Document:

exhibit10107.htm

    
      

      

    

    Exhibit 10.107

    
       

      SMARTIRE
        SYSTEMS INC.

       

      AND

       

      GE
        SENSING INC.

       

      AGREEMENT
        FOR SUPPLY OF RTPM PRESSURE SENSORS

       

      (Redacted
        portions of this agreement are indicated by
        "+")

       

      This
        Supply Agreement (“Agreement”) is entered into on July 23, 2007 (the
“Effective Date”) by and between SmarTire Systems Inc.
        (“SmarTire”), a British Columbia corporation, with its principal place of
        business at 150-13151 Vanier Place, Richmond, BC, Canada V6V 2J1 and GE Sensing
        Inc. (“GE”), a United States corporation having its principal office at
        1100 Technology Park Drive, Billerica, MA, United States of America
        01821(together, the “Parties”).

       

      WHEREAS

       

      
        	
                ·  

              	
                GE
                  is in the business of design and manufacture of electronic sensing
                  components that are utilized in various industries, including automotive;
                  and,

              

      

       

      
        	
                ·  

              	
                SmarTire
                  is in the business of providing to its automotive and transportation
                  industry customers technically-advanced sensing and control systems
                  that
                  are assembled from custom-manufactured electronic printed circuit
                  boards
                  and/or system level assemblies;
                  and,

              

      

       

      
        	
                ·  

              	
                The
                  parties desire to establish the terms and conditions that will
                  apply to
                  SmarTire’s purchase of RTPM Pressure Sensors designed and manufactured by
                  GE for inclusion in SmarTire
                  products.

              

      

       

      In
        consideration of the foregoing and the agreements contained herein, SmarTire
        and
        GE hereby agree as follows:

       

      1.  DEFINITIONS

       

      1.1  “Acknowledgement”
        is GE’s written confirmation that it has accepted the terms of the Purchase
        Order from SmarTire

       

      1.2  “Confidential
        Information” shall have the meaning ascribed thereto in Section 22.1
        hereof

       

      1.3  “Delivery
        Date” shall mean a date for which delivery of a Product is requested in a
        SmarTire Purchase Order or is otherwise mutually established by the
        Parties.

       

      1.4  “Excess
        Inventory” shall mean those items of Inventory ordered by SmarTire which are
        in GE’s possession and which quantities exceed SmarTire Purchase Order
        requirements on a referenced date and/or termination.

       

      1.5  “Forecast”
        shall have the meaning ascribed thereto in Section 5 hereof.

       

      1.6  “Intellectual
        Property Rights” shall mean all rights held by each party in its Products
        and/or Confidential Information, including, but not limited to each Party’s
        patent rights, copyrights, trademark rights, trade secret rights, mask work
        rights and other intellectual property and proprietary rights anywhere in
        the
        world.

       

      1.7  “Purchase
        Order” shall mean the SmarTire written authorization to deliver Components
        as designated on the Purchase Order such Purchase Order to be accepted by
        GE by
        its delivery of an Acknowledgment to SmarTire in accordance with the terms
        set
        forth in Section 6 hereof.  The Purchase Order shall stipulate the
        Component(s), Specifications, Engineering Change and/or Revision level,
        quantity, pricing, and requested Delivery Date(s) and location(s).

       

      1.8  “Specifications”
        shall mean the written specifications for the supply of the Component including,
        without limitation, the current revision number.

       

      1.9  “Term”
        shall have the meaning ascribed thereto in Section 15 hereof.

       

      2.  Responsibilities
        of GE

       

      During
        the Term, GE shall:

       

      2.1  Fabrication
        of Components in accordance with the Specifications and Purchase Orders provided
        by SmarTire and accepted by GE pursuant to an Acknowledgment, and;

       

      2.2  Use
        its
        commercially reasonable efforts to ensure 100% on-time delivery in accordance
        with the specified and agreed to dates contained in the Purchase Order,
        and;

       

      2.3  Maintain
        compliance with TS16949 certification and processes during the
        Term.

       

      2.4  Utilize
        its own equipment to provide the services described herein, and;

       

      2.5  Ship
        the
        complete Components to the destinations specified in the Purchase
        Order.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.  Responsibilities
        of SmarTire

       

      During
        the Term, SmarTire shall:

       

      3.1  

       

      3.2  Provide
        GE with a 12 month, rolling Forecast to enable GE to plan the effective purchase
        of materials to meet such Forecasts, and;

       

      3.3  Provide
        GE with Purchase Orders for the supply of the Components, and;

       

      3.4  Provide
        payment to GE for the supply of Components provided under this
        Agreement.

       

      4.  Forecasting

       

      During
        the Term, SmarTire shall deliver to GE in writing, on a rolling monthly basis,
        a
        twelve (12) month, Forecast, specifying the anticipated number of Components
        to
        be manufactured in each month (a “Forecast”).  SmarTire shall issue
        each succeeding month’s Forecast by the 10th calendar day of each month, or the
        next business day if the 10th day is a holiday or weekend.  This
        Forecast shall serve as the authority of GE to plan the purchases of Inventory
        required to meet the deliveries specified on the Purchase Orders subject
        to the
        following:

       

      4.1  GE
        shall
        work with suppliers of the Inventory components to minimize the cost of these
        components based on yearly Forecast volumes, and;

       

      4.2  GE
        shall
        use commercially reasonable efforts to negotiate favorable terms and delivery
        schedules with its suppliers and to minimize the impact of Excess
        Inventory.

       

      5.  Purchase
        Orders

       

      During
        the Term, SmarTire shall provide GE with Purchase Orders in accordance with
        the
        following:

       

      5.1  Purchase
        Orders shall be provided to cover SmarTire’s requirements for the Products for
        the next four (4) months on a rolling monthly basis, and;

       

      5.2  The
        Purchase Orders shall contain the issuer’s required date for receipt of the
        Product at the destination stated in the Purchase Order.  GE shall
        provide an Acknowledgement to SmarTire confirming the acceptance of the Purchase
        order and its terms including price and delivery.  If GE, despite its
        commercially reasonable efforts, does not believe that it can meet the scheduled
        delivery it shall negotiate the best delivery times possible, and SmarTire
        shall
        issue a revised Purchase Order to GE for Acceptance. The Purchase Order shall
        be
        deemed accepted by GE unless it is rejected in writing within five (5) business
        days of submission by SmarTire.

       

      5.3  The
        terms
        and conditions of this Agreement will prevail over any terms contained in
        any
        SmarTire Purchase Order, Acknowledgment, invoice or any other document that
        is
        not clearly an amendment to this Agreement signed by all three
        Parties.

       

      5.4  SmarTire
        may not cancel any Purchase Orders or re-schedule the quantity of Products
        and/or Delivery Date within + (+) calendar days of the scheduled Delivery
        Date.  SmarTire may delay all or any portions of the scheduled
        Component delivery upon written notification to GE on the following
        schedule:

       

      (a)  From
        +
        (+) to + (+) calendar days prior to the scheduled Delivery Date, SmarTire
        may
        reschedule out not more than fifty percent (50%) of the quantity of Components
        to be shipped up to + (+) calendar days of the scheduled Delivery
        Date.  The balance of the rescheduled Components must be shipped
        within + (+) days of the rescheduled Delivery Date.

       

      (b)  From
        +
        (+) to + (+) calendar days prior to the scheduled Delivery Date, SmarTire
        may
        reschedule out up to one hundred percent (100%) of the quantity of Components
        to
        be shipped up to + (+) calendar days of the scheduled Delivery
        Date.

       

      (c)  In
        the
        event that SmarTire desires to increase quantities of Components scheduled
        for
        delivery beyond thirty (30) calendar days of the scheduled Delivery Date;
        GE
        will use its commercially reasonable efforts to accommodate the desired
        increases.  Each of the foregoing may be subject to a Premium Charge
        to be determined on a case-by-case basis, and subject to SmarTire’s prior
        written approval.

       

      5.5  Cancellation

       

      (a)  SmarTire
        may cancel any order, more than + (+) calendar days from the scheduled
        Delivery Date upon written notification to GE. Upon written notice from
        SmarTire, GE shall use its commercially reasonable efforts to cancel GE’s order
        for such Inventory. Any inventory which cannot be cancelled or is on hand
        to
        fulfill the cancelled orders will be the responsibility of the Party canceling
        the order.

       

      (b)  SmarTire
        may cancel delivery of Components with written notice at least + (+) calendar
        days prior to the scheduled Delivery Date without cost or penalty.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      6.  Delivery

       

      6.1  GE
        shall
        use its commercially reasonable efforts to meet the shipping dates provided
        in
        the accepted Purchase Orders.  Delivery of Components that do not meet
        the acknowledged Delivery Dates or Specifications due to GE’s efforts will
        require a written corrective action to SmarTire outlining a plan for correction
        and the elimination of recurrence.  On-time shipment is defined as 7
        days early to 0 days late.

       

      6.2  If
        delays
        in component delivery are caused by SmarTire, then the Purchase Order shall
        be
        amended with a revised agreed to Delivery Date and there will be no penalty
        exercised against GE under the SmarTire supplier rating system.

       

      6.3  Delivery
        of Components shall be to the destination provided on the Purchase
        Order.  The FOB point shall be GE or GE contracted plant of
        manufacture.  In the event that the destination is to a different end
        location, SmarTire and GE shall agree on appropriate shipping insurance,
        custom
        charges, duties, taxes or other expenses relating to transportation and
        delivery, all of which shall be for the account of SmarTire.

       

      6.4  Title
        to
        all Components shall pass to SmarTire, upon Delivery to the destination
        specified in the Purchase Order.

       

      7.  Acceptance

       

      All
        Components supplied by GE under this Agreement shall conform to the
        Specifications.  Notwithstanding any prior inspection or payment by
        SmarTire, SmarTire may reject any portion of any shipment of Components that
        do
        not conform to the mutually agreed upon Specifications as determined by SmarTire
        or its manufacturing partner, acting reasonably, or as otherwise found to
        be
        defective.  Any Components so returned to GE shall, at GE’s option and
        expense, be credited, or replaced within ten (10) business days of receipt
        by GE
        of the rejected Component; provided that (i) SmarTire obtain a Return Material
        Authorization (“RMA”) from GE prior to returning the Components, GE shall
        provide SmarTire with a RMA promptly upon request, (ii) the Components are
        returned within ninety (90) calendar days of the date the Component was
        delivered to SmarTire or its manufacturing partner by GE, and (iii) the failure
        analysis conducted by SmarTire shall accompany the returned Component(s),
        and
        (iv) GE analysis confirms that Components do not conform to the Specifications,
        GE shall perform such analysis in a reasonable manner consistent with industry
        practice.

