WARRANT
THE
SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
SMARTIRE SYSTEMS, INC.
Warrant To Purchase Common Stock
|
Warrant
No.: SMTR-5-1
|
Number
of Shares:
|
225,000,000
|
| |
Warrant
Exercise Price:
|
$0.0298
|
| |
Expiration
Date:
|
November
30, 2012
|
Date
of Issuance: November 30, 2007
Smartire
Systems, Inc., a British Columbia corporation, (the “
Company ”), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Xentenial Holdings
Limited (the “ Holder ”), the
registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase
from the Company upon surrender of this Warrant, at any time
or times on or after the date hereof, but not after
11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) up to Two Hundred Twenty Five Million
(225,000,000) fully paid and nonassessable shares of Common
Stock (as defined herein) of the Company (the “
Warrant Shares ”) at the exercise price per share
provided in Section 1(b) below or as subsequently
adjusted; provided, however, that in no event shall the holder
be entitled to exercise this Warrant for a number of Warrant
Shares in excess of that number of Warrant Shares which, upon
giving effect to such exercise, would cause the aggregate
number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding
shares of the Common Stock following such exercise, except
within sixty (60) days of the Expiration Date (however, such
restriction may be waived by Holder (but only as to itself and
not to any other holder) upon not less than 65 days prior
notice to the Company). For purposes of the
foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the
determination of such proviso is being made, but shall exclude
shares of Common Stock which would be issuable upon
(i) exercise of the remaining, unexercised Warrants
beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company
beneficially owned by the holder and its affiliates
(including, without limitation, any convertible notes or
preferred stock) subject to a limitation on conversion or
exercise analogous to the limitation contained
herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For
purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the
number of outstanding shares of Common Stock as reflected in
(1) the Company’s most recent Form 10-QSB or Form
10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the
written request of any holder, the Company shall promptly, but
in no event later than one (1) Business Day following the
receipt of such notice, confirm in writing to any such holder
the number of shares of Common Stock then
outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect
to the exercise of Warrants (as defined below) by such holder
and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section
1.
(a)
This
Warrant is one of the warrants issued pursuant to Section 1(a) of
the Securities Purchase Agreement (“ Securities Purchase
Agreement ”) dated the date hereof between the Company
and the Buyers listed on Schedule I thereto or issued in exchange
or substitution thereafter or replacement thereof. Each
Capitalized term used, and not otherwise defined herein, shall have
the meaning ascribed thereto in the Securities Purchase
Agreement.
(b)
Definitions . The following words and terms as used
in this Warrant shall have the following meanings:
(i)
“
Approved Stock Plan ” means a stock option plan that
has been approved by the Board of Directors of the Company prior to
the date of the Securities Purchase Agreement, pursuant to which
the Company’s securities may be issued only to any employee,
officer or director for services provided to the
Company.
(ii)
“
Business Day ” means any day other than Saturday,
Sunday or other day on which commercial banks in the City of
Richmond, British Columbia are authorized or required by law to
remain closed.
(iii)
“
Closing Bid Price ” means the closing bid price of
Common Stock as quoted on the Principal Market (as reported by
Bloomberg Financial Markets (“ Bloomberg ”)
through its “Volume at Price” function).
(iv)
“
Common Stock ” means (i) the Company’s
common stock, no par value, and (ii) any capital stock into
which such Common Stock shall have been changed or any capital
stock resulting from a reclassification of such Common
Stock.
(v)
“
Event of Default ” means an event of default under the
Securities Purchase Agreement or the Convertible Debentures issued
in connection therewith.
(vi)
“
Excluded Securities ” means, (a) shares 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, obligation or security outstanding on the date
prior to date of the Securities Purchase Agreement, provided that
the terms of such right, option, obligation or security are not
amended or otherwise modified on or after the date of the
Securities Purchase Agreement, and provided 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 the Convertible Debentures or exercise of the
Warrants.
(vii)
“
Expiration Date ” means November ____,
2012.
(viii)
“
Issuance Date ” means the date hereof.
(ix)
“
Options ” means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible
Securities.
(x)
“
Person ” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(xi)
“
Primary Market ” means on any of (a) the American
Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global
Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC
Bulletin Board (“ OTCBB ”)
(xii)
“
Securities Act ” means the Securities Act of 1933, as
amended.
(xiii)
“
Warrant ” means this Warrant and all Warrants issued
in exchange, transfer or replacement thereof.
(xiv)
“
Warrant Exercise Price ” shall be $0.0298 or as
subsequently adjusted as provided in Section 8
hereof.
(c)
Other
Definitional Provisions.
(i)
Except
as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company’s
successors and (B) to any applicable law defined or referred
to herein shall be deemed references to such applicable law as the
same may have been or may be amended or supplemented from time to
time.
(ii)
When
used in this Warrant, the words “ herein ”,
“ hereof ”, and “ hereunder
” and words of similar import, shall refer
to this Warrant as a whole and not to any provision of this
Warrant, and the words “ Section ”, “
Schedule ”, and “ Exhibit ” shall
refer to Sections of, and Schedules and Exhibits to, this Warrant
unless otherwise specified.
