<PAGE>
                                                                   EXHIBIT 10.23

                                                                  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

                              TERMINATION AGREEMENT

This Termination Agreement (the "Agreement") is entered into effective as of the
31st day of August, 2001 (the "Agreement Date")

BETWEEN:

             TRW INC., a company duly incorporated pursuant to the laws of the
             State of Ohio, acting on behalf of its Automotive Electronics
             Group, North America, 24175 Research Dr., Farmington Hills,
             Michigan 48335-2642

             ("TRW")

                                                              OF THE FIRST PART

AND:

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

             ("SmarTire")
                                                              OF THE SECOND PART

WHEREAS:

A. TRW and SmarTire entered into a license agreement (the "License Agreement")
dated as of April 20, 1998, as amended by an Assignment and Amendment Agreement
dated December 13, 2000 (the "Assignment Agreement");


B. TRW and SmarTire entered into a technical cooperation agreement dated as of
April 20, 1998, as amended by the Assignment Agreement (the "Technical
Cooperation Agreement");

C. TRW and SmarTire entered into a supply agreement dated April 20, 1998 (the
"Supply Agreement");


D. TRW and SmarTire entered into a Mutual Secrecy Agreement dated January 6,
1998, as amended by a First Amendment of Mutual Secrecy Agreement dated February
18, 1998 (collectively, the "Secrecy Agreement");


E. TRW and SmarTire have agreed to terminate the License Agreement, the
Technical Cooperation Agreement, the Supply Agreement and the Secrecy Agreement
(together, the "April 1998 Agreements") pursuant to the terms set out in this
Agreement;

<PAGE>

NOW, THEREFORE, in consideration of the mutual covenants and premises, and
intending to be bound legally, the parties covenant and agree as follows:



1.      TERMINATION OF APRIL 1998 AGREEMENTS

1.1 The April 1998 Agreements and paragraph 10.1(q) of the Private Placement
Subscription Agreement dated as of April 20, 1998 are hereby terminated and of
no further force or effect, except as otherwise provided in this Agreement or
the agreements and other documents referenced in, and executed concurrently
with, this Agreement. Notwithstanding the prior sentence, the provisions of
paragraph 2 of the Secrecy Agreement shall continue in full force and effect
with respect to all information disclosed under the April 1998 Agreements prior
to the date of this Agreement.

1.2 All rights and obligations that exist between the parties from the date of
this Agreement forward are set out in this Agreement and in the General Security
Agreement, Secured Promissory Note, Settlement and Release Agreement, Licenses
and Guaranty (all as defined below).

2.      CONSIDERATION PAYABLE

2.1 SmarTire will pay to TRW US$2,800,000.00 on the terms and conditions set
forth in Sections 2.2 and 2.3.


2.2 SmarTire will pay to TRW the sum of US$500,000 and execute and deliver to
TRW on the Closing Date the Secured Promissory Note attached to, and by
reference incorporated in, this Agreement as Exhibit 1.

2.3 In order to secure the payments due under the Secured Promissory Note
delivered to TRW pursuant to subparagraph 2.2, SmarTire will execute and deliver
to TRW on the Closing Date the General Security Agreement attached to, and by
reference incorporated in, this Agreement as Exhibit 2A, together with all
financing statements and other documents that TRW may reasonably request to
perfect TRW's security interest in all collateral pledged pursuant to the
General Security Agreement. In addition, SmarTire will cause its subsidiaries to
execute and deliver to TRW on the Closing Date the Guaranty, attached to, and by
reference incorporate in, this Agreement as Exhibit 2B.

3.      LICENSE OF PATENTS AND KNOW-HOW

3.1 SmarTire will execute and deliver to TRW on the Closing Date the License
attached to, and by reference incorporated in, this Agreement as Exhibit 3.


3.2 TRW will execute and deliver to SmarTire on the Closing Date the License
attached to, and by reference incorporated in, this Agreement as Exhibit 4.


                                       2
<PAGE>

4.      REPRESENTATIONS AND WARRANTIES

4.1 SmarTire makes the following representations and warranties to TRW knowing
that TRW is relying upon the truth and accuracy of those SmarTire
representations and warranties in entering into this transaction with SmarTire
and executing the agreements and related documents (collectively and heretofore
defined as the "Agreement") for that transaction:

    a. The execution, delivery and performance by SmarTire of this Agreement and
       the other documents contemplated hereby (with or without the giving of
       notice, the lapse of time, or both): (i) does not require the consent or
       approval of, prior filing with, or notice to, or other action by, any
       regulatory authority, stock exchange, or any other third party; (ii) will
       not conflict with any provision of SmarTire's articles of incorporation
       or bylaws; (iii) will not constitute a default under any law or judicial
       or regulatory order to which SmarTire is a party or by which SmarTire is
       bound; (iv) will not constitute a default under any contract, license or
       permit to which SmarTire is a party or by which SmarTire is bound; and
       (v) will not create any lien upon any of the assets of SmarTire, except
       the lien created under this Agreement and the General Security Agreement
       to secure SmarTire's payment of the amounts to be paid to TRW by
       SmarTire.

    b. SmarTire is a corporation duly organized, validly existing, and in good
       standing under the laws of British Columbia, and SmarTire has the
       corporate power and authority to carry on its business as it has been and
       is now being conducted and to own and lease the assets which it now owns
       or leases. SmarTire has the requisite power and authority to execute,
       deliver and perform its obligations under this Agreement according to its
       terms, and to consummate the transactions contemplated hereby. This
       Agreement has been duly executed and delivered by SmarTire, and
       constitutes the legal, valid and binding obligation of SmarTire,
       enforceable against SmarTire in accordance with its terms.

    c. [Intentionally left blank]

    d. Except as set forth on Exhibit 5 to this Agreement, SmarTire (i) has not
       formed, has not negotiated for the formation of, and has no current
       intention to form, any business combination or to enter into any other
       transaction with any third-party, the purpose of which is to develop
       and/or market tire monitoring systems; and (ii) has not marketed, sold or
       attempted to sell SmarTire products for use as original equipment in the
       passenger car or light truck markets.

    e. No order has been entered and is in effect by any court of competent
       jurisdiction or any regulatory authority, and no law has been promulgated
       or enacted and is in effect that restrains, enjoins or invalidates the
       transactions contemplated by this Agreement.

    f. No litigation is pending or threatened by any third party before any
       court of competent jurisdiction or regulatory authority seeking to
       restrain or prohibit or declare illegal, or seeking substantial damages
       in connection with, the transactions contemplated by this Agreement.


                                       3
<PAGE>

    g. All material consents of, filings and registrations with, and
       notifications to, all regulatory authorities required for consummation of
       the transactions contemplated by this Agreement shall have been obtained
       or made and shall be in full force and effect. No consent obtained from
       any regulatory authority which is necessary to consummate the
       transactions contemplated hereby shall be conditioned or restricted in a
       manner (including requirements relating to the raising of additional
       capital or the disposition of assets) which in the reasonable judgment of
       TRW would so materially adversely impact the economic or business
       benefits of the transactions contemplated by this Agreement so as to
       render it inadvisable for TRW to proceed with the Closing.

    h. The SmarTire balance sheet and other financial information attached to,
       or by reference incorporated in, this Agreement is, and as of the Closing
       Date will be, accurate and true as at June 30, 2001, and presents fairly
       and accurately the financial information of SmarTire as of such date in
       accordance with generally accepted accounting principles applied on a
       consistent basis, and there has been no material adverse change to the
       financial condition or results of operations of SmarTire since such date
       except SmarTire's use of approximately US$500,000 per month for operating
       expenses.

4.2 The representations and warranties of SmarTire will survive the Closing.

4.3 TRW makes the following representations and warranties to SmarTire knowing
that SmarTire is relying upon the truth and accuracy of those TRW
representations and warranties in entering into this transaction with TRW and
executing the Agreement:

    a. The execution, delivery and performance by TRW of this Agreement and the
       other documents contemplated hereby (with or without the giving of
       notice, the lapse of time, or both): (i) does not require the consent or
       approval of, prior filing with, or notice to, or other action by, any
       regulatory authority, stock exchange, or any other third party; (ii) will
       not conflict with any provision of TRW's articles of incorporation or
       bylaws; (iii) will not constitute a default under any law or judicial or
       regulatory order to which TRW is a party or by which TRW is bound; and
       (iv) will not constitute a default under any contract, license or permit
       to which TRW is a party or by which TRW is bound.

    b. TRW is a corporation duly organized, validly existing, and in good
       standing under the laws of the State of Ohio, USA. TRW has the requisite
       power and authority to execute, deliver and perform its obligations under
       this Agreement according to its terms, and to consummate the transactions
       contemplated hereby. This Agreement has been duly executed and delivered
       by TRW, and constitutes the legal, valid and binding obligation of TRW,
       enforceable against TRW in accordance with its terms.

4.4 The representations and warranties of TRW will survive the Closing.


                                       4
<PAGE>

5.      RELEASE OF CLAIMS

5.1 SmarTire and TRW will execute and deliver to each other on the Closing Date
the Settlement and Release Agreement attached to, and by reference incorporated
in, this Agreement as Exhibit 6.

6.      CLOSING MATTERS

6.1 All public communication describing the April 1998 Agreements, the
relationship of the parties or this Agreement shall be subject to the prior
approval of the other party prior to dissemination. In considering such
approvals, each party will reasonably co-operate with the other in ensuring that
each party, as a publicly traded entity, can meet its regulatory compliance
requirements in a timely manner.

6.2 The parties will use reasonable commercial efforts to negotiate and achieve
a termination of all three party supply agreements involving TRW and SmarTire
and other parties. Any further relationship of TRW or SmarTire with such third
parties will be the sole responsibility of the party entering into such
relationship. With respect to the ASIS Purchase and Supply Contract between
SmarTire, TRW and SensoNor asa dated January 1, 2001 (the "SensoNor Agreement"),
TRW and SmarTire contemplate that such agreement will be superceded by
individual agreements between SensoNor and each of TRW and SmarTire, and that
each of TRW and SmarTire will pay to SensoNor equal amounts to settle all
alleged claims by SensoNor for payments related to the SensoNor Agreement. In
the event that either of TRW or SmarTire do not for any reason enter into a
separate agreement with SensoNor to replace the SensoNor Agreement or otherwise
terminate the SensoNor Agreement in a manner acceptable to both TRW and
SmarTire, the parties agree that the minimum volume purchase requirements under
the SensoNor Agreement shall be allocated between them on a fifty-fifty basis
(e.g., equal payment to SensoNor from each of TRW and SmarTire), and each party
covenants to hereafter satisfy fully its half of the minimum purchase
requirements or to pay its one-half amount to maintain the exclusivity rights
under the SensoNor Agreement.

6.3 Each party covenants that it will, in connection with the Closing and from
time to time subsequent to the Closing Date, execute such additional instruments
and take such actions as may be reasonably requested by the other party to
confirm or perfect or otherwise to carry out the intent and purpose of this
Agreement.

6.4 Each party hereby agrees that it shall indemnify, defend and hold harmless
the other party hereto from and against any loss, damage, liability, cost and
expense, including reasonable attorneys' fees, suffered or incurred by the other
party, as and when incurred, by reason of, or arising out of, any
misrepresentation, breach of warranty or breach or non-fulfillment of any
agreement of the party contained in this Agreement or in any document executed
and delivered in connection with this Agreement, or any claim by any
shareholder, creditor or affiliate of the party asserted against the other party
and arising out of, or in any way relating to, this Agreement or any transaction
between SmarTire and TRW, including without limitation the transactions and
activities under the April 1998 Agreements.


                                       5
<PAGE>

6.5 Any failure on the part of any party to comply with any of its obligations,
agreements or conditions hereunder may be waived by any other party to whom such
compliance is owed. No waiver of any provision of this Agreement shall be
deemed, or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.

6.6 This Agreement, together with the General Security Agreement, Secured
Promissory Note, Settlement and Release Agreement, Licenses and Guaranty,
constitute the entire understanding between the parties hereto with respect the
matters set forth herein, and, except to the extent expressly set forth in such
agreements, supersede all other agreements, oral or written, heretofore made
with respect to the subject matter hereof. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.

6.7 This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Ohio. The provisions of this Agreement are severable and
the invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.

6.8 This Agreement may be executed in two or more counterparts (including
facsimile counterparts), each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.

