MANAGEMENT AGREEMENT

THIS AGREEMENT effectively replaces the management agreement entered into on the
8th day of August, 2005 and is dated October 20, 2006. (the "Effective Date").

BETWEEN:

   
SMARTIRE SYSTEMS INC., a company duly incorporated pursuant to the laws of the
Province of British Columbia, having an office at 150 - 13151 Vanier Place,
Richmond, British Columbia, V6V 2J1

   
(hereinafter referred to as the "Company")

OF THE FIRST PART

AND:

   
DAVID WARKENTIN, of 20580 Powell Ave. Maple Ridge, B.C. V2X 3M2

   
(hereinafter referred to as the "Manager")

OF THE SECOND PART

RECITALS

WHEREAS the Company has requested the assistance of the Manager in providing
certain management services to the Company, as hereinafter described;

WHEREAS the Manager has agreed to provide such assistance and services to the
Company in accordance with the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth below, the parties hereto agree as follows:

DEFINITIONS

In this Agreement, the following terms have the meaning as ascribed below:

“Acquisition” means an acquisition of substantially all of SmarTire or of
substantially all assets of SmarTire by a party not an Affiliate of SmarTire
prior to completion of the acquisition;
“Affiliate” means a director, officer, wholly or partially owned subsidiary or
10% or greater shareholder of SmarTire, or a company controlled by such person
or any party acting in conjunction with such person;

“Hostile Takeover” means a Takeover that the directors of SmarTire recommend to
shareholders to reject in a management circular;

“Merger” means a merger by SmarTire with a corporation that was not an Affiliate
prior to completion of the merger;

“Takeover” means a successful tender offer (as that term is determined by
reference to the United States Securities Exchange Act of 1934) or takeover bid
(as that term is defined in the Securities Act (British Columbia)) that has been
made by a party who was not an Affiliate prior to the completion of the tender
offer or takeover;

“Termination Date” has the meaning set out in section 7.3 of this Agreement.

1   DUTIES AND DEVOTION OF TIME

1.1   Duties. During the term of this Agreement the Manager shall be responsible
for the duties contained in Schedule "A" attached hereto and incorporated herein
by this reference (the "Duties").

1.2   Devotion of Time. The parties hereto acknowledge and agree that the work
of the Manager is and shall be of such a nature that regular hours may not be
sufficient and occasions may arise whereby the Manager shall be required to work
more than eight (8) hours per day and/or five (5) days per week. The Manager
agrees that the consideration set forth herein shall be in full and complete
satisfaction for such work and services, regardless of when and where such work
and services are performed. The Manager further releases the Company from any
claims for overtime pay or other such compensation which may accrue to the
Manager. Notwithstanding the foregoing, the Company agrees that so long as the
Manager properly discharges his duties hereunder, the Manager may devote the
remainder of his time and attention to other non-competing business and personal
pursuits.

1.3   Business Opportunities the Property of the Company. The Manager agrees to
communicate immediately to the Company all business opportunities, inventions
and improvements in the nature of the business of the Company which, during the
term of this Agreement, the Manager may conceive, make or discover, become aware
of, directly or indirectly, or have presented to him in any manner which relates
in any way to the Company, either as it is now or as it may develop, and such
business opportunities, inventions or improvements shall become the exclusive
property of the Company without any obligation on the part of the Company to
make any payments therefor in addition to the salary and benefits herein
described to the Manager.

1.4   No Personal Use. The Manager shall not use any of the work the Manager
shall perform for the Company for any personal purposes without first obtaining
the prior written consent of the Company.

2   SALARY, COMMISSION, BONUSES AND BENEFITS

2.1   Salary and Commission. In consideration of the Manager providing the
services referred to herein, the Company agrees to pay the Manager: (a) an
annual base salary (the "Annual Base Salary") of two hundred and ten thousand
Canadian dollars (CDN$210,000) less applicable deductions, payable bi-weekly,
subject to increase as from time to time approved by the Board of Directors of
the Company; and (b) sales commissions calculated and payable in accordance with
Schedule “B” for the first quarter ended October 31, 2006 based on Mr.
Warkentin’s prior salary of CDN$150,000 per annum as per attached hereto.

2.2   Benefits. The Company shall provide, maintain and pay for:

 
(a)
medical, dental for the Manager and his immediate family as is provided by the
Company's medical services plan or an equivalent plan; and

 
(b)
such extended health and other benefits for the Manager and his immediate family
as are provided to employees of the Company, subject to the eligibility of the
Manager.