(iii)
Whenever
the context so requires, the neuter gender includes the masculine
or feminine, and the singular number includes the plural, and vice
versa.
Section
2.
Exercise of Warrant
.
(a)
Subject
to the terms and conditions hereof, this Warrant may be exercised
by the holder hereof then registered on the books of the Company,
pro rata as hereinafter provided, at any time on any Business Day
on or after the opening of business on such Business Day,
commencing with the first day after the date hereof, and prior to
11:59 P.M. Eastern Time on the Expiration Date (i) by delivery
of a written notice, in the form of the subscription notice
attached as Exhibit A hereto (the “ Exercise
Notice ”), of such holder’s election to exercise
this Warrant, which notice shall specify the number of Warrant
Shares to be purchased, payment to the Company of an amount
equal to the Warrant Exercise Price(s) applicable to the Warrant
Shares being purchased, multiplied by the number of Warrant
Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the “ Aggregate Exercise Price
”) in cash or wire transfer of immediately available funds
and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss,
theft or destruction) to a common carrier for overnight delivery to
the Company as soon as practicable following such date (“
Cash Basis ”) or (ii) if at the time of exercise, the
Warrant Shares are not subject to an effective registration
statement or if an Event of Default has occurred, by delivering an
Exercise Notice and in lieu of making payment of the Aggregate
Exercise Price in cash or wire transfer, elect instead to receive
upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (the “
Cashless Exercise ”):
Net
Number = (A x B) – (A x C)
B
For purposes of the
foregoing formula:
A
= the total number of Warrant Shares with respect to which
this Warrant is then being exercised.
B
= the Closing Bid Price of the Common Stock on the date of
exercise of the Warrant.
C
= the Warrant Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.
In
the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2, the Company shall
on or before the fifth (5th) Business Day following the
date of receipt of the Exercise Notice, the Aggregate Exercise
Price and this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or
destruction) and the receipt of the representations of the
holder specified in Section 6 hereof, if requested by the
Company (the “ Exercise Delivery Documents
”), then the Company shall, on or before the
fifth (5 th )
Business Day following receipt of the Exercise Delivery
Documents, issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise
Notice, a certificate, registered in the name of the holder,
for the number of shares of Common Stock to which the holder
shall be entitled pursuant to such request. Upon
delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (i) or (ii) above the holder of
this Warrant shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares with
respect to which this Warrant has been
exercised. In the case of a dispute as to the
determination of the Warrant Exercise Price, the Closing Bid
Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the holder the number of
Warrant Shares that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) Business Day of receipt of
the holder’s Exercise Notice.
(b)
If
the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or arithmetic
calculation of the Warrant Shares within one (1) day of such
disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall immediately submit via facsimile
(i) the disputed determination of the Warrant Exercise Price or the
Closing Bid Price to an independent, reputable investment banking
firm or (ii) the disputed arithmetic calculation of the Warrant
Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant,
as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such investment banking
firm’s or accountant’s determination or calculation, as
the case may be, shall be deemed conclusive absent manifest
error.
(c)
Unless
the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after
any exercise and at its own expense, issue a new Warrant identical
in all respects to this Warrant exercised except it shall represent
rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such
Warrant is exercised.
(d)
No
fractional Warrant Shares are to be issued upon any pro rata
exercise of this Warrant, but rather the number of Warrant Shares
issued upon such exercise of this Warrant shall be rounded up or
down to the nearest whole number.
(e)
If
the Company or its Transfer Agent shall fail for any reason or for
no reason to issue to the holder within ten (10) days of
receipt of the Exercise Delivery Documents, a certificate for the
number of Warrant Shares to which the holder is entitled or to
credit the holder’s balance account with The Depository Trust
Company for such number of Warrant Shares to which the holder is
entitled upon the holder’s exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant
or otherwise available to such holder, pay as additional damages in
cash to such holder on each day the issuance of such certificate
for Warrant Shares is not timely effected an amount equal to 0.025%
of the product of (A) the sum of the number of Warrant Shares not
issued to the holder on a timely basis and to which the holder is
entitled, and (B) the Closing Bid Price of the Common Stock for the
trading day immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without
violating this Section 2.
(f)
If
within ten (10) days after the Company’s receipt of the
Exercise Delivery Documents, the Company fails to deliver a new
Warrant to the holder for the number of Warrant Shares to which
such holder is entitled pursuant to Section 2 hereof, then, in
addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as
additional damages in cash to such holder on each day after such
tenth (10 th ) day that
such delivery of such new Warrant is not timely effected in an
amount equal to 0.25% of the product of (A) the number of
Warrant Shares represented by the portion of this Warrant which is
not being exercised and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Warrant to
the holder without violating this Section 2.
Section
3.
Covenants as to Common
Stock . The Company hereby covenants and
agrees as follows:
(a)
This
Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized
and validly issued.
