<PAGE>

                                                                   Exhibit 10.32


THE SENIOR CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S.
PERSON (AS DEFINED IN REGULATION S) PURSUANT TO REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").

THIS SENIOR CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY
STATE OR PROVINCE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES
ACT AND APPLICABLE STATE AND PROVINCIAL SECURITIES LAWS, OR ANY SUCH OFFER, SALE
OR TRANSFER IS MADE UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING ANY OF
THE SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE SECURITIES ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE SECURITIES ACT.


                             SENIOR CONVERTIBLE NOTE


Date:  September 20, 2002
$500,000.00


FOR VALUE RECEIVED, SMARTIRE SYSTEMS INC., a corporation organized under the
laws of the Province of British Columbia (the "BORROWER" or the "CORPORATION")
hereby promises to pay to the order of _______ (the "INVESTOR"), the sum of x
($x.00) on December 20, 2002 (the "SCHEDULED MATURITY DATE"), and to pay
interest on the unpaid principal balance hereof at the rate of ten percent (10%)
per annum. Interest should accrue on the unpaid principal balance hereof from
the date hereof (the "ISSUE DATE") when the same becomes due and payable at
maturity, or upon prepayment, repayment, or otherwise. Interest shall be
calculated based on a 365 day year and shall commence accruing on the Issue Date
and, to the extent not converted in accordance with the provisions hereof, shall
be payable in arrears at such time as the outstanding principal balance hereof
with respect to which such interest has accrued becomes due and payable
hereunder. Interest on this Note shall be payable on the Scheduled Maturity Date
or when this Note is fully converted, fully redeemed or exchanged (if
applicable) in accordance with the terms of this Note. At the option of the
Borrower, the Borrower shall make payments of interest in lawful money of the
United States of America or in shares of the Corporation's common stock (the
"COMMON STOCK") determined in accordance with the provisions of this Note. All
payments of principal (to the extent not converted in accordance with the terms
hereof) shall be made in, and all references herein to monetary denominations
shall refer to, lawful money of the United States of America. All payments shall
be made at such address as

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the Investor shall have given or shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Note.

The term "NOTE" and all references thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented. This Note is being issued by
the Borrower pursuant to that certain Securities Purchase Agreement, dated as of
September 20, 2002, between the Borrower and the Investor (the "SECURITIES
PURCHASE AGREEMENT"). The Corporation is issuing Warrants pursuant to the
Securities Purchase Agreement (the "WARRANTS").

                                    ARTICLE I
                                   PREPAYMENT

A.   Prepayment at Borrower's Option.

         (i) Except as provided in Paragraph A of this Article I, this Note may
         not be prepaid at the option of Borrower without the prior written
         consent of the Investor.

         (ii) The Borrower shall have the right to prepay all of the principal
         and accrued interest outstanding under this Note for the Optional
         Prepayment Amount (as defined below), which right shall be exercisable
         at the times specified below by the Borrower in its sole discretion by
         delivery of an Optional Prepayment Notice. The "OPTIONAL PREPAYMENT
         AMOUNT" with respect to this Note means:

                  (a) for the period from the Issue Date until and including the
                  thirtieth (30th) day after the Issue Date, 110% multiplied by
                  the principal amount of this Note plus all accrued and unpaid
                  interest through the date of repayment;

                  (b) for the period from the thirty-first (31st) day after the
                  Issue Date until and including the sixtieth (60th) day after
                  the Issue Date, 115% multiplied by the principal amount of
                  this Note plus all accrued and unpaid interest through the
                  date of prepayment; and

                  (c) for the period from the sixty-first (61st) day until and
                  including the ninetieth (90th) day from the Issue Date, 120%
                  multiplied by the principal amount of this Note plus all
                  accrued and unpaid interest through the date of prepayment.

         (iii) The Borrower shall effect each prepayment under this Article I.A
         by giving written notice (the "OPTIONAL PREPAYMENT NOTICE") of the date
         which such prepayment is to become effective (the "EFFECTIVE DATE OF
         PREPAYMENT") to the Investor at the address and facsimile number of the
         Investor, which Optional Prepayment Notice shall be deemed to have been
         delivered on the business day after the Borrower's fax of such notice
         to the Investor.

