<PAGE>   1
                                                                    EXHIBIT 10.6
                                                                  EXECUTION COPY


**  THE ITEMS MARKED BY TWO ASTERISKS HAVE BEEN OMITTED FROM THIS FILING AND
    HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

                        DATED 30TH DAY OF SEPTEMBER, 1999



                           TRANSENSE TECHNOLOGIES plc
                                       and
                              SMARTIRE SYSTEMS INC.


                                LICENCE AGREEMENT
                                   RELATING TO
                             TYRE MONITORING SYSTEMS









<PAGE>   2

                                      INDEX




<TABLE>
<S>                                                                                   <C>
1.     Definitions and Interpretation..................................................1
2.     Grant...........................................................................4
3.     Consideration and Royalties.....................................................4
4.     Conditional Option..............................................................6
5.     Transense's Warranties..........................................................8
6.     Exclusion of Liability.........................................................11
7.     Infringement...................................................................11
8.     Transense's Obligations........................................................12
9.     SmarTire's Obligations.........................................................14
10.    Term and Termination...........................................................15
11.    Share undertaking..............................................................17
12.    General........................................................................17
13.    Governing Law and Jurisdiction.................................................19
</TABLE>


SCHEDULES:
Schedule 1 The Patents
Schedule 2 Formal Patent Licence Agreement




<PAGE>   3


THIS AGREEMENT made the Thirtieth day of September, 1999.

BETWEEN:

         TRANSENSE TECHNOLOGIES plc, Company No 1885075, duly organised and
         existing under the laws of England, having its registered office at 36
         Elder Street, London, El 6BT, England

         (hereinafter called "Transense")

AND:

         SMARTIRE SYSTEMS INC., a company duly organised and existing under the
         laws of the Province of British Columbia, Canada having its registered
         office at Suite 150, 13151 Vanier Place, Richmond, British Columbia,
         V6V 2J1, Canada

         (hereinafter called "SmarTire")

         Transense and SmarTire each being a party to this Agreement are
         collectively referred to as "the parties" hereafter.



WHEREAS:

A. Transense develops and licenses the application of certain Surface Acoustic
Wave transducer sensor and other technologies for the automotive industry, and
is the beneficial owner of certain Patents relating to the Products;

B. SmarTire develops and manufactures tyre monitoring systems and components and
desires to obtain a world-wide non-exclusive licence under the Patents and the
Technical Information to make and to sell Products that embody the Patents and
the Technical Information;

C. The parties hereto entered into an agreement dated 4th June 1999 relating to
the Technology under the Patents and setting out the principle terms on which
this Agreement would be concluded.

NOW IT IS AGREED as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 The terms defined in this Article shall have the meaning ascribed to them
herein whenever they are used in this Agreement, unless otherwise clearly
indicated by the context.

1.2 "L" means British pounds sterling.

1.3 "ASIC" means application specific integrated circuit.



<PAGE>   4
                                      -2-



1.4 "Associated Sub-licensee" is a Sub-licensee of SmarTire hereunder which
either is a subsidiary or a holding company of SmarTire or a subsidiary of any
holding company of SmarTire (as such terms are defined by s736 Companies Act
1985), or is not dealing with SmarTire on arm's length terms.

1.5 "Calendar Quarter" shall mean consecutive periods of three (3) calendar
months ending on the last days of March, June, September and December of each
year until the first of these to occur after expiry or termination of this
Agreement.

1.6 "Chargeable Transaction" shall have the meaning ascribed in Clause 3.3.

1.7 "Closing Date" means the date of this Agreement.

1.8 "Confidential Information" means inventions, designs, drawings, computer
programs, specifications, data and any other information that is provided to
SmarTire by Transense, written or otherwise, that is marked or delivered as
confidential or is specifically identified as proprietary, secret or
confidential (or words of similar import).

1.9 "Improvements" means any and all improvements, or modifications to or
adaptations of any of the inventions, designs or technical information which
Transense is free to licence under Clause 2.1 below, and which might reasonably
be of commercial interest to SmarTire.

1.10 "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System of the United States of America.

1.11 "Net Selling Price" means the gross invoice price of the arm's length sale,
hiring or other disposal of the Products by SmarTire or any Sub-licensee
pursuant to this Agreement, net of freight, insurance, taxes and duties.

1.12 "Patents" shall mean the patents and applications for patents specified in
Schedule 1 and any patents which may be granted pursuant to any of such
applications and any re-issues or extensions of such patents and any divisions
and continuations of such applications.

1.13 "Products" means any tyre pressure monitoring transducer or other tyre
monitoring product (including spare and replacement parts of such products)
which is made, assembled, used, sold, or hired or otherwise disposed of in any
country in the Territory and which:

         (a)      falls within the scope of, or utilises any method or process
                  which falls within the scope of, any of the Patents or which
                  incorporates, or is itself, the invention the subject of any
                  of the Patents of that country; or

         (b)      embodies or utilises any of the Technical Information; or

         (c)      but for this licence would infringe any copyright in the
                  Technical Information; or

         (d)      but for this licence would infringe any design right in the
                  Technical Information.



<PAGE>   5
                                      -3-



1.14 "Revenue Auditor" is the firm or competent individual appointed by
Transense to verify the Royalties payable by SmarTire and SmarTire's Associated
Sub-licensees.

1.15 "Royalties" means the payments specified in Clause 3.3.

1.16 "Sub-licensee" means a party who is at arm's length with SmarTire and who
licenses from SmarTire its rights or a part of SmarTire's rights granted under
this Agreement; and includes Associated Sub-licensees.