6.9 All notices. requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered by hand or if
mailed by United States registered or certified mail, return receipt requested,
first class postage prepaid, or sent by Federal Express or similar overnight
courier service to the parties addressed as follows:

                      If to SmarTire:       SmarTire Systems Inc.
                                            13151 Vanier Place
                                            Suite 150
                                            Richmond, British Columbia
                                            Canada  V6V 2J1
                                            FAX:   604.276.2350

                                            Attention:    President

                      With a copy to:       Mr. Bernard Pinsky
                                            Clark, Wilson
                                            800 -885 West Georgia Street
                                            Vancouver, British Columbia
                                            Canada  V6C 3H1
                                            FAX:   604.687.6314


                                       6
<PAGE>

                   If to TRW:         TRW Automotive Electronics Group - U.S.
                                      24175 Research Drive
                                      Farmington Hills, Michigan 48335-2642
                                      U.S.A.
                                      FAX: 248.442.5290

                                      Attention:    General Manager


                   With a copy to:    TRW Inc.
                                      24175 Research Drive
                                      Farmington Hills, Michigan 48335-2642
                                      U.S.A.
                                      FAX: 248.442.5290

                                      Attention:    Vice President and Assistant
                                                    General Counsel

If delivered personally, the date on which a notice, request, instruction or
document is delivered shall be the date on which such delivery is made and, if
delivered by mail, Federal Express or other overnight courier, the date on which
such notice, request, instruction or document is received shall be the date of
delivery. Any party hereto may change its address specified for notices herein
by designating a new address by notice in accordance with this Section.


<PAGE>

IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
above written.

TRW INC.


Per:    /s/ RONALD A. MUCKLEY
        ---------------------
        Authorized Signatory

Title:  Vice President and General Manager
        TRW Automotive Electric
        Safety and Security Systems



SMARTIRE SYSTEMS INC.

Per:    /s/ ROBERT V. RUDMAN
        --------------------
        Authorized Signatory

Title:  President and Chief Executive Officer

<PAGE>

                                                                       Exhibit 1

                             Secured Promissory Note



US$ 2,800,000.00                                      Farmington Hills, Michigan
                                                      August 31, 2001

1.        PROMISE TO PAY

          FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the
order of TRW Inc. ("TRW"), at 24175 Research Drive, Farmington Hills, Michigan
48335-2642, or at such other place as the holder hereof may designate in
writing, the principal sum of United States Two Million Eight Hundred Thousand
and No/100 Dollars (US$2,800,000.00), together with interest on all amounts from
time to time outstanding hereunder calculated on the basis of a 365 day year for
the number of days in a month actually outstanding at the rate of six percent
per annum (6%), while Maker is not in default of its obligations to the holder
hereof, and at the rate of sixteen percent (16%) per annum during any period of
Maker's default under this Note. The interest hereunder is chargeable only on
amounts from time to time actually outstanding.

          The principal amount of this Note shall be paid in installment
payments, and at the time each installment payment of principal is paid it shall
be accompanied by a payment of all accrued interest as of the date of such
payment. The amounts and due dates of the principal payments are as follows:

               $500,000.00, plus all accrued interest, on or before November 15,
               2001

               $500,000.00, plus all accrued interest, on or before December 14,
               2001

               $450,000.00, plus all accrued interest, on or before March 29,
               2002

               $450,000.00, plus all accrued interest, on or before June 28,
               2002

               $450,000.00, plus all accrued interest, on or before September
               30, 2002

               $450,000.00, plus all accrued interest, on or before December 13,
               2002

This Note is given by Maker as part of the consideration payable by Maker under
that certain Termination Agreement of even date herewith made between Maker and
TRW and the documents executed by and between Maker and TRW under and in
connection with that Agreement. Payment by Maker of all amounts payable under
this Note and performance by Maker of all other obligations of Maker under this
Note and the Termination Agreement and documents referenced in, and executed in
connection with, that Agreement are secured by the collateral and other rights
granted

<PAGE>

to TRW by Maker under that certain General Security Agreement of even date
herewith that Maker executed and delivered to TRW with this Note, and under the
Guaranty executed by Maker's subsidiaries and delivered to TRW with this Note.

2.        COLLECTION RIGHTS

          Maker waives presentment, protest and notice of dishonor, and Maker
waives the right to all other notices or demands that might otherwise be
required by law. The holder may grant releases or compromises of this Note or
release any collateral therefor to any party who is liable to make payment on
this Note, without notice or consent of Maker, and without affecting the
liability of Maker.

3.        PREPAYMENT

          The Maker shall have the right to prepay the principal amount
outstanding in whole or in part without notice or penalty. Any partial
prepayment shall be applied first to payment of any accrued interest and then
against the principal amount outstanding and shall not extend or postpone the
due date of any subsequent installments or change such installments, unless the
holder hereof shall otherwise agree in writing.

4.        RIGHTS ON DEFAULT

          If any sum payable is not paid when due; if Maker, or other person
liable on this Note, shall become insolvent, become subject to an order for
relief under a bankruptcy law, either voluntary or involuntary, or make a
general assignment for the benefit of creditors; or if any proceeding for
enforcement of a judgment is commenced against Maker or any property of Maker;
or if Maker fails to perform any other obligation under this Note, the General
Security Agreement under which this Note is secured, or any of the agreements by
and between Maker and TRW pursuant to which this Note is given, all the amounts
owed, including accrued interest, shall become and be, at the option and
discretion of the holder, due and payable immediately without demand by, or
notice from, the holder. No delay on the part of holder in exercising any power
or right under this Note shall operate as a waiver of the power or right, nor
shall any single or partial exercise of any power or right preclude further
exercise of that power or right. Maker shall pay to holder all expenses incurred
by holder, including actual attorneys fees expended by holder, in enforcing any
of the provisions of this Note or the General Security Agreement.

5.        SECURITY AGREEMENT AND GUARANTY

          To secure payment of all obligations hereunder and the Maker's
performance of all obligations to TRW, the Maker has executed and delivered to
TRW the General Security Agreement. For any default in payment or the
performance of any other obligation of the Maker, the holder may, without
notice, declare this Note due forthwith and may realize on, or dispose of, the
collateral in any manner allowed by law. Payment of this Note and Maker's
performance of all obligations to TRW is further secured by the delivery to TRW
of that certain Guaranty executed by Maker's subsidiaries.


                                       2
<PAGE>

6.        MISCELLANEOUS

        Holder and the Maker, after consulting or having had the opportunity to
consult with counsel, knowingly, voluntarily and intentionally waive any right
either of them may have to a trial by jury in any litigation based upon or
arising out of this Note or any related instrument or agreement or any of the
transactions contemplated by this Note or any course of conduct, dealing,
statements, whether oral or written, or actions of either of them. Neither
Holder nor the Maker shall seek to consolidate, by counterclaims or otherwise,
any such action in which a jury trial has been waived with any other action in
which a jury trial cannot be or has not been waived. These provisions shall not
be deemed to have been modified in any respect or relinquished by either Holder
or the Maker, except by a written instrument executed by both of them.


          This Note has been made and delivered in the State of Michigan and
this Note shall be construed in accordance with the laws of the State of
Michigan. This Note and the provisions hereof are binding on the heirs,
executors, administrators, assigns, or successors of Maker.


                                      SmarTire Systems Inc., a British Columbia
                                      Corporation

                                      By: /s/ ROBERT V. RUDMAN
                                          --------------------
                                      Its: President and Chief Executive Officer
                                          --------------------------------------
                                                        "Maker"



                                      Dated: August 31, 2001



                                       3
<PAGE>

                                                                     Exhibit 2A

                           General Security Agreement


THIS SECURITY AGREEMENT is made as of 31st day of August, 2001

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

               (the "Debtor")

AND:

               TRW INC., a company duly incorporated pursuant to the laws of the
               State of Ohio, acting on behalf of its Automotive Electronics
               Group, North America, 24175 Research Dr., Farmington Hills,
               Michigan 48335-2642

               (the "Secured Party")

1.             SECURITY INTEREST

1.1            For consideration and as security for the payment and performance
of the Obligations referred to in Clause 3 hereof, the Debtor, subject to the
exceptions set out in Clause 2, hereby mortgages, charges, assigns and transfers
to the Secured Party, and grants to the Secured Party a security interest in,
all the Debtor's right, title and interest in and to all presently owned or held
and after acquired or held personal property, assets and undertaking of the
Debtor (other than real property), of whatever nature or kind and wheresoever
situate and all Proceeds thereof and therefrom, together with all substitutions,
accessions and additions (all of which is hereinafter collectively called the
"Collateral") including, without limiting the generality of the foregoing:

        (a)    Equipment

               all equipment, including, without limiting the generality of the
               foregoing, machinery, tools, fixtures, furniture, furnishings,
               chattels, motor vehicles, vessels and other tangible personal
               property that is not Inventory, and all parts, components,
               attachments, accessories, accessions, replacements,
               substitutions, additions and improvements to any of the foregoing
               (all of which are hereinafter collectively called the
               "Equipment");

<PAGE>
                                      -2-


        (b)    Inventory

               all inventory, including, without limiting the generality of the
               foregoing, goods acquired or held for sale or lease or furnished
               or to be furnished under contracts of rental or service, all raw
               materials, work in progress, finished goods, returned goods,
               repossessed goods, and all packaging materials, supplies and
               containers relating to or used or consumed in connection with any
               of the foregoing (all of which are hereinafter collectively
               called the "Inventory");

        (c)    Accounts

               all Accounts, Deposit Accounts, debts, account receivables,
               claims, moneys and choses in action which now are, or which may
               at any time hereafter be, due or owing to or owned by the Debtor.

        (d)    Other Personal Property

               all Documents, Chattel Paper, Instruments, securities and money,
               and all other goods of the Debtor that are not Equipment,
               Inventory or Accounts; and

        (e)    Intangibles

               All General Intangibles, Contract Rights, licenses, goodwill,
               patents, trademarks, trade names, copyrights and other
               intellectual property of the Debtor, all other choses in action
               of the Debtor of every kind which now are, or which may at any
               time hereafter be, due or owing to or owned by the Debtor, and
               all other intangible property of the Debtor which is not
               Accounts, Chattel Paper, Instruments, documents, securities or
               money.

2.             EXCEPTIONS

2.1            The last 10 days of the term created by any lease or agreement
therefor are hereby excepted out of any charge or security interest created by
this Security Agreement but the Debtor will stand possessed of the reversion
thereby remaining upon trust to assign and dispose thereof to any third party as
the Secured Party shall direct.

2.2            There shall be excluded from the security interests hereby
created any consumer goods of the Debtor.

3.             OBLIGATIONS SECURED

3.1            The security constituted by this Agreement is general and
continuing security for the payment and satisfaction of all indebtedness of the
Debtor to the Secured Party payable pursuant to the terms of that certain
Termination Agreement between the Debtor and the Secured Party dated as of
August 31, 2001 and the Secured Promissory Note entered into by Debtor and
delivered to Secured Party, dated August 31, 2001 (collectively the
"Obligations").

<PAGE>
                                      -3-


4.      ATTACHMENT

4.1            The Debtor acknowledges that the security interests hereby
created attach upon the execution of this Security Agreement (or in the case of
any after acquired property, upon the date of acquisition thereof), that value
has been given, and that the Debtor has, or in the case of after acquired
property will have, rights in the Collateral.

5.             REPRESENTATIONS AND WARRANTIES

5.1            The Debtor, represents and warrants that this Security Agreement
is granted in accordance with resolutions of the directors of the Debtor and all
other matters and things have been done and performed so as to authorize and
make the execution and delivery of this Security Agreement, and the performance
of the Debtor's obligations hereunder, legal, valid and binding.

5.2            The Debtor represents and warrants that the Debtor lawfully owns
and possesses all presently held Collateral and has good title thereto, free
from all security interests, charges, encumbrances, liens and claims, save only
the charges or security interests, if any, shown in Schedule "A" hereto and
those consented to in writing by the Secured Party, and the Debtor has good
right and lawful authority to grant a security interest in the Collateral as
provided by this Security Agreement.

5.3            Any and all credit or other information furnished to Secured
Party by Debtor in connection with the Debtor's obligation or financial
condition or the value or condition of the Collateral is true and correct, and
all such information hereafter furnished to Secured Party by Debtor will be true
and correct when furnished.

5.4            Except as disclosed in the financial statements furnished to
Secured Party by Debtor, and for trade payables arising in the ordinary course
of Debtor's and its Subsidiaries' business since the date of such financial
statements, there currently are no loans, other indebtedness for borrowed money
or any guaranties, other than the Secured Promissory Note to TRW, any additional
capital notes, any material purchases on account or credit and/or any
refinancing of any assets which increases Debtor's debt, except in favor of
Secured Party.

5.5            Except as set forth on Schedule 5.5 attached hereto, there are no
judgments outstanding against Debtor or any of its Subsidiaries nor is there now
pending or, to the best of Debtor's knowledge, threatened, any litigation,
investigations, contested claim, or governmental proceeding by or against Debtor
or any of its Subsidiaries except judgments and pending or threatened
litigation, investigations, contested claims and governmental proceedings which
are not, in the aggregate, material to Debtor's or any of its Subsidiaries'
business, operations, condition (financial or otherwise) or prospects. None of
the matters listed in Schedule 5.5 could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect (meaning, an effect
when fairly and reasonably calculated in monetary terms would create a liability
or obligation greater than $50,000.00 or result in any restriction on the manner
in which its business is currently operated) on Borrower or any of its
Subsidiaries.

5.6            Neither Debtor nor any of its Subsidiaries is in default in any
material respect under any material agreement, contract, lease, or commitment to
which it is a party or by which

<PAGE>
                                      -4-


it is bound. Debtor knows of no material dispute regarding any agreement,
contract, lease, or commitment which is material to the continued financial
success and well-being of Debtor or any of its Subsidiaries.