         (iv) The Optional Prepayment Amount shall be paid to the Investor on or
         before the date which is three (3) business days after the Effective
         Date of Prepayment; provided, however, that the Borrower shall not be
         obligated to deliver any portion of the Optional Prepayment Amount
         until this Note is delivered to the office of the Borrower, or the


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<PAGE>

         Investor notifies the Borrower that this Note has been lost, stolen or
         destroyed and delivers the documentation in accordance with Article V.F
         hereof. Notwithstanding anything herein to the contrary, in the event
         that this Note is not delivered to the Borrower prior to the third
         (3rd) business day following the Effective Date of Prepayment, the
         prepayment of this Note pursuant to this Article I.A shall still be
         deemed effective as of the Effective Date of Prepayment and the
         Optional Prepayment Amount shall be paid to the Investor within five
         (5) business days of the date this Note is actually delivered to the
         Borrower.

                                   ARTICLE II
                               CERTAIN DEFINITIONS

The following terms shall have the following meanings:

A.   "CLOSING BID PRICE" means, for any security as of any date, the closing bid
price of such security on the principal United States securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to the Investor if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the
last reported bid price of such security in the OTC Bulletin Board for such
security as reported by Bloomberg, or, if no bid price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the Pink Sheets LLC, in each
case for such date or, if such date was not a trading date for such security, on
the next preceding date which was a trading date. If the Closing Bid Price
cannot be calculated for such security as of either of such dates on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Investor, with the
costs of such appraisal to be borne by the Corporation.

B.   "CONVERSION AMOUNT" means the principal amount of this Note plus any
accrued and unpaid interest thereon through the Conversion Date.

C.   "CONVERSION DATE" means the Scheduled Maturity Date.

D.   "CONVERSION PRICE" shall mean the lesser of: (a) an amount which is equal
to seventy-five (75) percent of the average of the three (3) lowest Closing Bid
Prices for the ten (10) day period ending on the day before the Scheduled
Maturity Date; or (b) $1.00.

E.   "INTEREST PAYABLE" means accrued interest under this Note as of the date
of calculation.


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<PAGE>

                                   ARTICLE III
                                   CONVERSIONS

A.   Payment of Interest in Common Stock; Automatic Conversion.

         (i)  Payment of Interest in Common Stock.

                  (a) If the Corporation elects to make any payment of interest
                  due and payable in accordance with this terms of this Note in
                  shares of Common Stock, the Corporation shall issue to the
                  Investor such number of fully paid and nonassessable shares of
                  Common Stock determined in accordance with the following
                  formula:

                                INTEREST PAYABLE
                                CONVERSION PRICE

                  (b) If any payment of interest in accordance with this Article
                  III.A(i) would result in the issuance of a fractional share of
                  Common Stock, such fractional share shall be disregarded and
                  the number of shares of Common Stock issuable upon payment in
                  accordance with this Article III.A(i) shall be the next higher
                  whole number of shares.

                  (c) The Corporation shall deliver to the Investor physical
                  certificates representing the Common Stock issuable in
                  accordance with Article III.A(i).

         (ii)  Automatic Conversion.  If, on the Scheduled Maturity Date, this
         Note and any accrued and unpaid interest has not been repaid by the
         Corporation pursuant to Article I.A., then this Note, plus all accrued
         and unpaid interest due thereon through the Scheduled Maturity Date,
         shall be automatically converted (the "Automatic Conversion") into a
         number of fully paid and nonassessable shares of Common Stock
         determined in accordance with the following formula:

                                CONVERSION AMOUNT
                                CONVERSION PRICE

B.  Mechanics of Conversion.  In order to effect the Automatic Conversion, the
Investor shall surrender or cause to be surrendered this Note to the
Corporation. The Corporation shall not be obligated to issue shares of Common
Stock upon the Automatic Conversion unless either this Note is delivered to the
Corporation as provided above, or the Investor notifies the Corporation that the
Note has been lost, stolen or destroyed and delivers the documentation to the
Corporation required by Article V.F hereof.