1.17 "Technical Information" includes the following, which pertains to the
Surface Acoustic Wave transducer and other Transense technologies for tyre
monitoring applications only and also includes information used in Transense's
normal conduct of business as below:

         (a)      Detailed formulations and drawings;

         (b)      Technical information needed in the establishment of the
                  manufacturing processes for the Products, the incorporation of
                  such information in SmarTire's own manufacturing and assembly
                  processes, including where available any plant and equipment
                  specification, operation and maintenance of the Technology;

         (c)      Approved sources of supply for components;

         (d)      Data for inspection and trial operation;

         (e)      Other engineering information and know-how which the parties
                  agree shall be necessary to SmarTire for the assembly and
                  functional understanding of the Technology, provided that
                  Transense may furnish such engineering information to SmarTire
                  without violating any law or contractual commitment to others;
                  and

         (f)      The Confidential Information and the Improvements.

1.18 "Technology" means the surface acoustic wave transducer technology for tyre
monitoring applications developed or otherwise owned by Transense, and includes
the technology described in the Patents.

1.19 "Territory" means any country in the World.

1.20 "To the knowledge of" means to the best knowledge, information and belief
as at the Closing Date or other date as appropriate of any of the directors,
officers, employees, contractors, servants or agents after due inquiry from all
sources of information likely to provide them with knowledge of the same and
after consulting the appropriate professional advisors.

1.21 The headings to the Clauses of this Agreement are for ease of reference
only and shall not form part of this Agreement.



<PAGE>   6
                                      -4-



2.       GRANT

2.1 In consideration of SmarTire's payment of the Royalties and purchase of
shares in Transense pursuant to Clause 3.1, Transense hereby grants to SmarTire
a non-exclusive licence under the Patents and under rights in the Technical
Information to develop, make, use, supply and sell Products within the Territory
on the terms of this Agreement and as set out in Schedule 2, provided always
that SmarTire shall not supply (and shall procure that no Sub-licensee of
SmarTire shall supply) to any party any Products for use in Formula One racing
without the prior written consent of Transense.

2.2 Transense shall at the cost of SmarTire execute any further document which
may be necessary to give effect to this Agreement in any part of the Territory.

2.3 SmarTire shall be responsible for obtaining any requisite registration or
governmental approval of this Agreement and shall expeditiously take all
necessary steps to obtain the same.

2.4 SmarTire shall, subject to Clause 2.5, be entitled to grant non-assignable
sub-licences (with no right to grant further licenses) in respect of the
licenses granted under Clause 2.1 to Sub-licensees or Associated Sub-licensees
as it may in its discretion think fit, provided that SmarTire shall remain
responsible for all acts and omissions of such Sub-licensees and shall be
directly liable to Transense for such acts and omissions as though they were
those of SmarTire. SmarTire shall within thirty (30) days of grant of any such
sub-licence notify Transense of any sub-licence granted pursuant to this Clause,
specifying whether the Sub-licensee is an Associated Sub-licensee and providing
a copy of the sub-licence.

2.5 Each sub-licence granted pursuant to Clause 2.4 shall contain provisions:

         (a)      imposing obligations on the Sub-licensee at least as onerous
                  as those imposed on SmarTire herein;

         (b)      in the case of an Associated Sub-Licensee allowing the same
                  access by Transense's Revenue Auditor to the premises and
                  records of the sub-licensee as Transense has to the premises
                  and records of SmarTire pursuant to Clause 3.12 below;

         (c)      for termination similar to those contained in this Agreement;
                  and

         (d)      for automatic termination of the sub-licence on the
                  termination of this Agreement.

3. CONSIDERATION AND ROYALTIES

3.1 In addition to the Royalties, the consideration for the grant to SmarTire of
the licenses herein shall be the subscription on the Closing Date by SmarTire
for L 150,000 sterling in aggregate of 250,000 Ordinary Shares of 1p each in the
capital of Transense credited as fully paid. Such subscription shall entitle
SmarTire to options to subscribe for a further 250,000 Ordinary Shares of 1p
each in the capital of Transense credited as fully paid at the lower of L 2 per
share and the average of the middle market price per share during the 30 days
prior to the



<PAGE>   7

                                      -5-



giving of notice to Transense of exercise of such options. Such options shall be
exercisable at any time during the period of two (2) years following the Closing
Date whereupon it shall lapse.

3.2 The sum of L150,000 referred to in Clause 3.1 shall satisfied on the
Closing Date by:-

         (a)      the payment in cash to Transense of the sum of L100,000
                  sterling; and

         (b)      the allotment by SmarTire to Transense of 25,000 common shares
                  in the capital of SmarTire credited as fully-paid.

3.3 Except as otherwise set out in this Agreement, SmarTire shall, during the
continuance of this Agreement, pay to Transense free of any deduction, set off
or counterclaim Royalties on all Products supplied or sold pursuant to this
Agreement and any sub-licences (a "Chargeable Transaction") commencing on the
date of the first commercial sales (not including sales made purely for
evaluation or testing purposes) at the following percentages:

         (a)      ** of Net Selling Price up to ** cumulative sales of the
                  Products;

         (b)      ** of Net Selling Price over ** but less than ** cumulative
                  sales of the Products;

         (c)      ** of Net Selling Price over ** but less than ** cumulative
                  sales of the Products; and

         (d)      ** of Net Selling Price over ** cumulative sales of the
                  Products.