       

      8.  Inspection
        by SmarTire

       

      Upon
        request by SmarTire, from time to time, and with at least five (5) business
        days’ notice and during normal business hours, GE will grant access to its
        manufacturing facilities and records to SmarTire inspectors as provided
        herein.  GE shall allow such inspectors to inspect the manufacturing
        and quality control, testing operations, compliance procedures and records
        relating to the Components, as well as Inventory levels to ensure that GE
        can
        meet SmarTire’s future orders for Components, and is otherwise satisfying its
        obligations under this Agreement.  GE shall promptly implement
        corrective action to remedy deficiencies identified by SmarTire during such
        inspections or in order to comply with the Specifications and this
        Agreement.

       

      9.  Price

       

      Price
        for
        the Components shall be as set forth in Schedule A of this Agreement, which
        may
        change by mutual agreement in writing of the Parties hereto, provided that
        SmarTire are provided with sixty 60 days’ minimum notice.

       

      10.  Cost
        Reduction

       

      GE
        will
        use commercially reasonable efforts to implement a cost reduction strategy
        to
        reduce component price by + year on year.

       

      Meetings
        will be held at least twice per year to discuss recommendations to reduce
        costs
        and improvements to supply agreements.

       

      11.  Payment

       

      The
        terms
        of payment are NET 30 from the date of the invoice sent to SmarTire at their
        principal place of business.

       

      12.  GE
        Warranty.

       

      Please
        refer to the Warranty Agreement set forth in Schedule B of this
        agreement.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      13.  Return
        of Products Under Warranty

       

      Please
        refer to the Warranty Agreement set forth in Schedule B of this
        agreement.

       

      14.  Term

       

      Unless
        terminated pursuant to Section 16 or this Section 15, this Agreement shall
        commence upon the Effective Date and shall continue for a period of thirty-six
        (36) months (the “Term”).  The Term may be terminated by a
        Party upon providing the other Party with one hundred and twenty (120) calendar
        days’ written notice of termination, with or without cause.

       

      15.  Termination

       

      This
        Agreement may be immediately terminated by any Party for cause, by written
        notice, upon the occurrence of any of the following events:

       

      15.1  If
        the
        other party ceases to do business, or otherwise terminates its business
        operations; or

       

      15.2  If
        the
        other party substantially breaches any material provision of this Agreement
        and
        fails to make reasonable efforts to cure such breach within sixty (60) calendar
        days of written notice describing the breach.  The repetitive failure
        of GE to meet on-time Deliveries with no demonstrated reasonable efforts
        in
        corrective action to eliminate future occurrences will be considered a material
        breech of this Agreement and provide grounds for termination by SmarTire;
        or

       

      15.3  If
        the
        other party becomes insolvent or seeks protection under any bankruptcy,
        receivership, trust deed, creditors arrangement, composition or comparable
        proceeding, or if any such proceeding is instituted against the other
        parties.

       

      16.  Effect
        of Termination

       

      Upon
        termination of this Agreement, the obligations of any of the Parties that
        exist
        pursuant to Sections 5.4, 5.5, 9, 11 to 13 inclusive, 17 to 21 inclusive,
        23,
        and 29 will survive in accordance with their terms.  Notwithstanding
        the foregoing, GE shall continue to fulfill, subject to the terms of this
        Agreement, all Purchase Orders accepted by it prior to the effective date
        of
        termination.  Remedies for all breaches hereunder shall also survive
        termination of this Agreement.

       

      17.  Liability
        Limitation

       

      17.1  As
        the
        sole remedy and liability for any breach of the representations and warranties
        by SmarTire in Section 12, SmarTire agrees to indemnify GE and hold GE harmless
        from and against any and all claims, losses, liabilities, damages, expenses
        and
        costs (including reasonable attorney’s fees and court costs) awarded against GE,
        that result from a breach of any of these representations and warranties
        or
        incurred in the settlement or avoidance of any such claim.  This
        indemnity shall not apply if (i) GE fails to give SmarTire reasonable notice
        of
        any such claim or threatened claim and such failure materially prejudices
        SmarTire, or (ii) SmarTire is not given the opportunity to participate in
        the
        defense or settlement or (iii) GE does not provide reasonable assistance
        to
        SmarTire for the defense and settlement of the claim.  Furthermore, if
        SmarTire assumes such control, the legal fees and litigation expenses of
        the
        attorneys it designates to assume control of the litigation shall be for
        the
        sole account of SmarTire.

       

      17.2  The
        total
        liability of each party, on all claims of any kind, whether in contract,
        warranty, tort (including negligence), strict liability, or otherwise, arising
        out of the performance or breach of the Contract or use of any Products or
        Services shall not exceed the price of the specific product or service which
        gives rise to the claim.  All liability under the Contract shall
        terminate upon the expiration of the applicable warranty period, provided
        that
        the party attempting to enforce the claim may enforce a claim of such liability
        accruing during the applicable warranty period by an action timely commenced
        in
        accordance with the applicable statute of limitations and/or statute of repose,
        but in no event greater than one (1) year after the expiration of such warranty
        period.

       

      17.3  In
        no
        event, whether as a result of breach of contract, warranty, tort (including
        negligence), strict liability, indemnity, or otherwise, shall any party be
        liable for loss of profit or revenues, loss of use of Products or Services
        or
        any associated equipment, interruption of business, cost of capital, cost
        of
        substitute equipment, facilities, services or replacement power, downtime
        costs,
        or for any special, consequential, incidental, indirect or exemplary
        damages.

       

      17.4  If
        SmarTire cannot obtain for GE from any subsequent purchaser(s) the protections
        specified in this Section 17, SmarTire shall indemnify, defend and hold GE
        harmless from and against any and all claims made by any subsequent purchasers
        of Products or Services against GE for loss or damage arising out of the
        performance or non-performance of Products or Services provided under the
        Contract.

       

      17.5  If
        GE
        furnishes SmarTire with advice or assistance that is not required under the
        Contract, the furnishing of such advice or assistance will not subject GE
        to any
        liability, whether in contract, indemnity, warranty, tort (including
        negligence), strict liability or otherwise.

       

      17.6  The
        provisions of this Section 17 shall prevail over any conflicting or inconsistent
        provisions contained in any of the documents comprising the Contract, except
        to
        the extent that such provisions further restrict GE’s liability.

       

      18.  Relationship
        of Parties

       

      GE
        and
        SmarTire shall be deemed to be independent contractors, and this Agreement
        does
        not create a general agency, joint venture, partnership, employment
        relationship, or franchise between GE and SmarTire.  Each Party
        assumes full responsibility for the actions and negligence of its employees,
        agents or other personnel assigned to perform work pursuant to this Agreement
        regardless of their place of work, and shall be solely responsible for payment
        of salary, including withholding of federal and state income taxes, social
        security, workers’ compensation and the like.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      19.  Dispute
        Resolution

       

      19.1  Binding
        Arbitration

       

      Except
        as
        to any claims arising under Section 20 (Confidentiality) as to which equitable
        relief would be the appropriate remedy, any controversy or claim between
        the
        Parties hereto arising out of this Agreement shall be settled by binding
        arbitration in accordance with the rules of the British Columbia International
        Commercial Arbitration (BCICAC) in effect as of the Effective Date, or
        alternatively, any other mutually acceptable method of alternative dispute
        resolution.  The arbitration shall be conducted in Vancouver, British
        Columbia, before an arbitrator from the BCICAC or such other arbitration
        service
        as the Parties may, by mutual agreement, select.  In the event of a
        disagreement as to the selection of an arbitrator, the BCICAC or such other
        arbitration service as the Parties have, by mutual agreement, selected shall
        select the arbitrator.  The arbitration award will be final and
        binding and may be enforced in any court of competent
        jurisdiction.  Each Party shall pay one-half (1/2) of the cost of
        arbitration.

       

      19.2  Attorney’s
        Fees.

       

      The
        substantially prevailing Party in any legal action or proceeding to enforce
        this
        Agreement shall be entitled to reasonable attorneys’ fees, costs and expenses
        except that, as provided in 18, each Party shall pay one-half (1/2) the cost
        of
        arbitration incurred in connection with such proceeding or the enforcement
        of
        the Agreement, in addition to any other relief to which such prevailing Party
        may be entitled.

       

      20.  Confidentiality

       

      20.1  GE
        and
        SmarTire (The Parties) Confidential Information.

       

      Information
        of each of The Parties including, but not limited to, trade secrets, know-how,
        inventions (whether patentable or not), ideas, improvements, materials, data,
        specifications, drawings, processes, results, and formulae and all other
        business, technical and financial information (“Confidential Information”) shall
        be the confidential information of such Parties.  Each of the Parties
        shall, at all times, both during the Term and for a period of two (2) years
        after any termination of this Agreement, keep in confidence as a fiduciary
        all
        of the other Parties Confidential Information received by it. Each of the
        Parties shall not use the Confidential Information other than as expressly
        permitted under the terms of this Agreement or by a separate written
        agreement.  Each of the Parties shall take reasonable steps to prevent
        unauthorized disclosure or use of Confidential Information and to prevent
        it
        from falling into the public domain or into the possession of unauthorized
        persons.  Each of the Parties shall not disclose Confidential
        Information to any person or entity other than its officers, employees,
        consultants and subsidiaries who need access to such Confidential Information
        in
        order to perform its obligations under this Agreement and who have entered
        into
        written confidentiality agreements which protect the Confidential
        Information.

