Document:

exhibit101.htm

     

    
      

      

      Exhibit 10.5

     

    

      SECURITIES
        PURCHASE AGREEMENT

       

      THISSECURITIES
        PURCHASE AGREEMENT (this “Agreement”), dated as of
        November 19, 2007, by and among SMARTIRE SYSTEMS INC. (the
“Company”), a corporation continued
        under the
        laws of British Columbia, and the purchasers listed on Schedule I attached
        hereto (individually, a “Buyer” or collectively
“Buyers”).

       

      WITNESSETH

       

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

       

      
        	
                 

              	
                (i)

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

              

      

       

      
        	
                 

              	
                (ii)

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

              

      

       

      WHEREAS,
        the parties desire that, upon the terms and subject to the conditions contained
        herein, the Company shall issue and sell to each of the Buyers, as provided
        herein, and each of the Buyers shall purchase up to Ninety-Six Thousand Five
        Hundred Dollars  ($96,500) (the “Purchase Price”) of
        secured convertible debentures (the “Convertible Debentures”),
        which shall be convertible into shares (the “Conversion
        Shares”) of the Company’s common stock, no par value (the
“Common Stock”) which shall be funded on a single closing (the
        “Closing”) as set forth on Exhibit “A” hereto (the
“Funding Schedule”).

       

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

       

      1.         PURCHASE
        AND SALE OF CONVERTIBLE DEBENTURES.

       

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

       

      (b)           Closing
        Date.  The Closing shall take place at 10:00 a.m. (Eastern
        Standard time) on the date specified on the Funding Schedule, or such other
        time
        mutually agreed to by the parties, subject to notification of satisfaction
        of
        the conditions to the Closing set forth herein and in Sections 6 and 7
        below.  The Closing shall occur within three (3) days of the date
        hereof (the “Closing Date”) at the offices of Buyer(s), or such other place as
        is mutually agreed to by the Company and the Buyer(s).

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

      
        	
                 

              	
                (ii)

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

              

      

       

      2.         BUYER’S
        REPRESENTATIONS AND WARRANTIES.

       

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

       

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

       

      (ii)           Eligible
        Investor Status.  By completing the U.S. Accredited Investor
        Questionnaire (the “U.S. Questionnaire”) attached hereto as
        Schedule “A-1”, the Buyer  represents that it is both an “accredited
        investor” as defined in Rule 501(a)(3) of Regulation D and a Qualified
        Institutional Buyer as defined in Rule 144A(a)(1) promulgated under the
        Securities Act and, by completing the Canadian certificate (the
“Canadian Certificate”) attached hereto as Appendix “A-2”, the
        Buyer represents that it is eligible to purchase the Convertible Debentures
        under the Securities Act (British Columbia) (the “B.C.
        Act”).

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      provided
        by the B.C. Act, including statutory rights of rescission or damages, will
        not
        be available to the Buyer.

       

      (iv)           Information.  Each
        Buyer and its advisors (and his or its counsel), if any, have been furnished
        with all materials relating to the business, finances and operations of the
        Company and information he deemed material to making an informed investment
        decision regarding his purchase of the Convertible Debentures and the Conversion
        Shares.  Each Buyer and its advisors, if any, have been afforded the
        opportunity to ask questions of the Company and its
        management.  Neither such inquiries nor any other due diligence
        investigations conducted by such Buyer or its advisors, if any, or its
        representatives shall modify, amend or affect such Buyer’s right to rely on the
        Company’s representations and warranties contained in Section 4
        below.  Each Buyer understands that its investment in the Convertible
        Debentures and the Conversion Shares involves a high degree of
        risk.  Each Buyer is in a position regarding the Company, which, based
        upon employment, family relationship or economic bargaining power, enabled
        and
        enables such Buyer to obtain information from the Company in order to evaluate
        the merits and risks of this investment.  Each Buyer has sought such
        accounting, legal and tax advice, as it has considered necessary to make
        an
        informed investment decision with respect to its acquisition of the Convertible
        Debentures and the Conversion Shares.

       

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

       

      (vi)           Transfer
        or Resale.  Each Buyer understands that except as provided in the
        Registration Rights Agreement: (i) the Convertible Debentures have not been
        and
        are not being registered under the Securities Act or any state securities
        laws,
        and may not be offered for sale, sold, assigned or transferred unless (A)
        subsequently registered thereunder, or (B) pursuant to an exemption from,
        or in
        a transaction not subject to, the registration requirements of the Securities
        Act and in each case in accordance with applicable state and provincial
        securities laws and such Buyer shall have delivered to the Company an opinion
        of
        counsel to the Company or of other counsel reasonably acceptable to the Company
        to the effect that such securities may be sold, assigned or transferred pursuant
        to an exemption from such registration requirements; (ii) any sale of such
        securities made in reliance on Rule 144 under the Securities Act (or a successor
        rule thereto) (“Rule 144”) may be made only in
        accordance with the terms of Rule 144 and further, if Rule 144 is not
        applicable, any resale of such securities under circumstances in which the
        seller (or the person through whom the sale is made) may be deemed to be an
        underwriter (as that term is defined in the Securities Act) may require
        compliance with some other exemption under the Securities Act or the rules
        and
        regulations

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      of
        the
        SEC thereunder; and (iii) neither the Company nor any other person is under
        any
        obligation to register such securities under the Securities Act or any state
        securities laws or to comply with the terms and conditions of any exemption
        thereunder.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.        
        BRITISH COLUMBIA RESALE RESTRICTIONS

       

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

       

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

       

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

       

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

       

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

       

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

       

      Provided
        that at the time of the trade,

       

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

       

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

       

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

       

      (vii)           if
        the selling security holder is an insider or officer of the Company, the
        selling
        security holder has no reasonable grounds to believe that the Company is
        in
        default of securities legislation.