3.4 In the event that Royalties become payable before the patent applications
listed in Schedule 1 are granted by the United Kingdom Patent Office, then the
Royalties otherwise payable shall be reduced by ** percent until the said
patents are granted. If the patent applications listed on Schedule 1 do not
proceed to grant during the term of this Agreement, then the Royalties shall be
permanently reduced by **. If the patent applications listed in Schedule 1
proceed to grant, then SmarTire will pay 100% the Royalties ab initio.

3.5 In any sale or other disposal of any Products or part thereof otherwise than
in any arm's length transaction exclusively for money, the fair market price (if
higher) in the relevant country of disposal shall be deemed to be the Net
Selling Price.

3.6 In the event that Transense grants a licence for the Products to a third
party for use in tyre monitoring applications, or any part thereof, and
negotiates a royalty which is less than the Royalties, the royalty payable by
SmarTire shall be the lower of the Royalties or the royalties paid by such third
party.

3.7 Payments due under Clause 3.3 shall be made in Pounds Sterling within
twenty-eight (28) days of the end of each Calendar Quarter in respect of
Royalties accruing during that Calendar Quarter and SmarTire shall render to
Transense a statement showing the details of sales on which the Royalties due
have been calculated. The exchange conversion from any foreign currency to
Pounds Sterling shall be effected on the last day of the Calendar Quarter for
which






<PAGE>   8

                                      -6-



the payment is being made. Any late payments shall bear interest (at the rate of
interest laid down by the Secretary of State of the United Kingdom from time to
time for the purposes of the Late Payment of Commercial Debt (Interest) Act
1998) on the outstanding amount from the due date until the date of actual
payment, whether before or after judgement.

3.8 Subject to Clause 3.11 below (mandatory withholdings), all sums payable
under this Agreement shall be made in full without deduction of taxes, charges
or other duties that may be imposed except in so far as any such deduction may
be credited in full by Transense against Transense's own tax liabilities. The
parties agree to co-operate in all respects necessary to take advantage of such
tax treaties or agreements that prevent double taxation as may be available.

3.9 SmarTire shall take all necessary steps and pay all necessary fees and
expenses to satisfy all applicable laws and requirements in respect of the
remittance by SmarTire of Royalties and of registering, declaring, reporting and
rendering valid this Agreement; but shall not be responsible for any of
Transense's income or other tax liabilities in receiving the Royalties.

3.10 All sums payable under this Agreement are exclusive of VAT, where
applicable.

3.11 Where any sums payable to Transense by SmarTire under this Agreement are to
be paid after deduction of any mandatory withholding tax, payment shall be
accompanied by such certificate as Transense may reasonably require to enable
Transense to set-off such deduction against its own tax liability.

3.12 SmarTire agrees to keep true and accurate records and books of account
containing all data necessary for the determination of Royalties payable
hereunder, which records and books of account shall, upon reasonable notice of
Transense, be open at all reasonable times during business hours for inspection
by Transense's Revenue Auditor for the purpose of verifying the accuracy of
SmarTire's reports hereunder. If the inspection discloses an underpayment to
Transense of more than 5% of the amount due, SmarTire shall promptly on demand
reimburse Transense the reasonable costs of Transense incurred in respect of the
verification together with interest at the rate specified in Clause 3.7 from the
date on which the payment should have been made to the date on which it is
actually made.

4. CONDITIONAL OPTION

4.1 Transense shall not grant any further non-exclusive licenses of the Products
at any time before the third anniversary of this Agreement unless it has first
served notice on SmarTire that Transense has received a written bona fide offer
("an Offer") from a third party for the grant of such a licence ("a Notice"). An
Offer must involve payments to Transense of at least ** payable within a 12
month period from the date of the Offer; if less, Transense will not grant such
a licence and the provisions of this Section 4 will not apply.

4.2 In the event that a Notice and a copy of the Offer are served upon SmarTire
before the third anniversary of the Closing Date, SmarTire shall have an option,
exercisable only within a 30 day period following receipt by it of such Notice
and Offer, by written notice to Transense (but with effect only from the first
day of the next Calendar Quarter following receipt by Transense of SmarTire's
notice) to substitute an exclusive licence for the non-exclusive




<PAGE>   9
                                      -7-



licence granted in Clause 2.1 above, upon making payment to Transense in
accordance with Clause 4.3 below. If, following service on SmarTire of the
Notice and Offer (if any), SmarTire does not exercise the option within such 30
day period, the option shall lapse, provided that Transense does grant a
non-exclusive licence to the third party on exactly the terms of the Offer
within a period of 90 days of the Offer. Thereafter, Transense shall be under no
obligation to serve Notices in respect of any further Offers, whether before or
after the third anniversary of the date of this Agreement.

4.3 The consideration payable by SmarTire for the substitution of exclusive
licences referred to in Clause 4.2 above shall be the subscription by SmarTire
of such number of Ordinary Shares of 1p each in the capital of Transense
credited as fully paid as shall have a value of ** Pounds Sterling (**) in
aggregate, calculated at the higher of L2 per share and the average of the
middle market price per share for Transense shares trading on a recognized stock
exchange or trading market during the 30 days prior to the date of SmarTire's
notice of subscription of such shares.

