Document:

Exhibit 4.5

                     INVESTOR REGISTRATION RIGHTS AGREEMENT

         THIS  REGISTRATION  RIGHTS  AGREEMENT (this  "Agreement"),  dated as of
December 15, 2004, by and among SMARTIRE SYSTEMS,  INC., a corporation organized
and existing under the laws of the Yukon  Territory,  with its principal  office
located at Suite 150, 13151 Vanier Place,  Richmond,  British  Columbia V6V 2J1,
Canada (the "Company"),  and the undersigned  investors (each, an "Investor" and
collectively, the "Investors").

         WHEREAS:

         A. In connection  with the Securities  Purchase  Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase  Agreement"),
the  Company has agreed,  upon the terms and  subject to the  conditions  of the
Securities  Purchase Agreement,  to issue and sell to the Investors  convertible
debentures (the "Convertible  Debentures")  which shall be convertible into that
number  of shares of the  Company's  common  stock,  no par value  (the  "Common
Stock"),  pursuant  to the terms of the  Securities  Purchase  Agreement  for an
aggregate purchase price of up to Two Million Five Hundred Thousand U.S. Dollars
($2,500,000).  Capitalized  terms not  defined  herein  shall  have the  meaning
ascribed to them in the Securities Purchase Agreement.

         B. To induce  the  Investors  to execute  and  deliver  the  Securities
Purchase  Agreement,  the  Company  has agreed to provide  certain  registration
rights  under  the  Securities  Act of  1933,  as  amended,  and the  rules  and
regulations  there under, or any similar successor  statute  (collectively,  the
"1933 Act"), and applicable state securities laws.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Investors hereby agree as follows:

         1. DEFINITIONS.

         As used in this Agreement, the following terms shall have the following
meanings:

                  (a) "Person" means a corporation, a limited liability company,
an association,  a partnership,  an organization,  a business, an individual,  a
governmental or political subdivision thereof or a governmental agency.

                  (b) "Register,"  "registered," and  "registration"  refer to a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415  under  the 1933  Act or any  successor  rule  providing  for  offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

<PAGE>

                  (c) "Registrable  Securities" means the shares of Common Stock
issuable to Investors upon conversion of the Convertible  Debentures pursuant to
the Securities Purchase Agreement.

                  (d)  "Registration  Statement" means a registration  statement
under the 1933 Act which covers the Registrable Securities.

         2. REGISTRATION.

                  (a) Subject to the terms and conditions of this Agreement, the
Company  shall  prepare  and file,  no later than thirty (30) days from the date
hereof (the "Scheduled Filing Deadline"),  with the SEC a registration statement
on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the
1933 Act (the "Initial  Registration  Statement") for the  registration  for the
resale by all  Investors who purchased  Convertible  Debentures  pursuant to the
Securities Purchase Agreement Two Hundred Fifty Million  (250,000,000) shares of
Common Stock  issuable upon  conversion  of the  Convertible  Debentures  issued
pursuant to the Securities  Purchase  Agreement and the Investor's  Shares.  The
Company shall cause the Registration  Statement to remain effective until all of
the  Registrable  Securities  have  been  sold.  Prior  to  the  filing  of  the
Registration  Statement  with the SEC, the Company  shall  furnish a copy of the
Initial  Registration  Statement to the  Investors for their review and comment.
The Investors shall furnish  comments on the Initial  Registration  Statement to
the  Company  within  twenty-four  (24) hours of the  receipt  thereof  from the
Company.

                  (b) Effectiveness of the Initial Registration  Statement.  The
Company  shall  use its  best  efforts  (i) to  have  the  Initial  Registration
Statement declared effective by the SEC no later than ninety (90) days after the
date hereof (the  "Scheduled  Effective  Deadline")  and (ii) to insure that the
Initial Registration Statement and any subsequent Registration Statement remains
in effect until all of the Registrable Securities have been sold, subject to the
terms  and  conditions  of this  Agreement.  It shall  be an  event  of  default
hereunder if the Initial  Registration  Statement is not filed by the  Scheduled
Filing  Deadline or declared  effective  by the SEC by the  Scheduled  Effective
Deadline.

                  (c)   Failure   to  File  or  Obtain   Effectiveness   of  the
Registration  Statement. In the event the Registration Statement is not filed by
the  Scheduled  Filing  Deadline or is not  declared  effective by the SEC on or
before the Scheduled Effective Date, or if after the Registration  Statement has
been  declared  effective  by the SEC,  sales  cannot  be made  pursuant  to the
Registration  Statement  (whether  because of a failure to keep the Registration
Statement  effective,  failure to disclose such  information as is necessary for
sales to be made  pursuant to the  Registration  Statement,  failure to register
sufficient  shares of Common Stock or otherwise)  then as partial relief for the
damages to any holder of  Registrable  Securities by reason of any such delay in
or reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive  of any other  remedies at law or in equity),  the
Company will pay as liquidated damages (the "Liquidated Damages") to the holder,
at the holder's  option,  either a cash amount or shares of the Company's Common
Stock within  three (3) business  days,  after  demand  therefore,  equal to two
percent (2%) of the liquidated value of the Convertible  Debentures  outstanding
as Liquidated Damages for each thirty (30) day period after the Scheduled Filing
Deadline or the Scheduled Effective Date as the case may be.

                                       2
<PAGE>

                  (d) Liquidated  Damages.  The Company and the Investor  hereto
acknowledge  and agree that the sums payable under  subsection  2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the  Investor,  including  the right to call a  default.  The  parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely  estimate,  (ii) the amounts specified
in such  subsections  bear a reasonable  relationship to, and are not plainly or
grossly  disproportionate  to,  the  probable  loss  likely  to be  incurred  in
connection   with  any  failure  by  the  Company  to  obtain  or  maintain  the
effectiveness  of a  Registration  Statement,  (iii) one of the  reasons for the
Company  and the  Investor  reaching  an  agreement  as to such  amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are  sophisticated  business  parties and have
been  represented by  sophisticated  and able legal counsel and negotiated  this
Agreement at arm's length.