       

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

       

      (d)           As
        a consequence, the Buyer will not be able to rely on the resale provisions
        of
        NI45-102, and any subsequent trade in the Convertible Debentures and the
        Conversion Shares, if any, will be distribution subject to the prospectus
        and
        registration requirements of Canadian securities legislation, to the extent
        that
        the trade at that time is subject to any such Canadian securities
        legislation.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      4.      REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY.

       

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

       

      (i)           Organization
        and Qualification.  The Company and its subsidiaries are
        corporations duly organized and validly existing in good standing under the
        laws
        of the jurisdiction in which they are incorporated, and have the requisite
        corporate power to own their properties and to carry on their business as
        now
        being conducted.  Each of the Company and its subsidiaries is duly
        qualified as a foreign corporation to do business and is in good standing
        in
        every jurisdiction in which the nature of the business conducted by it makes
        such qualification necessary, except to the extent that the failure to be
        so
        qualified or be in good standing would not have a material adverse effect
        on the
        Company and its subsidiaries taken as a whole.

       

      (ii)           Authorization,
        Enforcement, Compliance with Other Instruments.  (i) The
        Company has the requisite corporate power and authority to enter into and
        perform this Agreement, the Convertible Debentures, and the Irrevocable Transfer
        Agent Agreement and any related agreements (collectively the
“Transaction Documents”) and to issue the Convertible
        Debentures and the Conversion Shares in accordance with the terms hereof
        and
        thereof, (ii) the execution and delivery of the Transaction Documents by
        the
        Company and the consummation by it of the transactions contemplated hereby
        and
        thereby, including, without limitation, the issuance of the Convertible
        Debentures and the issuance of the Conversion Shares issuable upon conversion
        or
        exercise thereof, have been duly authorized by the Company’s Board of Directors
        and no further consent or authorization is required by the Company, its Board
        of
        Directors or its stockholders, (iii) the Transaction Documents have been
        duly
        executed and delivered by the Company, and (iv) the Transaction Documents
        constitute the valid and binding obligations of the Company enforceable against
        the Company in accordance with their terms, except as such enforceability
        may be
        limited by general principles of equity or applicable bankruptcy, insolvency,
        reorganization, moratorium, liquidation or similar laws relating to, or
        affecting generally, the enforcement of creditors’ rights and
        remedies.  The authorized officer of the Company executing the
        Transaction Documents knows of no reason arising from a lack of corporate
        power
        or authority that would prevent the Company from being in a position to file
        a
        registration statement as required under the Registration Rights Agreement
        or
        perform any of the Company’s other obligations under such document.

       

      (iii)           Capitalization.  The
        authorized capital stock of the Company consists of an unlimited number of
        shares of Common Stock and 100,000 shares of preferred stock with no par
        value,
        of which, as of the date hereof, 345,872,135 shares of Common Stock and 23,131
        shares of Series “A” preferred stock were issued and outstanding.  All
        of such outstanding shares have been validly issued and are fully paid and
        non-assessable.  No shares of Common Stock are subject to
        preemptive

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      rights
        or
        any other similar rights or any liens or encumbrances suffered or permitted
        by
        the Company.  As of the date of this Agreement, other than as
        described in the Company’s 10-QSB for the period ended January 31, 2007 and
        other than the aggregate of $1.2 million in convertible 10% debentures issued
        to
        TAIB Bank, B.S.C. on November 8, 2006, (i) there are no outstanding options,
        warrants, scrip, rights to subscribe to, calls or commitments of any character
        whatsoever relating to, or securities or rights convertible into, any shares
        of
        capital stock of the Company or any of its subsidiaries, or contracts,
        commitments, understandings or arrangements by which the Company or any of
        its
        subsidiaries is or may become bound to issue additional shares of capital
        stock
        of the Company or any of its subsidiaries or options, warrants, scrip, rights
        to
        subscribe to, calls or commitments of any character whatsoever relating to,
        or
        securities or rights convertible into, any shares of capital stock of the
        Company or any of its subsidiaries, (ii) there are outstanding debt securities
        and (iii) there are agreements or arrangements under which the Company or
        any of
        its subsidiaries is obligated to register the sale of any of their securities
        under the Securities Act (except pursuant to the Registration Rights Agreement)
        and (iv) there are outstanding registration statements and there are no
        outstanding comment letters from the SEC or any other regulatory agency to
        a
        registration statement that has not been withdrawn.  There are no
        securities or instruments containing anti-dilution or similar provisions
        that
        will be triggered by the issuance of the Convertible Debentures as described
        in
        this Agreement.