2.3   Payment in Cash or Shares. All payments payable by the Company to the
Manager, including the Annual Base Salary, commissions and reimbursement of
expenses under Section 4.1 hereof, may be payable in cash or, at the election of
the Manager, with approval by the Company’s Compensation Committee, and subject
to the approval of the regulatory authorities, such will be paid in whole or in
part in common shares in the capital stock of the Company ("Remuneration
Shares"), issued at the 5 day average closing price (for the 5 days prior to the
Manager's election) of the Company's common shares on any stock exchange or
quotation system upon which the Company's common shares are listed for trading.
The Manager hereby agrees that upon his election to receive Remuneration Shares,
he has waived his right under the Employment Standards Act (British Columbia),
R.S.B.C. 1996, c. 113, as amended, to receive such compensation in cash.

2.4   Registration of Remuneration Shares. To ensure that any Remuneration
Shares issued to the Manager under paragraph 2.3 of this Agreement are freely
tradable, the Company shall register with the SEC any Remuneration Shares
issued. Upon or as soon as is practical after the issuance of the Remuneration
Shares, the Company shall file a form S-8 or other appropriate form with the
United States Securities and Exchange Commission (the “SEC) to effect
registration.
 
2.5   

3   VACATION

3.1   Entitlement to Vacation. The Company acknowledges that the Manager shall
be entitled to an annual vacation of four (4) weeks. The Manager shall use his
best efforts to ensure that such vacation is arranged with the Company in
advance such that his vacation does not unduly affect the operations of the
Company.

3.2   Increase in Vacation. The period set out in Section 3.1 above may be
increased from time to time as mutually agreed to by the Manager and the
Company's Compensation Committee.

4   REIMBURSEMENT OF EXPENSES

4.1   Reimbursement of Expenses. The Manager shall be reimbursed for all
reasonable out-of-pocket expenses incurred by the Manager in or about the
execution of the Duties contained herein, including without limiting the
generality of the foregoing, all reasonable travel and promotional expenses
payable or incurred by the Manager in connection with the Duties under this
Agreement. All payments and reimbursements shall be made within one month (1) of
submission by the Manager of vouchers, bills or receipts for such expenses.

5   CONFIDENTIAL INFORMATION

5.1   Confidential Information. The Manager shall not, either during the term of
this Agreement or under the provisions of Section 5.3, without specific consent
in writing, disclose or reveal in any manner whatsoever to any other person,
firm or corporation, nor will he use, directly or indirectly, for any purpose
other than the purposes of the Company, the private affairs of the Company or
any confidential information which he may acquire during the term of this
Agreement with relation to the business and affairs of the directors and
shareholders of the Company, unless the Manager is ordered to do so by a court
of competent jurisdiction or unless required by any statutory authority.

5.2   Non-Disclosure Provisions. The foregoing provision shall be subject to the
further non-disclosure provisions contained in Schedule "C" attached hereto and
incorporated hereinafter by this reference.

5.3   Provisions Survive Termination. The provisions of this section shall
survive the termination of this Agreement for a period of three years.

6   TERM

6.1   Term. This Agreement shall remain in effect until terminated in accordance
with any of the provisions contained in this Agreement.

7   TERMINATION

7.1   Termination by Manager. Notwithstanding any other provision contained
herein, the parties hereto agree that the Manager may terminate this Agreement,
with or without cause, by giving ninety (90) days' written notice of such
intention to terminate.

7.2   Resignation or Cessation of Duties. In the event that the Manager ceases
to perform all of the Duties contained herein, other than by reason of the
Manager's death or disability, or if the Manager resigns unilaterally and on his
own initiative from all of his positions this Agreement shall be deemed to be
terminated by the Manager as of the date of such cessation of Duties or such
resignation, and the Company shall have no further obligations under Section 2
hereof.

7.3   Termination by Company. The Company may terminate this Agreement at any
time for just cause without further obligation. In the event of termination for
any reason other than for just cause twelve (12) months after August 8, 2005,
but within twenty-four (24) months of the effective date of this Agreement, the
Company, at its option, will either (a) continue to pay the salary under Clause
2.1 and provide the benefits under Clauses 2.2. until nine (9) months from the
date of termination or (b) pay nine (9) months’ salary under Clause 2.1 in lieu
of notice. In the event of termination for any reason other than for just cause
twenty-four (24) months after August 8, 2005, the Company, at its option, will
either (a) continue to pay the salary under Clause 2.1 and provide the benefits
under Clauses 2.2 until twelve (12) months from the date of termination or (b)
pay twelve (12) months’ salary under Clause 2.1 in lieu of notice. The date that
is the last date to which the Manager is entitled to receive salary and benefits
(notwithstanding that the Company may pay salary in lieu) under this clause is
the “Termination Date”. Any stock options that have been granted but that have
not yet vested shall immediately terminate, and vested options may be exercised
for a period of 30 days only after the final payment.

