
        	
                 

              	
                (b)

              	
                the
                  Buyer, or each of the beneficial purchasers for whom the Buyer
                  is acting,
                  is purchasing the Convertible Debentures as principal for its own
                  account
                  and not for the benefit of any other person;
                  and

              


      

       

      
        	
                 

              	
                (c)

              	
                the
                  Buyer, or each of the beneficial purchasers for whom the Buyer
                  is acting,
                  is an “accredited investor” within the meaning of NI45-106 on the basis
                  that the undersigned fits within the category of an “accredited investor”
                  reproduced below beside which the undersigned has indicated the
                  undersigned belongs to such category and the undersigned has confirmed
                  such by completing and executing the Canadian Certificate
                  below.

              


      

       

      (PLEASE
        CHECK THE BOX OF THE APPLICABLE CATEGORY OF ACCREDITED
        INVESTOR)

       

      
        	 	
                (a)a
                  Canadian financial institution, or a Schedule III bank;

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

              
	 	
                (c)a
                  subsidiary of any person referred to in paragraphs (a) or (b),
                  if the
                  person owns all of the voting securities of the subsidiary, except
                  the
                  voting securities required by law to be owned by directors of that
                  subsidiary;

              
	 	
                (d)a
                  person registered under the securities legislation of a jurisdiction
                  of
                  Canada as an adviser or dealer, other than a person registered
                  solely as a
                  limited market dealer under one or both of the Securities Act
                  (Ontario) or the Securities Act (Newfoundland and
                  Labrador);

              
	 	
                (e)an
                  individual registered or formerly registered under the securities
                  legislation of a jurisdiction of Canada as a representative of
                  a person
                  referred to in paragraph (d);

              
	 	
                (f)the
                  Government of Canada or a jurisdiction of Canada, or any crown
                  corporation, agency or wholly owned entity of the Government of
                  Canada or
                  a jurisdiction of Canada;

              
	 	
                (g)a
                  municipality, public board or commission in Canada and a metropolitan
                  community, school board, the Comité de gestion de la taxe scolaire de
                  l’île de Montréal or an intermunicipal management board in
                  Québec;

              
	 	
                (h)any
                  national, federal, state, provincial, territorial or municipal
                  government
                  of or in any foreign jurisdiction, or any agency of that
                  government;

              
	 	
                (i)a
                  pension fund that is regulated by either the Office of the Superintendent
                  of Financial Institutions (Canada) or a pension commission or similar
                  regulatory authority of a jurisdiction of Canada;

              
	 	
                (j)an
                  individual who, either alone or with a spouse, beneficially owns,
                  directly
                  or indirectly, financial assets having an aggregate realizable
                  value that
                  before taxes, but net of any related liabilities, exceeds
                  $1,000,000;

              
	 	
                (k)an
                  individual whose net income before taxes exceeded $200,000 in each
                  of the
                  two most recent calendar years or whose net income before taxes
                  combined
                  with that of a spouse exceeded $300,000 in each of the two most
                  recent
                  calendar years and who, in either case, reasonably expects to exceed
                  that
                  net income level in the current calendar year;

              
	 	
                (l)an
                  individual who, either alone or with a spouse, has net assets of
                  at least
                  $5,000,000;

              
	 	
                (m)a
                  person, other than an individual or investment fund, that has net
                  assets
                  of at least $5,000,000 as shown on its most recently prepared financial
                  statements;

              
	 	
                (n)an
                  investment fund that distributes or has distributed its securities
                  only to
                  (i) a person that is or was an accredited investor at the time
                  of the
                  distribution, (ii) a person that acquires or acquired securities
                  in the
                  circumstances referred to in sections 2.10 [Minimum amount
                  investment] and 2.19 [Additional investment in investment
                  funds] of NI 45-106, or (iii) a person described in paragraph (i)
                  or
                  (ii) that acquires or acquired securities under section 2.18
                  [Investment fund reinvestment] of NI 45-106;

              
	 	
                (o)an
                  investment fund that distributes or has distributed securities
                  under a
                  prospectus in a jurisdiction of Canada for which the regulator
                  or, in
                  Québec, the securities regulatory authority, has issued a
                  receipt;

              
	 	
                (p)a
                  trust company or trust corporation registered or authorized to
                  carry on
                  business under the Trust and Loan Companies Act (Canada) or under
                  comparable legislation in a jurisdiction of Canada or a foreign
                  jurisdiction, acting on behalf of a fully managed account managed
                  by the
                  trust company or trust corporation, as the case may be;

              
	 	
                (q)a
                  person acting on behalf of a fully managed account managed by that
                  person,
                  if that person (i) is registered or authorized to carry on business
                  as an
                  adviser or the equivalent under the securities legislation of a
                  jurisdiction of Canada or a foreign jurisdiction, and (ii) in Ontario,
                  is
                  purchasing a security that is not a security of an investment
                  fund;