         (i)  Delivery of Common Stock Upon Conversion.  Upon the surrender of
         this Note, the Corporation shall, no later than the later of (a) the
         second (2nd) business day following the Conversion Date and (b) the
         business day following the date of such surrender (or, in the case of
         lost, stolen or destroyed certificates, after provision of indemnity
         pursuant to Article V.F), issue and deliver to the Investor or its
         nominee physical certificates


                                      -4-

<PAGE>

         representing that number of shares of Common Stock issuable upon
         conversion of this Note.

         (ii)  Taxes.  The Corporation shall pay any and all taxes which may be
         imposed upon it with respect to the issuance and delivery of the shares
         of Common Stock upon the conversion of this Note.

         (iii)  No Fractional Shares.  If any conversion of this Note would
         result in the issuance of a fractional share of Common Stock, such
         fractional share shall be disregarded and the number of shares of
         Common Stock issuable upon conversion of this Note shall be the next
         higher whole number of shares.

C.  Exchange.  Subject to the terms and conditions specified in this Article
III, until the Scheduled Maturity Date, the Investor shall have a right to
participate with respect to the future issuance of securities by the
Corporation, whether in the form of debt (including debt which is convertible
into equity or in which there is an equity component), equity, or equity-linked
securities ("ADDITIONAL SECURITIES"); provided such issuance of Additional
Securities is part of an issuance of securities with an aggregate purchase price
of at least $1,000,000. Each time the Corporation proposes to offer any
Additional Securities, the Corporation shall make an offering of such Additional
Securities to the Investor in accordance with the following provisions:

         (i) the Corporation shall deliver a notice (the "NOTICE") to the
         Investor stating (a) its bona fide intention to offer such Additional
         Securities, (b) the number of such Additional Securities to be offered,
         (c) the price and terms, if any, upon which it proposes to offer such
         Additional Securities, and (d) the anticipated closing date of the sale
         of such Additional Securities;

         (ii) by written notification received by the Corporation, within 10
         days after giving of the Notice, the Investor may elect to purchase or
         obtain, at the price and on the terms specified in the Notice, up to
         that portion of such Additional Securities which equals the principal
         amount and accrued interest outstanding under this Note owed to the
         Investor, by applying the outstanding principal balance and accrued
         interest under this Note to the purchase price of, and as payment for
         the Additional Securities, without further consideration; and

         (iii) the exchange right in this Article III.C shall not be applicable
         to (a) the issuance or sale of shares of Common Stock (or options
         therefor) to employees, officers, directors, or consultants of the
         Corporation for the primary purpose of soliciting or retaining their
         employment or service pursuant to a stock option plan (or similar
         equity incentive plan) approved by the Board of Directors, or (b) the
         issuance of securities in connection with mergers, acquisitions,
         strategic business partnerships or joint ventures (the primary purpose
         of which, in the reasonable judgment of the Board of Directors, is not
         to raise additional capital).


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<PAGE>

                                   ARTICLE IV
                      RESERVATION OF SHARES OF COMMON STOCK

A.  Reserved Amount.  On the Issue Date, the Corporation shall reserve one
million (1,000,000) shares of the authorized but unissued shares of Common Stock
for issuance upon conversion of this Note and upon exercise of the Warrants and
thereafter the number of authorized but unissued shares of Common Stock so
reserved shall not be decreased and shall at all times be sufficient to provide
for the conversion of this Note at the Conversion Price.

                                    ARTICLE V
                                  MISCELLANEOUS

A.  Failure or Indulgency Not Waiver.  No failure or delay on the part of the
Investor in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

B.  Notices.  Any notices required or permitted to be given under the terms of
this Note shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:

                        If to the Company:

                        Smartire Systems Inc,
                        Richmond Corporate Centre
                        #150 - 13151 Vanier Place
                        Richmond, British Columbia
                        Canada V6V 2J1
                        Facsimile: (604) 276-2353
                        Attn:  President

                        With a copy simultaneously transmitted by like means to:

                        Clark, Wilson
                        800 - 885 West Georgia Street
                        Vancouver, BC
                        Canada V6C 3H1
                        Facsimile: (604) 687-6314
                        Attn:  Bernard Pinsky

                        If to the Investor:


Each party shall provide notice to the other party of any change in address.