7.4   Death. In the event of the death of the Manager during the term of this
Agreement, this Agreement shall be terminated as of the date of such death, and
the Manager's spouse, if living, or surviving children shall be entitled to the
termination allowance stated in Section 7.3 hereof.

7.5   Disability. In the event that the Manager will during the term of this
Agreement by reason of illness or mental or physical disability or incapacity be
prevented from or incapable of performing the Duties hereunder, then the Manager
shall be entitled to receive the remuneration provided for herein at the rate
specified hereinbefore for the period during which such illness, disability or
incapacity will continue, but not exceeding six (6) successive months. If such
illness, disability or incapacity continues or will continue for a period longer
than six (6) successive months, then this Agreement may, at the option of the
Directors of the Company, forthwith be terminated, and the Manager shall be
entitled to the termination allowance stated in Section 7.3 hereof.

7.6   Termination Payments. Any payments made by the Company to the Manager upon
the termination of this Agreement shall be made in cash, or, if the Company does
not have available funds, in equal monthly cash instalments over one year, or in
Remuneration Shares, or in a combination of cash and Remuneration Shares,
subject to regulatory approval. All payments required to be made by the Company
to the Manager pursuant to Section 7 hereof shall be made in full.

7.7 In the event of termination of this Agreement by either party for any
reason, commissions pursuant to Schedule B or any other commissions payable by
the Company to the Manager as a result of sales made by the Company shall be
paid on sales completed up to the last day of the Manager’s actual full time
employment with the Company, and the Manager shall have no claim to commissions
of any kind for sales made by the Company from that date forward.

7.8 Notwithstanding anything else in this Agreement, in the event that the
employment of the Manager under the Agreement is terminated within eighteen (18)
months of an Acquisition, a Hostile Takeover or a Merger and the termination is
without cause, the Company, at its option, will either (a) continue to pay the
salary under the Agreement and provide the benefits under the Agreement until
the Termination Date or (b) pay upon termination an amount equal to the salary
payable to the Termination Date in lieu of notice. Any stock options that have
been granted but that have not yet vested shall immediately vest at the date of
the final payment of termination provisions under section 7.3, and may be
exercised for a period of 30 days only after the final payment.”

8   RIGHTS AND OBLIGATIONS UPON TERMINATION

8.1   Rights and Obligations. Upon termination of this Agreement, the Manager
shall deliver up to the Company all documents, papers, plans, materials and
other property of or relating to the affairs of the Company, other than the
Manager's personal papers in regard to his role in the Company, which may then
be in the Manager's possession or under his control.

9   CLOSING

9.1   Closing Date. This Agreement shall be effective as of October 20, 2006.

9.2   Conditions of Closing. The parties hereto agree that it shall be a
condition of the execution of this Agreement that prior to or contemporaneously
with the execution of this Agreement:

 
(a)
this Agreement shall be approved by the Company’s Compensation Committee.

10   NOTICES AND REQUESTS

10.1   Notices and Requests. All notices and requests in connection with this
Agreement shall be deemed given as of the day they are received either by
messenger, delivery service, or mailed by registered or certified mail with
postage prepaid and return receipt requested and addressed as follows:

 
(a)
if to the Company:

SmarTire Systems Inc.

   
150 - 13151 Vanier Place

   
Richmond, British Columbia

V6V 2J1

   
with a copy to:

   
CLARK, WILSON

   
Suite 800-885 West Georgia Street

   
Vancouver, British Columbia

   
V6C 3H1

Attention: Bernard Pinsky

 
(b)
If to the Manager:

David Warkentin
20580 Powell Ave.
Maple Ridge, B.C.
V2X 3G1

or to such other address as the party to receive notice or request so designates
by written notice to the others.

11   INDEPENDENT PARTIES

11.1   Independent Parties. This Agreement is intended solely as a management
services agreement and no partnership, agency, joint venture, distributorship or
other form of agreement is intended.

12   AGREEMENT VOLUNTARY AND EQUITABLE

12.1   Agreement Voluntary. The parties acknowledge and declare that in
executing this Agreement they are each relying wholly on their own judgement and
knowledge and have not been influenced to any extent whatsoever by any
representations or statements made by or on behalf of any other party regarding
any matters dealt with herein or incidental thereto.