              
	 	
                (r)a
                  registered charity under the Income Tax Act (Canada) that, in
                  regard to the trade, has obtained advice from an eligibility adviser
                  or an
                  adviser registered under the securities legislation of the jurisdiction
                  of
                  the registered charity to give advice on the securities being
                  traded;

              
	 	
                (s)an
                  entity organized in a foreign jurisdiction that is analogous to
                  any of the
                  entities referred to in paragraphs (a) to (d) or paragraph (i)
                  in form and
                  function;

              
	 	
                (t)a
                  person in respect of which all of the owners of interests, direct,
                  indirect or beneficial, except the voting securities required by
                  law to be
                  owned by directors, are persons that are accredited
                  investors;

              
	 	
                (u)an
                  investment fund that is advised by a person registered as an adviser
                  or a
                  person that is exempt from registration as an adviser,
                  or

              
	 	
                (v)a
                  person that is recognized or designated by the securities regulatory
                  authority or, except in Ontario and Québec, the regulator as (i) an
                  accredited investor, or (ii) an exempt purchaser in Alberta or
                  British
                  Columbia.

              


      

       

      For
        the
        purposes hereof, the following definitions are included for
        convenience:

       

      
        	
                 

              	
                (a)

              	
                “Canadian
                  financial institution” means (i) an association governed by the
                  Cooperative Credit Associations Act (Canada) or a central cooperative
                  credit society for which an order has been made under section 473(1)
                  of
                  that Act, or (ii) a bank, loan corporation, trust company, trust
                  corporation, insurance company, treasury branch, credit union,
                  caisse
                  populaire, financial services cooperative, or league that, in each
                  case,
                  is authorized by an enactment of Canada or a jurisdiction of Canada
                  to
                  carry on business in Canada or a jurisdiction of
                  Canada;

              


      

       

      
        	
                 

              	
                (b)

              	
                “control
                  person” has the same meaning as in securities legislation except in
                  Manitoba, Newfoundland and Labrador, Northwest Territories, Nova
                  Scotia,
                  Nunavut, Ontario, Prince Edward Island and Quebéc where control person
                  means any person that holds or is one of a combination of persons
                  that
                  holds (i) a sufficient number of any of the securities of an issuer
                  so as
                  to affect materially the control of the issuer, or (ii) more than
                  20% of
                  the outstanding voting securities of an issuer except where there
                  is
                  evidence showing that the holding of those securities does not
                  affect
                  materially the control of the
                  issuer;

              


      

       

      
        	
                 

              	
                (c)

              	
                “entity”
                  means a company, syndicate, partnership, trust or unincorporated
                  organization;

              


      

       

      
        	
                 

              	
                (d)

              	
                “financial
                  assets” means cash, securities, or any a contract of insurance, a deposit
                  or an evidence of a deposit that is not a security for the purposes
                  of
                  securities legislation;

              


      

       

      
        	
                 

              	
                (e)

              	
                “founder” means,
                  in respect of an issuer, a person who, (i) acting alone, in conjunction,
                  or in concert with one or more persons, directly or indirectly,
                  takes the
                  initiative in founding, organizing or substantially reorganizing
                  the
                  business of the issuer, and (ii) at the time of the trade is actively
                  involved in the business of the
                  issuer;

              


      

       

      
        	
                 

              	
                (f)

              	
                “fully
                  managed account” means an account of a client for which a person makes the
                  investment decisions if that person has full discretion to trade
                  in
                  securities for the account without requiring the client’s express consent
                  to a transaction;

              


      

       

      
        	
                 

              	
                (g)

              	
                “investment
                  fund” means a mutual fund or a non-redeemable investment fund, and, for
                  greater certainty in British Columbia, includes an employee venture
                  capital corporation that does not have a restricted constitution,
                  and is
                  registered under Part 2 of the Employee Investment Act (British
                  Columbia), R.S.B.C. 1996 c. 112, and whose business objective is
                  making
                  multiple investments and a venture capital corporation registered
                  under
                  Part 1 of the Small Business Venture Capital Act (British
                  Columbia), R.S.B.C. 1996 c. 429 whose business objective is making
                  multiple investments;

              


      

       

      
        	
                 

              	
                (h)

              	
                “mutual
                  fund” means an issuer whose primary purpose is to invest money provided
                  by
                  its security holders and whose securities entitle the holder to
                  receive on
                  demand, or within a specified period after demand, an amount computed
                  by
                  reference to the value of a proportionate interest in the whole
                  or in part
                  of the net assets, including a separate fund or trust account,
                  of the
                  issuer;

              


      

       

      
        	
                 

              	
                (i)