         3. RELATED OBLIGATIONS.

                  (a)  The  Company  shall  keep  the   Registration   Statement
effective pursuant to Rule 415 at all times until the date on which the Investor
shall have sold all the  Registrable  Securities  covered  by such  Registration
Statement (the "Registration  Period"),  which Registration Statement (including
any amendments or supplements thereto and prospectuses  contained therein) shall
not contain any untrue  statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.

                  (b) The  Company  shall  prepare  and  file  with the SEC such
amendments   (including   post-effective   amendments)   and  supplements  to  a
Registration   Statement  and  the  prospectus  used  in  connection  with  such
Registration  Statement,  which  prospectus is to be filed  pursuant to Rule 424
promulgated  under the 1933 Act, as may be necessary  to keep such  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such  period,  comply with the  provisions  of the 1933 Act with  respect to the
disposition  of all  Registrable  Securities  of the  Company  covered  by  such
Registration  Statement  until such time as all of such  Registrable  Securities
shall  have  been  disposed  of in  accordance  with  the  intended  methods  of
disposition by the seller or sellers  thereof as set forth in such  Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section  3(b)) by reason of the  Company's  filing a report on Form 10-KSB,
Form 10-QSB or Form 8-K or any analogous  report under the  Securities  Exchange
Act of 1934,  as amended (the "1934 Act"),  the Company shall  incorporate  such
report by reference into the  Registration  Statement,  if applicable,  or shall
file such  amendments or  supplements  with the SEC on the same day on which the
1934 Act report is filed which created the  requirement for the Company to amend
or supplement the Registration Statement.

                  (c)  The  Company  shall   furnish  to  each  Investor   whose
Registrable  Securities  are  included in any  Registration  Statement,  without
charge,  (i) at least one (1) copy of such  Registration  Statement  as declared
effective  by  the  SEC  and  any  amendment(s)  thereto,   including  financial
statements and schedules,  all documents incorporated therein by reference,  all
exhibits  and each  preliminary  prospectus,  (ii) ten (10)  copies of the final
prospectus  included  in such  Registration  Statement  and all  amendments  and
supplements  thereto  (or such  other  number  of copies  as such  Investor  may

                                       3
<PAGE>

reasonably  request)  and  (iii)  such  other  documents  as such  Investor  may
reasonably  request from time to time in order to facilitate the  disposition of
the Registrable Securities owned by such Investor.

                  (d) The Company shall use its best efforts to (i) register and
qualify the  Registrable  Securities  covered by a Registration  Statement under
such other  securities  or "blue sky" laws of such  jurisdictions  in the United
States as any  Investor  reasonably  requests,  (ii)  prepare  and file in those
jurisdictions,   such  amendments  (including  post-effective   amendments)  and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof during the Registration  Period,  (iii) take
such other  actions as may be  necessary  to  maintain  such  registrations  and
qualifications in effect at all times during the Registration  Period,  and (iv)
take all  other  actions  reasonably  necessary  or  advisable  to  qualify  the
Registrable Securities for sale in such jurisdictions;  provided,  however, that
the  Company  shall not be required in  connection  therewith  or as a condition
thereto to (w) make any change to its articles of incorporation or by-laws,  (x)
qualify to do  business  in any  jurisdiction  where it would not  otherwise  be
required to qualify but for this  Section  3(d),  (y) subject  itself to general
taxation in any such  jurisdiction,  or (z) file a general consent to service of
process  in any such  jurisdiction.  The  Company  shall  promptly  notify  each
Investor who holds  Registrable  Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.

                  (e) As promptly as  practicable  after  becoming aware of such
event or  development,  the Company shall notify each Investor in writing of the
happening  of any  event  as a result  of which  the  prospectus  included  in a
Registration  Statement,  as then in effect,  includes an untrue  statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were  made,  not  misleading  (provided  that in no event  shall such
notice  contain any material,  nonpublic  information),  and promptly  prepare a
supplement  or amendment to such  Registration  Statement to correct such untrue
statement  or  omission,  and  deliver  ten (10)  copies of such  supplement  or
amendment to each Investor. The Company shall also promptly notify each Investor
in writing (i) when a prospectus or any prospectus  supplement or post-effective
amendment   has  been  filed,   and  when  a   Registration   Statement  or  any
post-effective   amendment   has   become   effective   (notification   of  such
effectiveness  shall be delivered to each  Investor by facsimile on the same day
of such  effectiveness),  (ii) of any  request  by the  SEC  for  amendments  or
supplements  to a  Registration  Statement  or  related  prospectus  or  related
information,  and  (iii)  of  the  Company's  reasonable  determination  that  a
post-effective amendment to a Registration Statement would be appropriate.

                  (f) The  Company  shall use its best  efforts to  prevent  the
issuance  of  any  stop  order  or  other   suspension  of  effectiveness  of  a
Registration  Statement,  or the suspension of the  qualification  of any of the
Registrable  Securities for sale in any jurisdiction within the United States of
America and, if such an order or suspension is issued,  to obtain the withdrawal
of such order or suspension at the earliest  possible  moment and to notify each
Investor  who holds  Registrable  Securities  being sold of the issuance of such
order  and the  resolution  thereof  or its  receipt  of  actual  notice  of the
initiation or threat of any proceeding for such purpose.

                                       4
<PAGE>

                  (g) At the  reasonable  request of any  Investor,  the Company
shall  furnish  to  such  Investor,  on the  date  of the  effectiveness  of the
Registration  Statement  and  thereafter  from time to time on such  dates as an
Investor  may  reasonably  request  (i) a  letter,  dated  such  date,  from the
Company's  independent  certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering,  and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form,  scope and substance as is  customarily  given in an  underwritten  public
offering, addressed to the Investors.