5.7            Each of Debtor and its Subsidiaries possesses adequate assets,
licenses, permits, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, trade styles and trade names, governmental
approvals or other authorizations and other rights that are necessary for each
such entity to continue to conduct its business as heretofore conducted by it or
contemplated to be conducted by it.

5.8            The written information, exhibits and reports furnished by or on
behalf of Debtor or any of its Subsidiaries to Secured Party in connection with
the Termination Agreement, Secured Promissory Note and this Agreement, and all
certificates and documents delivered to Secured Party pursuant to the terms
thereof do not contain as of the date furnished any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.

5.9            The advances or other transfers of assets by Debtor to any
Subsidiary or other affiliate of Debtor is, and at the Closing will be,
accurately stated in the financial information provided to Secured Party with,
and as part of, this Agreement, and with respect to all such transfers: (i) they
are valid debt obligations of such Subsidiaries or other affiliates of Debtor
payable to Debtor without set off or reduction; and (ii) there has been no
default in the payment or performance of any of the Subsidiary's or other
affiliate's obligations under promissory notes or other debt instruments
evidencing those transfers.

6.             COVENANTS OF THE DEBTOR

6.1            The Debtor covenants that at all times while this Security
Agreement remains in effect the Debtor will:

        (a)    defend the title to the Collateral for the benefit of the Secured
               Party against the claims and demands of all persons;

        (b)    fully and effectually maintain and keep maintained the security
               interests hereby created valid and effective;

        (c)    maintain insurance on the Collateral with an insurer, of kinds,
               for amounts and payable to such person or persons, all as the
               Secured Party may require;

        (d)    maintain the Collateral in good order and repair;

        (e)    forthwith pay:

               (i)    all taxes, assessments, rates, duties, levies, government
                      fees, claims and dues lawfully levied, assessed or imposed
                      upon it or the Collateral when due, unless the Debtor
                      shall in good faith contest its obligations so to pay and
                      will furnish such security as the Secured Party may
                      require;

<PAGE>
                                      -5-


               (ii)   all security interests, charges, encumbrances, liens and
                      claims which rank or could in any event rank in priority
                      to any security interest created by this Security
                      Agreement, other than the charges or security interests,
                      if any, shown in the Schedule hereto and those consented
                      to in writing by the Secured Party;

        (f)    forthwith pay all costs, charges, expenses and legal fees and
               disbursements (on a solicitor and his own client basis) which may
               be incurred by the Secured Party in:

               (i)    inspecting the Collateral;

               (ii)   investigating title to the Collateral;

               (iii)  taking, recovering, keeping possession of and insuring the
                      Collateral; and

               (iv)   all other actions and proceedings taken in connection with
                      the preservation of the Collateral and the enforcement of
                      this Security Agreement and of any other security interest
                      held by the Secured Party as security for the Obligations;

        (g)    notify the Secured Party immediately of:

               (i)    any change in the information contained herein relating to
                      the Debtor, its address, its business or the Collateral;

               (ii)   the details of any material acquisition of the Collateral;

               (iii)  any material loss or damage to the Collateral;

               (iv)   any material default by any account debtor in payment or
                      other performance of his obligations to the Debtor with
                      respect to any Accounts; and

               (v)    the return to or repossession by the Debtor of the
                      Collateral where such return or repossession of the
                      Collateral is material in relation to the business of the
                      Debtor;

               (vi)   any change in Debtor's financial state, or the occurrence
                      of any event, which has or could render Debtor insolvent,
                      as that term is defined herein.

        (h)    prevent the Collateral, other than Inventory sold, leased, or
               otherwise disposed of as permitted hereby, from being or becoming
               an accession to other property not covered by this Security
               Agreement; and

        (i)    permit the Secured Party and its representatives, at all
               reasonable times, access to all its property, assets and
               undertakings and to all its books of account and records for the
               purpose of inspection the amount or condition of the Collateral
               or any

<PAGE>
                                      -6-


               other matter relating to the Collateral or Debtor's financial
               condition, and render all assistance necessary for such
               inspection.

        (j)    do or cause to be done all things necessary to preserve in full
               force and effect its existence, its corporate powers and
               authority, its qualifications to carry on business in all
               applicable jurisdictions, and all rights, interests and assets
               necessary to the conduct of its business.

        (k)    Execute and deliver to the Secured Party upon request all
               financing statements, continuation statements and other documents
               that the Secured Party may request in its sole and absolute
               discretion, in form satisfactory to the Secured Party, and do and
               perform all other acts as may be necessary, to perfect and
               maintain perfected the Secured Party's security interest in the
               Collateral and to fully consummate all transactions contemplated
               under this Security Agreement. Debtor hereby irrevocably makes,
               constitutes and appoints the Secured Party (and any of the
               Secured Party's officers, employees or agents designated by the
               Secured Party) as Debtor's true and lawful attorney with power to
               sign the name of Debtor on any such documents.

        (l)    Debtor shall provide Secured Party, at the request of Secured
               Party, with un-audited consolidated monthly and quarterly
               financial statements of Debtor and each Subsidiary, within
               forty-five days of the end each month and quarter, and with
               audited consolidated annual financial statements of Debtor and
               each Subsidiary within ninety days of the end of each fiscal year
               of Debtor; provided that TRW agrees not to trade any securities
               of SmarTire in contravention of applicable securities laws.

7.             NEGATIVE COVENANTS.

Debtor covenants and agrees that so long as the Obligations remain in effect and
until payment in full of the Obligations.

        (a)    Encumbrances. Debtor shall not and shall not suffer nor permit
any of its Subsidiaries to create, incur, assume or suffer to exist any liens on
any of its assets, including, without limitation, the Collateral, which ranks or
could in any event rank in priority or pari passu with any security interest
created by this Agreement, other than: (i) liens securing the payment of taxes,
either not yet due or the validity of which is being contested in good faith by
appropriate proceedings, and as to which Debtor shall, if appropriate under
Generally Accepted Accounting Principles ("GAAP"), have set aside on its books
and records adequate reserves, (ii) deposits under workmen's compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds in the ordinary course
of business, (iii) liens in favor of Secured Party, (iv) liens which arise by
operation of government statute, (v) liens on equipment securing purchase money
security indebtedness; and (vii) the security interests set forth on Schedule A
to this

<PAGE>
                                      -7-


Agreement. Neither Debtor nor any of its Subsidiaries shall permit the filing of
any financing statement naming Debtor or any such Subsidiary as debtor, except
for financing statements filed with respect to Liens expressly required or
permitted by this Agreement.

        (b)    Other Indebtedness. Debtor shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist, any
obligations of a type which would appear on a balance sheet of Debtor prepared
in accordance with GAAP and which rank or could in any event rank in priority or
pari passu with any security interest created by this Agreement, except (i)
trade obligations and normal accruals in the ordinary course of business not
past due by more than thirty (30) days, or with respect to which Debtor is
contesting in good faith the amount or validity thereof by appropriate
proceedings, and then only to the extent that Debtor has set aside on its books
adequate reserves therefore, if appropriate under GAAP, (ii) capitalized lease
obligations or other purchase money indebtedness.

        (c)    Consolidations, Mergers or Acquisitions. Debtor shall not
recapitalize, amalgamate, consolidate with, merge with, or otherwise acquire all
or any significant portion of the assets or properties of any other entity,
association or organization ("Person") (or a division thereof), or sell or issue
securities to any Person, which would directly or indirectly place such Person
in Control of Debtor, as a result of such sale or issuance, or enter into any
agreement with respect to any of the foregoing. For purposes of this Agreement a
Person shall have "Control" of Debtor if such Person has the ability to elect a
majority of the directors on the Board of Directors or otherwise has the ability
to direct the management, financial, operational or otherwise, of the Debtor.

        (d)    Investments or Loans. Debtor shall not make or permit to exist
investments or loans in or to any other Person, except (i) investments in
short-term direct obligations of the Canadian or United States governments, and
(ii) investments in negotiable certificates of deposit maturing within one
hundred eighty (180) days from the date of issuance, issued by a Canadian
chartered bank listed in Schedule A to the Bank Act (Canada), bankers
acceptances and high grade commercial paper, and (iii) investments in
Subsidiaries of Debtor which have guaranteed the Obligations.

        (e)    Disposal of Property. Neither Debtor nor any Subsidiary shall
sell, lease, transfer or otherwise dispose of any of the Collateral or any of
its other properties, assets and rights to any person, except for (i) sales of
inventory to customers in the ordinary course of business.

        (f)    Compensation to Certain Persons. Debtor shall not make any
advances or loans to, or pay any compensation, bonuses, fees or other similar
amounts to, any persons who are shareholders or affiliates of Debtor, or of
shareholders of Debtor, other than in the ordinary course of business and
pursuant to the reasonable requirements of Debtor's business.

        (g)    Distributions and Redemptions. Debtor shall not, nor permit any
Subsidiary to, directly or indirectly, (i) redeem, purchase or otherwise retire
any capital stock or other equity interests of any person other than Secured
Party, (ii) declare or pay any distributions on any capital stock or other
equity interests of any person other than Secured Party, (iii) return capital of
any person to any of its equity holders other than Secured Party or (iv) make
any other distribution on or in respect of any capital stock or other equity
interests other than Secured Party

<PAGE>
                                      -8-


(the items referred to in clauses (i) through (iv) above being referred to
herein collectively as "Restricted Junior Payments"), except that any Subsidiary
of Debtor may make dividends and distributions to Debtor.

        (h)    [Intentionally left blank]

        (i)    [Intentionally left blank]

        (j)    [Intentionally left blank]

        (k)    Sale and Leasebacks. Borrower shall not become liable with
respect to any lease of any property (i) which it sold or transferred or is to
sell or transfer to any other person or (ii) which it intends to use for
substantially the same purposes as any other property which has been or is to be
sold by it.

        (l)    Intellectual Property Transfers. Neither Debtor nor any affiliate
or Subsidiary of Debtor shall dispose of, sell or transfer (i) exclusive rights
to any intellectual property, (ii) ownership (or substantially all the
attributes of ownership), or (iii) any other right, title or interest in or to
its intellectual property of any kind, except (with respect to this (iii)) in
the ordinary course of business, to any third party (directly or indirectly, by
agreement, joint venture, strategic alliance or otherwise).

        (m)    Other Matters. Subsequent to the Closing, Debtor will not
manipulate the timing of sales, the receipt of revenues or take any other action
for the purpose of affecting or in any way impairing Debtor's ability to make
the payments to Secured Party required under the Obligations, promptly, and
perform all of its other obligations under this Agreement fully and punctually.

8.             PERFORMANCE OF OBLIGATIONS

8.1            If the Debtor fails to perform its Obligations hereunder, the
Secured Party may, but will not be obligated to, perform any or all of such
Obligations without prejudice to any other rights and remedies of the Secured
Party hereunder, and any payments made and any costs, charges, expenses and
legal fees and disbursements (on a solicitor and his own client basis) incurred
in connection therewith will be payable by the Debtor to the Secured Party
forthwith with interest until paid at the highest rate borne by any of the
Obligations and such amounts will be a charge upon and security interest in the
Collateral in favour of the Secured Party prior to all claims subsequent to this
Security Agreement.

9.             RESTRICTIONS ON SALE OR DISPOSAL OF COLLATERAL

9.1            Except as permitted herein or by the Act, the Debtor will not,
without the prior written consent of the Secured Party:

        (a)    sell, lease or otherwise dispose of the Collateral;

        (b)    release, surrender or abandon possession of the Collateral; or

<PAGE>
                                      -9-


        (c)    move or transfer the Collateral from its present location.

9.2            Provided that the Debtor is not in default under this Security
Agreement, the Debtor may, at any time and without the consent of the Secured
Party, lease, sell, license, consign or otherwise deal with items of Inventory
in the ordinary course of its business and for the purposes of carrying on its
business.

10.            DEFAULT

10.1           The Debtor will be in "Default" under this Security Agreement,
unless waived in writing by the Secured Party, upon the occurrence or happening
of any of the following events:

        (a)    the Debtor fails to make any payment when due pursuant to the
               terms of any of the Obligations;

        (b)    the Debtor is in breach of any term, condition, obligation or
               covenant to the Secured Party set forth in this Agreement or any
               other agreement or document in effect between Debtor and Secured
               Party, including but not limited to, the Termination Agreement,
               Secured Promissory Note and any and all license agreements;

        (c)    any representation or warranty made by the Debtor or any of its
               officers or directors in connection with any of the Obligations
               of the Debtor to the Secured Party hereby secured proves at any
               time to be materially incorrect as of the date made;

        (d)    the Debtor becomes bankrupt or insolvent or makes an assignment
               for the benefit of, a proposal to, or an arrangement with its
               creditors, or any action is taken or proceeding instituted
               whether by the Debtor or any other person whereby the Debtor may
               be dissolved, wound-up, reorganized, or declared bankrupt or
               insolvent (for purposes of this Agreement the term "insolvent"
               means (i) that the liabilities of Debtor exceed its assets, or
               (ii); Debtor is unable to pay its obligations as they mature in
               the ordinary course of its business operations.)