4.4 The subscription of ** referred to in Clause 4.3 above shall be satisfied on
the date of SmarTire's notice of subscription by:-

        (a)     the payment in cash to Transense of the sum of **; and

        (b)     the allotment by SmarTire to Transense of such number of common
                shares in the capital of SmarTire credited as fully paid as
                shall have a value of ** aggregate calculated at the higher of
                L2 per share and the average of the daily closing prices of such
                shares as shown in NASDAQ or such other recognized stock
                exchange or trading market upon which SmarTire shares trade on
                the 30 trading days prior to the date of SmarTire's notice of
                subscription in Transense.

4.5 In the event that SmarTire, following receipt of a Notice and Offer, elects
to exercise the option set out in Clause 4.2 of above within the prescribed 30
day period, the following provisions shall apply to the exclusive licences
thereafter enjoyed by SmarTire:-

        (a)     the exclusive licences shall be subject to any laws for the time
                being in any part of the Territory, including but not limited to
                any laws relating to the grant of any compulsory licences or any
                licences as of right;

        (b)     if SmarTire for any reason fails to supply Products which
                SmarTire commercially sells in other countries and which will
                not require modification to sell in that country, to customers
                within any country of the Territory within 6 months following
                receipt of a notice from Transense requiring such supply, then
                Transense shall be entitled, at any time after the expiry of
                such 6 month period, to serve notice on SmarTire substituting
                forthwith non-exclusive licences for SmarTire's exclusive
                licences in the smallest legal territorial jurisdiction of that
                country necessary to sell Products in that jurisdiction in which
                such customers carry on their business for which they need
                Products.

4.6 If, following the exercise by SmarTire of the option set out in Clause 4.2
above ("the Option"), the Royalties are less than the minimum levels set out in
this sub-Clause 4.6,




<PAGE>   10
                                     - 8 -



Transense shall be entitled to substitute non-exclusive licenses for the
exclusive licenses granted to SmarTire under the Option.

        (a)     For the purposes of the minimum Royalties set out in this
                sub-Clause 4.6, a 'Year of Exclusivity' shall mean any period of
                4 consecutive Calendar Quarters, the first Year of Exclusivity
                beginning on the day on which the Option exercised by SmarTire
                becomes effective, and each subsequent Year of Exclusivity
                beginning on an anniversary of such date.

        (b)     In aggregate over the first 4 Years of Exclusivity, the minimum
                Royalties shall be **


        (c)     In each subsequent Year of Exclusivity, the minimum Royalties
                shall be the sum of **

        (d)     In order to achieve the minimum Royalties hereunder, SmarTire
                may supplement the Royalties otherwise payable by a voluntary
                cash payment.

4.7 The rights granted to SmarTire under this Section 4 shall not be assignable
to any third party.

4.8 This Section 4 shall cease to be of effect in the event that this Agreement
is terminated by either party in accordance with Clause 10.2.

4.9 Notwithstanding anything else in this Agreement, no further Royalties will
be payable by SmarTire to Transense for use of the Technology after the date
that: (and in such event, Transense may not terminate the license granted herein
for non-payment of the Royalties)

        (a)     a patent for tyre monitoring systems based upon Surface Acoustic
                Wave technology for pressure measurement is issued by a patent
                office of the United States, Japan or any European country to
                any third party during the term of the Agreement; or

        (b)     subject to the provisions of Clause 7.1, Transense or SmarTire
                is notified by a third party of a potential infringement of a
                patent for tyre monitoring systems using Surface Acoustic Wave
                technology in the United States, Japan or any European country.

5. TRANSENSE'S WARRANTIES

5.1 Transense warrants and represents to SmarTire, with the intent that SmarTire
shall rely thereon in entering into this Agreement and in concluding the
transactions contemplated hereby, that:

        (a)     Transense is duly incorporated, validly existing and in good
                standing, under the laws of England, and has the power,
                authority and capacity to enter into this Agreement and carry
                out its terms;







<PAGE>   11

                                     - 9 -



        (b)     Transense is the registered and beneficial owner of all right,
                title and interest in and to the Technology and the Patents
                which are free and clear of all encumbrances, except as
                disclosed in a disclosure letter (if any) to be delivered by
                Transense to SmarTire on or before the Closing Date;

        (c)     To the knowledge of Transense, there are no grounds for the
                Patents being invalid or rejected;

        (d)     To the knowledge of Transense, the devices produced in
                accordance with the Technology are not date sensitive;

        (e)     The inventions are fully described and claimed in the Patents
                and are correctly and completely set out in Schedule 1;

        (f)     Transense has not granted or agreed to grant any license or any
                other agreement whereby Transense is obliged to give to any
                other person, firm or corporation any rights to make, use or
                sell the Technology except those pertaining to the development
                of the Surface Acoustic Wave transducers and ASICs which have
                already been disclosed to SmarTire;

        (g)     Transense has not disclosed the Technical Information, or any of
                it, to any other person, firm or corporation except in
                connection with the manufacture and sale of the Technology in
                the normal course of business, and except pursuant to written
                non-disclosure agreements with such persons, firms or
                corporations entered into for valuable consideration;

        (h)     Neither the execution of this Agreement nor the performance of
                Transense's obligations hereunder shall give rise to the
                creation or imposition of any encumbrance on the Patents;

        (I)     To the knowledge of Transense, the Technology being transferred
                to SmarTire pursuant to this Agreement comprises all knowledge
                that is currently available to Transense for use of the
                Technology; and Transense will transfer such other knowledge to
                SmarTire as it becomes available, and such additional
                transferred knowledge will become part of the knowledge
                transferred hereunder and will be governed by this Agreement;