       

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

       

      (v)           No
        Conflicts.  The execution, delivery and performance of the
        Transaction Documents by the Company and the consummation by the Company
        of the
        transactions contemplated hereby will not (i) result in a violation of the
        Notice of Articles, the Articles, any certificate of designation of any
        outstanding series of preferred stock of the Company or (ii) conflict with
        or
        constitute a default (or an event which with notice or lapse of time or both
        would become a default) under, or give to others any rights of termination,
        amendment, acceleration or cancellation of, any agreement, indenture or
        instrument to which the Company or any of its subsidiaries is a party, or
        result
        in a violation of any law, rule, regulation, order, judgment or decree
        (including federal and state securities laws and regulations and the rules
        and
        regulations of The National Association of Securities Dealers Inc.’s OTC
        Bulletin Board on which the Common Stock is quoted) applicable to the Company
        or
        any of its subsidiaries or by which any property or asset of the Company
        or any
        of its subsidiaries is bound or affected.  Neither the Company nor its
        subsidiaries is in violation of any term of or in

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      default
        under its Notice of Articles, its Articles or its organizational charter
        or
        by-laws, respectively, or any material contract, agreement, mortgage,
        indebtedness, indenture, instrument, judgment, decree or order or any statute,
        rule or regulation applicable to the Company or its subsidiaries.  The
        business of the Company and its subsidiaries is not being conducted, and
        shall
        not be conducted in violation of any material law, ordinance, or regulation
        of
        any governmental entity.  Except as specifically contemplated by this
        Agreement or the Registration Rights Agreement and as required under the
        Securities Act and any applicable state securities laws, the Company is not
        required to obtain any consent, authorization or order of, or make any filing
        or
        registration with, any court or governmental agency in order for it to execute,
        deliver or perform any of its obligations under or contemplated by this
        Agreement or the Registration Rights Agreement in accordance with the terms
        hereof or thereof.  All consents, authorizations, orders, filings and
        registrations which the Company is required to obtain pursuant to the preceding
        sentence have been obtained or effected on or prior to the date
        hereof.  The Company and its subsidiaries are unaware of any facts or
        circumstance, which might give rise to any of the foregoing.

       

      (vi)           SEC
        Documents: Financial Statements.  Since May 6, 1998, the Company
        has filed all reports, schedules, forms, statements and other documents required
        to be filed by it with the SEC under the Securities Exchange Act of 1934,
        as
        amended (the “Exchange Act”) (all of the foregoing filed prior
        to the date hereof or amended after the date hereof and all exhibits included
        therein and financial statements and schedules thereto and documents
        incorporated by reference therein, and the Company’s Annual Report on Form
        10-KSB for the fiscal year ended July 31, 2007 and its Quarterly Reports
        on Form
        10-QSB for the quarter ended October 31, 2007 being hereinafter referred
        to as
        the “SEC Documents”).  The Company has delivered to
        the Buyers or their representatives, or made available through the SEC’s website
        at http://www.sec.gov., true and complete copies of the SEC
        Documents.  As of their respective dates, the financial statements of
        the Company disclosed in the SEC Documents (the “Financial
        Statements”) complied as to form in all material respects with
        applicable accounting requirements and the published rules and regulations
        of
        the SEC with respect thereto.  Such financial statements have been
        prepared in accordance with generally accepted accounting principles,
        consistently applied, during the periods involved (except (i) as may be
        otherwise indicated in such Financial Statements or the notes thereto, or
        (ii)
        in the case of unaudited interim statements, to the extent they may exclude
        footnotes or may be condensed or summary statements) and, fairly present
        in all
        material respects the financial position of the Company as of the dates thereof
        and the results of its operations and cash flows for the periods then ended
        (subject, in the case of unaudited statements, to normal year-end audit
        adjustments).  No other information provided by or on behalf of the
        Company to the Buyer which is not included in the SEC Documents, including,
        without limitation, information referred to in this Agreement, contains any
        untrue statement of a material fact or omits to state any material fact
        necessary in order to make the statements therein, in the light of the
        circumstances under which they were made, not misleading.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (vii)           10(b)-5.  Neither
        the Transaction Documents nor the SEC Documents include any statements of
        material fact that were not true when they were made, nor do they omit to
        state
        any material fact required to be stated therein necessary to make the statements
        made, in light of the circumstances under which they were made, not
        misleading.

       

      (viii)                 Absence
        of Litigation.  There is no action, suit, proceeding, inquiry or
        investigation before or by any court, public board, government agency,
        self-regulatory organization or body pending against or affecting the Company,
        the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable
        decision, ruling or finding would (i) have a material adverse effect on the
        transactions contemplated hereby (ii) adversely affect the validity or
        enforceability of, or the authority or ability of the Company to perform
        its
        obligations under, this Agreement or any of the documents contemplated herein,
        or (iii) have a material adverse effect on the business, operations, properties,
        financial condition or results of  operations of the Company and its
        subsidiaries taken as a whole.