        (e)    a receiver or receiver-manager is appointed in respect of the
               Debtor or any part of the Collateral;

        (f)    any execution, sequestration, extent, or any other process of any
               kind is levied or enforced upon or against the Collateral or any
               part thereof and remains unsatisfied for a period of 10 days;

        (g)    without the prior written consent of the Secured Party, the
               Debtor creates or permits to exist any charge, encumbrance or
               lien on, or claim against or any security interest in, any of the
               Collateral which ranks or could in any event rank in priority to
               or pari passu with any security interest or charge created by
               this Security Agreement with the exception of the security
               interests listed in Schedule "A" hereto;

<PAGE>
                                      -10-


        (h)    the holder of any other charge, encumbrance or lien on, or claim
               against, or security interest in, any of the Collateral does
               anything to enforce or realize on such charge, encumbrance, lien,
               claim or security interest;

        (i)    an order is made or an effective resolution is passed for the
               winding up of the Debtor; or

        (j)    the Debtor enters into any reconstruction, reorganization,
               amalgamation, merger or other similar arrangement with any other
               person.

11.            ENFORCEMENT

11.1           Upon any Default under this Security Agreement, the Secured Party
may declare any or all of the Obligations not payable on demand to become
immediately due and payable and the security hereby constituted will immediately
become enforceable. To enforce and realize on the security constituted by this
Security Agreement the Secured Party may take any action permitted by law or in
equity, as it may deem expedient, and in particular without limiting the
generality of the foregoing, the Secured Party may do any of the following:

        (a)    appoint by instrument a receiver, receiver and manager or a
               receiver-manager (the person so appointed is hereinafter called
               the "Receiver") of the Collateral, with or without bond as the
               Secured Party may determine, and from time to time in its
               absolute discretion remove such Receiver and appoint another in
               its stead;

        (b)    enter upon any premises of the Debtor and take possession of the
               Collateral with power to exclude the Debtor, its agents and its
               servants therefrom, without becoming liable as a mortgagee in
               possession;

        (c)    preserve, protect and maintain the Collateral and make such
               replacements thereof and repairs and additions thereto as the
               Secured Party may deem advisable;

        (d)    sell, lease or otherwise dispose of all or any part of the
               Collateral, whether by public or private sale or lease or
               otherwise, in such manner, at such price as can be reasonably
               obtained therefor and on such terms as to credit and with such
               conditions of sale and stipulations as to title or conveyance or
               evidence of title or otherwise as to the Secured Party may seem
               reasonable, provided that if any sale is on credit the Debtor
               will not be entitled to be credited with the proceeds of any such
               sale, lease or other disposition until the moneys therefor are
               actually received; and

        (e)    exercise all of the rights and remedies of a secured party under
               the Act.

11.2           A Receiver appointed pursuant to this Security Agreement will be
the agent of the Debtor and not of the Secured Party and, to the extent
permitted by law or to such lesser extent permitted by its appointment, will
have all the powers of the Secured Party hereunder, and in addition will have
power to carry on the business of the Debtor and for such purpose from time to
time to borrow money either secured or unsecured, and if secured by a security
interest on any of the Collateral; such security interest may rank before or
pari passu with or behind any security

<PAGE>
                                      -11-


interest created by this Security Agreement, and if it does not so specify such
security interest will rank before the security interests created by this
Security Agreement.

11.3           All amounts realized from the disposition of Collateral pursuant
to this Security Agreement will be applied as the Secured Party, in its absolute
discretion, may direct as follows:

        (a)    in payment of all costs, charges and expenses (including legal
               fees and disbursements on a solicitor and his own client basis)
               incurred by the Secured Party in connection with or incidental
               to:

               (i)    the exercise by the Secured Party of all or any of the
                      powers granted to it pursuant to this Security Agreement;
                      and

               (ii)   the appointment of the Receiver and the exercise by the
                      Receiver of all or any of the powers granted to it
                      pursuant to this Security Agreement, including the
                      Receiver's reasonable remuneration and all outgoings
                      properly payable by the Receiver;

        (b)    in or toward payment to the Secured Party of all principal and
               other moneys (except interest) due in respect of the Obligations;
               and

        (c)    in or toward payment to the Secured Party of all interest
               remaining unpaid in respect of the Obligations.

Subject to applicable law and the claims, if any, of other creditors of the
Debtor, any surplus will be paid to the Debtor.

12.            DEFICIENCY

12.1           If the amounts realized from the disposition of the Collateral
are not sufficient to pay the Obligations in full the Debtor will immediately
pay to the Secured Party the amount of such deficiency.

13.            RIGHTS CUMULATIVE

13.1           All rights and remedies of the Secured Party set out in this
Security Agreement are cumulative and no right or remedy contained herein is
intended to be exclusive but each will be in addition to every other right or
remedy contained herein or in any existing or future security agreement or now
or hereafter existing at law, in equity or by statute, or pursuant to any other
agreement between the Debtor and the Secured Party that may be in effect from
time to time.

14.            LIABILITY OF SECURED PARTY

14.1           The Secured Party will not be responsible or liable for any debts
contracted by it, for damages to persons or property or for salaries or
non-fulfilment of contracts during any period when the Secured Party shall
manage the Collateral upon entry, as herein provided, nor will the Secured Party
be liable to account as mortgagee in possession or for anything except

<PAGE>
                                      -12-


actual receipts or be liable for any loss on realization or for any default or
omission for which a mortgagee in possession may be liable. The Secured Party
will not be bound to do, observe or perform or to see to the observance or
performance by the Debtor of any obligations or covenants imposed upon the
Debtor nor will the Secured Party, in the case of securities, instruments or
chattel paper, be obliged to preserve rights against other persons, nor will the
Secured Party be obliged to keep any of the Collateral identifiable. The Debtor
hereby waives any applicable provision of law permitted to be waived by it which
imposes higher or greater obligations upon the Secured Party than aforesaid.

15.            APPOINTMENT OF ATTORNEY

15.1           Debtor appoints the Secured Party, the Secured Party's designee
or the Receiver as its attorney-in-fact to endorse Debtor's name on any checks,
notes, acceptances, money orders, drafts or other forms of payment or security
that may come into the Secured Party or its designee's possession; to sign
Debtor's name on any document relating to any Accounts, on drafts against
Debtors, on schedules and assignments of Accounts, on notices of assignment and
other public records, on verifications of Accounts and on notices to Debtors; to
notify post office authorities to change the address for delivery of Debtor's
mail to an address designated by the Secured Party or its designee, to receive
and open all mail addressed to Debtor and to retain all mail relating to
Collateral and forward all other mail to Debtor; and to do all things necessary
to carry out or enforce this Agreement. Debtor ratifies and approves all acts of
the Secured Party or its designee as attorney-in-fact. The Secured Party, or its
designee, as attorney-in-fact, will not be liable for any acts or omissions, or
for any error of judgment or mistake of fact or law, except for bad faith. This
power, being coupled with an interest, is irrevocable until all Obligations have
been fully satisfied; provided that neither the Secured Party or its designee
will exercise this power until after a Default.

16.            ACCOUNTS

16.1           Notwithstanding any other provision of this Security Agreement,
the Secured Party may collect, realize, sell or otherwise deal with the Accounts
or any part thereof in such manner, upon such terms and conditions and at such
time or times, whether before or after default, as may seem to be advisable, and
without notice to the Debtor, except in the case of disposition after default
and then subject to the provisions of Part V of the Act. All moneys or other
forms of payment received by the Debtor in payment of any Account will be
received and held by the Debtor in trust for the Secured Party.

17.            APPROPRIATION OF PAYMENTS

17.1           Any and all payments made in respect of the Obligations from time
to time and moneys realized from any security interests held therefor (including
moneys collected in accordance with or realized on any enforcement of this
Security Agreement) may be applied to such part or parts of the Obligations as
the Secured Party may see fit, and the Secured Party may at all times and from
time to time change any appropriation as the Secured Party may see fit.

<PAGE>
                                      -13-


18.            LIABILITY TO ADVANCE

18.1           None of the preparation, execution, perfection and registration
of this Security Agreement or the advance of any moneys will bind the Secured
Party to make any advance or loan or further advance or loan, or renew any note
or extend any time for payment of any indebtedness or liability of the Debtor to
the Secured Party.

19.            WAIVER

19.1           The Secured Party may from time to time and at any time waive in
whole or in part any right, benefit or default under any clause of this Security
Agreement but any such waiver of any right, benefit or default on any occasion
will be deemed not to be a waiver of any such right, benefit or default
thereafter, or of any other right, benefit or default, as the case may be.

20.            NOTICE

20.1           Notice may be given to either party by sending it through the
post in prepaid mail or delivered to the party for whom it is intended, at the
principal address of such party provided herein or at such other address as may
be given in writing by such party to the other, and any notice if posted will be
deemed to have been given at the expiration of three business days after posting
and if delivered, on delivery.

21.            EXTENSIONS

21.1           The Secured Party may grant extensions of time and other
indulgences, take and give up security, accept compositions, compound,
compromise, settle, grant releases and discharges, refrain from perfecting or
maintaining perfection of security interests, and otherwise deal with the
Debtor, account debtors of the Debtor, sureties and others and with the
Collateral and other security interests as the Secured Party may see fit without
prejudice to the liability of the Debtor or the Secured Party's right to hold
and realize on the security constituted by this Security Agreement.

22.            NO MERGER

22.1           This Security Agreement will not operate so as to create any
merger or discharge of any of the Obligations, or any assignment, transfer,
guarantee, lien, contract, promissory note, bill of exchange or security
interest of any form held or which may hereafter be held by the Secured Party
from the Debtor or from any other person whomsoever. The taking of a judgment
with respect to any of the Obligations will not operate as a merger of any of
the covenants contained in this Security Agreement.

23.            ASSIGNMENT

23.1           The Secured Party may, without further notice to the Debtor, at
any time assign, transfer or grant a security interest in this Security
Agreement and the security interests granted hereby. The Debtor expressly agrees
that the assignee, transferee or secured party, as the case may be, will have
all of the Secured Party's rights and remedies under this Security Agreement

<PAGE>
                                      -14-


and the Debtor will not assert any defence, counterclaim, right of set-off or
otherwise any claim which it now has or hereafter acquires against the Secured
Party in any action commenced by such assignee, transferee or secured party, as
the case may be, and will pay the Obligations to the assignee, transferee or
secured party, as the case may be, as the Obligations become due.

24.            SATISFACTION AND DISCHARGE

24.1           Any partial payment or satisfaction of the Obligations, or any
ceasing by the Debtor to be indebted to the Secured Party, will be deemed not to
be a redemption or discharge of this Security Agreement. The Debtor will be
entitled to a release and discharge of this Security Agreement upon full payment
and satisfaction of all Obligations and upon written request by the Debtor.

25.            ENUREMENT

25.1           This Security Agreement will enure to the benefit of the Secured
Party and its successors and assigns, and will be binding upon the respective
heirs, executors, personal representatives, successors and permitted assigns of
the Debtor.

26.            INTERPRETATION

26.1           In this Security Agreement:

        (a)    "Account" means (a) any account, and (b) any right to payment for
               goods sold or leased or for services rendered which is not
               evidenced by an Instrument or Chattel Paper, whether or not it
               has been earned by performance; all guaranties, letters of credit
               and other security for any of the above; and all books and
               records, documents, papers and electronically recorded data
               recording, evidencing or relating to or evidencing an interest in
               or relating to the above.

        (b)    "account receivable" means:

               (i)    any account receivable, Account, Chattel Paper, or
                      Document owned, acquired, or received by a Person;

               (ii)   any other indebtedness owed to or receivable owned,
                      acquired, or received by a Person of whatever kind and
                      however evidenced; and

               (iii)  any right, title, and interest in a Person's Goods which
                      were sold, leased, or furnished by that Person and gave
                      rise to either i) or ii) above, or both of them including,
                      without limitation:

                      (A)    any rights of stoppage in transit of a Person's
                             sold, leased, or furnished Goods;

                      (B)    any rights to reclaim a Person's sold, leased, or
                             furnished Goods; and

<PAGE>
                                      -15-


                      (C)    any rights a Person has in such sold, leased, or
                             furnished Goods that have been returned to or
                             repossessed by that Person.

        (c)    "Cash Security" means all cash, Instruments, Deposit Accounts,
               and other cash equivalents, whether matured or unmatured, whether
               collected or in the process of collection, upon which the Debtor
               presently has or may hereafter have any claim, that presently or
               may hereafter be existing or maintained with, issued by, drawn
               upon, or in the possession of the Lender.

        (d)    "Chattel Paper" means (a) any chattel paper, and (b) any writing
               or writings which evidence both a monetary obligation and a
               security interest in or a lease of specific Goods. If a
               transaction is evidenced both by such an agreement for security
               or a lease and by an Instrument or a series of Instruments, the
               group of writings taken together constitutes Chattel Paper.