        (j)     To the knowledge of Transense, SmarTire's use of the Technology
                as contemplated herein does not and will not infringe upon, or
                induce or contribute to the infringement of the intellectual
                property rights of a third party;

        (k)     To the knowledge of Transense, there is no claim of infringement
                (or the inducement of or contribution to the infringement) of
                any rights of any third party arising from SmarTire's use of the
                Technology, nor has Transense received any notice that use of
                the Technology infringes upon or breaches any rights of any
                third party;




<PAGE>   12
                                     - 10 -


        (1)     To the knowledge of Transense, there is no infringement or
                violation by any third party of any of Transense's rights in the
                Technology;

        (m)     To the knowledge of Transense, there is no fact, reason, action
                or inaction that adversely affects the scope, validity or
                enforceability of any of the intellectual property rights
                related to the Technology;

        (n)     To the knowledge of Transense, it has made available to SmarTire
                a true and complete copy of all patent applications (including
                prosecution history), registrations and amendments thereto that
                comprise or relate to the Technology;

        (o)     To the knowledge of Transense, with respect to the Technology
                and unless there is an appropriate annotation therein to the
                contrary:

                (i)     the filing and grant dates of the Patents are as set out
                        in Schedule 1;

                (ii)    in addition to those listed in Schedule 1, no patent
                        applications have been filed in any other government
                        office anywhere in the world, for the Technology or in
                        respect of some portion or embodiment of the Technology,
                        whether later abandoned or not;

                (iii)   the Technology has never been on sale anywhere, it being
                        understood that an offer to sell under conditions of
                        secrecy is within the meaning of "on sale";

                (iv)    the Technology was not patented or described in a
                        printed publication anywhere in the world prior to the
                        filing date of the Patents;

                (v)     the Technology was not known or used by others or first
                        patented or described in a printed publication anywhere
                        in the world before the invention thereof by the
                        inventors set out in Schedule 1;

                (vi)    the persons listed in Schedule I were substantially
                        involved in the preparation or prosecution of the
                        Patents;

                (vii)   the inventors of the Technology are identified in
                        Schedule I and there are no others who have a reasonable
                        claim of co-inventorship or who have made such a claim;

                (viii)  the testing of the Technology was carried out under
                        conditions of secrecy and was not for commercial use;

        (p)     Neither this Agreement nor any document to be delivered by
                Transense nor any certificate, report, statement or other
                documents furnished by Transense in connection with the
                negotiation of this Agreement contains or shall contain any
                untrue statement of a material fact or omits or shall omit to
                state a material fact necessary to make the statement contained
                herein or therein not misleading. Transense has disclosed to
                SmarTire everything material or cogent in connection




<PAGE>   13
                                     - 11 -


                with the Patents and the Technology, and nothing stated to
                SmarTire has been misleading or incorrect.

6. EXCLUSION OF LIABILITY

6.1 SmarTire acknowledges that:-

        (a)     Transense's business is the invention and exploitation of
                intellectual property rights; and

        (b)     Transense does not have expertise in the design or manufacture
                of finally finished products; and

        (c)     As at the Closing Date the Technology embodied in Products is
                experimental; and

        (d)     SmarTire is under an obligation to test all Products thoroughly
                before use and SmarTire acknowledges that Transense has not
                performed any such tests on which SmarTire may rely.

6.2 In the light of SmarTire's acknowledgements in Clause 6.1 SmarTire agrees
that the provisions of Clause 6.1 are reasonable.

6.3 Transense shall be under no liability (save for liability for negligence or
willful misconduct) whatsoever to SmarTire for any expense, loss, damage or
injury of any kind (including but not limited to any loss of profit or
consequential damage) sustained by SmarTire or any third party arising or
incurred in connection with the manufacture, use, sale or other disposal of
Products and SmarTire shall indemnify Transense from and against all such
liability.

7. INFRINGEMENT

7.1 If any of the Patents shall be declared to be infringing on another patent,
declared invalid or revoked by a patent office, court or tribunal of competent
jurisdiction, all Royalties shall cease to be payable in respect of the Patent
or Patents held infringing, invalid or revoked as from the date of such
declaration or revocation but, if the decision of the court or tribunal making
such declaration or revocation shall be reversed on appeal, the Royalties shall
become payable from the date of such reversal together with all Royalties which
would have been payable but for the adverse decision.

7.2 The parties shall promptly inform each other of any infringement or
suspected infringement of any of the Patents of which they become aware.

7.3 Transense may, but shall not be obliged to institute suit against a third
party for infringement of the Patents or unlawful use of any portion of the
Confidential Information within one month from a request to do so by SmarTire
and, if it does commence such suit, it shall pursue the same with reasonable
dispatch. If Transense does not institute such suit within such period, SmarTire
may, but shall not be obliged to institute such suit in the name of Transense.




<PAGE>   14
                                     - 12 -



7.4 If Transense institutes and prosecutes to judgement any suit provided for in
paragraph 7.3 hereof (and whether or not requested to do so by SmarTire), all
recovery of damages in such lawsuits shall be payable to Transense unless
otherwise agreed to in writing between the parties hereto.

7.5 If SmarTire institutes a suit for infringement of the Patents or unlawful
use of the Confidential Information, all recovery of damages in such lawsuits
shall be payable to SmarTire unless otherwise agreed to in writing between the
parties hereto.

7.6 If both Transense and SmarTire jointly institute and prosecute to judgement
any proceedings for unlawful use of the trade secrets herein above referred to,
the parties hereto shall bear the cost of such lawsuit equally and all recovery
of damages shall be payable equally to the parties hereto unless otherwise
agreed to in writing.