       

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

       

      (x)           No
        General Solicitation.  Neither the Company, nor any of its
        affiliates, nor any person acting on its or their behalf, has engaged in
        any
        form of general solicitation or general advertising (within the meaning of
        Regulation D under the Securities Act) in connection with the offer or sale
        of
        the Convertible Debentures or the Conversion Shares.

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

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

       

      (xv)           Title.  Any
        real property and facilities held under lease by the Company and its
        subsidiaries are held by them under valid, subsisting and enforceable leases
        with such exceptions as are not material and do not interfere with the use
        made
        and proposed to be made of such property and buildings by the Company and
        its
        subsidiaries.

       

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

       

      (xvii)         Regulatory
        Permits.  The Company and its subsidiaries possess all material
        certificates, authorizations and permits issued by the appropriate
        federal,

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      state
        or
        foreign regulatory authorities necessary to conduct their respective businesses,
        and neither the Company nor any such subsidiary has received any notice of
        proceedings relating to the revocation or modification of any such certificate,
        authorization or permit.

       

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

       

      (xix)     
           No Material Adverse Breaches, etc.  Neither
        the Company nor any of its subsidiaries is subject to any charter, corporate
        or
        other legal restriction, or any judgment, decree, order, rule or regulation
        which in the judgment of the Company’s officers has or is expected in the future
        to have a material adverse effect on the business, properties, operations,
        financial condition, results of operations or prospects of the Company or
        its
        subsidiaries.  Neither the Company nor any of its subsidiaries is in
        breach of any contract or agreement which breach, in the judgment of the
        Company’s officers, has or is expected to have a material adverse effect on the
        business, properties, operations, financial condition, results of operations
        or
        prospects of the Company or its subsidiaries.

       

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

       

      (xxi)         Certain
        Transactions.  Except for arm’s length transactions pursuant to
        which the Company makes payments in the ordinary course of business upon
        terms
        no less favorable than the Company could obtain from third parties and other
        than the grant of stock options disclosed in the SEC Documents, none of the
        officers, directors, or employees of the Company is presently a party to
        any
        transaction with the Company (other than for services as employees, officers
        and
        directors), including any contract, agreement or other arrangement providing
        for
        the furnishing of services to or by, providing for rental of real or
        personal

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      property
        to or from, or otherwise requiring payments to or from any officer, director
        or
        such employee or, to the knowledge of the Company, any corporation, partnership,
        trust or other entity in which any officer, director, or any such employee
        has a
        substantial interest or is an officer, director, trustee or
        partner.

       

      (xxii)         Fees
        and Rights of First Refusal.  The Company is not obligated to
        offer the securities offered hereunder on a right of first refusal basis
        or
        otherwise to any third parties including, but not limited to, current or
        former
        shareholders of the Company, underwriters, brokers, agents or other third
        parties.

       

      5.           COVENANTS.

       

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

       

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

       

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

       

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

       

      (e)           Reservation
        of Shares.  The Company shall take all action reasonably necessary
        to at all times have authorized, and reserved for the purpose of issuance
        such
        number of shares of Common Stock as shall be necessary to effect the full
        conversion of the Convertible Debentures outstanding (without taking into
        account any conversion

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      limitations
        or ownership limitations).  If at any time the Company does not have
        available such shares of Common Stock as shall from time to time be sufficient
        to effect the issuance of all of the Conversion Shares, the Company shall
        call
        and hold a special meeting of the shareholders within sixty (60) days of
        such
        occurrence, for the sole purpose of increasing the number of shares
        authorized.  The Company’s management shall recommend to the
        shareholders to vote in favor of increasing the number of shares of Common
        Stock
        authorized.  Management shall also vote all of its shares in favor of
        increasing the number of authorized shares of Common Stock.

       

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

       

      (g)           Fees
        and Expenses.  The Company shall pay a structuring fee to
        Yorkville Advisors, LLC of Eleven Thousand Dollars.  At the Company’s
        option, this fee may be paid directly from the proceeds of the
        Closing.

       

      (h)           Corporate
        Existence.  So long as any of the Convertible Debentures remain
        outstanding, the Company shall not directly or indirectly consummate any
        merger,
        reorganization, restructuring, reverse stock split consolidation, sale of
        all or
        substantially all of the Company’s assets or any similar transaction or related
        transactions (each such transaction, an “Organizational
        Change”) unless, prior to the consummation of an Organizational Change,
        the Company obtains the written consent of each Buyer.  In any such
        case, the Company will make appropriate provision with respect to such holders’
rights and interests to insure that the provisions of this Section 4(g) will
        thereafter be applicable to the Convertible Debentures.