12.2   Agreement Equitable. The parties further acknowledge and declare that
they each have carefully considered and understand the provisions contained
herein, including, but without limiting the generality of the foregoing, the
Manager's rights upon termination and the restrictions on the Manager after
termination and agree that the said provisions are mutually fair and equitable,
and that they executed this Agreement voluntarily and of their own free will.

13   CONTRACT NON-ASSIGNABLE; INUREMENT

13.1   Contract Non-Assignable. This Agreement and all other rights, benefits
and privileges contained herein may not be assigned by the Manager.

13.2   Inurement. The rights, benefits and privileges contained herein,
including without limitation the benefits of Sections 2 and 7 hereof, shall
inure to the benefit of and be binding upon the respective parties hereto, their
heirs, executors, administrators and successors.

14   ENTIRE AGREEMENT

14.1   Entire Agreement. This Agreement represents the entire Agreement between
the parties and supersedes any and all prior agreements and understandings,
whether written or oral, among the parties, including the Management Agreement,
dated August 8, 2005 (the “Original Agreement”). The Manager acknowledges that
he was not induced to enter into this Agreement by any representation, warranty,
promise or other statement, except as contained herein. Specifically, the
Original Agreement is hereby superseded in full by this Agreement and all rights
and obligations under the Original Agreement are hereby terminated.

14.2   Previous Agreements Cancelled. Save and except for the express provisions
of this Agreement, any and all previous agreements, written or oral, between the
parties hereto or on their behalf relating to the services of the Manager for
the Company are hereby terminated and cancelled and each of the parties hereby
releases and further discharges the other of and from all manner of actions,
causes of action, claims and demands whatsoever under or in respect of any such
agreements.

15   WAIVER

15.1   Waiver. No consent or waiver, express or implied, by either party to or
of any breach or default by the other party in the performance by the other of
its or his obligations herein shall be deemed or construed to be a consent or
waiver to or of any breach or default of the same or any other obligation of
such party. Failure on the part of either party to complain of any act or
failure to act, or to declare the other party in default irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
or his rights herein or of the right to then or subsequently declare a default.

16   SEVERABILITY

16.1   Severability. If any provision contained herein is determined to be void
or unenforceable in whole or in part, it is to that extent deemed omitted. The
remaining provisions shall not be affected in any way.

17   AMENDMENT

17.1   Amendment. This Agreement shall not be amended or otherwise modified
except by a written notice of even date herewith or subsequent hereto signed by
both parties.

18   HEADINGS

18.1   Headings. The headings of the sections and subsections herein are for
convenience only and shall not control or affect the meaning or construction of
any provisions of this Agreement.

19   GOVERNING LAW

19.1   Governing Law. This Agreement shall be construed under and governed by
the laws of the Province of British Columbia and the laws of Canada applicable
therein.

20   EXECUTION

20.1   Execution in Several Counterparts. This Agreement may be executed by
facsimile and in several counterparts, each of which shall be deemed to be an
original and all of which shall together constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
20th day of October, 2006.

SMARTIRE SYSTEMS INC.
 
Per: __/s/Jeff Finkelstein_______________
Authorized Signatory
 
 
SIGNED by DAVID WARKENTIN in the presence of:
 
Jeff Finkelstein
Name
 
Suite 150 13151 Vanier Pl Richmond BC
Address
 
Chartered Accountant
Occupation
) /s/David Warkentin
)
)
)
)
)
)
)
)
       

 

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SCHEDULE "A"

1.  The Manager shall continue as the Chief Executive Officer of the Company,
and the Manager shall faithfully, honestly and diligently serve the Company and
each of the Company's subsidiaries.

2.  The Manager shall be responsible for the overall activities and
organizational policies of the Company. The Manager will, in that capacity,
develop, recommend and implement, directly and through subordinates, approved
annual and long-term organizational policies and goals. The Manager shall report
to the Board of Directors of the Company.

 

--------------------------------------------------------------------------------

SCHEDULE "B"

SMARTIRE COMMISSION PLAN

The commission plan for the Manager is based totally on the Company’s revenue
plan for the first quarter of fiscal year 2007 commencing August 1 approved by
the board of directors.

CALCULATION OF COMMISSIONS

The commission is calculated based on the achievement of the quarterly goals as
per the tables below. Commission payable is expressed as a percentage of the
base salary earned in the quarter. The Company will make an assessment of the
commissions owing at the end of the quarter, and may at its discretion, advance
commissions in lieu of payment by the customer.