                  (h) The Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of  accountants  or other agents  retained by the
Investors  (collectively,  the "Inspectors")  all pertinent  financial and other
records,  and  pertinent  corporate  documents  and  properties  of the  Company
(collectively,  the "Records"),  as shall be reasonably deemed necessary by each
Inspector,  and cause the Company's officers,  directors and employees to supply
all information which any Inspector may reasonably request;  provided,  however,
that each Inspector  shall agree,  and each Investor  hereby agrees,  to hold in
strict  confidence and shall not make any disclosure  (except to an Investor) or
use any Record or other information  which the Company  determines in good faith
to be confidential,  and of which  determination the Inspectors are so notified,
unless (a) the  disclosure  of such  Records is  necessary to avoid or correct a
misstatement or omission in any Registration  Statement or is otherwise required
under the 1933 Act,  (b) the  release of such  Records is ordered  pursuant to a
final,  non-appealable  subpoena  or order  from a court or  government  body of
competent  jurisdiction,  or (c) the  information  in such Records has been made
generally  available to the public other than by disclosure in violation of this
or any other  agreement of which the Inspector  and the Investor has  knowledge.
Each  Investor  agrees that it shall,  upon  learning  that  disclosure  of such
Records  is  sought  in  or  by  a  court  or  governmental  body  of  competent
jurisdiction or through other means, give prompt notice to the Company and allow
the  Company,  at its  expense,  to  undertake  appropriate  action  to  prevent
disclosure  of,  or to  obtain  a  protective  order  for,  the  Records  deemed
confidential.

                  (i) The  Company  shall  hold in  confidence  and not make any
disclosure of information  concerning an Investor provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant to a subpoena or other final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

                  (j) The Company shall use its best efforts either to cause all
the Registrable  Securities covered by a Registration Statement (i) to be listed
on each  securities  exchange  on which  securities  of the same class or series
issued  by the  Company  are  then  listed,  if  any,  if the  listing  of  such
Registrable  Securities  is then  permitted  under the rules of such exchange or
(ii) the  inclusion  for  quotation on the National  Association  of  Securities

                                       5
<PAGE>

Dealers,  Inc. OTC Bulletin Board for such Registrable  Securities.  The Company
shall pay all fees and expenses in connection  with  satisfying  its  obligation
under this Section 3(j).

                  (k) The Company  shall  cooperate  with the Investors who hold
Registrable  Securities  being  offered  and,  to  the  extent  applicable,   to
facilitate the timely  preparation and delivery of certificates (not bearing any
restrictive  legend)  representing  the  Registrable  Securities  to be  offered
pursuant to a Registration  Statement and enable such certificates to be in such
denominations  or amounts,  as the case may be, as the Investors may  reasonably
request and registered in such names as the Investors may request.

                  (l) The  Company  shall  use its best  efforts  to  cause  the
Registrable  Securities covered by the applicable  Registration  Statement to be
registered with or approved by such other  governmental  agencies or authorities
as  may  be  necessary  to  consummate  the  disposition  of  such   Registrable
Securities.

                  (m) The Company shall make generally available to its security
holders  as soon as  practical,  but not later than  ninety  (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve (12) month
period  beginning not later than the first day of the Company's  fiscal  quarter
next following the effective date of the Registration Statement.

                  (n) The Company shall otherwise use its best efforts to comply
with all  applicable  rules and  regulations  of the SEC in connection  with any
registration hereunder.

                  (o)  Within  two  (2)  business  days  after  a   Registration
Statement which covers Registrable  Securities is declared effective by the SEC,
the Company  shall  deliver,  and shall  cause legal  counsel for the Company to
deliver,  to the transfer agent for such Registrable  Securities (with copies to
the Investors  whose  Registrable  Securities are included in such  Registration
Statement)  confirmation  that such  Registration  Statement  has been  declared
effective by the SEC in the form attached hereto as Exhibit A.

                  (p) The  Company  shall  take  all  other  reasonable  actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.

         4. OBLIGATIONS OF THE INVESTORS.

         Each Investor  agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e),  such Investor will  immediately  discontinue  disposition  of
Registrable  Securities pursuant to any Registration  Statement(s) covering such
Registrable  Securities  until  such  Investor's  receipt  of the  copies of the
supplemented  or amended  prospectus  contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required.  Notwithstanding anything to
the contrary,  the Company shall cause its transfer agent to deliver  unlegended
certificates  for  shares of Common  Stock to a  transferee  of an  Investor  in
accordance  with the terms of the  Securities  Purchase  Agreement in connection
with any sale of  Registrable  Securities  with respect to which an Investor has
entered  into a contract  for sale prior to the  Investor's  receipt of a notice

                                       6
<PAGE>

from the Company of the happening of any event of the kind  described in Section
3(f) or the  first  sentence  of 3(e) and for  which  the  Investor  has not yet
settled.

         5. EXPENSES OF REGISTRATION.

         All expenses  incurred in  connection  with  registrations,  filings or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration,  listing and qualifications fees,  printers,  legal and accounting
fees shall be paid by the Company.

         6. INDEMNIFICATION.

         With  respect  to  Registrable  Securities  which  are  included  in  a
Registration Statement under this Agreement:

                  (a) To the fullest extent  permitted by law, the Company will,
and hereby  does,  indemnify,  hold  harmless  and  defend  each  Investor,  the
directors,  officers, partners, employees, agents,  representatives of, and each
Person,  if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each,  an  "Indemnified  Person"),  against  any  losses,  claims,
damages,  liabilities,  judgments, fines, penalties,  charges, costs, reasonable
attorneys'  fees,  amounts  paid in  settlement  or  expenses,  joint or several
(collectively,  "Claims") incurred in investigating,  preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing  by or  before  any  court or  governmental,  administrative  or other
regulatory  agency,  body or the SEC, whether pending or threatened,  whether or
not an indemnified party is or may be a party thereto  ("Indemnified  Damages"),
to which any of them may become  subject  insofar as such  Claims (or actions or
proceedings,  whether commenced or threatened,  in respect thereof) arise out of
or are based upon:  (i) any untrue  statement or alleged  untrue  statement of a
material  fact  in a  Registration  Statement  or any  post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged  omission  to state a material  fact  required  to be stated  therein or
necessary  to make the  statements  therein  not  misleading;  (ii)  any  untrue
statement or alleged untrue  statement of a material fact contained in any final
prospectus  (as  amended or  supplemented,  if the Company  files any  amendment
thereof or supplement  thereto with the SEC) or the omission or alleged omission
to state  therein  any  material  fact  necessary  to make the  statements  made
therein,  in light of the circumstances  under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state  securities  law, or any rule or  regulation  there under  relating to the
offer or sale of the Registrable Securities pursuant to a Registration Statement
(the matters in the  foregoing  clauses (i) through  (iii) being,  collectively,
"Violations").   The  Company  shall  reimburse  the  Investors  and  each  such
controlling  person  promptly  as such  expenses  are  incurred  and are due and
payable,  for any  legal  fees or  disbursements  or other  reasonable  expenses
incurred by them in connection with  investigating  or defending any such Claim.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained in this Section 6(a):  (x) shall not apply to a Claim by an
Indemnified  Person  arising  out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company by such  Indemnified  Person  expressly for use in  connection  with the
preparation  of the  Registration  Statement  or any such  amendment  thereof or