7.7 Transense shall fully and effectively indemnify, defend and save harmless,
SmarTire from all cost, damage, loss or expense suffered or incurred by SmarTire
(including reasonable legal fees and disbursements invoiced to SmarTire), every
action, suit or proceeding or claim instituted against SmarTire for infringement
of the patent, copyright, trade secrets or other intellectual property rights of
any third party, where such action, suit or proceeding or claim relates to
SmarTire's use, manufacture and/or sale of the Technology as incorporated into
the Products as contemplated herein.

7.8 Transense shall have control of the defense of such lawsuit as specified in
Clause 7.7. SmarTire shall assist Transense, at Transense's sole cost, in the
defense of such suit or action by providing information and witnesses as needed.
SmarTire shall have the right to be represented by its own counsel at its
expense.

7.9 Transense may not settle any lawsuit without the consent of SmarTire, if by
such settlement SmarTire becomes obliged to make any monetary payment, to
transfer any property or interest in property, or become subject to an
injunction.

8. TRANSENSE'S OBLIGATIONS

8.1 Transense shall supply the Technical Information to SmarTire.

8.2 Transense undertakes to inform SmarTire of new tyre monitoring designs and
relevant developments that could constitute Improvements. All patents and patent
applications relating to (and all Technical Information and Confidential
Information embodied in) such Improvements shall be licensed to SmarTire under
the terms of this Agreement, and shall be deemed to be included in definitions
of Patents, Technical Information and Confidential Information respectively,
provided in each case that SmarTire does not reject such Improvement within 28
days of receiving details of such Improvement.

8.3 If SmarTire discovers, invents or acquires any Improvements to the subject
matter of the Technology, the parties acknowledge and agree that any such
Improvements will be the sole property of SmarTire to the exclusion of
Transense, which includes the right to obtain patent or related protection
therefor in all countries at SmarTire's expense, save that SmarTire shall



<PAGE>   15
                                     - 13 -



grant back to Transense a license for applications not related to tyre
monitoring on terms to be agreed between the parties.

8.4 Transense shall, within sixty (60) days of the Closing Date and from time to
time throughout the term of the Agreement when requested by SmarTire, supply
SmarTire with such samples of the Technology that are available and a copy of
all Technical Information and all other information and documentation that is
available to enable SmarTire to practice the Technology, to utilize the
Technical Information, and to manufacture and sell the Products.

8.5 Transense shall supply SmarTire with such product and technical training,
consultation, support, supervision and other assistance as reasonably requested
by SmarTire as is necessary to prepare and commence use of the Technology,
incorporate it into the Products and to commercialize the Technology.

8.6 Upon request of SmarTire, Transense shall send to SmarTire, qualified
specialists, technicians and other personnel ("Technical Personnel") to provide
such technical assistance to such employees of SmarTire as SmarTire shall
designate and to consult with SmarTire in connection with the manufacture and
sale of SmarTire's Products.

8.7 SmarTire shall pay the reasonable disbursements incurred by Transense in
providing any such assistance as set out in Clause 8.6, subject to prior
approval by SmarTire.

8.8 Transense agrees that it will develop, and introduce SmarTire to, a source
or sources for the key acoustic wave and ASIC components for the Products. In
developing the key acoustic wave and ASIC components for tyre monitoring
systems, Transense agrees to require of each source that their relationship be
exclusive such that the supplier is prohibited from selling the key acoustic
wave or ASIC components to any other party in connection with tyre monitoring
systems that is not a licensee of Transense for the Technology.

8.9 Transense shall keep confidential all SmarTire information of a confidential
nature.

8.10 Transense shall pursue promptly the prosecution of the patent applications
listed in Schedule 1 and shall maintain those patent applications in good
standing and shall bear all expenses in connection therewith and shall provide
SmarTire with such information with respect to the patent applications as
SmarTire may require with respect to the prosecution of the applications
therefor and the maintenance of the patent applications in good standing.

8.11 Transense shall pursue promptly the filing and prosecution of patent
applications listed in Schedule 1 in the United States Patent Office for the
inventions as disclosed in the U.K. patent applications and shall maintain in
good standing any patents issued thereunder and shall bear all expenses in
connection therewith and shall provide SmarTire with such information as
SmarTire may require with respect to the prosecution of the applications
therefor and the maintenance of such patents in good standing.

8.12 If Transense fails to satisfy any of the covenants contained in Clause
8.11, this Agreement authorizes SmarTire to pursue on behalf of Transense the
filing and prosecution of the patent applications in the United States Patent
Office for the inventions as disclosed in the



<PAGE>   16
                                      -14-



patent applications listed in Schedule 1 (as applicable), and to maintain in
good standing any patents issued thereunder. Any and all expenses incurred by
SmarTire pursuant to this Clause 8.12 will be borne by Transense and may be
offset by SmarTire against any Royalties payable to Transense.

8.13 SmarTire acknowledges that Transense's license of August 22, 1994 from
Anthony and Brian Lonsdale relates only to cars, commercial industrial and
agricultural vehicles, fork lift trucks, road traffic management, positioning
and location equipment relating to moving vehicles, earth moving equipment,
tracked vehicles and other types of vehicles in the Territory. At SmarTire's
request and cost, Transense will attempt to license such other uses as SmarTire
deems appropriate, and such uses will become part of this Agreement. Any
licensing costs paid by SmarTire will be deducted from the first Royalties
payable relating to the new uses.