(b)
All
Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(c)
During
the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and
reserved at least one hundred percent (100%) of the number of
shares of Common Stock needed to provide for the exercise of the
rights then represented by this Warrant and the par value of said
shares will at all times be less than or equal to the applicable
Warrant Exercise Price. If at any time the Company does
not have a sufficient number of shares of Common Stock authorized
and available, then the Company shall call and hold a special
meeting of its stockholders within sixty (60) days of that
time for the sole purpose of increasing the number of authorized
shares of Common Stock.
(d)
RESERVED
(e)
The
Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege
of the holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this
Warrant. The Company will not increase the par value of
any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(f)
This
Warrant will be binding upon any entity succeeding to the Company
by merger, consolidation or acquisition of all or substantially all
of the Company’s assets.
Section
4.
Taxes
. The Company shall pay any and all taxes, except
any applicable withholding, which may be payable with respect
to the issuance and delivery of Warrant Shares upon exercise
of this Warrant.
Section
5.
Warrant Holder Not
Deemed a Stockholder . Except as otherwise
specifically provided herein, no holder, as such, of this
Warrant shall be entitled to vote or receive dividends or be
deemed the holder of shares of capital stock of the Company
for any purpose, nor shall anything contained in this Warrant
be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to
vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of
this Warrant of the Warrant Shares which he or she is then
entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on
such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this
Warrant with copies of the same notices and other information
given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the
stockholders.
Section
6.
Representations of
Holder . The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this
Warrant and the Warrant Shares for its own account for
investment only and not with a view towards, or for resale in
connection with, the public sale or distribution of this
Warrant or the Warrant Shares, except pursuant to sales
registered or exempted under the Securities Act; provided,
however, that by making the representations herein, the
holder does not agree to hold this Warrant or any of the
Warrant Shares for any minimum or other specific term and
reserves the right to dispose of this Warrant and the Warrant
Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities
Act. The holder of this Warrant further
represents, by acceptance hereof, that, as of this date, such
holder is an “accredited investor” as such term
is defined in Rule 501(a)(1) of Regulation D promulgated
by the Securities and Exchange Commission under the
Securities Act (an “ Accredited Investor
”). Upon exercise of this
Warrant the holder shall, confirm in writing, in a
form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the holder’s
own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If
such holder cannot make such representations because they
would be factually incorrect, it shall be a condition to such
holder’s exercise of this Warrant that the Company
receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance
of its securities upon exercise of this Warrant shall not
violate any United States or state securities
laws.
Section
7.
Ownership and
Transfer .
(a)
The
Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice
to the holder hereof), a register for this Warrant, in which the
Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address
of each transferee. The Company may treat the person in
whose name any Warrant is registered on the register as the owner
and holder thereof for all purposes, notwithstanding any notice to
the contrary, but in all events recognizing any transfers made in
accordance with the terms of this Warrant.
Section
8.
Adjustment of Warrant
Exercise Price and Number of Shares . The
Warrant Exercise Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be
adjusted from time to time as follows:
(a)
Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock . If and whenever on or
after the Issuance Date of this Warrant, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common
Stock (other than Excluded Securities) for a consideration per
share less than a price (the “ Applicable Price
”) equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue
or sale the Warrant Exercise Price then in effect shall be reduced
to an amount equal to such consideration per share. Upon
each such adjustment of the Warrant Exercise Price hereunder, the
number of Warrant Shares issuable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying
the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise
of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Warrant Exercise Price resulting from
such adjustment.
(b)
Effect on Warrant Exercise Price of Certain Events
. For purposes of determining the adjusted Warrant
Exercise Price under Section 8(a) above, the following shall be
applicable:
(i)
Issuance of Options . If after the date hereof, the
Company in any manner grants any Options and the lowest price per
share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange of any
convertible securities issuable upon exercise of any such Option is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the granting or sale of such Option
for such price per share. For purposes of this Section
8(b)(i), the lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion
or exchange of such Convertible Securities shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option or upon conversion or exchange of any convertible security
issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the
actual issuance of such Common Stock or of such convertible
securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
convertible securities.
(ii)
Issuance of Convertible Securities . If the Company
in any manner issues or sells any convertible securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the issuance or sale of such convertible securities
for such price per share. For the purposes of this
Section 8(b)(ii), the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange
shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible
security and upon conversion or exchange of such convertible
security. No further adjustment of the Warrant Exercise
Price shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of such convertible securities, and if
any such issue or sale of such convertible securities is made upon
exercise of any Options for which adjustment of the Warrant
Exercise Price had been or are to be made pursuant to other
provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or
sale.
(iii)
Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or
exchange of any convertible securities, or the rate at which any
convertible securities are convertible into or exchangeable for
Common Stock changes at any time, the Warrant Exercise Price in
effect at the time of such change shall be adjusted to the Warrant
Exercise Price which would have been in effect at such time had
such Options or convertible securities provided for such changed
p