       

      (i)           Transactions
        With Affiliates.  So long as any Convertible Debentures are
        outstanding, the Company shall not, and shall cause each of its subsidiaries
        not
        to, enter into, amend, modify or supplement, or permit any subsidiary to
        enter
        into, amend, modify or supplement any agreement, transaction, commitment,
        or
        arrangement with any of its or any subsidiary’s officers, directors, person who
        were officers or directors at any time during the previous two (2) years,
        stockholders who beneficially own five percent (5%) or more of the Common
        Stock,
        or Affiliates (as defined below) or with any individual related by blood,
        marriage, or adoption to any such individual or with any entity in which
        any
        such entity or individual owns a five percent (5%) or more beneficial interest
        (each a “Related Party”), except for (a) customary employment
        arrangements and benefit programs on reasonable terms, (b) any investment
        in the
        Company or an Affiliate of the Company, (c) any agreement, transaction,
        commitment, or arrangement on an arms-length basis on terms no less favorable
        than terms which would have been obtainable from a person other than such
        Related Party, (d) any agreement, transaction,

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      commitment,
        or arrangement which is approved by a majority of the disinterested directors
        of
        the Company; for purposes hereof, any director who is also an officer of
        the
        Company or any subsidiary of the Company shall not be a disinterested director
        with respect to any such agreement, transaction, commitment, or
        arrangement.  “Affiliate” for purposes hereof means,
        with respect to any person or entity, another person or entity that, directly
        or
        indirectly, (i) has a ten percent (10%) or more equity interest in that person
        or entity, (ii) has ten percent (10%) or more common ownership with that
        person
        or entity, (iii) controls that person or entity, or (iv) shares common
        control with that person or entity.  “Control” or
“controls” for purposes hereof means that a person
        or entity
        has the power, direct or indirect, to conduct or govern the policies of another
        person or entity.

       

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

       

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

       

      (l)           Neither
        the Buyer(s) nor any of its affiliates have an open short position in the
        Common
        Stock of the Company, and the Buyer(s) agrees that it shall not, and that
        it
        will cause its affiliates not to, engage in any short sales of or hedging
        transactions with respect to the Common Stock as long as any Convertible
        Debentures shall remain outstanding.

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      notice
        of
        the sale or issuance of capital stock to accept or reject all or a portion
        of
        such capital raising offer.

       

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

       

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

       

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

       

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

       

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

       

      (a)           The
        obligation of the Company hereunder to issue and sell the Convertible Debentures
        to the Buyer(s) at the Closings is subject to the satisfaction, at or before
        the
        each Closing Date, of each of the following conditions, provided that these
        conditions are for the Company’s sole benefit and may be waived by the Company
        at any time in its sole discretion:

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

      8.           INDEMNIFICATION.

       

      (a)           In
        consideration of the Buyer’s execution and delivery of this Agreement and
        acquiring the Convertible Debentures and the Conversion Shares hereunder,
        and in
        addition to all of the Company’s other obligations under this Agreement, the
        Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
        each
        other holder of the Convertible Debentures and the Conversion Shares, and
        all of
        their officers, directors, employees and agents (including, without
        limitation, those retained in connection with the transactions contemplated
        by
        this Agreement) (collectively, the “Buyer Indemnitees”) from
        and against any and all actions, causes of action, suits, claims, losses,
        costs,
        penalties, fees, liabilities and damages, and expenses in connection therewith
        (irrespective of whether any such Buyer Indemnitee is a party to the action
        for
        which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified Liabilities”),
        incurred by the Buyer Indemnitees or any of them as a result of, or arising
        out
        of, or relating to (a) any misrepresentation or breach of any representation
        or
        warranty made by the Company in this Agreement, the Convertible Debentures
        or
        the Registration Rights Agreement or any other certificate, instrument or
        document contemplated hereby or thereby, (b) any breach of any covenant,
        agreement or obligation of the Company contained in this Agreement, or the
        Registration Rights Agreement or any other certificate, instrument or document
        contemplated hereby or thereby, or (c) any cause of action, suit or claim
        brought or made against such Indemnitee and arising out of or resulting from
        the
        execution, delivery, performance or enforcement of this Agreement or any
        other
        instrument, document or agreement executed pursuant hereto by any of the
        parties
        hereto, any transaction financed or to be financed in whole or in part, directly
        or indirectly, with the proceeds of the issuance of the Convertible Debentures
        or the status of the Buyer or holder of the Convertible
        Debentures  the Conversion Shares,  as a Buyer of
        Convertible Debentures in the Company.  To the extent that the
        foregoing undertaking by the Company may be unenforceable for any reason,
        the
        Company shall make the maximum contribution to the payment and satisfaction
        of
        each of the Indemnified Liabilities, which is permissible under applicable
        law.