9. SMARTIRE'S OBLIGATIONS

9.1 SmarTire undertakes that subject to price, quality and delivery terms being
as favorable to SmarTire as other suppliers offer, and subject to SmarTire being
satisfied as to the protection of its intellectual property rights and the
Technical Information, it shall source the key surface acoustic wave and ASIC
components for SmarTire's Products from suppliers that have been approved by
both Transense and SmarTire, such approval not to be unreasonably withheld.

9.2 Should SmarTire enter into agreements for supply of the key acoustic wave
and ASIC components of the Products with third parties other than those sourced
by Transense as referred to in Clause 8.8, SmarTire undertakes that such
agreements will require those third parties to use the Technical Information
only to produce components for SmarTire's use under this Agreement and to
protect the confidentiality of the Technical Information.

9.3 SmarTire shall ensure that all advertisements, labels, name tags, markings
and other promotional materials relating to the Products comply with all
relevant laws and regulations of all governments and other relevant authorities
in the Territory.

9.4 SmarTire covenants, represents, and warrants that:

        (a)     SmarTire will, upon their commercial development, use reasonable
                endeavours to promote public acquaintance with and esteem for
                the Products within the Territory where SmarTire believes a
                commercial and profitable market can and will develop;

        (b)     all Products supplied or sold by SmarTire shall comply with ISO
                9000 and QS 9000 requirements and with all other relevant and
                recognised quality standards and procedures.

9.5 During the continuance of this Agreement SmarTire shall not act as agent of
Transense and specifically not give any indication that it is acting otherwise
than as principal and, in advertising or selling the Products, not make any
representation or give any warranty on behalf of Transense.



<PAGE>   17
                                      -15-



9.6 SmarTire will take out (and maintain in force for the term of this Agreement
and for five years after its termination, howsoever arising) adequate insurance,
including without limitation professional indemnity and product liability
insurance, and if allowed by the insurer, shall name Transense as an additional
insured, and shall not knowingly vitiate such insurance. Transense agrees,
subject to prior written consent, to pay the cost, if any, of them being added
as an additional insured.

9.7 SmarTire undertakes not to disclose, and to cause SmarTire's officers,
employees or agents not to disclose, any Confidential Information to third
parties other than as is necessary in the course of SmarTire's business.
SmarTire warrants that it will adopt reasonable procedures to protect the
aforementioned Confidential Information, including procedures that exclude from
access to such information all persons who do not require direct access in the
course of SmarTire's business. SmarTire agrees that after expiration or
termination of this Agreement it shall continue to protect and shall cease using
such Confidential Information, shall return all copies of the same to Transense,
and further agrees that it will not use or knowingly permit the use of such
Confidential Information to the disadvantage of Transense. This undertaking
shall not apply to Confidential Information to the extent that such Confidential
Information:

        (a)     as evidenced by SmarTire's written records, was lawfully known
                to SmarTire prior to its communication by or through Transense
                and was not communicated to SmarTire subject to any restrictions
                on disclosure or use; or

        (b)     is necessarily disclosed by the sale of Products embodying any
                of the Technical Information; or

        (c)     is or becomes in the public domain otherwise than by any default
                of SmarTire or persons acquiring the same from SmarTire; or

        (d)     becomes known to SmarTire by the action of a third party not in
                breach of any obligation of confidence; or

        (e)     must be disclosed in order to comply with the applicable laws of
                any territory.

9.8 SmarTire shall ensure that all Products supplied pursuant to this Agreement
comply with all laws and regulations in operation in the part of the Territory
in which the relevant supply takes place.

9.9 SmarTire is duly incorporated, validly existing and in good standing under
the laws of the Province of British Columbia, Canada, and has the power,
authority and capacity to enter into this Agreement and carry out its terms.

10. TERM AND TERMINATION

10.1 The licences granted under Clause 2.1, and if granted under Clause 4,
shall continue in force in each country of the Territory until all of the
Patents of that country have expired and this Agreement shall remain in effect
for the life of the Patents.

10.2 During the term of this Agreement, in the event that:



<PAGE>   18
                                      -16-



        (a)     either party is in breach of any material obligation on it
                hereunder and, in the case of a breach capable of remedy, it
                shall not have been remedied by the defaulting party within 60
                days of a written notice specifying the breach and requiring its
                remedy; or

        (b)     either party becomes insolvent, has a receiver, administrator or
                administrative receiver appointed over the whole or any part of
                its assets, enters into any compound with creditors, has an
                order made or resolution passed for it to be wound up or for its
                administration (otherwise than in furtherance of a scheme for
                amalgamation or reconstruction) or in any other jurisdiction has
                a similar or analogous officer appointed, suffers a similar or
                analogous resolution or order to be passed or enters into a
                similar or analogous arrangement;

        (c)     SmarTire directly or indirectly and knowingly opposes or assists
                any third party to oppose the grant of any of the Patents or
                disputes or directly or indirectly and knowingly assists any
                third party to dispute the validity of any of the Patents;

        (d)     without prejudice to the generality of the foregoing is in
                breach of its obligations relating to insurance which are set
                out in Clause 9.6;

Transense or, in the case of breach or insolvency, the party not in breach of
the obligation or condition or insolvent may forthwith terminate this Agreement
by serving fourteen (14) days' notice without prejudice to the accrued rights of
either party.

10.3 SmarTire may unilaterally terminate this Agreement upon 60 days' notice to
Transense.

10.4 Any sub-licence granted by SmarTire under Clause 2.4 shall forthwith and
automatically terminate on expiry or termination of this Agreement.