Commission schedule:     

*Attainment of Revenue Goal
Commission Payable
 
0-50%
10%
 
51-60%
15%
 
61% - 70%
20%
 
>70% - 80%
30%
 
>80% - 90%
40%
 
>90% - 100%
50%
 
>100% - 120%
60%
 
>120%-140%
70%
 
>140%-160%
80%
 
>160%-180%
90%
 
>180%-200%
100%
 

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SCHEDULE "C"

NON-DISCLOSURE PROVISIONS
 
1.
CONFIDENTIAL INFORMATION AND MATERIALS

 
(a)
"Confidential Information" shall mean, for the purposes of this Agreement,
non-public information which the Company designates as being confidential or
which, under the circumstances surrounding disclosure ought reasonably to be
treated as confidential. Confidential Information includes, without limitation,
information, whether written, oral or communicated by any other means, relating
to released or unreleased Company software or hardware products, the marketing
or promotion of any product of the Company, the Company's business policies or
practices, and information received from others which the Company is obliged to
treat as confidential. Confidential Information disclosed to the Manager by any
subsidiary and/or agents of the Company is covered by this Agreement.

 
(b)
Confidential Information shall not include that information defined as
Confidential Information hereinabove which the Manager can exclusively
establish:

 
(i)
is or subsequently becomes publicly available without breach of any obligation
of confidentiality owed to the Company;

 
(ii)
became known to the Manager prior to disclosure by the Company to the Manager;

 
(iii)
became known to the Manager from a source other than the Company other than by
the breach of any obligations of confidentiality owed to the Company; or

 
(iv)
is independently developed by the Manager.

 
(c)
Confidential Materials shall include all tangible materials containing
Confidential Information, including, without limitation, written or printed
documents and computer disks or tapes, whether machine or user readable.

2.
RESTRICTIONS

 
(a)
The Manager shall not disclose any Confidential Information to third parties for
a period of three (3) years following the termination of this Agreement, except
as provided herein. However, the Manager may disclose Confidential Information
during bona fide execution of the Duties or in accordance with judicial or other
governmental order, provided that the Manager shall give reasonable notice to
the Company prior to such disclosure and shall comply with any applicable
protective order or equivalent.

 
(b)
The Manager shall take reasonable security precautions, at least as great as the
precautions he takes to protect his own confidential information, to keep
confidential the Confidential Information, as defined hereinabove.

 
(c)
Confidential Information and Materials may be disclosed, reproduced, summarized
or distributed only in pursuance of the business relationship of the Manager
with the Company, and only as provided hereunder.

3.
RIGHTS AND REMEDIES

 
(a)
The Manager shall notify the Company immediately upon discovery of any
unauthorized use or disclosure of Confidential Information or Materials, or any
other breach of this Agreement by the Manager, and shall co-operate with the
Company in every reasonable manner to aid the Company to regain possession of
said Confidential Information or Materials and prevent all such further
unauthorized use.

 
(b)
The Manager shall return all originals, copies, reproductions and summaries of
or relating to the Confidential Information at the request of the Company or, at
the option of the Company, certify destruction of the same.

 
(c)
The parties hereto recognize that a breach by the Manager of any of the
provisions contained herein would result in damages to the Company and that the
Company could not be compensated adequately for such damages by monetary award.
Accordingly, the Manager agrees that in the event of any such breach, in
addition to all other remedies available to the Company at law or in equity, the
Company shall be entitled as a matter of right to apply to a court of competent
jurisdiction for such relief by way of restraining order, injunction, decree or
otherwise, as may be appropriate to ensure compliance with the provisions of
this Agreement.

4.
MISCELLANEOUS

 
(a)
All Confidential Information and Materials are and shall remain the property of
the Company. By disclosing information to the Manager, the Company does not
grant any express or implied right to the Manager to or under any and all
patents, copyrights, trademarks, or trade secret information belonging to the
Company.

 
(b)
All obligations created herein shall survive change or termination of any and
all business relationships between the parties for a period of three years after
such termination.

 
(c)
The Company may from time to time request suggestions, feedback or other
information from the Manager on Confidential Information or on released or
unreleased software belonging to the Company. Any suggestions, feedback or other
disclosures made by the Manager are and shall be entirely voluntary on the part
of the Manager and shall not create any obligations on the part of the Company
or a confidential agreement between the Manager and the Company. Instead, the
Company shall be free to disclose and use any suggestions, feedback or other
information from the Manager as the Company sees fit, entirely without
obligation of any kind whatsoever to the Manager.