                                       7
<PAGE>

supplement thereto; (y) shall not be available to the extent such Claim is based
on a  failure  of the  Investor  to  deliver  or to  cause to be  delivered  the
prospectus  made  available by the Company,  if such  prospectus was timely made
available by the Company  pursuant to Section  3(c);  and (z) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  the  Company,   which  consent  shall  not  be
unreasonably  withheld.  Such  indemnity  shall  remain in full force and effect
regardless of any investigation  made by or on behalf of the Indemnified  Person
and shall  survive the transfer of the  Registrable  Securities by the Investors
pursuant to Section 9 hereof.

                  (b) In connection with a Registration Statement, each Investor
agrees to severally and not jointly indemnify,  hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its  directors,  each of its officers,  employees,  representatives,  or
agents and each Person,  if any, who controls the Company  within the meaning of
the 1933 Act or the 1934 Act (each an "Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise,  insofar as such Claim or  Indemnified  Damages arise
out of or is based upon any Violation,  in each case to the extent,  and only to
the extent,  that such Violation  occurs in reliance upon and in conformity with
written information  furnished to the Company by such Investor expressly for use
in connection with such  Registration  Statement;  and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses  reasonably incurred by
them in connection  with  investigating  or defending any such Claim;  provided,
however,  that the  indemnity  agreement  contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  such  Investor,  which  consent  shall  not be
unreasonably withheld;  provided,  further,  however, that the Investor shall be
liable under this  Section  6(b) for only that amount of a Claim or  Indemnified
Damages as does not exceed the net proceeds to such  Investor as a result of the
sale of Registrable  Securities  pursuant to such Registration  Statement.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the   Registrable   Securities   by  the   Investors   pursuant  to  Section  9.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained in this Section 6(b) with respect to any  prospectus  shall
not inure to the benefit of any  Indemnified  Party if the untrue  statement  or
omission of material fact contained in the prospectus was corrected and such new
prospectus  was delivered to each Investor  prior to such  Investor's use of the
prospectus to which the Claim relates.

                  (c)  Promptly  after  receipt  by  an  Indemnified  Person  or
Indemnified  Party  under this  Section 6 of notice of the  commencement  of any
action or proceeding (including any governmental action or proceeding) involving
a Claim,  such  Indemnified  Person or  Indemnified  Party shall,  if a Claim in
respect thereof is to be made against any indemnifying  party under this Section
6,  deliver  to the  indemnifying  party a written  notice  of the  commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the  extent  the  indemnifying  party so  desires,  jointly  with  any  other
indemnifying party similarly  noticed,  to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided,  however, that an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees and  expenses  of not more than one (1)  counsel for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,

                                       8
<PAGE>

if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented  by such counsel in such  proceeding.  The  Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection  with any  negotiation  or defense of any such action or claim by the
indemnifying  party and shall furnish to the indemnifying  party all information
reasonably  available  to the  Indemnified  Party or  Indemnified  Person  which
relates  to such  action  or  claim.  The  indemnifying  party  shall  keep  the
Indemnified  Party or  Indemnified  Person fully apprised at all times as to the
status of the defense or any settlement  negotiations  with respect thereto.  No
indemnifying  party shall be liable for any  settlement of any action,  claim or
proceeding effected without its prior written consent;  provided,  however, that
the indemnifying party shall not unreasonably  withhold,  delay or condition its
consent.  No indemnifying party shall,  without the prior written consent of the
Indemnified  Party or  Indemnified  Person,  consent to entry of any judgment or
enter into any  settlement  or other  compromise  which  does not  include as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party or  Indemnified  Person of a release  from all  liability  in
respect to such claim or litigation.  Following  indemnification as provided for
hereunder,  the  indemnifying  party  shall be  subrogated  to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
The  failure  to  deliver  written  notice to the  indemnifying  party  within a
reasonable  time of the  commencement  of any such action shall not relieve such
indemnifying  party of any liability to the  Indemnified  Person or  Indemnified
Party under this Section 6, except to the extent that the indemnifying  party is
prejudiced in its ability to defend such action.

                  (d) The  indemnification  required by this  Section 6 shall be
made by  periodic  payments  of the  amount  thereof  during  the  course of the
investigation or defense,  as and when bills are received or Indemnified Damages
are incurred.

                  (e) The  indemnity  agreements  contained  herein  shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified  Person  against  the  indemnifying  party or  others,  and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

         7. CONTRIBUTION.

         To  the  extent  any   indemnification  by  an  indemnifying  party  is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable  Securities guilty of fraudulent  misrepresentation
(within  the  meaning of Section  11(f) of the 1933 Act)  shall be  entitled  to
contribution  from any seller of  Registrable  Securities  who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds  received by
such seller from the sale of such Registrable Securities.