       

      (b)           In
        consideration of the Company’s execution and delivery of this Agreement, and in
        addition to all of the Buyer’s other obligations under this Agreement, the Buyer
        shall defend, protect, indemnify and hold harmless the Company and all of
        its
        officers, directors, employees and agents (including, without limitation,
        those
        retained in connection with the transactions contemplated by this Agreement)
        (collectively, the “Company Indemnitees”) from and against any
        and all Indemnified Liabilities incurred by the Company Indemnitees or any
        of
        them as a result of, or arising out of, or relating to (a) any misrepresentation
        or breach of any representation or warranty made by the Buyer(s) in this
        Agreement, instrument or document contemplated hereby or thereby executed
        by the
        Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s)
        contained in this Agreement,  the Registration Rights Agreement or any
        other

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      certificate,
        instrument or document contemplated hereby or thereby executed by the Buyer,
        or
        (c) any cause of action, suit or claim brought or made against such Company
        Indemnitee based on material misrepresentations or due to a material breach
        and
        arising out of or resulting from the execution, delivery, performance or
        enforcement of this Agreement, the Registration Rights Agreement or any other
        instrument, document or agreement executed pursuant hereto by any of the
        parties
        hereto.  To the extent that the foregoing undertaking by each Buyer
        may be unenforceable for any reason, each Buyer shall make the maximum
        contribution to the payment and satisfaction of each of the Indemnified
        Liabilities, which is permissible under applicable law.

       

      9.         GOVERNING
        LAW: MISCELLANEOUS.

       

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

       

      (b)           Counterparts.  This
        Agreement may be executed in two or more identical counterparts, all of which
        shall be considered one and the same agreement and shall become effective
        when
        counterparts have been signed by each party and delivered to the other
        party.  In the event any signature page is delivered by facsimile
        transmission, the party using such means of delivery shall cause four (4)
        additional original executed signature pages to be physically delivered to
        the
        other party within five (5) days of the execution and delivery
        hereof.

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (f)           Notices.  Any
        notices, consents, waivers, or other communications required or permitted
        to be
        given under the terms of this Agreement must be in writing and will be deemed
        to
        have been delivered (i) upon receipt, when delivered personally; (ii) upon
        confirmation of receipt, when sent by facsimile; or (iii) one (1) day after
        deposit with a nationally recognized overnight delivery service, in each
        case
        properly addressed to the party to receive the same.  The addresses
        and facsimile numbers for such communications shall be:

       

      If
        to the
        Company, to:

       

      SmarTire
        Systems Inc.

       

      Richmond
        Corporate Centre

       

      Suite
        150-13151 Vanier Place

       

      Richmond,
        British Columbia, Canada  V6V 2J1

       

      Attention:   
         Jeff Finkelstein

       

      Telephone:   (604)
        276-9884

       

      Facsimile:     (604)
        276-2353

       

      With
        a
        copy to:

       

      Ethan
        Minsky

       

      Clark
        Wilson LLP

       

      800
–
885
        West Georgia Street,

       

      Vancouver,
        British Columbia V6C 3H1

       

      Telephone:  (604)
        687-5700

       

      Facsimile:   (604)
        687-6314

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      [REMAINDER
        PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

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

       

      

       

      
        	 	
                COMPANY:

                 

              
	 	
                SMARTIRE
                  SYSTEMS INC.

                 

              
	 	 
	 	
                By:         /s/Jeff
                  Finkelstein                             

                Name:   Jeff Finkelstein

              
	 	
                Title:     Chief
                  Financial Officer

                 

              
	 	 

      

      

       

      

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

      

       

      Xentenial
        Holdings Limited

       

      

       

      

       

      Per:           /s/Mark
        Angelo

       

      Name:      Mark
        Angelo

       

      Title:

      

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      SCHEDULE
        I

       

      SCHEDULE
        OF BUYERS

       

      

       

      
        	
                
                  Buyer

                   

                

                 

              	
                
                  Legal
                    Representative’s Address and Facsimile Number

                   

                

                 

              	
                
                  Amount
                    of Subscription

                   

                

                 

              
	
                Xentenial
                  Holdings Limited

              	
                David
                  Gonzalez, Esq.

              	
                $96,500

              
	
                Athalassas,
                  47

              	
                101
                  Hudson Street, Suite 3700

              	 
	
                2nd
                  Floor, Flat Office 202

              	
                Jersey
                  City, New Jersey 07302

              	 
	
                Strovolos,
                  P.C. 2012, Nicosia, Cyprus

              	
                Telephone:
                  (201) 985-8300

              	 
	
                Attention:     Nairy
                  Merheje

              	
                Facsimile:
                  (201) 985-8266

              	 
	
                Telephone:   +357-22313339

              	 	 
	
                Facsimile:    +357-22313346

              	 	 

      

      

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

                

                    A
              -
      
      

                    
      
    

        

      

      Appendix
        A-1

       

      U.S.
        Accredited Investor Questionnaire

       

      (to
        be
        supplied)

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

                

                    A
              -
      
      

                    
      
    

        

      

      

       

      APPENDIX
        “A-2”

       

       

      BRITISH
        COLUMBIA QUESTIONNAIRE

       

      The
        purpose of this Questionnaire is to assure SmarTire Systems Inc. (the
“Company”) that the undersigned Subscriber meets certain
        requirements of National Instrument 45-106 ("NI 45-106") on the
        date that it offers and sells securities to the undersigned subscriber pursuant
        to a Securities Purchase Agreement of even date herewith.  The Company
        has relied upon, and will continue to rely on the information contained in
        this
        Questionnaire in issuing the securities subscribed for.

       

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

       

      
        	
                 

              	
                1.

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

              

      

       

      
        	
              	
                2.