       

      20.2  Exception
        to Confidential Information

       

      Information
        that is in or (through no improper action or inaction of each of the Parties
        or
        any affiliate, agent or employee) enters the public domain shall not be
        Confidential Information hereunder.  Without granting any right or
        license, The Parties agree that the obligations set forth in Section 21.1
        above,
        shall not apply to the extent that Confidential Information includes information
        which (i) was rightfully in its possession or known by it prior to receipt
        from
        the disclosing Party, or (ii) was rightfully disclosed to it by another person
        without restriction, or (iii) developed independently by either Party without
        use of the other Party’s Confidential Information, or (iv) is disclosed pursuant
        to the requirement of a court, or other governmental body, provided the
        receiving Party provides notice of such court order to the disclosing Party
        to
        enable the disclosing Party to seek a protective order or otherwise prevent
        or
        restrict such disclosure.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      21.  Equitable
        Relief

       

      All
        Parties acknowledge and agree that due to the unique nature of the Confidential
        Information, there can be no adequate remedy at law for any breach of the
        obligations under Section 20 and that such breach may allow a Party to unfairly
        compete with one or both of the other Parties resulting in irreparable
        harm.  Therefore, upon any such breach or threat of breach, the harmed
        Party shall be entitled to appropriate equitable relief in addition to whatever
        remedies it has at law.  Notification of any breach shall be in
        writing immediately upon learning of any unauthorized release or breach of
        its
        obligation of nondisclosure hereunder.

       

      22.  Force
        Majeure

       

      None
        of
        the Parties shall be liable for its failure to perform any obligations under
        this Agreement if such performance is prevented or delayed due to fires,
        floods,
        earthquakes, wars, military or police actions, Acts of God, governmental
        laws or
        regulations or any other similar circumstance beyond the control of the
        Parties.

       

      23.  Governing
        Law

       

      This
        Agreement shall in all respects be governed by and constructed in accordance
        with the laws of the Province of British Columbia, Canada.  The
        remedies set forth in this Agreement are cumulative and not exclusive and
        are in
        addition to any other rights and remedies in law or equity which might be
        available to the Parties.

       

      24.  Assignability

       

      GE
        shall
        not assign its rights or delegate its obligations under this Agreement, in
        whole
        or in part, including by operation of law, without SmarTire’s prior written
        consent.

       

      25.  Amendment
        and Waiver

       

      Except
        as
        otherwise expressly provided herein, any provision of this Agreement may
        be
        amended and the observance of any provision of this Agreement may be waived
        (either generally or in any particular instance and either retroactively
        or
        prospectively) only with the written consent of an officer of all
        Parties.  However, it is the intention of the Parties that this
        Agreement be controlling over additional or different terms of any Purchase
        Order, confirmation, invoice or similar document, even if accepted in writing
        by
        both Parties.

       

      26.  Notice

       

      Notices
        under this Agreement shall be sufficient only if personally delivered by
        a major
        rapid delivery courier service or mailed by certified or registered mail,
        return
        receipt requested to a Party at its address first set forth herein or as
        amended
        by notice pursuant to this subsection.  If not received sooner, notice
        by mail shall be deemed received ten (10) days after deposit in the Canadian
        or
        Royal mail.

       

      27.  No
        Waiver

       

      No
        waiver
        of any term or condition of this Agreement will be valid or binding on any
        of
        the Parties unless the same will have been mutually assented to in writing
        by an
        officer of all Parties.  The failure of any of the Parties to enforce
        at any time any of the provisions of the Agreement, or the failure to require
        at
        any time performance by the other Parties of any of the provisions of this
        Agreement, will in no way be construed to be a present or future waiver of
        such
        provisions, nor in any way affect the ability of any of the Parties to enforce
        each and every such provision thereafter.

       

      28.  Severability

       

      If
        any
        provision of this Agreement is held to be illegal or unenforceable, that
        provision shall be limited or eliminated to the minimum necessary so that
        this
        Agreement shall otherwise remain in full force and effect and
        enforceable.

       

      29.  Entire
        Agreement

       

      THIS
        AGREEMENT, INCLUDING THE EXHIBITS, SETS FORTH THE ENTIRE AGREEMENT AND
        UNDERSTANDING OF THE PARTIES RELATING TO THE SUBJECT MATTER HEREIN AND
        SUPERSEDES ALL PRIOR DISCUSSIONS BETWEEN THEM.

       

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

       

      
        	
                SMARTIRE
                  SYSTEMS INC.

                 

                 

                 

                By:
                  /s/David
                  Warkentin                                                         

                David
                  Warkentin                                                      

                President
                  and
                  CEO                                                      

                July
                  31,
                  2007                                                      

                 

              	
                GE
                  SENSING INC.

                 

                 

                 

                By: /s/David
                  Jon Hardy    

                David
                  Jon Hardy

                OM
                  Sales-Americas

                August
                  3, 2007

                 

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        A

       

      Component
        Price List

       

      
        	
                Part
                  Number

              	
                Part
                  Description

              	
                Rel/Rev

              	
                Qty*

              	
                Price**,***

              
	
                NPX-CO1782
                  (214.0010)

              	
                700
                  KPA

              	
                1-0

              	
                10K
                  – 25K

              	
                [+]

              
	
                NPX-CO1782
                  (214.0010)

              	
                700
                  KPA

              	
                1-0

              	
                25K
                  – 50K

              	
                [+]

              
	
                NPX-CO1782
                  (214.0010)

              	
                700
                  KPA

              	
                1-0

              	
                50K
                  – 100K

              	
                [+]

              
	
                NPX-CO1782
                  (214.0010)

              	
                700
                  KPA

              	
                1-0

              	
                100K
                  – 250K

              	
                [+]

              
	
                NPX-CO1782
                  (214.0010)

              	
                700
                  KPA

              	
                1-0

              	
                250K
                  – 500K

              	
                [+]

              
	
                NPX-CO1783
                  (214.0011)

              	
                1400
                  KPA

              	
                1-0

              	
                10K
                  – 25K

              	
                [+]

              
	
                NPX-CO1783
                  (214.0011)

              	
                1400
                  KPA

              	
                1-0

              	
                25K
                  – 50K

              	
                [+]

              
	
                NPX-CO1783
                  (214.0011)

              	
                1400
                  KPA

              	
                1-0

              	
                50K
                  – 100K

              	
                [+]

              
	
                NPX-CO1783
                  (214.0011)

              	
                1400
                  KPA

              	
                1-0

              	
                100K
                  – 250K

              	
                [+]

              
	
                NPX-CO1783
                  (214.0011)

              	
                1400
                  KPA

              	
                1-0

              	
                250K
                  – 500K

              	
                [+]

              
	
                NPX-CO1799
                  (214.0009)

              	
                700
                  KPA

              	
                1-0

              	
                10K
                  – 25K

              	
                [+]

              
	
                NPX-CO1799
                  (214.0009)

              	
                700
                  KPA

              	
                1-0

              	
                25K
                  – 50K

              	
                [+]

              
	
                NPX-CO1799
                  (214.0009)

              	
                700
                  KPA

              	
                1-0

              	
                50K
                  – 100K

              	
                [+]

              
	
                NPX-CO1799
                  (214.0009)

              	
                700
                  KPA

              	
                1-0

              	
                100K
                  – 250K

              	
                [+]

              
	
                NPX-CO1799
                  (214.0009)

              	
                700
                  KPA

              	
                1-0

              	
                250K
                  – 500K

              	
                 [+]

              

      

      *Quantities
        stated are annual cumulative quantities (from SmarTire) for

       

        each
        Component commencing on January, 1, 2007, and each anniversary date
        thereafter.

       

      **
        Minimum Order Quantities (MOQ) are 3400, for each Component Type listed above
        with a reel size of 850 and a maximum of 2 lots per reel.

       

      ***
        Prices are in United States Dollars (USD)

       

      

       

      Blank
        spaces contained confidential information that has been filed separately
        with
        the Securities and Exchange Commission pursuant to Rule 406 under the Securities
        Act of 1933, as amended, and 17 C.F.R. 200.80 (b) (4), and in accordance
        with
        the Staff Legal Bulletin No. 1 (with Addendum) dated February 28, 1977 (Addendum
        dated July 11, 2001) of the Commission’s Division of Corporate
        Finance.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        B

       

      Warranty
        Statement

       

      Subject
        to the conditions stated herein, GE warrants to SmarTire against defects
        in
        materials and workmanship for the GE manufactured Components listed in Schedule
        A.

       

      Subject
        to the conditions stated herein, GE warrants to SmarTire that the Components
        manufactured by GE will be free from defects in materials and workmanship,
        for
        the applicable warranty period as described in the Warranty Period section
        of
        this statement.

       

      Warranty
        Period

       

      The
        term
        of GE’s warranty to SmarTire shall be for + (+) years or + miles of vehicle use,
        whichever comes sooner.

       

      Warranty
        coverage for Component furnished shall commence on the date of shipment of
        Component from GE.

       

      Remedy

       

      The
        only
        remedy for a claim on warranty is the credit or replacement, at GE’s discretion,
        of the defective Component in accordance with the terms of this Schedule
        “B”.

       

      GE’s
        obligation to satisfy a warranty claim is subject to the following
        conditions:

       

      
        	
                (a)  

              	
                All
                  such claims must be submitted to GE no later than ninety (90) days
                  from
                  the date of the failure occurrence and shall be supported by satisfactory
                  evidence in respect of the conditions stated
                  herein;

              

      

       

      
        	
                (b)  

              	
                If
                  requested by GE, the Component involved shall be returned, freight
                  collect, to GE for examination; and

              

      

       

      
        	
                (c)  

              	
                GE’s
                  examination of the Component must disclose to its sole satisfaction
                  that
                  the warranty claim is due to material and workmanship
                  defects.  In all cases, GE shall make the final determination,
                  in its sole discretion, as to the warrantability of the Component;
                  and

              

      

       

      
        	
                (d)  

              	
                In
                  the event a field campaign is required to repair or replace a defective
                  Component Part, a mutually acceptable agreement shall be established
                  between the Parties before the campaign takes place. The agreement
                  shall
                  identify which Party is responsible for Component Parts costs,
                  labor
                  costs, shipping cost, travel time, loaner machines, and all other
                  items
                  associated with the field campaign.

              

      

       

      Claims
        Procedure

       

      Warranty
        claims may be made to GE through the following process:

       

      Claims
        submitted must:

       

      (a)           be
        for verifiable defects in design, materials and workmanship;

       

      (b)           be
        submitted within ninety (90) days from the date on which the failure occurred;
        and

       

      (c)           provide
        the following information on or with the OEM claim:

       

      (i)           Model
        and part number of failed component;

       

      (ii)           Itemized
        SmarTire part numbers;

       

      (iii)           Description
        of failure;

       

      (iv)           Date
        of failure

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      In
        the
        event SmarTire rejects Component or makes a claim under this warranty, GE
        may
        request the return of the Component and will issue SmarTire a return material
        authorization (RMA) number.