                                       9
<PAGE>

         8. REPORTS UNDER THE 1934 ACT.

         With a view to making  available to the  Investors the benefits of Rule
144 promulgated  under the 1933 Act or any similar rule or regulation of the SEC
that may at any time permit the  Investors to sell  securities of the Company to
the public without registration ("Rule 144") the Company agrees to:

                  (a) make and keep public information available, as those terms
are understood and defined in Rule 144;

                  (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement)  and the  filing  of  such  reports  and  other
documents as are required by the applicable provisions of Rule 144; and

                  (c)  furnish to each  Investor so long as such  Investor  owns
Registrable  Securities,  promptly upon request,  (i) a written statement by the
Company that it has complied  with the reporting  requirements  of Rule 144, the
1933 Act and the 1934 Act,  (ii) a copy of the most recent  annual or  quarterly
report of the  Company  and such other  reports  and  documents  so filed by the
Company,  and (iii) such other  information  as may be  reasonably  requested to
permit  the  Investors  to sell such  securities  pursuant  to Rule 144  without
registration.

         9. AMENDMENT OF REGISTRATION RIGHTS.

         Provisions of this Agreement may be amended and the observance  thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively  or  prospectively),  only with the written consent of the Company
and  Investors  who then  hold at  least  two-thirds  (2/3)  of the  Registrable
Securities.  Any amendment or waiver  effected in accordance with this Section 9
shall be binding upon each Investor and the Company.  No such amendment shall be
effective  to the extent that it applies to fewer than all of the holders of the
Registrable Securities.  No consideration shall be offered or paid to any Person
to amend or consent to a waiver or  modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

         10. MISCELLANEOUS.

                  (a)  A  Person  is  deemed  to  be  a  holder  of  Registrable
Securities  whenever  such  Person  owns  or is  deemed  to own of  record  such
Registrable  Securities.  If  the  Company  receives  conflicting  instructions,
notices  or  elections  from two (2) or more  Persons  with  respect to the same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

                  (b) Any  notices,  consents,  waivers or other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party);  or (iii) one (1) business day after deposit
with a nationally  recognized  overnight delivery service, in each case properly

                                       10
<PAGE>

addressed to the party to receive the same. The addresses and facsimile  numbers
for such communications shall be:

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

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

If to an  Investor,  to its  address  and  facsimile  number on the  Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the  Schedule of Investors or to such other  address  and/or  facsimile
number and/or to the  attention of such other person as the recipient  party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
mechanically  or  electronically  generated  by the sender's  facsimile  machine
containing the time, date,  recipient facsimile number and an image of the first
page of such  transmission  or (C)  provided by a courier or  overnight  courier
service shall be rebuttable  evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

                  (c) Failure of any party to exercise any right or remedy under
this  Agreement or otherwise,  or delay by a party in  exercising  such right or
remedy, shall not operate as a waiver thereof.

                  (d) The  laws of the  State of New  Jersey  shall  govern  all
issues  concerning  the relative  rights of the Company and the Investors as its
stockholders.  All  other  questions  concerning  the  construction,   validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by the
internal laws of the State of New Jersey, without giving effect to any choice of
law or conflict of law  provision or rule (whether of the State of New Jersey or
any other  jurisdiction)  that would  cause the  application  of the laws of any
jurisdiction  other than the State of New Jersey.  Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the Superior Courts of the State of
New Jersey,  sitting in Hudson  County,  New Jersey and  federal  courts for the
District of New Jersey sitting Newark,  New Jersey,  for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein,  and hereby  irrevocably  waives,  and agrees not to
assert in any suit,  action or  proceeding,  any claim that it is not personally
subject  to the  jurisdiction  of any such  court,  that  such  suit,  action or

                                       11
<PAGE>

proceeding is brought in an  inconvenient  forum or that the venue of such suit,
action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or  proceeding  by mailing a copy  thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient  service of process and notice  thereof.  Nothing  contained
herein  shall be deemed to limit in any way any  right to serve  process  in any
manner  permitted by law. 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.  EACH PARTY HEREBY  IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION
OF ANY  DISPUTE  HEREUNDER  OR IN  CONNECTION  HEREWITH  OR ARISING  OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                  (e)   This   Agreement,   the   Irrevocable   Transfer   Agent
Instructions,  the Securities Purchase Agreement and related documents including
the Convertible  Debenture and the Escrow Agreement dated the date hereof by and
among the Company, the Investors set forth on the Schedule of Investors attached
hereto, and David Gonzalez,  Esq. (the "Escrow Agreement") constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions,  promises, warranties or undertakings, other
than those set forth or  referred to herein and  therein.  This  Agreement,  the
Irrevocable  Transfer Agent Instructions,  the Securities Purchase Agreement and
related  documents  including the Convertible  Debentureand the Escrow Agreement
supersede all prior agreements and understandings  among the parties hereto with
respect to the subject matter hereof and thereof.

                  (f)  This  Agreement  shall  inure  to the  benefit  of and be
binding upon the permitted successors and assigns of each of the parties hereto.

                  (g) The  headings in this  Agreement  are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

                  (h) This Agreement may be executed in identical  counterparts,
each of which shall be deemed an original but all of which shall  constitute one
and the same  agreement.  This  Agreement,  once  executed  by a  party,  may be
delivered to the other party hereto by facsimile  transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  (i) 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.

                                       12
<PAGE>

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.

                  (j) 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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       13
<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Investor  Registration
Rights Agreement to be duly executed as of day and year first above written.

                                                COMPANY:
                                                SMARTIRE SYSTEMS, INC.

                                                By:
                                                    --------------------------
                                                Name:  Robert V. Rudman
                                                Title: CEO

Investor Registration Rights Agreement Signature Page

                                       14
<PAGE>

                                   SCHEDULE I

                              SCHEDULE OF INVESTORS

<TABLE>
<CAPTION>
                                                                   ADDRESS/FACSIMILE
           NAME                         SIGNATURE                 NUMBER OF INVESTORS
----------------------------   ------------------------------  ------------------------------
<S>                            <C>                             <C>
Cornell Capital Partners, LP   By:   Yorkville Advisors, LLC   101 Hudson Street - Suite 3700
                               Its:  General Partner           Jersey City, NJ  07303
                                                               Facsimile:  (201) 985-8266

                               By:
                                   ------------------------
                               Name: Mark A. Angelo
                               Its:  Portfolio Manager

With a copy to:                Troy Rillo, Esq.                101 Hudson Street - Suite 3700
                                                               Jersey City, NJ 07302
                                                               Facsimile:  (201) 985-1964
</TABLE>

Investor Registration Rights Agreement Signature Page

<PAGE>

                                    EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

Attention:

         Re:  SMARTIRE SYSTEMS, INC.