              	
                the
                  Subscriber is (tick one or more of the following
                  boxes):

              

      

      
        	
                 

                (A)

              	
                 

                a
                  director, executive officer, employee, founder or control person
                  of the
                  Company

              	 
	
                 

                (B)

              	
                 

                a
                  spouse, parent, grandparent, brother, sister or child of a director,
                  executive officer, founder or control person of the
                  Company

              	 
	
                 

                (C)

              	
                 

                a
                  parent, grandparent, brother, sister or child of the spouse of
                  a director,
                  executive officer, founder or control person of the
                  Company

              	 
	
                 

                (D)

              	
                 

                a
                  close personal friend of a director, executive officer, founder
                  or control
                  person of the Company

              	 
	
                 

                (E)

              	
                 

                a
                  close business associate of a director, executive officer, founder
                  or
                  control person of the Company

              	 
	
                 

                (F)

              	
                 

                an
                  accredited investor

              	 

      

       

      
        	
                 

              	
                3.

              	
                if
                  the Subscriber has checked box B, C, D or E in paragraph 3 above,
                  the
                  director, executive officer, founder or control person of the Company
                  with
                  whom the undersigned has the relationship
                  is:

              

      

       

      (Instructions
        to Subscriber: fill in the name of each director, executive officer, founder
        and
        control person which you have the above-mentioned relationship
        with.)

       

      
        	
                 

              	
                4.

              	
                if
                  the Subscriber has ticked box F in Section 2 above, the Subscriber
                  satisfies one or more of the categories of "accredited investor"
                  (as that
                  term is defined in NI 45-106) indicated below (please check the
                  appropriate box):

              

      

       

      
        	
                 

              	
                (a)

              	
                a
                  Canadian financial institution, or a Schedule III
                  bank,

              

      

       

      
        	
                 

              	
                (b)

              	
                the
                  Business Development Bank of Canada incorporated under the Business
                  Development Bank of Canada Act
(Canada),

              

      

       

      
        	
                 

              	
                (c)

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

              

      

       

      
        	
                 

              	
                (d)

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

              

      

       

      
        	
                 

              	
                (e)

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

              

      

       

      
        	
                 

              	
                (f)

              	
                the
                  Government of Canada or a jurisdiction of Canada, or any crown
                  corporation, agency or wholly owned entity of the Government of
                  Canada or
                  a jurisdiction of Canada,

              

      

       

      
        	
                 

              	
                (g)

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

              

      

       

      
        	
                 

              	
                (h)

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

              

      

       

      
        	
                 

              	
                (i)

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

              

      

       

      
        	
                 

              	
                (j)

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

              

      

       

      
        	
                 

              	
                (k)

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

              

      

       

      
        	
                 

              	
                (l)

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

              

      

       

      
        	
                 

              	
                (m)

              	
                a
                  person, other than an individual or investment fund, that has net
                  assets
                  of at least $5,000,000 as shown on its most recently prepared financial
                  statements, and was not created or used solely to purchase or hold
                  securities as an accredited investor as described in this paragraph
                  (m),

              

      

       

      
        	
                 

              	
                (n)

              	
                an
                  investment fund that distributes or has distributed its securities
                  only
                  to

              

      

       

      
        	
                 

              	
                (i)

              	
                a
                  person that is or was an accredited investor at the time of the
                  distribution,

              

      

       

      
        	
                 

              	
                (ii)

              	
                a
                  person that acquires or acquired securities in the circumstances
                  referred
                  to in sections 2.10 [Minimum amount investment], and 2.19
                  [Additional investment in investment funds] of National
                  Instrument 45-106, or

              

      

       

      
        	
                 

              	
                (iii)

              	
                a
                  person described in paragraph (i) or (ii) that acquires or acquired
                  securities under section 2.18 [Investment fund reinvestment] of
                  National Instrument 45-106,

              

      

       

      
        	
                 

              	
                (o)

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

              

      

       

      
        	
                 

              	
                (p)

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

              

      

       

      
        	
                 

              	
                (q)

              	
                a
                  person acting on behalf of a fully managed account managed by that
                  person,
                  if that person

              

      

       

      
        	
                 

              	
                (i)

              	
                is
                  registered or authorized to carry on business as an adviser or
                  the
                  equivalent under the securities legislation of a jurisdiction of
                  Canada or
                  a foreign jurisdiction, and

              

      

       

      
        	
                 

              	
                (ii)

              	
                in
                  Ontario, is purchasing a security that is not a security of an
                  investment
                  fund,

              

      

       

      
        	
                 

              	
                (r)

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

              

      

       

      
        	
                 

              	
                (s)

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

              

      

       

      
        	
                 

              	
                (t)

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

              

      

       

      
        	
                 

              	
                (u)

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

              

      

       

      
        	
                 

              	
                (v)

              	
                a
                  person that is recognized or designated by the securities regulatory
                  authority or, except in Ontario and Québec, the regulator
                  as

              

      

       

      
        	
                 

              	
                (i)

              	
                an
                  accredited investor, or

              

      

       

      
        	
                 

              	
                (ii)

              	
                an
                  exempt purchaser in Alberta or British Columbia after National
                  Instrument
                  45-106 comes into force.