       

      If
        requested by GE, the Component shall be returned for examination by GE, freight
        collect.

       

      Note:
        Warranty returns may be directed to an alternate GE location when the RMA
        # is
        issued.

       

      GE’s
        determination of warranty coverage shall be final in all cases.

       

      GE
        reserves the right to reject a warranty claim for any or all of the following
        reasons:

       

      
        	
                (a)  

              	
                Original
                  claim was filed after ninety (90) days from the date of
                  failure;

              

      

       

      
        	
                (b)  

              	
                Failure
                  occurred beyond applicable warranty
                  period;

              

      

       

      
        	
                (c)  

              	
                Claim
                  information is insufficient;

              

      

       

      
        	
                (d)  

              	
                Component
                  was not returned for inspection as requested;
                  or

              

      

       

      
        	
                (e)  

              	
                Component
                  inspection does not substantiate claim or indicate a
                  failure

              

      

       

      Warranty
        Disclaimer

       

      GE’S
        EXPRESS WARRANTY AND SMARTIRE’S REMEDIES UNDER THIS AGREEMENT ARE EXCLUSIVE AND
        GIVEN IN LIEU OF (a) ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
        WHETHER WRITTEN OR ORAL, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF
        MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR IMPLIED WARRANTY ARISING
        FROM PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, AND (b) ALL OTHER
        OBLIGATIONS, LIABILITIES, RIGHTS, CLAIMS OR REMEDIES, INCLUDING ANY RIGHT
        IN
        CONTRACT, NEGLIGENCE, TORT, EXTRA-CONTRACTUALLY, STRICT LIABILITY OR ANY
        RIGHT
        ARISING FROM GE’S NEGLIGENCE, ACTUAL OR IMPUTED.

       

      Limitation
        of Liability

       

      GE’S
        OBLIGATIONS AND SMARTIRE’S REMEDIES UNDER GE’S EXPRESS WARRANTY ARE LIMITED TO
        GE’s CHOICE OF CREDIT OR REPLACEMENT AND EXCLUDE LIABILITY FOR INCIDENTAL,
        SPECIAL, CONSEQUENTIAL OR ANY OTHER DAMAGES, INCLUDING, WITHOUT LIMITATION,
        ECONOMIC LOSS, LOST REVENUE, LOST PROFITS, OR LOSS OF USE, COST OF CAPITAL
        OR
        DAMAGE OR LOSS OF OTHER PROPERTY.  IN NO CASE, SHALL GE’S LIABILITY
        EXCEED THE PRICE TO SMARTIRE OF THE SPECIFIC PRODUCTS SUPPLIED BY GE GIVING
        RISE
        TO THE CAUSE OF ACTION.  IN NO EVENT SHALL GE BE OBLIGATED TO
        INDEMNIFY SMARTIRE OR ANY ULTIMATE USER OF THE PRODUCTS IN ANY MANNER WHATSOEVER
        NOR SHALL GE BE LIABLE FOR PROPERTY DAMAGE AND/OR THIRD PARTY CLAIMS HOWSOEVER
        CAUSED.

       

      Effective
        Date

       

      This
        warranty shall become effective July 21, 2006, and applies to Components
        sold to
        SmarTire as referenced in Schedule A. This warranty supersedes all past
        warranties granted by GE and may not be changed, altered or modified in any
        way
        except in writing by GE.

       

      Component
        Return Requirements

       

      Be
        sure
        the components are properly identified.

       

      
        	
                (a)  

              	
                Clearly
                  print the RMA number on the bill of lading and shipping
                  container.

              

      

       

      
        	
                (b)  

              	
                When
                  shipping components for several different claims together, do not
                  mix the
                  components in the same container, box, etc. This could cause confusion
                  in
                  performing a failure analysis, a delay in claim processing, and
                  possible
                  rejection of the claim.

              

      

       

      
        	
                (c)  

              	
                Package
                  the components carefully to avoid shipping damage, which could
                  distort or
                  mask the true cause of the failure.

              

      

       

      
        	
                (d)  

              	
                Return
                  all components collect, per GE approved carrier and to the correct
                  designated location. Failure to return requested components to
                  designated
                  GE location may result in rejection of the
                  claim.

              

      

       

      
        	
                (e)  

              	
                Components
                  lost from broken boxes, damaged shipping containers, negligence
                  in
                  packaging, or returned without proper claim identification, may
                  result in
                  no reimbursement for the components not received and shall be the
                  responsibility of SmarTire.exhibit10108.htm

    
      

      

    

    Exhibit 10.108

     

    
       

       

      Dated:  August
        20, 2007

       

      NEITHER
        THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE
        HAVE
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
        LAWS.

       

      No.
        SMTR-6-2 $350,000

       

      SMARTIRE
        SYSTEMS INC.

       

      Convertible
        Debenture

       

      Due:
        April 27, 2010

       

      This
        Convertible Debenture (the
“Debenture”) is issued by SMARTIRE SYSTEMS,
        INC., a corporation continued under the laws of
        the Province of British Columbia (the “Company”), to
XENTENIAL HOLDINGS LIMITED (the “Holder”),
        pursuant to that certain securities purchase agreement (the “Securities
        Purchase Agreement”) dated April 27, 2007.

       

      FOR
        VALUE RECEIVED,
        the Company hereby promises to pay to the Holder or its successors and assigns
        the principal sum of Three Hundred Fifty Thousand Dollars ($350,000) together
        with accrued but unpaid interest on or before April 27, 2010 (the
“Maturity Date”) in accordance with the following
        terms:

       

      Section
        1.                                Definitions.  For
        the purposes hereof, the following terms shall have the following
        meanings:

       

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

       

      “Business
        Day” means any day except Saturday, Sunday and any day which shall be
        a
        federal legal holiday in the United States or Canada or a provincial holiday
        in
        the Province of British Columbia or a day on which banking institutions are
        authorized or required by law or other government action to close.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Change
        of Control Transaction” means the occurrence of (a) an acquisition
        after the date hereof by an individual or legal entity or “group” (as described
        in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
        (whether through legal or beneficial ownership of capital stock of the Company,
        by contract or otherwise) of in excess of fifty percent (50%) of the voting
        securities of the Company (except that the acquisition of voting securities
        by
        the Holder shall not constitute a Change of Control Transaction for purposes
        hereof), (b) a replacement at one time or over time of more than one-half
        of the
        members of the board of directors of the Company which is not approved by
        a
        majority of those individuals who are members of the board of directors on
        the
        date hereof (or by those individuals who are serving as members of the board
        of
        directors on any date whose nomination to the board of directors was approved
        by
        a majority of the members of the board of directors who are members on the
        date
        hereof), (c) the merger, consolidation or sale of fifty percent (50%) or
        more of
        the assets of the Company or any subsidiary of the Company in one or a series
        of
        related transactions with or into another entity, or (d) the execution by
        the
        Company of an agreement to which the Company is a party or by which it is
        bound,
        providing for any of the events set forth above in (a), (b) or (c).

       

      “Closing
        Bid Price” means the price per share in the last reported trade of the
        Common Stock on a Primary Market or on the exchange  which the Common
        Stock is then listed as quoted by Bloomberg, LP.

       

      “Commission”
        means the Securities and Exchange Commission.

       

      “Common
        Stock” means the common stock, no par value, of the Company and stock
        of any other class into which such shares may hereafter be changed or
        reclassified.

       

      “Conversion
        Date” shall mean the date upon which the Holder gives the Company
        notice of their intention to effectuate a conversion of this Debenture into
        shares of the Company’s Common Stock as outlined herein.

       

      “Exchange
        Act” means the Securities Exchange Act of 1934, as
        amended.

       

      “Excluded
        Securities” means, (a) shares, options or other securities or interests
        issued or deemed to have been issued by the Company pursuant to an Approved
        Stock Plan, (b) shares of Common Stock issued or deemed to be issued by the
        Company upon the conversion, exchange or exercise of any right, option, warrant,
        obligation or security outstanding on the date immediately prior to date
        of the
        Securities Purchase Agreement, including, pursuant to the convertible debentures
        dated May 20, 2005 issued to Cornell Capital Partners, LP and Highgate House
        Funds, Ltd, all convertible debentures issued to Xentenial Holdngs Limited,
        the
        convertible debentures dated June 23, 2005, later amended and restated on
        December 30, 2005, issued to Staraim Enterprises Limited, the convertible
        debentures dated June 23, 2005, later amended and restated on December 30,
        2005,
        issued to Starome Investments Limited, the convertible debentures dated November
        7, 2006, issued to TAIB Bank B.S.C., the Series A Preferred Shares of stock
        issued to Cornell Capital Partners, LP, and all warrants issued by the Company
        in connection with the foregoing, and the Standby Equity Distribution Agreement
        dated December 30, 2005 by and between the Company and Cornell Capital Partners,
        LP (collectively, the “Previous Financing Documents”), provided
        (excluding any right, option, warrant, obligation or security issued pursuant
        to
        the Previous Financing Documents) that the terms of such right, option, warrant,
        obligation or security are not amended or otherwise modified on or after
        the
        date of the Securities Purchase Agreement, and provided (excluding any right,
        option, warrant, obligation or security issued pursuant to the Previous
        Financing Documents) that the conversion price, exchange price, exercise
        price
        or other purchase price is not reduced, adjusted or otherwise modified and
        the
        number of shares of Common Stock issued or issuable is not increased (whether
        by
        operation of, or in accordance with, the relevant governing documents or
        otherwise) on or after the date of the Securities Purchase
        Agreement,  and (c) the shares of Common Stock issued or deemed
        to be issued by the Company upon conversion of this Debenture.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Original
        Issue Date” shall mean the date of the first issuance of this Debenture
        regardless of the number of transfers and regardless of the number of
        instruments, which may be issued to evidence such Debenture.

       

      “Person”
        means a corporation, an association, a partnership, organization, a business,
        an
        individual, a government or political subdivision thereof or a governmental
        agency.

       

       “Securities
        Act” means the Securities Act of 1933, as amended, and the
        rules and regulations promulgated thereunder.

       

      “Trading
        Day” means a day on which the shares of Common Stock are quoted on the
        OTC or quoted or traded on such Primary Market on which the shares of Common
        Stock are then quoted or listed; provided, that in the event that the shares
        of
        Common Stock are not listed or quoted, then Trading Day shall mean a Business
        Day.