        (e)    "Collateral" has the meaning set out in Clause 1 hereof and any
               reference to Collateral will, unless the context otherwise
               requires, be deemed a reference to Collateral as a whole or any
               part thereof;

        (f)    "Contract Right" means (a) any contract right, including any and
               all rights under any agreements to which the Debtor is a party,
               and (b) any right to payment under a contract not yet earned by
               performance and not evidenced by an Instrument or Chattel Paper;
               all guaranties, letters of credit and other security for the
               above; and all books and records (including computer programs,
               tapes and data processing software) evidencing an interest in or
               relating to the above.

        (g)    "Debtor" and the personal pronoun "it" or "its" and any verb
               relating thereto and used therewith will be read and construed as
               required by and in accordance with the context in which such
               words are used depending upon whether the Debtor is one or more
               individuals, corporations or partnerships and, if more than one,
               will apply and be binding upon each of them severally;

        (h)    "Deposit Account" means (a) any deposit account, and (b) any
               demand, time, savings, passbook, or a similar account maintained
               with a bank, savings bank, savings association, credit union, or
               similar organization, other than an account evidenced by a
               certificate of deposit.

        (i)    "Document" means (a) any document, (b) any document of title,
               including a bill of lading, dock warrant, dock receipt, warehouse
               receipt or order for the delivery of Goods, and any other
               document which in the regular course of business or financing is
               treated as adequately evidencing that the Person in possession of
               it is entitled to receive, hold, and dispose of the document and
               the Goods it covers, and (c) any receipt covering Goods stored
               under a statute requiring a bond against withdrawal or a license
               for the issuance of receipts in the nature of warehouse receipts
               even though issued by a Person who is the owner of the Goods and
               is not a warehouseman.

<PAGE>
                                      -16-


        (j)    "General Intangible" means any general intangible, chose in
               action, cause of action, obligation or indebtedness owed to
               Debtor from any source whatsoever, and all other intangible
               personal property of every kind and nature, other than goods,
               Accounts, Contract Rights, Chattel Paper, Documents, Instruments
               and money, but including, without limitation, patents,
               trademarks, trade names, service marks, copyrights and
               applications for any of the above, and goodwill, trade secrets,
               licenses, franchises, imbedded software, tax refund claims, and
               all books and records, including all computer programs, disks,
               tapes, printouts, customer lists, credit files and other business
               and financial records, and the equipment containing any such
               information.

        (k)    "Instrument" means:

               (i)    any instrument;

               (ii)   any negotiable or non-negotiable instrument (including,
                      without limitation, drafts, checks, acceptances,
                      certificates of deposit, and notes);

               (iii)  any security; and

               (iv)   any other writing which:

                      (A)    evidences a right to the payment of money,

                      (B)    is not itself a security agreement or lease, and

                      (C)    is of a type which in the ordinary course of
                             business is transferred by delivery with any
                             necessary endorsement or assignment.

        (l)    "Proceeds" means (a) any proceeds, and (b) whatever is received
               upon the sale, exchange, collection, or other disposition of
               Collateral or proceeds, whether cash or non-cash. Cash proceeds
               include, without limitation, money, checks, and Deposit Accounts.
               Proceeds includes, without limitation, any Account arising when
               the right to payment is earned under a Contract Right, any
               insurance or condemnation award payable by reason of loss or
               damage to the Collateral, and any return or unearned premium upon
               any cancellation of insurance. Except as expressly authorized in
               this Security Agreement, the Secured Party's right to Proceeds
               specifically set forth herein or indicated in any financing
               statement shall never constitute an express or implied
               authorization on the part of the Secured Party to the sale,
               exchange, collection, or other disposition of any or all of the
               Collateral by the Debtor.

        (m)    "Subsidiary or Subsidiaries" shall mean any one or more, as the
               case may be, of the following affiliates or subsidiaries of
               Debtor: (i) SmarTire USA, Inc.; (ii) SmarTire Technologies, Inc.;
               and iii) SmarTire (Europe) Limited.

        (n)    "the Act" means the Personal Property Security Act of British
               Columbia and all regulations thereunder as amended from time to
               time.

<PAGE>
                                      -17-


26.2           Words and expressions used herein that have been defined in the
Act will be interpreted in accordance with their respective meanings given in
the Act unless otherwise defined herein or unless the context otherwise
requires.

26.3           The invalidity or unenforceability of the whole or any part of
any clause of this Security Agreement will not affect the validity or
enforceability of any other clause or the remainder of such clause.

26.4           The headings of the clauses of this Security Agreement have been
inserted for reference only and do not define, limit, alter or enlarge the
meaning of any provision of this Security Agreement.

26.5           This Security Agreement will be governed by the laws of British
Columbia.

27.            COPY OF AGREEMENT AND FINANCING STATEMENT

27.1           The Debtor hereby:

        (a)    acknowledges receipt of a copy of this Security Agreement; and

        (b)    waives all rights to receive from the Secured Party a copy of any
               financing statement, financing change statement or verification
               statement filed at any time in respect of this Security
               Agreement.

IN WITNESS WHEREOF the Debtor has executed this Security Agreement as of the
date set forth above.

<TABLE>
<CAPTION>

                                              Execution Date
----------------------------------------------------------------------------------------------------
<S>                                          <C>     <C>     <C>   <C>
        Officer Signature(s)                 Y       M       D           Transferor/Borrower/Party
                                                                                Signature(s)


/s/ GAIL N. SPIESS                           01      8       31    SMARTIRE SYSTEMS INC. by its
------------------------                                           authorized signatory
Name: Gail N. Spiess
Address: 3924 Auburn Drive                                         /s/ ROBERT V. RUDMAN
Royal Oak, Michigan, USA                                           ----------------------
                                                                   Robert V. Rudman
Occupation: Executive Secretary
----------------------------------------------------------------------------------------------------
</TABLE>

        Principal Address of Debtor:

        150 - 13151 Vanier Place
        Richmond, British Columbia
        V6V 2J1



<PAGE>



                                  SCHEDULE "A"

                                  SEE ATTACHED.



<PAGE>

                                                                     Exhibit 2B




                                    GUARANTY

         THIS GUARANTY ("Guaranty") is made as of August 31, 2001, by SMARTIRE
USA, Inc., a Delaware corporation, SMARTIRE TECHNOLOGIES, INC., a company
incorporated in the Province of British Columbia and SMARTIRE (EUROPE) LIMITED,
a UK company (collectively "Guarantor"), in favor of TRW INC., an Ohio
corporation, of 24175 Research Drive, Farmington Hills, Michigan 48335-2642
("TRW") to induce TRW to extend credit or some other benefit (collectively,
"Indebtedness"), to SMARTIRE SYSTEMS INC., a company incorporated in the
Province of British Columbia, of 150-13151 Vanier Place, Richmond, British
Columbia, U6U251 and its successors ("SmarTire"), and because Guarantor has
determined that executing and delivering this Guaranty is in Guarantor's
interest and to Guarantor's financial benefit.

         GUARANTOR AGREES AS FOLLOWS:

1.       GUARANTEE. Guarantor unconditionally and irrevocably guarantees to
TRW the full and prompt payment when due of all indebtedness, liabilities and
obligations of SmarTire to TRW, whether present or future, primary or secondary,
absolute or contingent, direct or indirect, several, joint or joint and several,
(collectively, "Indebtedness") including, without limit, the payment obligations
and liabilities arising under or evidenced by the following:

         (a)  Termination Agreement dated as of August 31, 2001 by and between
              TRW and SmarTire;

         (b)  The $2,800,000.00 (USD) Secured Promissory Note dated August 31,
              2001 executed and delivered by SmarTire;

         (c)  All other documents executed in connection with the Termination
              Agreement.

together with expenses, costs and attorneys' fees, incurred by TRW in connection
with the enforcement of this Guaranty and/or any obligations of SmarTire to TRW.
TRW may have immediate recourse against Guarantor for full and immediate payment
of the Indebtedness at any time when the Indebtedness, or any portion, has not
been paid when due (whether by acceleration or otherwise). All payments by
Guarantor shall be made in lawful money of the United States of America and in
immediately available funds. Guarantor's obligations under this Guaranty are not
limited to any specific amount or part of the Indebtedness, including interest,
owed to TRW.

2.       NATURE OF GUARANTEE. This is a guarantee of payment and not of
collection. At any time when the Indebtedness, or any portion thereof, has not
been paid when due (whether by acceleration or otherwise) TRW can require that
Guarantor pay TRW the amounts owing under this Guaranty immediately, and TRW is
not required to collect first from SmarTire, or pursue any collateral or any
other person liable for the Indebtedness. No delay or stay in any acceleration
of the Indebtedness, as against SmarTire, due to the application of any
bankruptcy, insolvency or other law or proceeding shall be effective under this
Guaranty, and Guarantor agrees to pay immediately any amount of the Indebtedness
that would be due and payable but for such delay or stay. Guarantor's liability
for payment of the Indebtedness shall be a primary obligation and shall be
absolute and unconditional. Guarantor agrees that none of the following acts,
omissions or occurrences shall diminish or impair the liability of Guarantor in
any respect (all of which acts, omissions or occurrences may be done or occur
without notice to Guarantor):

         (a) Any extension, modification, indulgence, compromise, settlement or
variation of any of the terms of the Indebtedness.

         (b) Any assignment or transfer of any interest in any of the
Indebtedness.

         (c) The discharge or release of any obligations of SmarTire or any
other person now or hereafter liable on the Indebtedness, by reason of
bankruptcy or insolvency laws or otherwise.

         (d) The acceptance or release by TRW of any collateral, security or
other guaranty from Guarantor, SmarTire or any other person, or any settlement,
compromise or extension with respect to any such collateral, security or other
guaranty.

         (e) The application or allocation by TRW of payments, collections or
credits on the Indebtedness except to the amount of such payments, collections
or credits.

         (f) The creation of any new Indebtedness by SmarTire.



<PAGE>
         (g) The making of a demand, or absence of demand, for payment of the
Indebtedness, or giving, or failing to give, any notice of dishonor, protest,
presentment or non-payment or any other notice.

         (h) Any failure, omission or delay on the part of SmarTire, Guarantor
or any other person now or hereafter liable on the Indebtedness, or anyone
claiming by or through any of them, to comply with any instrument or agreement
relating to any of the Indebtedness.

         (i) To the extent permitted by law, any release or discharge, by
operation of law, of Guarantor from the performance or observance of any
obligation, covenant or agreement contained in this Guaranty.

         (j) Any merger or consolidation of SmarTire, Guarantor or any other
person now or hereafter liable on the Indebtedness, into or with any other
corporation or other entity, or any sale, lease or transfer of any of the assets
of SmarTire or Guarantor to any other person or entity.

         (k) Any other occurrence or circumstance which might otherwise
constitute a legal or equitable defense or discharge of the liabilities of a
guarantor or surety or which might otherwise limit recourse against Guarantor.

             The obligations of Guarantor set forth in this Guaranty constitute
full recourse obligations of Guarantor, enforceable against Guarantor to the
full extent of Guarantor's assets and properties. Guarantor's liability under
this Guaranty is independent of Guarantor's liability under any other guaranty
previously or subsequently executed by Guarantor or one of them, singularly or
together with others, as to all or any part of the Indebtedness, and may be
enforced for the full amount of this Guaranty regardless of Guarantor's
liability under any other guaranty.

3.       WAIVERS. Without limiting the generality of the foregoing, Guarantor
unconditionally waives

         (a) any right of subrogation to the rights of TRW against SmarTire
until the Indebtedness is paid in full;

         (b) TRW's acceptance of this Guaranty;

         (c) any set-offs or counterclaims that Guarantor may have against TRW
which would otherwise impair TRW's rights against Guarantor;

         (d) any demand or notice of any action that TRW takes regarding
SmarTire, anyone else, any collateral, or any Indebtedness, which Guarantor
might be entitled to by law or under any other agreement; and

         (e) any requirement of diligence on the part of anyone.

4.       REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
TRW as follows:

         (a) If Guarantor is a corporation, it represents that it is a
corporation duly organized, existing in good standing under the laws of its
state or province of incorporation, and that the execution and delivery of this
Guaranty and the performance of the duties and obligations under this Guaranty
are within Guarantor's corporate powers, have been duly authorized by all
necessary action by its board of directors or other governing bodies, and do not
contravene the terms of its articles of incorporation or bylaws or other
governing documents or agreements. If Guarantor is a co-partnership or limited
partnership, it represents that it is duly organized and existing under the laws
of its state or province of formation, and that the execution and delivery of
this Guaranty and the performance of the duties and obligations imposed under
this Guaranty are within Guarantor's partnership powers, have been duly
authorized by all necessary action of its partners, and do not contravene the
terms of its partnership agreement.

         (b) Guarantor is a subsidiary or otherwise an affiliate of SmarTire,
and such interest of Guarantor is not subject to any assignment, claim, lien,
encumbrance or agreement for sale, transfer or other disposition.