              	
                "non-redeemable
                  investment fund" means an issuer,

              


      

       

      (A)
        whose
        primary purpose is to invest money provided by its securityholders,

       

      (B)
        that
        does not invest,

       

      (i)
        for
        the purpose of exercising or seeking to exercise control of an issuer, other
        than an issuer that is a mutual fund or a non-redeemable investment fund,
        or

       

      (ii)
        for
        the purpose of being actively involved in the management of any issuer in
        which
        it invests, other than an issuer that is a mutual fund or a non-redeemable
        investment fund, and

       

      (C)
        that
        is not a mutual fund;

       

      
        	
                 

              	
                (j)

              	
                “related
                  liabilities” means liabilities incurred or assumed for the purpose of
                  financing the acquisition or ownership of financial assets and
                  liabilities
                  that are secured by financial
                  assets;

              


      

       

      
        	
                 

              	
                (k)

              	
                “Schedule
                  III bank” means an authorized foreign bank named in Schedule III of the
                  Bank Act (Canada);

              


      

       

      
        	
                 

              	
                (l)

              	
                “spouse”
                  means an individual who(i)is married to another individual and
                  is not
                  living separate and apart within the meaning of the Divorce Act
                  (Canada),
                  from the other individual, (ii) is living with another individual
                  in a
                  marriage-like relationship, including a marriage-like relationship
                  between
                  individuals of the same gender, or (iii) in Alberta, is an individual
                  referred to in paragraph (i) or (ii), or is an adult interdependent
                  partner within the meaning of the Adult Interdependent Relationships
                  Act
                  (Alberta); and

              


      

       

      
        	
                 

              	
                (m)

              	
                “subsidiary”
                  means an issuer that is controlled directly or indirectly by another
                  issuer and includes a subsidiary of that
                  subsidiary.

              


      

       

      In
        NI
        45-106 a person or company is considered to be an affiliated entity of another
        person or company if one is a subsidiary entity of the other, or if both
        are
        subsidiary entities of the same person or company, or if each of them is
        controlled by the same person or company.

       

      In
        NI
        45-106 a person (first person) is considered to control another person (second
        person) if (a) the first person,   directly or indirectly,
        beneficially owns or exercises control or direction over securities of the
        second person carrying votes which, if exercised, would entitle the first
        person
        to elect a majority of the directors of the second person, unless that first
        person holds the voting securities only to secure an obligation, (b) the
        second
        person is a partnership, other than a limited partnership, and the first
        person
        holds more than 50% of the interests of the partnership, or (c) the second
        person is a limited partnership and the general partner of the limited
        partnership is the first person.

       

      The
        foregoing representations contained in this certificate are true and accurate
        as
        of the date of this certificate and will be true and accurate as of the Closing
        Date.  If any such representations shall not be true and accurate
        prior to the Closing Date, the undersigned shall give immediate written notice
        of such fact to the Issuer prior to the Closing Date.

       

      
        	
                 Dated:

              	
                ____________________

              	 	
                Signed:

              	
                ________________________________

              
	 	 	 
	
                _________________________________

                Witness
                  (If Purchaser is an Individual)

              	 	
                __________________________________________

                Print
                  the name of Purchaser

              
	 	 	 
	
                _________________________________

                Print
                  Name of Witness

              	 	
                __________________________________________

                If
                  Purchaser is a corporation, print name and title of Authorized
                  Signing
                  Officer

              


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      DISCLOSURE
        SCHEDULE

       


      
        
                

                    CW1174496.2      
    

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        A

      


      FUNDING
        SCHEDULE

      


      


      
        	
                1.

              	
                $1,150,000,
                  on or before April 24, 2007;

              


      

       

      
        	
                2.

              	
                $350,000
                  of the Purchase Price to be funded on or about October 1, 2007
                  or such
                  other mutually agreed upon by the Company and the Buyers, provided
                  however, neither party is under any obligation to agree to fund
                  the
                  remaining amount.

              


      

       

      


       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        B

       

      LOCK
        UP AGREEMENT

       

      The
        undersigned hereby agrees that for a period commencing on April __, 2007
        and
        expiring on the date thirty (30) days after the date that all amounts owed
        to
        Cornell Capital Partners, L.P. or Xentenial Holdings Limited (collectively,
        the
“Investors”) by Smartire Systems Inc. (the
“Company”) have been paid (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 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”) except in accordance with the
        volume limitations set forth in Rule 144(e) of the General Rules and Regulations
        under the Securities Act of 1933, as amended.

       

      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:
        _______________, 2007

       

      


       

      Signature

       

      


       

      


       

      Name:
        ____________________________________

       

      Address:                                                                           

       

      City,
        State, Zip Code:

       

      


       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        C

       

      FORM
        OF
        LEGAL OPINION