       

      “Transaction
        Documents” means the Securities Purchase Agreement or any other
        agreement delivered in connection with the Securities Purchase Agreement,
        including, without limitation, the Irrevocable Transfer Agent Instructions,
        the
        Security Agreement, the Patent Security Agreement, and the Registration Rights
        Agreement.

       

      “Underlying
        Shares” means the shares of Common Stock issuable upon conversion of
        this Debenture or as payment of interest in accordance with the terms
        hereof.

       

      “Underlying
        Shares Registration Statement” means a registration statement meeting
        the requirements set forth in the Registration Rights Agreement, covering
        among
        other things the resale of the Underlying Shares and naming the Holder as
        a
“selling stockholder” thereunder.

       

      Section
        2.                                General
        Terms

       

      (a)           Interest.  Interest
        shall accrue on the outstanding principal balance hereof at an annual rate
        equal
        to ten percent (10%).  Interest shall be calculated on the basis of a
        365-day year and the actual number of days elapsed, to the extent permitted
        by
        applicable law.  Interest hereunder shall be paid on the Maturity Date
        (or sooner as provided herein) to the Holder or its assignee in whose name
        this
        Debenture is registered on the records of the Company regarding registration
        and
        transfers of Debentures in cash or in Common Stock (valued at the Closing
        Bid
        Price on the Trading Day immediately prior to the date paid) at the option
        of
        the Company.

       

      (b)           Security.  This
        Debenture is secured by a security interest in all of the assets of the Company
        and of each of the Company's subsidiaries, including all patents and patent
        applications, as evidenced by the security agreement dated January 23, 2007,
        as
        amended (the “Security Agreement”) and the patent security
        agreement dated April 27, 2007 (the “Patent Security
        Agreement”).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Section
        3.                                Events
        of Default.

       

      (a)           An
        “Event of Default”, wherever used herein, means any one of the
        following events (whatever the reason and whether it shall be voluntary or
        involuntary or effected by operation of law or pursuant to any judgment,
        decree
        or order of any court, or any order, rule or regulation of any administrative
        or
        governmental body):

       

      (i)  Any
        default (not waived by the Holder) in the payment of the principal of, interest
        on or other charges in respect of this Debenture, or any convertible debenture
        issued by the Company to the Holder, free of any claim of subordination,
        as and
        when the same shall become due and payable whether upon an Optional Redemption
        (as defined in Section 3(a)), the Maturity Date, by acceleration, or
        otherwise;

       

      (ii)  The
        Company or any subsidiary of the Company shall commence, or there shall be
        commenced against the Company or any subsidiary of the Company, under any
        applicable bankruptcy or insolvency laws as now or hereafter in effect or
        any
        successor thereto, or the Company or any subsidiary of the Company commences
        any
        other proceeding under any reorganization, arrangement, adjustment of debt,
        relief of debtors, dissolution, insolvency or liquidation or similar law
        of any
        jurisdiction whether now or hereafter in effect relating to the Company or
        any
        subsidiary of the Company or there is commenced against the Company or any
        subsidiary of the Company any such bankruptcy, insolvency or other proceeding
        which remains undismissed for a period of 61 days, or the Company or any
        subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
        of
        relief or other order approving any such case or proceeding is entered; or
        the
        Company or any subsidiary of the Company suffers any appointment of any
        custodian, private or court appointed receiver or the like for it or any
        substantial part of its property which continues undischarged or unstayed
        for a
        period of sixty one (61) days; or the Company or any subsidiary of the Company
        makes a general assignment for the benefit of creditors; or the Company or
        any
        subsidiary of the Company shall fail to pay, or shall state that it is unable
        to
        pay, or shall be unable to pay, its debts generally as they become due; or
        the
        Company or any subsidiary of the Company shall call a meeting of its creditors
        with a view to arranging a composition, adjustment or restructuring of its
        debts; or the Company or any subsidiary of the Company shall by any act or
        failure to act expressly indicate its consent to, approval of or acquiescence
        in
        any of the foregoing; or any corporate or other action is taken by the Company
        or any subsidiary of the Company for the purpose of effecting any of the
        foregoing;

       

      (iii)  The
        Company or any subsidiary of the Company shall default in any of its obligations
        under any other debenture or any mortgage, credit agreement or other facility,
        indenture agreement, factoring agreement or other instrument under which
        there
        may be issued, or by which there may be secured or evidenced any indebtedness
        for borrowed money or money due under any long term leasing or factoring
        arrangement of the Company or any subsidiary of the Company in an amount
        exceeding $100,000, whether such indebtedness now exists or shall hereafter
        be
        created and such default shall result in such indebtedness becoming or being
        declared due and payable prior to the date on which it would otherwise become
        due and payable;

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (iv)  The
        Common Stock shall cease to be quoted for trading or listing for trading
        on any
        of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
        Nasdaq
        National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
        Board (“OTC”) (each, a “Primary Market”) and
        shall not again be quoted or listed for trading on any Primary Market within
        five (5) Trading Days of such delisting;

       

      (v)  The
        Company or any subsidiary of the Company shall be a party to any Change of
        Control Transaction;

       

      (vi)  The
        Company shall fail to file the Underlying Shares Registration Statement with
        the
        Commission, or the Underlying Shares Registration Statement shall not have
        been
        declared effective by the Commission, in each case as the direct result of
        the
        Company’s failure to use its reasonably best efforts under Section 2(b) of the
        Registration Rights Agreement (defined below), within the time periods set
        forth
        in the investor registration rights agreement (“Registration Rights
        Agreement”) dated January 23, 2007, as amended between the Company and
        the Holder;

       

      (vii)  If
        the
        effectiveness of the Underlying Shares Registration Statement lapses for
        any
        reason or the Holder shall not be permitted to resell the shares of Common
        Stock
        underlying this Debenture under the Underlying Shares Registration Statement,
        in
        either case, for more than five (5) consecutive Trading Days or an aggregate
        of
        eight Trading Days (which need not be consecutive Trading Days);

       

      (viii)  The
        Company shall fail for any reason to deliver Common Stock certificates to
        a
        Holder prior to the fifth (5th) Trading
        Day after
        a Conversion Date, or the Company shall provide notice to the Holder, including
        by way of public announcement, at any time, of its intention not to comply
        with
        requests for conversions in accordance with the terms hereof;

       

      (ix)  The
        Company shall fail for any reason to deliver the payment in cash pursuant
        to a
        Buy-In (as such term is defined in section 5(d)(vi)) within three (3) days
        after
        notice is claimed delivered hereunder;

       

      (x)  The
        Company shall fail to observe or perform any other material covenant, agreement
        or warranty contained in, or otherwise commit any material breach or default
        of
        any provision of this Debenture (except as may be covered by Section 3(a)(i)
        through 3(a)(ix) hereof) or any Transaction Document which is not cured with
        in
        the time prescribed, or an Event of Default under any other debenture issued
        to
        the Holder in connection with the Securities Purchase Agreement shall
        occur;

       

      (b)           During
        the time that any portion of this Debenture is outstanding, if any Event
        of
        Default has occurred, the full principal amount of this Debenture, together
        with
        interest and other amounts owing in respect thereof, to the date of acceleration
        shall become, at the Holder's election, immediately due and payable in cash;
        provided, however, the Holder may request (but shall have no obligation to
        request) payment of such amounts in Common Stock of the
        Company.  Furthermore, in addition to any other remedies, the Holder
        shall have the right (but not the obligation) to convert this Debenture at
        any
        time after (i) an Event of Default or (ii) the Maturity Date at the Conversion
        Price then in-effect.  The Holder need not provide and the Company
        hereby waives any presentment, demand, protest or other notice of any kind,
        and
        the Holder may immediately and without expiration of any grace period enforce
        any and all of its rights and remedies hereunder and all other remedies
        available to it under applicable law.  Such declaration may be
        rescinded and annulled by Holder at any time prior to payment
        hereunder.  No such rescission or annulment shall affect any
        subsequent Event of Default or impair any right consequent
        thereon.  Except with respect to the limitation set forth in Section
        4(b)(i) hereof, upon an Event of Default, notwithstanding any other provision
        of
        this Debenture or any Transaction Document, the Holder shall have no obligation
        to comply with or adhere to any limitations, if any, on the conversion of
        this
        Debenture or the sale of the Underlying Shares.

       

      Section
        4.                                Redemptions.  Company’s
        Optional Cash Redemption.  The Company, at its sole option,
        shall have the right to redeem (“Optional Redemption”) a
        portion or all amounts outstanding under this Debenture prior to the Maturity
        Date provided that as of the date of the Holder’s receipt of a
        Redemption Notice (as defined herein) (i) the Closing Bid Price of the of
        the
        Common Stock, as reported by Bloomberg, LP, is less than the Conversion Price,
        (ii) the Underlying Share Registration Statement is effective, and (iii)
        no
        Event of Default has occurred.  The Company shall pay an amount equal
        to the principal amount being redeemed plus a redemption premium
        (“Redemption Premium”) equal to twenty percent (20%) of the
        principal amount being redeemed, and accrued interest, (collectively referred
        to
        as the “Redemption Amount”).  In order to make a
        redemption, the Company shall first provide written notice (the
“Redemption Notice”) to the Holder of its intention to make a
        redemption setting forth the amount of principal it desires to
        redeem.  After receipt of the Redemption Notice, the Holder shall have
        three (3) business days to elect to convert all or any portion of this
        Debenture, subject to the limitations set forth in Section 4(b).  On
        the fourth (4th) business
        day
        after the Redemption Notice, the Company shall deliver to the Holder the
        Redemption Amount with respect to the principal amount redeemed after giving
        effect to conversions effected during the three (3) business day
        period.

       

      Section
        5.                                Conversion.

       

      (a)           Conversion
        at Option of Holder.

       

      (i)           This
        Debenture shall be convertible into shares of Common Stock at the option
        of the
        Holder, in whole or in part at any time and from time to time, after the
        Original Issue Date (subject to the limitations on conversion set forth in
        Section 5(b) hereof).  The number of shares of Common Stock issuable
        upon a conversion hereunder equals the quotient obtained by dividing (x)
        the
        outstanding amount of this Debenture to be converted by (y) the Conversion
        Price
        (as defined in Section 5(c)(i)).  The Company shall deliver Common
        Stock certificates to the Holder prior to the Fifth (5th) Trading
        Day after
        a Conversion Date.