         (c) The execution and delivery of this Guaranty, and the performance of
the obligations imposed under this Guaranty, do not violate any law and do not
conflict with any agreement by which Guarantor is bound, and does not require
any consent or approval of any governmental authority or any third party. This
Guaranty is a valid and binding agreement, enforceable according to its terms.

         (d) All financial and other information, if any, furnished by Guarantor
to TRW is accurate and fairly reflects the financial condition of the persons or
entities to which they apply on their effective dates, including contingent
liabilities of every type, which financial condition has not changed materially
and adversely since those dates.

         (e) There are no actions, suits or proceedings, and no proceedings
before any arbitrator or by or before any governmental commission, board, bureau
or other administrative agency, pending or, to the best knowledge of Guarantor,
threatened against or affecting Guarantor, or any properties or rights of
Guarantor, which, if adversely determined, could have a materially adverse
effect upon the financial condition of Guarantor.


                                    GUARANTY
                                  Page 2 of 5
<PAGE>


         (f) Guarantor delivers this Guaranty based solely on Guarantor's
independent investigation of (or decision not to investigate) the financial
condition of SmarTire and is not relying on any information furnished by TRW.
Guarantor assumes full responsibility for obtaining any further information
concerning SmarTire's financial condition, the status of the Indebtedness or any
other matter which Guarantor may deem necessary or appropriate (now or later).
Guarantor waives any duty on the part of TRW, and agrees that Guarantor is not
relying upon or expecting TRW to disclose to Guarantor any fact now or later
known by TRW, whether relating to the operations or condition of SmarTire, the
existence, liabilities or financial condition of any co-guarantor of the
Indebtedness, the occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon Guarantor's risk
under this Guaranty, or Guarantor's rights against SmarTire.

         (g) TRW has made no representation to Guarantor as to the
credit-worthiness of SmarTire, and Guarantor is satisfied with the means that
Guarantor has for obtaining from SmarTire, on a continuing basis, financial and
other information pertaining to SmarTire's financial condition.

5.       OTHER GUARANTORS. If more than one person or entity signs this
Guaranty, their duties and obligations under this Guaranty shall be joint and
several. All references to Guarantor shall be to each or any two or more of
them. Guarantor's duties and obligations under this Guaranty are joint and
several with any other guarantor of the Indebtedness. If TRW elects to enforce
its rights against all guarantors of the Indebtedness, that election shall not
release Guarantor from its duties and obligations under this Guaranty. The
compromise or release of any of the obligations of any of the other guarantors,
or SmarTire, shall not serve to waive, alter or release Guarantor's obligations.

6.       REINSTATEMENT. This Guaranty, and any agreement securing this
Guaranty, shall continue to be effective, or shall be automatically reinstated,
as the case may be, if at any time payment of all or any part of the
Indebtedness is rescinded or must otherwise be restored or returned by TRW upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of
SmarTire, or upon, or as a result of, the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to SmarTire or any
substantial part of SmarTire's property, or for any other reason, all as though
such payments had not been made.

7.       MISCELLANEOUS.

         (a) This Guaranty shall be construed in accordance with the laws of the
State of Michigan, USA.

         (b) For all purposes in respect to this Guaranty, Guarantor agrees to
submit to the non-exclusive jurisdiction of the state and federal courts located
in the State of Michigan, USA.

         (c) This Guaranty shall be binding upon the heirs, successors and
assigns of Guarantor, and the rights and privileges of TRW under this Guaranty
shall inure to the benefit of its successors and assigns.

         (d) Any notice required from one party to another relating to this
Guaranty shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Guaranty by any of the following means: hand
delivery, registered or certified mail, postage prepaid, express mail or other
overnight courier service, or telecopy, telex or other wire or electronic
transmission with request for assurance of receipt in a manner typical with
respect to communications of that type. Notice made in accordance with these
provisions shall be deemed delivered on receipt if delivered by hand, wire or
electronic transmission, on the third business day after mailing if mailed by
registered or certified mail, or on the next business day after mailing or
deposit with the postal service or an overnight courier service if delivered by
express mail or overnight courier. Guarantor's address and telecopier number is
set forth below and TRW's address is set forth above, and telecopier number is
(248) 442-5290. All notices sent to TRW shall be to the attention of the Legal
Department.

         (e) Any amendment of this Guaranty shall be in writing and shall
require the signature of Guarantor and TRW. Any waiver or consent to departure
from compliance with this Guaranty must be in writing and signed by TRW.

         (f) The invalidity or unenforceability of any provision of this
Guaranty shall not affect the validity or enforceability of the remaining
provisions of this Guaranty. The use of headings does not limit the terms of
this Guaranty.

         (g) Any reference in this Guaranty to attorneys' fees shall refer to
fees, charges, costs and expenses of in-house and outside attorneys and
paralegals, whether or not a suit or proceeding is instituted, and whether
incurred at the trial court level, on appeal, in a bankruptcy, administrative or
probate proceeding, in consultation with counsel, or otherwise.

         This Guaranty is dated and effective as of the date stated above.




                                    GUARANTY
                                  Page 3 of 5



<PAGE>




WITNESSES:



                   /s/ Elzabeth Restabatt
___________________________________________________________

                     /s/ Gail N. Spiess
___________________________________________________________


STATE [PROVINCE] OF Michigan, COUNTY OF Oakland


     The foregoing instrument was acknowledged before me on
August 31, 2001, by Robert V. Rudman


                                  /s/ Averil J. Penn
                            _______________________________
                                              Notary Public


                                   Oakland County, Michigan
                                Commission Expires: 6/22/03


GUARANTOR:

SMARTIRE USA, INC.


By:                   /s/ Robert V. Rudman
    ------------------------------------------------------
    Its:              President & Director
        --------------------------------------------------

Address:

c/o 13151 Vanier Place, Suite 150
----------------------------------------------------------
Richmond, B.C.  V6V 2J1  Canada
----------------------------------------------------------

Telecopier No.  1-604-276-2350
               -------------------------------------------
Tax I.D. No.   95-4630870
              --------------------------------------------






WITNESSES:

/s/ Elzabeth Restabatt
___________________________________________________________


/s/ Gail N. Spiess
___________________________________________________________



STATE [PROVINCE] OF Michigan, COUNTY OF Oakland

     The foregoing instrument was acknowledged before me on
August 31, 2001, by Robert V. Rudman



                            /s/ Averil J. Penn
                            _______________________________
                                              Notary Public


                                   Oakland County, Michigan
                                Commission Expires: 6/22/03



GUARANTOR:

SMARTIRE (EUROPE) LIMITED




By:                   /s/ Robert V. Rudman
    _______________________________________________________

    Its:              President & Director
    _______________________________________________________


Address:

Park 34, Southmead Industrial Park
-----------------------------------------------------------
Didcot, Oxfordshire, U.K. 0X11 7WB
-----------------------------------------------------------

Telecopier No.  44.1235.514/040
               --------------------------------------------
Tax I.D. No.   U.K. REGH 35166661
              ---------------------------------------------






                                    GUARANTY
                                   Page 4 of 5





<PAGE>


WITNESSES:


/s/ Elzabeth Restabatt
___________________________________________________________


/s/ Gail N. Spiess
___________________________________________________________



STATE [PROVINCE] OF Michigan, COUNTY OF Oakland

     The foregoing instrument was acknowledged before me on
August 21, 2001, by Robert V. Rudman


                            /s/ Averil J. Penn
                            _______________________________
                                              Notary Public


                                   Oakland County, Michigan
                                Commission Expires: 6/22/03



GUARANTOR:

SMARTIRE TECHNOLOGIES, INC.




By: /s/ Robert V. Rudman
    _______________________________________________________

    Its: Director
         __________________________________________________


Address:

13151 Vanier Place, Suite 150
-----------------------------------------------------------
Richmond, B.C. V6V 2J1 Canada
-----------------------------------------------------------

Telecopier No. 1-604-276-2350
               --------------------------------------------
Tax I.D. No.   95-4630870
               --------------------------------------------






                                    GUARANTY
                                  Page 5 of 5






<PAGE>

                                                                      Exhibit 3

                          License From SmarTire to TRW


                                LICENSE AGREEMENT

        THIS LICENSE AGREEMENT is made to be effective as of this 31st day of
August 2001 (the "Effective Date"), by and between SMARTIRE SYSTEMS INC., a
British Columbia corporation having its principal place of business at 13151
Vanier Place, Suite 150, Richmond, British Columbia, Canada V6V 2J1
("SmarTire"), and TRW INC., a corporation existing under the laws of the State
of Ohio, United States of America, acting for and on behalf of its Automotive
Electronics operation in the U.S., having a place of business at 24175 Research
Drive, Farmington Hills, Michigan, United States of America 48335-2642 ("TRW").

        WHEREAS, the parties have been cooperating in the development and
marketing of tire pressure monitoring systems pursuant to certain agreements
including a License Agreement, Technical Cooperation Agreement, and Supply
Agreement, all dated as of 20 April 1998 and amended (in the case of the License
Agreement and Technical Cooperation Agreement) via an Assignment and Amending
Agreement dated as of 13 December 2000, and a Mutual Secrecy Agreement dated as
of 6 January 1998 and amended in a First Amendment dated 18 February 1998;

        WHEREAS, through their respective activities in the area of tire
pressure monitoring systems, the parties now each own respective intellectual
property that is useful in connection with the design and manufacture of tire
pressure monitoring systems;

        WHEREAS, pursuant to a Termination Agreement of even date herewith, the
parties are terminating the existing cooperation and the agreements associated
therewith; and,

        WHEREAS, each party wishes to receive from the other party a license to
use such other party's intellectual property in the manufacture and sale of tire
pressure monitoring systems subsequent to the termination of the existing
cooperation;

        NOW, THEREFORE, in view of the foregoing premises and in consideration
of the mutual promises and covenants contained in this and the related
termination agreements, SmarTire and TRW agree as follows:

                                    Article 1
                                   Definitions

        The following words and phrases will have the meanings set forth below
where used herein with initial capital letters:

        1.1    Affiliate: Any corporation, partnership, or other business entity
in which SmarTire or TRW owns or controls more than fifty percent (50%) of the
voting stock or otherwise has more than fifty percent (50%) of the right to
control the entity.

        1.2    Licensed Products: Tire pressure monitoring systems and
components of such systems, including but not limited to tire pressure
transmitters and receivers.



                                      -Page 1-

<PAGE>

        1.3    SmarTire Patents: All utility patents, design patents, utility
models, or applications for patents or utility models that (a) were originally
filed before the Effective Date or, although filed after the Effective Date, are
directed to inventions made before the Effective Date, and (b) have a claim
covering Licensed Products, components of Licensed Products, or methods of
making or using same, and (c) SmarTire has the right, whether by reason of
ownership of the patent, utility model or application or otherwise, to grant
licenses to TRW on the Effective Date. The term "SmarTire Patents" does not
include any patents under which SmarTire acquired rights from Transense
Technologies plc. or from SensoNor asa, but does include patents filed on
inventions developed and owned by Affiliates of SmarTire. The term "SmarTire
Patents" includes, without limitation, the publicly known patents and pending
patent applications listed on Attachment 1 hereto.

        1.4    Other Definitions and Meanings: For purposes of this Agreement,
(a) the term "person" includes any natural person, firm, association,
partnership, corporation, or other entity and (b) the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole.

                                    Article 2
                                 Licensed Rights

        2.1    Grant: SmarTire hereby grants to TRW the perpetual, royalty-free,
non-exclusive, worldwide right under the SmarTire Patents to make, have made,
import, use, and sell Licensed Products.

        2.2    Sublicenses: TRW may grant to its Affiliates sublicenses under
the rights granted herein.

        2.3    Patents owned by SmarTire Affiliates: If any of the SmarTire
Patents are owned by any SmarTire Affiliate, then SmarTire will cause such
SmarTire Affiliate to endorse and confirm the licenses granted to TRW hereunder.

                                    Article 3
                                    Warranty

        SmarTire warrants that it owns the SmarTire Patents, that it has the
right to enter into this Agreement, and that SmarTire's performance of this
Agreement will not violate any agreement between SmarTire and any third person.

                                    Article 4
                                SmarTire Patents

        4.1    Title: Nothing contained in this Agreement will be deemed to
convey to TRW the legal title to any SmarTire patent.


                                      -Page 2-
<PAGE>

        4.2    Maintenance of Patents: SmarTire will have no obligation under
this Agreement (a) to file, prosecute, or maintain any SmarTire patent or (b) to
respond to or otherwise defend any action for reexamination or revocation of any
SmarTire patent.

                                    Article 5
                              Term and Termination

        5.1    Term: This Agreement is effective as of the Effective Date upon
execution by both parties. The Agreement will not expire.

        5.2    Termination: This Agreement may not be terminated except upon the
express written agreement of both parties.

                                    Article 6
                                   Assignment

        Neither party may assign or transfer this Agreement or any of its rights
or duties under this Agreement without the prior written consent of the other
party. For purposes of this Article, any change of control of TRW will be
considered to be a transfer of the Agreement.