10.5 The expiry or termination of this Agreement for any reason shall not bring
to an end:

        (a)     the confidentiality obligations on the parties hereto

        (b)     SmarTire's obligations to pay Royalties which have accrued due
                and all provisions relating to such payments;

        (c)     SmarTire's obligations to pay the consideration referred to in
                Clause 3.1 and all provisions relating to such payments; and

        (d)     the provisions of Articles 5 and 8;

        (e)     expressly or by implication survive termination;

which Clauses shall survive termination of this Agreement.

10.6 On expiry or other termination of this Agreement SmarTire undertakes:



<PAGE>   19
                                      -17-



        (a)     to sign such notification of cessation of use of the Patents as
                is required by Transense;

        (b)     to cease carrying on the activities permitted by this Agreement;
                and

        (c)     unless Transense otherwise specifies in writing, SmarTire shall
                with reasonable diligence remove and efface all references to
                Transense where appropriate.

        (d)     The termination of this Agreement shall be without prejudice to
                any rights which have already accrued to either of the parties
                under this Agreement.

10.7 Failure of any party hereto to insist upon the strict and punctual
performance of any provision hereof shall not constitute waiver of nor estoppel
against asserting the right to require such performance, nor shall a waiver or
estoppel in one instance constitute a waiver or estoppel with respect to a later
breach whether of similar nature or otherwise.

10.8 Nothing in this Agreement shall prevent a party from enforcing its rights
by such remedies as may be available in lieu of termination.

10.9 The failure or delay of either of the parties hereto to perform any
obligation under this Agreement solely by reason of acts of God, acts of
government (except as otherwise enumerated herein), riots, wars, strikes,
lockouts, (other than strikes or lockouts involving the workforce of the party
seeking to rely upon 'force majeure') accidents in transportation or other
causes beyond its control, constituting 'force majeure', shall not be deemed to
be a breach of this Agreement, provided that the party suffering such 'force
majeure' shall notify the other party in writing within fourteen (14) days after
the occurrence of such 'force majeure' and shall in every instance, to the
extent reasonable and lawful under the circumstances, use its best efforts to
remove or remedy such cause with all reasonable dispatch.

11. SHARE UNDERTAKING

11.1 Transense and SmarTire mutually undertake with each other to use all
reasonable endeavours to ensure that, at all times when either party may be
required to issue shares in accordance with this Agreement, it will have
sufficient authorized but unissued share capital and will obtain all appropriate
consents whether from shareholders or any relevant Stock Exchange, share dealing
body or other regulatory authority, necessary for such issue of shares.

12. GENERAL

12.1 The terms and conditions of this Agreement are the only terms and
conditions upon which Transense and SmarTire are prepared to deal with each
other and they shall govern this Agreement to the entire exclusion of any other
express or implied conditions, superseding any prior promises, representations
(other than fraudulent representations), undertakings, understandings,
arrangements or agreements, oral or written, and constitute the entire
undertaking between the parties in connection with licensing and use of the
Patents and Technical Information and the production, supply or sale of Products
by SmarTire.



<PAGE>   20
                                      -18-



12.2 No changes, alterations, or modifications of the terms of this Agreement
shall be effective unless they are in writing and are signed by authorized
representatives of all parties hereto and, if required, until they have received
government approval.

12.3 If any part or provision of this Agreement is prohibited or is found to
contravene or is rendered void or unenforceable by any regulation or legislation
the validity or enforceability of any other part of this Agreement shall not be
affected, provided this Agreement can be performed by the parties without
reference to that prohibited, void or unenforceable part or provision.

12.4 This contract may be assigned by Transense, but in the event that Transense
wishes to transfer ownership of rights which are licensed under this Agreement
to any third party it shall demonstrate that, at the same time as such transfer,
the third party agrees to be bound to the terms of this Agreement in
substitution for Transense, and the third party shall assume all Transense's
liabilities and obligations hereunder.

12.5 Any notice required or permitted to be given hereunder shall be in writing
and may be given by personal service, recorded delivery certified airmail, or by
air courier, with postage or carriage, or by facsimile successfully transmitted
as the case may be fully prepaid to the following addresses:

Transense:      Chief Executive Officer
                TRANSENSE TECHNOLOGIES plc
                36 Elder Street
                London El 6BT England

                Fax: 01869 - 238031


SmarTire:       Chief Executive Officer
                SMARTIRE SYSTEMS INC
                Suite 150, 13151 Vanier Place
                Richmond British Columbia
                Canada V6V 2J1


                Fax: (604) 276-2350

12.6 Any notice so given shall be presumed to be received by letter: upon
receipt or seven (7) days after posting, whichever is less;.

12.7 To prove service of notice, it shall be sufficient to prove that a letter
containing the notice was properly addressed and properly dispatched or posted.

12.8 Either party may amend its address set forth above by written notice to the
other party.



<PAGE>   21
                                      -19-



12.9 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.

13. GOVERNING LAW AND JURISDICTION

13.1 This Agreement shall be governed by and construed in accordance with
English Law.

13.2 Each of the parties hereto submits to the non-exclusive jurisdiction of the
English Courts.

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



TRANSENSE TECHNOLOGIES PLC



Per: /s/ James Perry
     ---------------------------------------
     Authorised Signatory



SMARTIRE SYSTEMS INC.




Per: /s/ Robert Rudman
     ---------------------------------------
     Authorized Signatory