       

      (ii)           Notwithstanding
        anything to the contrary contained herein, if on any Conversion Date or with
        respect thereto:  (1) the number of shares of Common
        Stock  authorized and unissued, or held as treasury stock, is
        insufficient to satisfy the payment of all principal and interest hereunder
        in
        shares of Common Stock; (2) the Common Stock is not listed or quoted for
        trading
        on a Primary Market; or (3) the Company has failed to timely satisfy a
        conversion; then, at the option of the Holder, the Company, in lieu of
        delivering shares of Common Stock pursuant to Section 5(a)(i), shall deliver,
        within three (3) Trading Days of each applicable Conversion Date, an amount
        in
        cash equal to the product of the outstanding principal amount to be converted
        divided by the applicable Conversion Price, and multiplied by the highest
        Closing Bid Price of the stock from the date of the Conversion Notice till
        the
        date that such cash payment is made.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Further,
        if the Company shall not have delivered any cash due in respect of conversion
        of
        this Debenture pursuant to the previous paragraph by the fifth (5th) Trading
        Day after
        the Conversion Date, the Holder may, by notice to the Company, require the
        Company to issue shares of Common Stock pursuant to Section 5(c), except
        that
        for such purpose the Conversion Price applicable thereto shall be the lesser
        of
        the Conversion Price on the Conversion Date and the Conversion Price on the
        date
        of such Holder demand. Any such shares will be subject to the provisions
        of this
        Section.

       

      (iii)           The
        Holder shall effect conversions by delivering to the Company a completed
        notice
        (a “Conversion Notice”) in the form attached hereto as Exhibit
        A.  The date stated on which a Conversion Notice is delivered is the
“Conversion Date.”  Unless the Holder is converting
        the entire principal amount outstanding under this Debenture, the Holder
        is not
        required to physically surrender this Debenture to the Company in order to
        effect conversions.  Conversions hereunder shall have the effect of
        lowering the outstanding principal amount of this Debenture plus all accrued
        and
        unpaid interest thereon in an amount equal to the applicable
        conversion.  The Holder and the Company shall maintain records showing
        the principal amount converted and the date of such conversions. In the event
        of
        any dispute or discrepancy, the records of the Holder shall be controlling
        and
        determinative in the absence of manifest error.

       

      (b)           Certain
        Conversion Restrictions.

       

      (i)           The
        Company shall not effect any conversions of this Debenture and the Holder
        shall
        not have the right to convert any portion of this Debenture or receive shares
        of
        Common Stock as payment of interest hereunder to the extent that after giving
        effect to such conversion or receipt of such interest payment, the Holder,
        together with any affiliate thereof, would beneficially own (as determined
        in
        accordance with Section 13(d) of the Exchange Act and the rules promulgated
        thereunder) in excess of 4.99% of the number of shares of Common Stock
        outstanding immediately after giving effect to such conversion or receipt
        of
        shares as payment of interest.  Since the Holder will not be obligated
        to report to the Company the number of shares of Common Stock it may hold
        at the
        time of a conversion hereunder, unless the conversion at issue would result
        in
        the issuance of shares of Common Stock in excess of 4.99% of the then
        outstanding shares of Common Stock without regard to any other shares which
        may
        be beneficially owned by the Holder or an affiliate thereof, the Holder shall
        have the sole and exclusive authority and obligation to determine whether
        the
        restriction contained in this section 5(b)(i) will limit any particular
        conversion hereunder and to the extent that the Holder determines that the
        limitation contained in this Section applies, the determination of which
        portion
        of the principal amount of this Debenture is convertible shall be the
        responsibility and obligation of the Holder.  If the Holder has
        delivered a Conversion Notice for a principal amount of this Debenture that,
        without regard to any other shares that the Holder or its affiliates may
        beneficially own, would result in the issuance in excess of the permitted
        amount
        hereunder, the Company shall notify the Holder of this fact and shall honor
        the
        conversion for the maximum principal amount permitted to be converted on
        such
        Conversion Date in accordance with the provisions hereunder and any principal
        amount tendered for conversion in excess of the permitted amount hereunder
        shall
        remain outstanding under this Debenture.  The provisions of this
        section 5(b)(i) may be waived by a Holder (but only as to itself and not
        to any
        other Holder) upon not less than 65 days prior notice to the
        Company.  Other Holders shall be unaffected by any such
        waiver.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (c)           Conversion
        Price and Adjustments to Conversion Price.

       

      (i)           The
        conversion price in effect on any Conversion Date shall be equal to the lesser
        of (a) $0.0573 (the “Fixed Conversion Price”) or (b) eighty
        percent (80%) of the lowest Volume Weighted Average Price of the Common
        Stock during the thirty (30) trading days immediately preceding the Conversion
        Date as quoted by Bloomberg, LP (the “Market Conversion Price”)
        (the Fixed Conversion Price and the Market Conversion Price are collectively
        referred to as the “Conversion Price”)  The
        Conversion Price may be adjusted pursuant to the other terms of this
        Debenture.

       

      (ii)           If
        the Company, at any time while this Debenture is outstanding, shall (a) pay
        a stock dividend or otherwise make a distribution or distributions on shares
        of
        its Common Stock or any other equity or equity equivalent securities payable
        in
        shares of Common Stock; (b) subdivide outstanding shares of Common Stock
        into a
        larger number of shares; (c) combine (including by way of reverse stock split)
        outstanding shares of Common Stock into a smaller number of shares; or (d)
        issue
        by reclassification of shares of the Common Stock any shares of capital stock
        of
        the Company, then the Conversion Price shall be multiplied by a fraction
        of
        which the numerator shall be the number of shares of Common Stock (excluding
        treasury shares, if any) outstanding before such event and of which the
        denominator shall be the number of shares of Common Stock outstanding after
        such
        event.  Any adjustment made pursuant to this Section shall become
        effective immediately after the record date for the determination of
        stockholders entitled to receive such dividend or distribution and shall
        become
        effective immediately after the effective date in the case of a subdivision,
        combination or re-classification.

       

      (iii)           If
        the Company, at any time while this Debenture is outstanding, shall issue
        rights, options or warrants to all holders of Common Stock (and not to the
        Holder) entitling them to subscribe for or purchase shares of Common Stock
        at a
        price per share less than the Conversion Price, then the Conversion Price
        shall
        be multiplied by a fraction, of which the denominator shall be the number
        of
        shares of the Common Stock (excluding treasury shares, if any) outstanding
        on
        the date of issuance of such rights or warrants (plus the number of additional
        shares of Common Stock offered for subscription or purchase), and of which
        the
        numerator shall be the number of shares of the Common Stock (excluding treasury
        shares, if any) outstanding on the date of issuance of such rights or warrants,
        plus the number of shares which the aggregate offering price of the total
        number
        of shares so offered would purchase at the Conversion Price. Such adjustment
        shall be made whenever such rights or warrants are issued, and shall become
        effective immediately after the record date for the determination of
        stockholders entitled to receive such rights, options or
        warrants.  However, upon the expiration of any such right, option or
        warrant to purchase shares of the Common Stock the issuance of which resulted
        in
        an adjustment in the Conversion Price pursuant to this section 5(c)(iii),
        if any
        such right, option or warrant shall expire and shall not have been exercised,
        the Conversion Price shall immediately upon such expiration be recomputed
        and
        effective immediately upon such expiration be increased to the price which
        it
        would have been (but reflecting any other adjustments in the Conversion Price
        made pursuant to the provisions of this section 5(c)(iii) after the issuance
        of
        such rights or warrants) had the adjustment of the Conversion Price made
        upon
        the issuance of such rights, options or warrants been made on the basis of
        offering for subscription or purchase only that number of shares of the Common
        Stock actually purchased upon the exercise of such rights, options or warrants
        actually exercised.

       

      (iv)           If
        the Company or any subsidiary thereof, as applicable, at any time while this
        Debenture is outstanding, shall issue shares of Common Stock or rights,
        warrants, options or other securities or debt that are convertible into or
        exchangeable for shares of Common Stock (“Common Stock
        Equivalents”) entitling any Person to acquire shares of Common Stock,
        at a price per share less than the Conversion Price (if the holder of the
        Common
        Stock or Common Stock Equivalent so issued shall at any time, whether by
        operation of purchase price adjustments, reset provisions, floating conversion,
        exercise or exchange prices or otherwise, or due to warrants, options or
        rights
        per share which is issued in connection with such issuance, be entitled to
        receive shares of Common Stock at a price per share which is less than the
        Conversion Price, such issuance shall be deemed to have occurred for less
        than
        the Conversion Price), then, at the sole option of the Holder, the Conversion
        Price shall be adjusted to mirror the conversion, exchange or purchase price
        for
        such Common Stock or Common Stock Equivalents (including any reset provisions
        thereof) at issue.  Such adjustment shall be made whenever such Common
        Stock or Common Stock Equivalents are issued.  The Company shall
        notify the Holder in writing, no later than two (2) business days following
        the
        issuance of any Common Stock or Common Stock Equivalent subject to this section
        5(c)(iv), indicating therein the applicable issuance price, or of applicable
        reset price, exchange price, conversion price and other pricing
        terms.  No adjustment under this section 5(c)(iv) shall be made as a
        result of issuances of Excluded Securities.