                                    Article 7
                                     Notice

        Any notice or other communication to any party under this Agreement will
be in writing and will be deemed to have been duly given, if communicated by
facsimile, cable or similar electronic means, at the time receipt thereof has
been confirmed by return electronic communication or signal that the message has
been clearly received, or if mailed, ten (10) days after mailing, registered
mail, postage prepaid, return receipt requested:

               if to TRW:         TRW Automotive Electronics
                                  24175 Research Drive
                                  Farmington Hills, Michigan 48335-2642
                                  U.S.A.
                                  FAX: 248.442.5290
                                  Attention: General Manager

with a copy of the notice being sent to the same address, to the attention of
the Vice President, Law, and

               If to SmarTire:    SmarTire Systems Inc.
                                  13151 Vanier Place
                                  Suite 150
                                  Richmond, British Columbia
                                  CANADA V6V 2J1


                                      -Page 3-
<PAGE>

                                  FAX: 604.276.2350
                                  Attention: President

provided, however, that if either party will have designated a different address
by notice to the other party given as provided above, then to the last address
so designated.

                                    Article 8
                                  Miscellaneous

        8.1    Headings: Except for the headings for the Definitions in
Article 1, the headings and titles to the Articles and Sections of this
Agreement are inserted for convenience only and will not be deemed a part of
this Agreement or affect the construction or interpretation of any provision of
this Agreement.

        8.2    Entire Agreement: This Agreement comprises the entire agreement
between TRW and SmarTire and supersedes all other agreements, oral or written,
heretofore made with respect to the licensing of patents for the manufacture and
sale of Licensed Products.

        8.3    Modification: This Agreement may be amended only in writing
signed by both parties which specifically refers to the provision of this
Agreement to be amended and clearly recites the amendment thereto.

        8.4    Waiver: No waiver of any right or remedy in respect of any
occurrence or event on one occasion will be deemed a waiver of such right or
remedy in respect of such occurrence or event on any subsequent occasion.

        8.5    Remedies: Unless otherwise expressly provided in this Agreement,
the rights and remedies set forth in this Agreement are in addition to, and not
in limitation of, other rights and remedies under the Agreement, at law or in
equity, and the exercise of one right or remedy will not be deemed a waiver of
any other right or remedy.

        8.6    Governing Law: The validity, construction, interpretation and
enforceability of this Agreement will be determined and governed by the laws of
the State of Ohio, United States of America.

        8.7    Counterparts: This Agreement may be executed in multiple
counterparts with equal force and effect in the English language, and each such
counterpart will be deemed an original of this Agreement.


                                      -Page 4-
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date, and this Agreement will be deemed dated as of such date.


TRW INC.                                          SMARTIRE SYSTEMS INC.
Automotive Electronics in the U.S.


By: /s/ RONALD A. MUCKLEY                         By: /s/ ROBERT V. RUDMAN
    ---------------------------------                 --------------------------

RONALD A. MUCKLEY                                 ROBERT V. RUDMAN
-------------------------------------             ------------------------------
      (Typed/Printed Name)                              (Typed/Printed Name)

Title: Vice President and General                 Title: President and Chief
       Manager Safety and Security Systems               Executive Officer

Attachment 1:  SmarTire Patents and Pending Patent Applications



                                    -Page 5-
<PAGE>


                                  Attachment 1
                SmarTire Patents and Pending Patent Applications


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
PATENT/PATENT
APPLICATION NO.        FILING/ISSUE DATE                  TITLE                      JURISDICTION
--------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                                     <C>
5,285,189              February 8, 1994      ABNORMAL TIRE CONDITION WARNING         US
(Patent Granted)                             SYSTEM
--------------------------------------------------------------------------------------------------
5,559,484              September 4, 1996     DATA LOGGING TIRE MONITOR WITH          US
(Patent Granted)                             CONDITION PREDICTIVE CAPABILITIES
                                             AND INTEGRITY CHECKING
--------------------------------------------------------------------------------------------------
5,231,872              August 3, 1993        TIRE MONITORING APPARATUS AND METHOD    US
(Patent Granted)
--------------------------------------------------------------------------------------------------
5,335,540              August 9, 1994        TIRE MONITORING APPARATUS AND METHOD    US
(Patent Granted)
--------------------------------------------------------------------------------------------------
09/351,002             July 12, 1999         WHEEL COMPONENT WITH CAVITY FOR         US
(Application)                                MOUNTING A HOUSING FOR MEASUREMENT
                                             APPARATUS
--------------------------------------------------------------------------------------------------
2,104,696              Feb. 20, 1992         TIRE MONITORING APPARATUS AND METHOD    Canada
(Application)
--------------------------------------------------------------------------------------------------
2,221,174              Feb. 20, 1992         TIRE MONITORING APPARATUS AND METHOD    Canada
(Application)
--------------------------------------------------------------------------------------------------
</TABLE>


                                   -Page A.1-
<PAGE>

                                                                      Exhibit 4

                          License From TRW to SmarTire


                                LICENSE AGREEMENT

        THIS LICENSE AGREEMENT is made to be effective as of this 31st day of
August 2001 (the "Effective Date"), by and between SMARTIRE SYSTEMS INC., a
British Columbia corporation having its principal place of business at 13151
Vanier Place, Suite 150, Richmond, British Columbia, Canada V6V 2J1
("SmarTire"), and TRW INC., a corporation existing under the laws of the State
of Ohio, United States of America, acting for and on behalf of its Automotive
Electronics operation in the U.S., having a place of business at 24175 Research
Drive, Farmington Hills, Michigan, United States of America 48335-2642 ("TRW").

        WHEREAS, the parties have been cooperating in the development and
marketing of tire pressure monitoring systems pursuant to certain agreements
including a License Agreement, Technical Cooperation Agreement, and Supply
Agreement, all dated as of 20 April 1998 and amended (in the case of the License
Agreement and Technical Cooperation Agreement) via an Assignment and Amending
Agreement dated as of 13 December 2000, and a Mutual Secrecy Agreement dated as
of 6 January 1998 and amended in a First Amendment dated 18 February 1998;

        WHEREAS, through their respective activities in the area of tire
pressure monitoring systems, the parties now each own respective intellectual
property that is useful in connection with the design and manufacture of tire
pressure monitoring systems;

        WHEREAS, pursuant to a Termination Agreement of even date herewith, the
parties are terminating the existing cooperation and the agreements associated
therewith; and,

        WHEREAS, each party wishes to receive from the other party a license to
use such other party's intellectual property in the manufacture and sale of tire
pressure monitoring systems subsequent to the termination of the existing
cooperation;

        NOW, THEREFORE, in view of the foregoing premises and in consideration
of the mutual promises and covenants contained in this and the related
termination agreements, SmarTire and TRW agree as follows:

                                    Article 1
                                   Definitions

        The following words and phrases will have the meanings set forth below
where used herein with initial capital letters:

        1.1    Affiliate: Any corporation, partnership, or other business entity
in which SmarTire or TRW owns or controls more than fifty percent (50%) of the
voting stock or otherwise has more than fifty percent (50%) of the right to
control the entity.

        1.2    Licensed Products: Tire pressure monitoring systems and
components of such systems, including but not limited to tire pressure
transmitters and receivers.


                                    -Page 1-


<PAGE>

        1.3    TRW Patents: All utility patents, design patents, utility models,
or applications for patents or utility models that (a) were originally filed
before the Effective Date or, although filed after the Effective Date, are
directed to inventions made before the Effective Date, and (b) have a claim
covering Licensed Products, components of Licensed Products, or methods of
making or using same, and (c) the TRW Automotive Electronics operation in the
U.S. has the right, whether by reason of ownership of the patent, utility model
or application or otherwise, to grant licenses to SmarTire on the Effective
Date. The term "TRW Patents" does not include any patents filed on inventions
developed and owned by divisions of TRW Inc. other than its Automotive
Electronics operation, but does include patents filed on inventions developed
and owned by Affiliates of TRW, or divisions of Affiliates of TRW, that are
managed and operated as part of TRW's Automotive Electronics operation. The term
"TRW Patents" includes, without limitation, the publicly known patents and
pending patent applications listed on Attachment 1 hereto.

        1.4    Other Definitions and Meanings: For purposes of this Agreement,
(a) the term "person" includes any natural person, firm, association,
partnership, corporation, or other entity and (b) the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole.

                                    Article 2
                                 Licensed Rights

        2.1    Grant: TRW hereby grants to SmarTire the perpetual, royalty-free,
non-exclusive, worldwide right under the TRW Patents to make, have made, import,
use, and sell Licensed Products.

        2.2    Sublicenses: SmarTire may grant to its Affiliates sublicenses
under the rights granted herein, but may not otherwise grant sublicenses under
the rights granted herein. However, the foregoing notwithstanding, SmarTire may
grant limited sublicenses to vendors cooperating in the supply of products to
customers for a tire pressure monitoring system of those customers, if in each
case (a) SmarTire is supplying other material products for use in the same
system for the same customer, and (b) the sublicensed technology is necessary,
as opposed to merely useful or convenient, in order for such products of the
cooperating vendor to interface with such products of SmarTire. Any such
sublicense will be restricted to such necessary technology, only, and to such
system and such customer or vendor, only. For purposes of this paragraph, the
"vendor" and the "customer" may be the same company.

        2.3    Patents owned by TRW Affiliates: Certain of the TRW Patents are
owned by an Affiliate of TRW. Specifically, the Automotive Electronics division
of TRW France SA has filed patent applications on inventions covering Licensed
Products. TRW will cause TRW France SA to endorse and confirm the licenses
granted to SmarTire hereunder.


                                    -Page 2-
<PAGE>

                                    Article 3
                                    Warranty

        TRW warrants that it has the right to enter into this Agreement, and
that TRW's performance of this Agreement will not violate any agreement between
TRW and any third person.

                                    Article 4
                                   TRW Patents

        4.1    Title: Nothing contained in this Agreement will be deemed to
convey to SmarTire the legal title to any TRW patent.

        4.2    Maintenance of Patents: TRW will have no obligation under this
Agreement (a) to file, prosecute, or maintain any TRW patent or (b) to respond
to or otherwise defend any action for reexamination or revocation of any TRW
patent.

                                    Article 5
                              Term and Termination

        5.1    Term: This Agreement is effective as of the Effective Date upon
execution by both parties. Subject to Section 5.2, the Agreement will not
expire.

        5.2    Termination: SmarTire agrees that this Agreement will
automatically terminate and be without further force or effect, and all of
SmarTire's rights under this license will cease to exist, without notice, if
SmarTire breaches of any of its obligations under either the Termination
Agreement or any of the other agreements referenced therein. In the event of
such termination of this Agreement, SmarTire will immediately cease using, for
any purpose whatsoever, any inventions covered by TRW Patents and any TRW
Proprietary Information, as defined in the Mutual Secrecy Agreement referenced
in the recitals of this Agreement.

                                    Article 6
                                   Assignment

        Neither party may assign or transfer this Agreement or any of its rights
or duties under this Agreement without the prior written consent of the other
party. For purposes of this Article, any change of control of SmarTire will be
considered to be a transfer of the Agreement.

                                    Article 7
                                     Notice

        Any notice or other communication to any party under this Agreement will
be in writing and will be deemed to have been duly given, if communicated by
facsimile, cable or similar electronic means, at the time receipt thereof has
been confirmed by


                                    -Page 3-
<PAGE>

return electronic communication or signal that the message has been clearly
received, or if mailed, ten (10) days after mailing, registered mail, postage
prepaid, return receipt requested:

               if to TRW:         TRW Automotive Electronics
                                  24175 Research Drive
                                  Farmington Hills, Michigan 48335-2642
                                  U.S.A.
                                  FAX: 248.442.5290
                                  Attention: General Manager

with a copy of the notice being sent to the same address, to the attention of
the Vice President, Law, and

               if to SmarTire:    SmarTire Systems Inc.
                                  13151 Vanier Place
                                  Suite 150
                                  Richmond, British Columbia
                                  CANADA V6V 2J1
                                  FAX: 604.276.2350
                                  Attention: President

provided, however, that if either party will have designated a different address
by notice to the other party given as provided above, then to the last address
so designated.

                                   Article 68
                                  Miscellaneous

        8.1    Headings: Except for the headings for the Definitions in
Article 1, the headings and titles to the Articles and Sections of this
Agreement are inserted for convenience only and will not be deemed a part of
this Agreement or affect the construction or interpretation of any provision of
this Agreement.

        8.2    Entire Agreement: This Agreement comprises the entire agreement
between TRW and SmarTire and supersedes all other agreements, oral or written,
heretofore made with respect to the licensing of patents for the manufacture and
sale of Licensed Products.

        8.3    Modification: This Agreement may be amended only in writing
signed by both parties which specifically refers to the provision of this
Agreement to be amended and clearly recites the amendment thereto.

        8.4    Waiver: No waiver of any right or remedy in respect of any
occurrence or event on one occasion will be deemed a waiver of such right or
remedy in respect of such occurrence or event on any subsequent occasion.