              

      

       

      And
        for
        purposes hereof, the following terms shall have the stated
        meanings:

       

      “EVCC”
        means an employee venture capital corporation that does not have
        a
        restricted constitution, and is registered under Part 2 of the Employee
        Investment Act, R.S.B.C. 1996 c. 112, and whose business objective is
        making multiple investments;

       

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

       

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

       

      “investment
        fund” means a mutual fund or a non-redeemable investment fund, and, for
        greater certainty in British Columbia, includes an EVCC and a VCC;

       

      “non-redeemable
        investment fund” means an issuer:

       

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

       

      (b)           that
        does not invest:

       

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

       

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

       

      (c)           that
        is not a mutual fund;

       

      “person”
        includes:

       

      (a)           an
        individual,

       

      (b)           a
        corporation,

       

      (c)           a
        partnership, trust, fund and an association, syndicate, organization or other
        organized group of persons, whether incorporated or not, and

       

      (d)           an
        individual or other person in the person’s capacity as a trustee, executor,
        administrator or personal or other legal representative;

       

      “related
        liabilities” means:

       

      (a)           liabilities
        incurred or assumed for the purpose of financing the acquisition or ownership
        of
        financial assets, or

       

      (b)           liabilities
        that are secured by financial assets;

       

      “spouse”
        means, an individual who:

       

      (a)           is
        married to another individual and is not living separate and apart within
        the
        meaning of the Divorce Act (Canada), from the other
        individual,

       

      (b)           is
        living with another individual in a marriage-like relationship, including
        a
        marriage-like relationship between individuals of the same gender,
        or

       

      (c)           in
        Alberta, in an individual referred to in paragraph (a) or (b), or is an adult
        interdependent partner within the meaning of the Adult Interdependent
        Relationships Act (Alberta);

       

      “VCC”
        means a venture capital corporation registered under Part 1 of the
        Small Business Venture Capital Act, R.S.B.C. 1996 c. 429, whose
        business objective is making multiple investments.

       

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

       

      IN
        WITNESS WHEREOF, the undersigned has
        executed this Questionnaire as of the ________ day of __________________,
        2007.

       

      SUBSCRIBER:

       

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

       

      

       

      

       

      

       

      Signature                                                                                
        Print or Type Name of Entity

       

      

       

      

       

      Print
        or
        Type
        Name                                                                 Print
        Name and Title of Authorized Signatory

       

      

      

      

                   
        Signature of Authorized Signatory

       

      

       

      

       

                   
        Type of Entity

       

      

       

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      DISCLOSURE
        SCHEDULE

       

      
        
                

                    CW1174496.2      
    

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

      

      FUNDING
        SCHEDULE

      

      

      $96,500,
        on the Closing Date.

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        B

       

      LOCK
        UP AGREEMENT

       

      The
        undersigned hereby agrees that for a period commencing on November __, 2007
        and
        expiring on the date thirty (30) days after the date that all amounts owed
        to YA
        Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) or Xentenial
        Holdings Limited (collectively, the “Investors”) by Smartire
        Systems Inc. (the “Company”) have been paid (the
“Lock-up Period”), he, she or it will not, directly or
        indirectly, without the prior written consent of the Investor, issue, offer,
        agree or offer to sell, sell, grant an option for the purchase or sale of,
        transfer, pledge, assign, hypothecate, distribute or otherwise encumber or
        dispose of any securities of the Company, including common stock or options,
        rights, warrants or other securities underlying, convertible into, exchangeable
        or exercisable for or evidencing any right to purchase or subscribe for any
        common stock (whether or not beneficially owned by the undersigned), or any
        beneficial interest therein (collectively, the “Securities”)
        except in accordance with the volume limitations set forth in Rule 144(e)
        of the
        General Rules and Regulations under the Securities Act of 1933, as
        amended.

       

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

       

      Dated:
        _______________, 2007

       

      

       

      Signature

       

      

       

      

       

      Name:
        ____________________________________

       

      Address:                                                

       

      City,
        State, Zip
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      EXHIBIT
        C

       

      FORM
        OF
        LEGAL OPINIONexhibit102.htm

     

    
      

      

    

    Exhibit 10.6

    
 

    
      

       

      Dated:  November
        19, 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-6-1                                                                                                                                                                                                               
$96,500

       

      SMARTIRE
        SYSTEMS INC.

       

      Convertible
        Debenture

       

      Due:
        November 19, 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 November 19, 2007.

       

      FOR
        VALUE RECEIVED,
        the Company hereby promises to pay to the Holder or its successors and assigns
        the principal sum of Ninety Six Thousand Five Hundred Dollars ($96,500) together
        with accrued but unpaid interest on or before November 19, 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.

       

      “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 FINRA 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)(vii)) 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
        5(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 5(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 3(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
        5(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
        5(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 November _,
        2007.  In accordance with and pursuant to the Securities Purchase
        Agreement, the undersigned hereby elects to convert Debenture No. SMTR-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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