       

      (v)           If
        the Company, at any time while this Debenture is outstanding, shall distribute
        to all holders of Common Stock (and not to the Holder) evidences of its
        indebtedness or assets or rights or warrants to subscribe for or purchase
        any
        security, then in each such case the Conversion Price at which this Debenture
        shall thereafter be convertible shall be determined by multiplying the
        Conversion Price in effect immediately prior to the record date fixed for
        determination of stockholders entitled to receive such distribution by a
        fraction of which the denominator shall be the Closing Bid Price determined
        as
        of the record date mentioned above, and of which the numerator shall be such
        Closing Bid Price on such record date less the then fair market value at
        such
        record date of the portion of such assets or evidence of indebtedness so
        distributed applicable to one outstanding share of the Common Stock as
        determined by the Board of Directors in good faith.  In either case,
        the adjustments shall be described in a statement provided to the Holder
        of the
        portion of assets or evidences of indebtedness so distributed or such
        subscription rights applicable to one share of Common Stock.  Such
        adjustment shall be made whenever any such distribution is made and shall
        become
        effective immediately after the record date mentioned above.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (vi)           In
        case of any reclassification of the Common Stock or any compulsory share
        exchange pursuant to which the Common Stock is converted into other securities,
        cash or property, the Holder shall have the right thereafter, at its option,
        to
        (A) convert the then outstanding principal amount, together with all accrued
        but
        unpaid interest and any other amounts then owing hereunder in respect of
        this
        Debenture into the shares of stock and other securities, cash and property
        receivable upon or deemed to be held by holders of the Common Stock following
        such reclassification or share exchange, and the Holder of this Debenture
        shall
        be entitled upon such event to receive such amount of securities, cash or
        property as the shares of the Common Stock of the Company into which the
        then
        outstanding principal amount, together with all accrued but unpaid interest
        and
        any other amounts then owing hereunder in respect of this Debenture could
        have
        been converted immediately prior to such reclassification or share exchange
        would have been entitled, or (B) require the Company to prepay the outstanding
        principal amount of this Debenture, plus all interest and other amounts due
        and
        payable thereon.  The entire prepayment price shall be paid in
        cash.  This provision shall similarly apply to successive
        reclassifications or share exchanges.

       

      (vii)           Whenever
        the Conversion Price is adjusted pursuant to Section 5 hereof, the Company
        shall
        promptly mail to the Holder a notice setting forth the Conversion Price after
        such adjustment and setting forth a brief statement of the facts requiring
        such
        adjustment.

       

      (viii)                      If
        (A) the Company shall declare a dividend (or any other distribution) on the
        Common Stock; (B) the Company shall declare a special nonrecurring cash dividend
        on or a redemption of the Common Stock; (C) the Company shall authorize the
        granting to all holders of the Common Stock rights or warrants to subscribe
        for
        or purchase any shares of capital stock of any class or of any rights; (D)
        the
        approval of any stockholders of the Company shall be required in connection
        with
        any reclassification of the Common Stock, any consolidation or merger to
        which
        the Company is a party, any sale or transfer of all or substantially all
        of the
        assets of the Company, of any compulsory share exchange whereby the Common
        Stock
        is converted into other securities, cash or property; or (E) the Company
        shall
        authorize the voluntary or involuntary dissolution, liquidation or winding
        up of
        the affairs of the Company; then, in each case, the Company shall cause to
        be
        filed at each office or agency maintained for the purpose of conversion of
        this
        Debenture, and shall cause to be mailed to the Holder at its last address
        as it
        shall appear upon the stock books of the Company, at least twenty (20) calendar
        days prior to the applicable record or effective date hereinafter specified,
        a
        notice stating (x) the date on which a record is to be taken for the purpose
        of
        such dividend, distribution, redemption, rights or warrants, or if a record
        is
        not to be taken, the date as of which the holders of the Common Stock of
        record
        to be entitled to such dividend, distributions, redemption, rights or warrants
        are to be determined or (y) the date on which such reclassification,
        consolidation, merger, sale, transfer or share exchange is expected to become
        effective or close, and the date as of which it is expected that holders
        of the
        Common Stock of record shall be entitled to exchange their shares of the
        Common
        Stock for securities, cash or other property deliverable upon such
        reclassification, consolidation, merger, sale, transfer or share exchange,
        provided, that the failure to mail such notice or any defect therein or in
        the
        mailing thereof shall not affect the validity of the corporate action required
        to be specified in such notice.  The Holder is entitled to convert
        this Debenture during the 20-day calendar period commencing the date of such
        notice to the effective date of the event triggering such notice.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (ix)           In
        case of any (1) merger or consolidation of the Company or any subsidiary
        of the
        Company with or into another Person, or (2) sale by the Company or any
        subsidiary of the Company of more than one-half of the assets of the Company
        in
        one or a series of related transactions, a Holder shall have the right to
        (A)
        exercise any rights under Section 4(b), (B) convert the aggregate amount
        of this
        Debenture then outstanding into the shares of stock and other securities,
        cash
        and property receivable upon or deemed to be held by holders of Common Stock
        following such merger, consolidation or sale, and such Holder shall be entitled
        upon such event or series of related events to receive such amount of
        securities, cash and property as the shares of Common Stock into which such
        aggregate principal amount of this Debenture could have been converted
        immediately prior to such merger, consolidation or sales would have been
        entitled, or (C) in the case of a merger or consolidation, require the surviving
        entity to issue to the Holder a convertible Debenture with a principal amount
        equal to the aggregate principal amount of this Debenture then held by such
        Holder, plus all accrued and unpaid interest and other amounts owing thereon,
        which such newly issued convertible Debenture shall have terms identical
        (including with respect to conversion) to the terms of this Debenture, and
        shall
        be entitled to all of the rights and privileges of the Holder of this Debenture
        set forth herein and the agreements pursuant to which this Debenture was
        issued.  In the case of clause (C), the conversion price applicable
        for the newly issued shares of convertible preferred stock or convertible
        Debentures shall be based upon the amount of securities, cash and property
        that
        each share of Common Stock would receive in such transaction and the Conversion
        Price in effect immediately prior to the effectiveness or closing date for
        such
        transaction. The terms of any such merger, sale or consolidation shall include
        such terms so as to continue to give the Holder the right to receive the
        securities, cash and property set forth in this Section upon any conversion
        or
        redemption following such event.  This provision shall similarly apply
        to successive such events.

       

      (d)           Other
        Provisions.

       

      (i)           The
        Company shall at all times reserve and keep available out of its authorized
        Common Stock the full number of shares of Common Stock issuable upon conversion
        of all outstanding amounts under this Debenture (without taking into account
        any
        conversion limitations); and within three (3) Business Days following the
        receipt by the Company of a Holder's notice that such minimum number of
        Underlying Shares is not so reserved, the Company shall promptly reserve
        a
        sufficient number of shares of Common Stock to comply with such
        requirement.

       

      (ii)           All
        calculations under this Section 5 shall be rounded up to the nearest $0.0001
        or
        whole share.

       

      (iii)           The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized and unissued shares of Common Stock solely for the purpose
        of
        issuance upon conversion of this Debenture and payment of interest on this
        Debenture, each as herein provided, free from preemptive rights or any other
        actual contingent purchase rights of persons other than the Holder, not less
        than such number of shares of the Common Stock as shall (subject to any
        additional requirements of the Company as to reservation of such shares set
        forth in this Debenture or in the Transaction Documents) be issuable (taking
        into account the adjustments and restrictions set forth herein) upon the
        conversion of the outstanding principal amount of this Debenture and payment
        of
        interest hereunder.  The Company covenants that all shares of Common
        Stock that shall be so issuable shall, upon issue, be duly and validly
        authorized, issued and fully paid, non-assessable and, if the Underlying
        Shares
        Registration Statement has been declared effective under the Securities Act,
        registered for public sale in accordance with such Underlying Shares
        Registration Statement.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (iv)           Upon
        a conversion hereunder the Company shall not be required to issue stock
        certificates representing fractions of shares of the Common Stock, but may
        if
        otherwise permitted, make a cash payment in respect of any final fraction
        of a
        share based on the Closing Bid Price at such time.  If the Company
        elects not, or is unable, to make such a cash payment, the Holder shall be
        entitled to receive, in lieu of the final fraction of a share, one whole
        share
        of Common Stock.

       

      (v)           The
        issuance of certificates for shares of the Common Stock on conversion of
        this
        Debenture shall be made without charge to the Holder thereof for any documentary
        stamp or similar taxes that may be payable in respect of the issue or delivery
        of such certificate, provided that the Company shall not be required to pay
        any
        tax that may be payable in respect of any transfer involved in the issuance
        and
        delivery of any such certificate upon conversion in a name other than that
        of
        the Holder of such Debenture so converted and the Company shall not be required
        to issue or deliver such certificates unless or until the person or persons
        requesting the issuance thereof shall have paid to the Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.

       

      (vi)           Nothing
        herein shall limit a Holder's right to pursue actual damages or declare an
        Event
        of Default pursuant to Section 3 herein for the Company 's failure to deliver
        certificates representing shares of Common Stock upon conversion within the
        period specified herein and such Holder shall have the right to pursue all
        remedies available to it at law or in equity including, without limitation,
        a
        decree of specific performance and/or injunctive relief, in each case without
        the need to post a bond or provide other security.  The exercise of
        any such rights shall not prohibit the Holder from seeking to enforce damages
        pursuant to any other Section hereof or under applicable law.

       

      (vii)           In
        addition to any other rights available to the Holder, if the Company fails
        to
        deliver to the Holder such certificate or certificates pursuant to Section
        4(a)(i) by the fifth (5th) Trading
        Day after
        the Conversion Date and, if after such fifth (5th) Trading
        Day the
        Holder purchases (in an open market transaction or otherwise) Common Stock
        to
        deliver in satisfaction of a sale by such Holder of the Underlying Shares
        which
        the Holder anticipated receiving upon such conversion (a
“Buy-In”), then the Company shall (A) pay in cash to the Holder
        (in addition to any remedies available to or elected by the Holder) the amount
        by which (x) the Holder's total purchase price (including brokerage commissions,
        if any) for the Common Stock so purchased exceeds (y) the product of (1)
        the
        aggregate number of shares of Common Stock that such Holder anticipated
        receiving from the conversion at issue multiplied by (2) the market price
        of the
        Common Stock at the time of the sale giving rise to such purchase obligation
        and
        (B) at the option of the Holder, either reissue a Debenture in the principal
        amount equal to the principal amount of the attempted conversion or deliver
        to
        the Holder the number of shares of Common Stock that would have been issued
        had
        the Company timely complied with its delivery requirements under Section
        4(a)(i).  For example, if the Holder purchases Common Stock having a
        total purchase price of $11,000 to cover a Buy-In with respect to an attempted
        conversion of Debentures with respect to which the market price of the
        Underlying Shares on the date of conversion was a total of $10,000 under
        clause
        (A) of the immediately preceding sentence, the Company shall be required
        to pay
        the Holder $1,000.  The Holder shall provide the Company written
        notice indicating the amounts payable to the Holder in respect of the
        Buy-In.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Section
        6.                                Notices.                      Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms hereof must be in writing and will be deemed to have
        been
        delivered:  (i) upon receipt, when delivered personally; (ii) upon
        receipt, when sent by facsimile (provided confirmation of transmission is
        mechanically or electronically generated and kept on file by the sending
        party);
        or (iii) one (1) Trading Day after deposit with a nationally recognized
        overnight delivery service, in each case properly addressed to the party
        to
        receive the same.  The addresses and facsimile numbers for such
        communications shall be:

      

      
        	
                If
                  to the Company, to:

              	
                Smartire
                  Systems Inc.