        8.5    Remedies: Unless otherwise expressly provided in this Agreement,
the rights and remedies set forth in this Agreement are in addition to, and not
in


                                    -Page 4-
<PAGE>

limitation of, other rights and remedies under the Agreement, at law or in
equity, and the exercise of one right or remedy will not be deemed a waiver of
any other right or remedy.

        8.6    Governing Law: The validity, construction, interpretation and
enforceability of this Agreement will be determined and governed by the laws of
the State of Ohio, United States of America.

        8.7    Counterparts: This Agreement may be executed in multiple
counterparts with equal force and effect in the English language, and each such
counterpart will be deemed an original of this Agreement.

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date, and this Agreement will be deemed dated as of such date.


TRW INC.                                           SMARTIRE SYSTEMS INC.
Automotive Electronics in the U.S.


By: /s/RONALD A. MUCKLEY                           By: /s/ ROBERT V. RUDMAN
    --------------------------------                   -------------------------

RONALD A. MUCKLEY                                  ROBERT V. RUDMAN
------------------------------------               -----------------------------
        (Typed/Printed Name)                            (Typed/Printed Name)

Title: Vice President and General Manager          Title: President and Chief
       Safety and Security Systems                        Executive Officer


Attachment 1: TRW Patents and Pending Patent Applications




                                    -Page 5-
<PAGE>


                                  Attachment 1
                   TRW Patents and Pending Patent Applications


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
PATENT/PATENT
APPLICATION NO.        FILING/ISSUE DATE                   TITLE                      JURISDICTION
---------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                                      <C>
6,232,875              i. 05/15/2001         APPARATUS AND METHOD FOR                 U.S.
(Patent Granted)                             CONTROLLING A TIRE
                                             CONDITION MODULE OF A
TRW #006747                                  VEHICLE TIRE
---------------------------------------------------------------------------------------------------
6,055,855              i. 05/02/2000         TIRE PRESSURE SENSOR WHEEL               U.S.
(Patent Grated)                              ATTACHMENT APPARATUS

TRW #006605
---------------------------------------------------------------------------------------------------
006524                 f. 12/20/1999         APPARATUS AND METHOD FOR SENSING A       U.S.
09/467,400                                   CONDITION OF A VEHICLE TIRE
(Application)

TRW #006524
---------------------------------------------------------------------------------------------------
00122283.5             f. 10/19/2000         APPARATUS AND METHOD FOR SENSING A       European
(Application)                                CONDITION OF A VEHICLE TIRE              Patent Office

TRW #006524
---------------------------------------------------------------------------------------------------
09/464,208             f. 12/15/1999         APPARATUS AND METHOD FOR                 U.S.
(Application)                                TRANSMITTING DATA IN A
                                             TIRE CONDITION
TRW #006606
---------------------------------------------------------------------------------------------------
00122282.7             f. 10/19/2000         APPARATUS AND METHOD FOR                 European
(Application)                                TRANSMITTING DATA IN A                   Patent Office
                                             TIRE CONDITION
TRW #006606
---------------------------------------------------------------------------------------------------
</TABLE>



                                  - Page A.1 -
<PAGE>

                                                                      Exhibit 5



The following negotiations are exceptions to the representation and warranty in
Section 4.1(d) of the Agreement:

1.      Transense, as to a license to use SAW technology for tire pressure
        monitoring purposes;

2.      **

3.      **

4.      Honeywell, as to the automotive aftermarket;

5.      **, as to off-road heavy equipment;

6.      Others providing contract manufacturing for SmarTire;

7.      Small passenger car and light truck OEMs that have been previously
        approved by TRW; and

8.      Aftermarket car accessory programs.
<PAGE>

                                                                       Exhibit 6

                        Settlement and Release Agreement


This Settlement and Release Agreement (the "Release") is entered into effective
as of this 31st day of August 2001 (the "Effective Date"), by and between
SmarTire Systems Inc. ("SmarTire"), a British Columbia, Canada corporation, and
TRW Inc. ("TRW"), an Ohio corporation.

                              W I T N E S S E T H:

        WHEREAS, TRW and SmarTire entered into a license agreement (the "License
Agreement") dated as of April 20, 1998, as amended by an Assignment and
Amendment Agreement dated December 13, 2000 (the "Assignment Agreement"); and

        WHEREAS, TRW and SmarTire entered into a technical cooperation agreement
dated as of April 20, 1998, as amended by the Assignment Agreement (the
"Technical Cooperation Agreement"); and

        WHEREAS, TRW and SmarTire entered into a supply agreement dated April
20, 1998 (the "Supply Agreement"); and

        WHEREAS, TRW and SmarTire entered into a Mutual Secrecy Agreement dated
January 6, 1998, as amended by a First Amendment of Mutual Secrecy Agreement
dated February 18, 1998 (collectively, the "Secrecy Agreement"); and

        WHEREAS, TRW and SmarTire have agreed to terminate the License
Agreement, the Technical Cooperation Agreement, the Supply Agreement and the
Secrecy Agreement (together, the "April 1998 Agreements"); and

        WHEREAS, TRW and SmarTire desire to settle any and all claims among
themselves arising out of, or in any way relating to, the April 1998 Agreements.

        NOW, THEREFORE, in consideration of One United States Dollar (US$1.00)
and the mutual promises set forth in this Release, and intending to be legally
bound hereby, TRW and SmarTire agree as follows:

1.      GENERAL RELEASES.

        (a) Except as set forth in Section 2 below, TRW, for itself and its
officers, directors, shareholders, employees, partners, agents, assigns,
successors, heirs, subsidiary corporations and related or affiliated
corporations, partnerships, persons and entities (collectively,
"Representatives"), does hereby remise, release and forever discharge SmarTire
and SmarTire's Representatives from any and all Claims (as defined below) TRW
and its Representatives may or shall have against SmarTire and SmarTire's
Representatives arising out of, or in any way relating



<PAGE>

to: (i) the April 1998 Agreements; and (ii) the activities, events and/or
transactions undertaken in connection with, or pursuant to, the April 1998
Agreements.

        (b) Except as set forth in Section 2 below, SmarTire, for itself and its
Representatives, does hereby remise, release and forever discharge TRW and TRW's
Representatives from any and all Claims (as defined below) SmarTire and
SmarTire's Representatives may or shall have against TRW and TRW's
Representatives, including without limitation any and all Claims arising out of,
or in any way relating to: (i) the April 1998 Agreements; (ii) the activities,
events and/or transactions undertaken in connection with, or pursuant to, the
April 1998 Agreements; and (iii) the activities, actions or inactions of any TRW
employee serving on SmarTire's Board of Directors.

        (c) SmarTire, for itself and its Representatives, does hereby remise,
release and forever discharge Dana Stonerook to the maximum extent permitted
under the Company Act (British Columbia) and SmarTire's Articles of
Incorporation from any and all Claims (as defined below) SmarTire may or shall
have against Dana Stonerook.

        (d) For the purposes hereof, "Claims" shall mean any and all present and
future claims, actions, causes of action, suits, cross claims, counterclaims,
sums of money, judgments, liabilities, obligations, damages, debts, losses,
indemnities, costs, expenses, penalties, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, extents, executions, and demands of any kind and of any
nature whatsoever, whether direct, indirect, known or unknown, accrued,
inchoate, contingent, potential or otherwise in statutory or common law, or in
equity.

2.      CLAIMS NOT RELEASED. Nothing in this Release constitutes, and no party
shall claim that this Release constitutes, a release, or otherwise impairs the
enforceability, of any or all of the following:

        (a) The rights and obligations of the parties under the Termination
Agreement entered into by the parties on the date hereof, or the other documents
referenced therein, or any Claim for breach of or default under any of the
provisions of such documents; or

        (b) TRW's rights as a shareholder of SmarTire; or

        (c) Claims for breach of those provisions of the Secrecy Agreement that
survive termination thereof, but only for breaches of the surviving provisions
that occur after the date of this Release and that are not otherwise permitted
by the Termination Agreement or the documents referenced therein.

3.      INDEMNIFICATION AND EXCULPATION OF TRW APPOINTED SMARTIRE DIRECTORS.
SmarTire covenants to maintain in effect for a period of at least six (6) years
after the Effective Date policies of directors' and officers' liability
insurance equivalent in all material respects to those maintained by or on
behalf of SmarTire on the date hereof (and having coverage and containing terms
and conditions which in the aggregate are not less advantageous to the persons
currently covered by such policies as insured) with respect to Claims arising
from any actual or alleged


                                       2
<PAGE>

wrongful act or omission by any TRW employees who served as a SmarTire director
prior to the Effective Date. If at any time during the six (6) years after the
Effective Date SmarTire desires to change any of the material terms of its
directors' and officers' liability insurance or the carrier(s) of such
insurance, SmarTire will give to TRW and each TRW employee who served as a
SmarTire director advance written notice sufficient to permit them to protect
their interest in such policies of insurance, but not less than fourteen (14)
days notice. Notwithstanding any other provision hereof, the provisions of this
Section are (i) intended to be for the benefit of, and will be enforceable by,
TRW, each TRW employee who served as a director of SmarTire, their heirs and
representatives, and (ii) are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have by
contract or otherwise. SmarTire represents and warrants that a true, correct and
complete copy of SmarTire's existing officers' and directors' liability
insurance policies have been, or will be within ten (10) days after the date on
which SmarTire receives copies of such policies from its insurers, provided to
TRW.

4.      COVENANT NOT TO SUE. Each of SmarTire and TRW hereby covenants to and
agrees with the other that it will not commence or prosecute any action or suit
in law or in equity against the other involving any claim (including without
limitation any of the Claims) that now exists or may hereafter exist arising
from, or in any way relating to, any of the matters released by it in Section 1
of this Release. Upon the breach of this covenant by a party, the other party
hereto shall be entitled to recover from the breaching party, in addition to any
other damages or remedy, all liability and actual attorneys' fees and costs
incurred by the other party in the defense or settlement of such action or suit.

5.      REPRESENTATIONS AND WARRANTIES.

        (a) Each of SmarTire and TRW warrants and represents to the other that
no person or entity not bound legally by this Release has any right to assert
any of the Claims released by it in Section 1, above, by or through that party,
and that it has not assigned or otherwise transferred to any person or entity
not bound legally by this Release any of the Claims released by it in Section 1
or any interest in, or right to, any of such Claims. Each of SmarTire and TRW
hereby agrees to indemnify, defend and hold the other harmless from any and all
liability and expenses, including without limitation actual attorneys' fees,
arising from, or in any way relating to, any claim asserted by any person or
entity contending not to be bound legally by this Release and based upon such
person's or entity's claiming to have any right to assert any of such Claims.

        (b) Each of the parties warrants and represents that no promises or
inducements have been offered except as herein stated, and this Release is
executed without reliance upon any statement or representation by the other
party concerning the nature or extent of any claims, damages or legal liability.
By execution of this Release, the parties hereto agree to be deemed joint
authors and drafters of this Release.


                                       3
<PAGE>

6.      GENERAL.

        (a) It is understood and acknowledged that the payment and promises set
forth herein represent the full and complete compromise and settlement of the
Claims. Nothing contained in this Release shall be construed as an admission of
liability on the part of any person.

        (b) Each party hereby acknowledges and agrees that this Release is
freely and voluntarily given without any duress or coercion and after it has
either consulted with legal counsel or been given the opportunity to do so, and
each party has carefully and completely read all of the terms and provisions of
this Release.

        (c) This Release constitutes the entire understanding between the
parties hereto with respect to the settlement and release of claims by the
parties hereto, and, except to the extent contemplated by Section 1(c) above,
any other agreement made by the parties at any time prior to the date hereof
with respect to the foregoing shall not be of any force or effect. The
provisions herein are, and shall be, binding upon, and shall inure to the
benefit of, the respective heirs, executors, administrators, assigns and
successors of the parties.

        (d) Each provision, covenant, obligation, warranty or representation
stated herein shall be deemed to be effective, operative, made, entered into and
taken in the manner and to the fullest extent permitted by law. If any provision
of this Release, or any covenant, obligation, warranty or representation
contained in this Release is determined by a court to be invalid or
unenforceable, that determination shall not affect any other provision,
covenant, obligation or representation, each of which shall be construed and
enforced as if the invalid or unenforceable portion were not contained herein.

        (e) This Release may be amended, modified or supplemented only by a
written instrument signed by the parties hereto.

        (f) This Release may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument.


                                       4
<PAGE>

        (g) This Release is governed by, and shall be construed and enforced in
accordance with, the law of the State of Ohio.

        IN WITNESS WHEREOF, the parties, by their respective, duly authorized
representatives, have executed this Release to be effective on the day and year
first above written.


                                     SMARTIRE SYSTEMS INC.



                                     By: /s/ ROBERT V. RUDMAN
                                        ---------------------

                                     Its: President & Chief Executive Officer
                                          ------------------------------------
                                                    ("SmarTire")



                                     TRW INC.



                                     By: /s/ RONALD A. MUCKLEY
                                         ---------------------

                                    Its: Vice President and General Manager
                                         Safety & Security Systems
                                         -------------------------------------
                                                    ("TRW")


                                       5