Ladies and Gentlemen:

         We are counsel to SmarTire Systems,  Inc., a corporation  organized and
existing  under  the  laws of the  Yukon  Territory  (the  "Company"),  and have
represented  the Company in  connection  with that certain  Securities  Purchase
Agreement (the "Securities  Purchase  Agreement")  entered into by and among the
Company and the investors named therein (collectively, the "Investors") pursuant
to which the Company issued to the Investors  shares of its Common Stock, no par
value (the "Common Stock"). Pursuant to the Purchase Agreement, the Company also
has  entered  into a  Registration  Rights  Agreement  with the  Investors  (the
"Investor  Registration Rights Agreement") pursuant to which the Company agreed,
among other things,  to register the  Registrable  Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights  Agreement,  on  ____________  ____,  the  Company  filed a  Registration
Statement  on Form  ________  (File No.  333-_____________)  (the  "Registration
Statement")  with the  Securities  and Exchange SEC (the "SEC")  relating to the
Registrable   Securities  which  names  each  of  the  Investors  as  a  selling
stockholder there under.

         In connection  with the  foregoing,  we advise you that a member of the
SEC's  staff has  advised  us by  telephone  that the SEC has  entered  an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF  EFFECTIVENESS]  on [ENTER DATE OF  EFFECTIVENESS]  and we have no knowledge,
after  telephonic  inquiry of a member of the SEC's  staff,  that any stop order
suspending its  effectiveness  has been issued or that any  proceedings for that
purpose  are  pending  before,  or  threatened  by, the SEC and the  Registrable
Securities  are  available  for  resale  under  the  1933  Act  pursuant  to the
Registration Statement.

                                       Very truly yours,

                                       SICHENZIA ROSS FRIEDMAN FERENCE LLP

                                       By:
                                          --------------------------------

cc:  [LIST NAMES OF INVESTORS]Exhibit 4.6

THIS  CONVERTIBLE  DEBENTURE,  AND THE  SECURITIES  INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY,  THE  "SECURITIES"),  HAVE NOT BEEN  REGISTERED  WITH THE  UNITED
STATES  SECURITIES AND EXCHANGE  COMMISSION OR THE SECURITIES  COMMISSION OF ANY
STATE.  THE  SECURITIES  ARE  BEING  OFFERED  PURSUANT  TO A  SAFE  HARBOR  FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT").  THE SECURITIES ARE  "RESTRICTED" AND MAY NOT BE OFFERED OR
SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,  PURSUANT TO REGULATION
D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION  REQUIREMENTS OF THE
ACT AND THE  COMPANY  WILL BE  PROVIDED  WITH  OPINION  OF COUNSEL OR OTHER SUCH
INFORMATION  AS IT MAY  REASONABLY  REQUIRE TO CONFIRM THAT SUCH  EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.

                              CONVERTIBLE DEBENTURE

                             SMARTIRE SYSTEMS, INC.

                            5% CONVERTIBLE DEBENTURE

                                DECEMBER 15, 2007

No. CCP-1                                                        US$2,500,000.00

         This Convertible Debenture (the "Debenture") is issued on December ___,
2004 (the "Closing Date") by SmarTire Systems, Inc., a corporation organized and
existing  under the laws of the Yukon  Territory  (the  "Company"),  to  Cornell
Capital Partner, LP, a Delaware limited partnership (together with its permitted
successors and assigns,  the "Holder")  pursuant to exemptions from registration
under the Securities Act of 1933, as amended.

                                   ARTICLE I.

         SECTION 1.01 PRINCIPAL AND INTEREST.  For value  received,  the Company
hereby  promises  to pay to the order of the  Holder on  December  ___,  2007 in
lawful money of the United States of America and in immediately  available funds
the   principal  sum  of  Two  Million  Five  Hundred   Thousand  U.S.   Dollars
(US$2,500,000), together with interest on the unpaid principal of this Debenture
at the rate of five  percent  (5%) per year  (computed on the basis of a 365-day
year and the actual days elapsed) from the date of this Debenture until paid. At
the Company's option, the entire principal amount and all accrued interest shall
be either (a) paid to the Holder on the third  (3rd) year  anniversary  from the
date hereof or (b)  converted in accordance  with Section 1.02 herein  provided,
however, that in no event shall the Holder be entitled to convert this Debenture
for a number of shares  of  Common  Stock in excess of that  number of shares of
Common  Stock  which,  upon giving  effect to such  conversion,  would cause the

<PAGE>

aggregate number of shares of Common Stock  beneficially owned by the Holder and
its  affiliates  to exceed 4.99% of the  outstanding  shares of the Common Stock
following such conversion.