              
	 	
                Richmond
                  Corporate 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 Holder:

              	
                Xentenial
                  Holdings Limited

              
	 	
                Athalassas,
                  47

              
	 	
                2nd
                  Floor, Flat
                  Office 202

              
	 	
                Strovolos,
                  P.C. 2012, Nicosia, Cyprus

              
	 	
                Attention:     Nairy
                  Merheje

              
	 	
                Telephone:   +357-22313339

              
	 	
                Facsimile:    +357-22313346

              
	 	 
	
                With
                  a copy to:

              	
                David
                  Gonzalez, Esq.

              
	 	
                101
                  Hudson Street – Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Telephone:                                (201)
                  985-8300

              
	 	
                Facsimile:       (201)
                  985-8266

              
	 	 

      

      

      or
        at
        such other address and/or facsimile number and/or to the attention of such
        other
        person as the recipient party has specified by written notice given to each
        other party three (3) business days prior to the effectiveness of such
        change.  Written confirmation of receipt (i) given by the recipient of
        such notice, consent, waiver or other communication, (ii) mechanically or
        electronically generated by the sender's facsimile machine containing the
        time,
        date, recipient facsimile number and an image of the first page of such
        transmission or (iii) provided by a nationally recognized overnight delivery
        service, shall be rebuttable evidence of personal service, receipt by facsimile
        or receipt from a nationally recognized overnight delivery service in accordance
        with clause (i), (ii) or (iii) above, respectively.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Section
        7.                                Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligations of the Company, which are absolute and unconditional,
        to
        pay the principal of, interest and other charges (if any) on, this Debenture
        at
        the time, place, and rate, and in the coin or currency, herein
        prescribed.  This Debenture is a direct obligation of the
        Company.  This Debenture ranks pari passu with all other
        Debentures now or hereafter issued under the terms set forth
        herein.  As long as this Debenture is outstanding, the Company shall
        not and shall cause their subsidiaries not to, without the consent of the
        Holder, (i) amend its Notice of Articles, Articles or other charter documents
        so
        as to adversely affect any rights of the Holder; (ii) repay, repurchase or
        offer
        to repay, repurchase or otherwise acquire shares of its Common Stock or other
        equity securities other than as to the Underlying Shares to the extent permitted
        or required under the Transaction Documents; or (iii) enter into any agreement
        with respect to any of the foregoing.

       

      Section
        8.                                This
        Debenture shall not entitle the Holder to any of the rights of a stockholder
        of
        the Company, including without limitation, the right to vote, to receive
        dividends and other distributions, or to receive any notice of, or to attend,
        meetings of stockholders or any other proceedings of the Company, unless
        and to
        the extent converted into shares of Common Stock in accordance with the terms
        hereof.

       

      Section
        9.                                If
        this Debenture is mutilated, lost, stolen or destroyed, the Company shall
        execute and deliver, in exchange and substitution for and upon cancellation
        of
        the mutilated Debenture, or in lieu of or in substitution for a lost, stolen
        or
        destroyed Debenture, a new Debenture for the principal amount of this Debenture
        so mutilated, lost, stolen or destroyed but only upon receipt of evidence
        of
        such loss, theft or destruction of such Debenture, and of the ownership hereof,
        and indemnity, if requested, all reasonably satisfactory to the
        Company.

       

      Section
        10.                                No
        indebtedness of the Company is senior to this Debenture in right of payment,
        whether with respect to interest, damages or upon liquidation or dissolution
        or
        otherwise.  Without the Holder’s consent, the Company will not and
        will not permit any of their subsidiaries to, directly or indirectly, enter
        into, create, incur, assume or suffer to exist any indebtedness of any kind,
        on
        or with respect to any of its property or assets now owned or hereafter acquired
        or any interest therein or any income or profits there from that is senior
        in
        any respect to the obligations of the Company under this Debenture.

       

      Section
        11.                                This
        Debenture shall be governed by and construed in accordance with the laws
        of the
        State of New Jersey, without giving effect to conflicts of laws
        thereof.  Each of the parties consents to the jurisdiction of the
        Superior Courts of the State of New Jersey sitting in Hudson County, New
        Jersey
        and the U.S. District Court for the District of New Jersey sitting in
        Newark, New Jersey in connection with any dispute arising under this Debenture
        and hereby waives, to the maximum extent permitted by law, any objection,
        including any objection based on forum non conveniens to the bringing
        of any such proceeding in such jurisdictions.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Section
        12.                                If
        the Company fails to strictly comply with the terms of this Debenture, then
        the
        Company shall reimburse the Holder promptly for all fees, costs and expenses,
        including, without limitation, attorneys’ fees and expenses incurred by the
        Holder in any action in connection with this Debenture, including, without
        limitation, those incurred: (i) during any workout, attempted workout, and/or
        in
        connection with the rendering of legal advice as to the Holder’s rights,
        remedies and obligations, (ii) collecting any sums which become due to the
        Holder, (iii) defending or prosecuting any proceeding or any counterclaim
        to any
        proceeding or appeal; or (iv) the protection, preservation or enforcement
        of any
        rights or remedies of the Holder.

       

      Section
        13.                                Any
        waiver by the Holder of a breach of any provision of this Debenture shall
        not
        operate as or be construed to be a waiver of any other breach of such provision
        or of any breach of any other provision of this Debenture.  The
        failure of the Holder to insist upon strict adherence to any term of this
        Debenture on one or more occasions shall not be considered a waiver or deprive
        that party of the right thereafter to insist upon strict adherence to that
        term
        or any other term of this Debenture.  Any waiver must be in
        writing.

       

      Section
        14.                                If
        any provision of this Debenture is invalid, illegal or unenforceable, the
        balance of this Debenture shall remain in effect, and if any provision is
        inapplicable to any person or circumstance, it shall nevertheless remain
        applicable to all other persons and circumstances.  If it shall be
        found that any interest or other amount deemed interest due hereunder shall
        violate applicable laws governing usury, the applicable rate of interest
        due
        hereunder shall automatically be lowered to equal the maximum permitted rate
        of
        interest.  The Company covenants (to the extent that it may lawfully
        do so) that it shall not at any time insist upon, plead, or in any manner
        whatsoever claim or take the benefit or advantage of, any stay, extension
        or
        usury law or other law which would prohibit or forgive the Company from paying
        all or any portion of the principal of or interest on this Debenture as
        contemplated herein, wherever enacted, now or at any time hereafter in force,
        or
        which may affect the covenants or the performance of this indenture, and
        the
        Company (to the extent it may lawfully do so) hereby expressly waives all
        benefits or advantage of any such law, and covenants that it will not, by
        resort
        to any such law, hinder, delay or impeded the execution of any power herein
        granted to the Holder, but will suffer and permit the execution of every
        such as
        though no such law has been enacted.

       

      Section
        15.                                Whenever
        any payment or other obligation hereunder shall be due on a day other than
        a
        Business Day, such payment shall be made on the next succeeding Business
        Day.

       

      Section
        16.                                This
        Debenture is exchangeable for an equal aggregate principal amount of Debentures
        of different authorized denominations, as requested by the Holder surrendering
        the same.  No service charge will be made for such registration of
        transfer or exchange.

       

      Section
        17.                                THE
        PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
        OF
        THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
        OR
        ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
        DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
        VERBAL
        OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A MATERIAL
        INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      [REMAINDER
        OF PAGE INTENTIONLLY LEFT BLANK]

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Secured Convertible
        Debenture to be duly executed by a duly authorized officer as of the date
        set
        forth above.

       

      

      
        	 	
                COMPANY:

              
	 	
                SMARTIRE
                  SYSTEMS INC.

              
	 	 
	 	
                By:                
                  /s/Jeff Finkelstein

              
	 	
                Name:            Jeff
                  Finkelstein

              
	 	
                Title:              Chief
                  Financial Officer

              
	 	 

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        A

       

       

      FORM
        OF CONVERSION NOTICE

       

      Reference
        is made to the Securities Purchase Agreement (the “Securities Purchase
        Agreement”) between SmarTire Systems Inc., (the “Company”), and the
        Buyers set forth on Schedule I attached thereto dated April 24,
        2007.  In accordance with and pursuant to the Securities Purchase
        Agreement, the undersigned hereby elects to convert Debenture No. SMRT-6-2
        into
        shares of common stock, no par value per share (the “Common Stock”), of
        the Company for the amount indicated below as of the date specified
        below.

       

      
        	
                Conversion
                  Date:

              	 
	 	 
	
                Amount
                  to be converted:

              	
                $                                                      

              
	 	 
	
                Conversion
                  Price:

              	
                $                                                      

              
	 	 
	
                Shares
                  of Common Stock Issuable:

              	 
	 	 
	
                Amount
                  of Debenture unconverted:

              	
                $                                                      

              
	 	 
	
                Amount
                  of Interest Converted:

              	
                $                                                      

              
	 	 
	
                Conversion
                  Price of Interest:

              	
                $                                                      

              
	 	 
	
                Shares
                  of Common Stock Issuable:

              	 
	 	 
	
                Amount
                  of Liquidated Damages:

              	
                $                                                      

              
	 	 
	
                Conversion
                  Price of Liquidated Damages:

              	
                $                                                      

              
	 	 
	
                Shares
                  of Common Stock Issuable:

              	 
	 	 
	
                Total
                  Number of shares of Common Stock to be issued:

              	 
	 	 

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      Please
        issue the shares of Common Stock in the following name and to the following
        address:

      

      
        	
                Issue
                  to:

              	 
	 	 
	
                Authorized
                  Signature:

              	 
	 	 
	
                Name:

              	 
	 	 
	
                Title:

              	 
	 	 
	
                Phone
                  #:

              	 
	 	 
	
                Broker
                  DTC Participant Code:

              	 
	 	 
	
                Account
                  Number*:

              	 
	 	 

      

      

      

      *
        Note that the receiving broker must initiate transaction on DWAC
        System.

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