         SECTION  1.02  OPTIONAL  CONVERSION.  The  Holder is  entitled,  at its
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of this Debenture, all or any part of the principal amount
of the Debenture,  plus accrued interest,  into shares (the "Conversion Shares")
of the Company's common stock, no par value ("Common  Stock"),  at the price per
share (the "Conversion Price") equal to the lesser of (a) an amount equal to one
hundred  twenty  percent  (120%) of the closing bid price of the Common Stock as
listed on a Principal  Market (as defined  herein),  as quoted by Bloomberg L.P.
(the  "Fixed  Price") as of the date  hereof,  or (b) an amount  equal to eighty
percent (80%) of the lowest closing bid price of the Company's  Common Stock, as
quoted by Bloomberg, LP, for the five (5) trading days immediately preceding the
Conversion  Date  (as  defined  herein).  Subparagraphs  (a) and (b)  above  are
individually  referred to as a "Conversion  Price".  As used herein,  "Principal
Market"  shall  mean The  National  Association  of  Securities  Dealers  Inc.'s
Over-The-Counter  Bulletin  Board,  Nasdaq  SmallCap  Market,  or American Stock
Exchange.  If the Common Stock is not traded on a Principal Market,  the Closing
Bid Price and/or the VWAP shall mean, the reported Closing Bid Price or the VWAP
for the Common  Stock,  as furnished by the National  Association  of Securities
Dealers,  Inc.,  for the  applicable  periods.  No  fraction  of shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares  issuable  shall be rounded to the nearest  whole share.  To convert this
Debenture, the Holder hereof shall deliver written notice thereof, substantially
in the form of Exhibit "A" to this Debenture,  with appropriate  insertions (the
"Conversion  Notice"),  to the Company at its address as set forth  herein.  The
date upon which the conversion shall be effective (the "Conversion  Date") shall
be deemed to be the date set forth in the Conversion Notice.

         SECTION 1.03 RESERVATION OF COMMON STOCK. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the  conversion of this  Debenture,  such number of
shares of Common Stock as shall from time to time be  sufficient  to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders  within thirty
(30)  days of that  time  for the sole  purpose  of  increasing  the  number  of
authorized shares of Common Stock.

         SECTION 1.04 RIGHT OF REDEMPTION.  The Company at its option shall have
the right to redeem,  with three (3) business days advance  written  notice (the
"Redemption Notice"), a portion or all outstanding  convertible  debenture.  The
redemption  price  shall be one  hundred  twenty  percent  (120%) of the  amount
redeemed plus accrued interest.

         In the event the  Company  exercises  a  redemption  of either all or a
portion  the  Convertible  Debenture,  the  Holder  shall  receive a warrant  to
purchase fifty thousand  (50,000) shares of the Company's Common Stock for every
One  Hundred  Thousand  U.S.  Dollars  (US$100,000)   redeemed,  pro  rata  (the
"Warrant").  The  Warrant  shall be  exercisable  on a "cash  basis" and have an
exercise  price of one hundred twenty percent (120%) of the Closing Bid Price of

                                       2
<PAGE>

the  Company's  Common  Stock  on the  Closing  Date.  The  Warrant  shall  have
"piggy-back" and demand  registration rights and shall survive for two (2) years
from the Closing Date.

         SECTION 1.05 REGISTRATION  RIGHTS. The Company is obligated to register
the  resale of the  Conversion  Shares  under  the  Securities  Act of 1933,  as
amended,  pursuant to the terms of a Registration Rights Agreement,  between the
Company and the Holder of even date herewith (the "Investor  Registration Rights
Agreement").

         SECTION 1.06 INTEREST PAYMENTS. The interest so payable will be paid at
the time of maturity or conversion to the person in whose name this Debenture is
registered.  At the time such  interest  is  payable,  the  Holder,  in its sole
discretion,  may elect to receive  the  interest  in cash (via wire  transfer or
certified  funds) or in the form of Common  Stock.  In the event of default,  as
described in Article III Section 3.01  hereunder,  the Holder may elect that the
interest be paid in cash (via wire  transfer or certified  funds) or in the form
of Common Stock. If paid in the form of Common Stock,  the amount of stock to be
issued  will be  calculated  as  follows:  the value of the  stock  shall be the
Closing Bid Price on: (i) the date the  interest  payment is due; or (ii) if the
interest  payment is not made when due, the date the interest payment is made. A
number of shares of Common  Stock with a value  equal to the amount of  interest
due shall be issued.  No  fractional  shares will be issued;  therefore,  in the
event  that the value of the  Common  Stock  per share  does not equal the total
interest due, the Company will pay the balance in cash.

         SECTION 1.07 PAYING AGENT AND  REGISTRAR.  Initially,  the Company will
act as paying  agent and  registrar.  The Company  may change any paying  agent,
registrar,  or  Company-registrar  by giving  the  Holder not less than ten (10)
business  days' written  notice of its election to do so,  specifying  the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.

                                  ARTICLE II.

         SECTION 2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may not be
amended.  Notwithstanding  the above,  without the  consent of the  Holder,  the
Debenture may be amended to cure any ambiguity,  defect or inconsistency,  or to
provide for assumption of the Company obligations to the Holder.

                                  ARTICLE III.

         SECTION  3.01  EVENTS OF  DEFAULT.  An Event of  Default  is defined as
follows:  (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture;  (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions attached
to the  Securities  Purchase  Agreement;  (c) failure by the Company's  transfer
agent to issue freely  tradeable Common Stock to the Holder within five (5) days
of the Company's  receipt of the attached Notice of Conversion from Holder;  (d)
failure by the Company  for ten (10) days after  notice to it to comply with any
of  its  other  agreements  in  the  Debenture;  (e)  events  of  bankruptcy  or
insolvency;  (f) a breach by the Company of its obligations under the Securities
Purchase  Agreement or the Investor  Registration  Rights Agreement which is not
cured by the  Company  within  ten (10) days after  receipt  of  written  notice
thereof. Upon the occurrence of an Event of Default, the Holder may, in its sole
discretion,  accelerate full repayment of all debentures outstanding and accrued

                                       3
<PAGE>

interest  thereon or may,  notwithstanding  any  limitations  contained  in this
Debenture and/or the Securities Purchase Agreement dated the date hereof between
the  Company  and Cornell  Capital  Partners,  L.P.  (the  "Securities  Purchase
Agreement"),  convert all debentures  outstanding and accrued  interest  thereon
into shares of Common Stock pursuant to Section 1.02 herein.

         SECTION 3.02 FAILURE TO ISSUE  UNRESTRICTED  COMMON STOCK. As indicated
in Article III Section  3.01, a breach by the Company of its  obligations  under
the Investor  Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) days,  shall entitle the Holder to accelerate
full repayment of all debentures  outstanding and accrued  interest  thereon or,
notwithstanding   any  limitations   contained  in  this  Debenture  and/or  the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest  thereon into shares of Common  Stock  pursuant to Section 1.02 herein.
The Company  acknowledges  that  failure to honor a Notice of  Conversion  shall
cause irreparable harm to the Holder.

                                  ARTICLE IV.

         SECTION 4.01 RIGHTS AND TERMS OF CONVERSION.  This Debenture,  in whole
or in part, may be converted at any time following the Closing Date, into shares
of Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.

         SECTION  4.02  RE-ISSUANCE  OF  DEBENTURE.  When the  Holder  elects to
convert a part of the Debenture,  then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.

         SECTION 4.03  TERMINATION OF CONVERSION  RIGHTS.  The Holder's right to
convert the Debenture  into the Common Stock in accordance  with  paragraph 4.01
shall  terminate on the date that is the third (3rd) year  anniversary  from the
date hereof and this Debenture shall be automatically  converted on that date in
accordance  with  the  formula  set  forth  in  Section  4.01  hereof,  and  the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.

                                   ARTICLE V.

         SECTION 5.01 ANTI-DILUTION.  In the event that the Company shall at any
time subdivide the  outstanding  shares of Common Stock,  or shall issue a stock
dividend  on the  outstanding  Common  Stock,  the  Conversion  Price in  effect
immediately  prior to such subdivision or the issuance of such dividend shall be
proportionately  decreased,  and in the event that the Company shall at any time
combine the outstanding  shares of Common Stock,  the Conversion Price in effect
immediately  prior  to such  combination  shall  be  proportionately  increased,
effective at the close of business on the date of such subdivision,  dividend or
combination as the case may be.

         SECTION 5.02 CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT  SECURITY
INTERESTS.  So long as any of the  principal  of or interest  on this  Debenture
remains unpaid and unconverted, the Company shall not, without the prior consent
of the Holder,  issue or sell (i) any Common  Stock or Preferred  Stock  without
consideration  or for a consideration  per share less than its fair market value
determined  immediately prior to its issuance,  (ii) issue or sell any Preferred
Stock, warrant,  option, right, contract,  call, or other security or instrument

                                       4
<PAGE>

granting  the  holder   thereof  the  right  to  acquire  Common  Stock  without
consideration  or for a  consideration  per share less than such Common  Stock's
fair market value determined immediately prior to its issuance, (iii) enter into
any security  instrument  granting the holder a security  interest in any of the
assets of the Company, or (iv) file any registration statement on Form S-8.

                                  ARTICLE VI.

         SECTION 6.01 NOTICE.  Notices regarding this Debenture shall be sent to
the  parties  at the  following  addresses,  unless a party  notifies  the other
parties, in writing, of a change of address:

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

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

If to the Holder:              Cornell Capital Partners, LP
                               101 Hudson Street, Suite 3700
                               Jersey City, NJ 07303
                               Telephone:  (201) 985-8300
                               Facsimile:  (201) 985-8266

With a copy to:                Cornell Capital Partners, LP
                               101 Hudson Street - Suite 3700
                               Jersey City, NJ 07302
                               Attention:   Troy Rillo, Esq.
                               Telephone:   (201) 985-8300
                               Facsimile:   (201) 985-1964

         SECTION 6.02 GOVERNING  LAW. This Debenture  shall be deemed to be made
under and shall be  construed  in  accordance  with the laws of the State of New
Jersey without giving effect to the principals of conflict of laws thereof. Each
of the parties consents to the  jurisdiction of the U.S.  District Court sitting
in the  District of the State of New Jersey or the state  courts of the State of
New Jersey sitting in Hudson County,  New Jersey in connection  with any dispute
arising under this Debenture and hereby waives,  to the maximum extent permitted

                                       5
<PAGE>

by law, any objection,  including any objection based on forum non conveniens to
the bringing of any such proceeding in such jurisdictions.

         SECTION 6.03  SEVERABILITY.  The invalidity of any of the provisions of
this  Debenture  shall  not  invalidate  or  otherwise  affect  any of the other
provisions of this Debenture, which shall remain in full force and effect.

         SECTION 6.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture represents
the entire  agreement  between  the parties  hereto with  respect to the subject
matter  hereof  and there are no  representations,  warranties  or  commitments,
except as set forth herein.  This Debenture may be amended only by an instrument
in writing executed by the parties hereto.

         SECTION 6.05  COUNTERPARTS.  This Debenture may be executed in multiple
counterparts,  each of which  shall be an  original,  but all of which  shall be
deemed to constitute one instrument.

         IN WITNESS  WHEREOF,  with the intent to be legally bound  hereby,  the
Company as executed this Debenture as of the date first written above.

                                                   SMARTIRE SYSTEMS, INC.

                                                   By:
                                                       -----------------------
                                                   Name:  Robert V. Rudman
                                                   Title: CEO

                                       6

<PAGE>

                                   EXHIBIT "A"

                              NOTICE OF CONVERSION

        (TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)

TO:

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

CONVERSION DATE:
                                 -----------------------------------------------
APPLICABLE CONVERSION PRICE:
                                 -----------------------------------------------
SIGNATURE:
                                 -----------------------------------------------
NAME:
                                 -----------------------------------------------
ADDRESS:
                                 -----------------------------------------------
AMOUNT TO BE CONVERTED:          US$
                                     -------------------------------------------
AMOUNT OF DEBENTURE
UNCONVERTED:                     US$
                                     -------------------------------------------
CONVERSION PRICE PER SHARE:      US$
                                     -------------------------------------------
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED:
                                 -----------------------------------------------
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS:
                                 -----------------------------------------------
ISSUE TO:
                                 -----------------------------------------------
AUTHORIZED SIGNATURE:
                                 -----------------------------------------------
NAME:
                                 -----------------------------------------------
TITLE:
                                 -----------------------------------------------
PHONE NUMBER:
                                 -----------------------------------------------
BROKER DTC PARTICIPANT CODE:
                                 -----------------------------------------------
ACCOUNT NUMBER:
                                 -----------------------------------------------

                                      A-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}]]