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<PAGE>

C.  Amendment Provision.  This Note and any provision hereof may be amended only
by an instrument in writing signed by the Corporation and the Investor.

D.  Assignability.  This Note shall be binding upon the Corporation and its
successors and shall enure to the benefit of the Investor and its successors.
This Note is not assignable by the Investor unless the Corporation consents to
such assignment.

E.  Governing Law; Jurisdiction.  This Note shall be governed by and construed
in accordance with the laws of the Province of British Columbia. The Corporation
irrevocably consents to the jurisdiction of the courts located in the Province
of British Columbia in any suit or proceeding based on or arising under this
Note and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts.

F.  Lost or Stolen Note.  Upon receipt by the Corporation of (i) evidence of the
loss, theft, destruction or mutilation of this Note and (ii) (y) in the case of
loss, theft or destruction, of indemnity (without any bond or other security)
reasonably satisfactory to the Corporation, or (z) in the case of mutilation,
upon surrender and cancellation of this Note, the Corporation shall execute and
deliver a new Note of like tenor and date.

G.  Payment of Cash; Defaults.  Whenever the Corporation is required to make any
cash payment to the Investor under this Note (whether upon prepayment, repayment
or otherwise), such cash payment shall be made in U.S. dollars to the Investor
within five (5) business days.

H.  Restrictions on Shares.  The shares of Common Stock issuable upon conversion
of this Note may not be sold or transferred unless (i) they first shall have
been registered under the Securities Act and applicable state securities laws,
(ii) the Corporation shall have been furnished with an opinion of legal counsel
(in form, substance and scope customary for opinions in such circumstances) to
the effect that such sale or transfer is exempt from the registration
requirements of the Securities Act or (iii) they are sold under Rule 144 under
the Securities Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon conversion
of this Note that have not been so registered and that have not been sold under
an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:

         THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO
         PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT
         TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF
         1933, AS AMENDED (THE "1933 ACT"). ACCORDINGLY NONE OF THE
         SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN
         REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
         LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD
         IN THE UNITED STATES, OR DIRECTLY OR INDIRECTLY, TO U.S.
         PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN
         A TRANSACTION NOT SUBJECT TO, THE REGISTRATION


                                  -7-

<PAGE>

         REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN
         ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

Upon the request of the Investor of a certificate representing any shares of
Common Stock issuable upon conversion of this Note, the Corporation shall remove
the foregoing legend from the certificate and issue to the Investor a new
certificate therefor free of any transfer legend, if (i) with such request, the
Corporation shall have received either (A) an opinion of counsel, in form,
substance and scope customary for opinions in such circumstances, to the effect
that any such legend may be removed from such certificate, or (B) satisfactory
representations from the Investor that the Investor is eligible to sell such
security under Rule 144 or (ii) a registration statement under the Securities
Act covering the resale of such securities is in effect.

I.  Status as Note Holder.  Upon the Automatic Conversion, (i) the principal
amount of this Note and the interest thereon covered thereby shall be deemed
converted into shares of Common Stock as of the Conversion Date and (ii) the
Investor's rights as a holder of this Note shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to the
Investor because of a failure by the Corporation to comply with the terms of
this Note.

J.  Remedies Cumulative.  The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Investor's right to pursue actual
damages for any failure by the Corporation to comply with the terms of this
Note.

K.  Obligation to Cure.  If the Corporation is prohibited from issuing shares of
Common Stock to the Investor for any reason, the Corporation shall immediately
notify the Investor of such occurrence and shall take immediate action
(including, if necessary, seeking the approval of its shareholders) to eliminate
any prohibitions under applicable law or the rules of regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on the
Corporation's ability to issue shares of Common Stock.

L.  Business Day.  For purposes of this Note, the term "BUSINESS DAY" means any
day, other than a Saturday or Sunday or a day on which banking institutions in
the Province of British Columbia are authorized or obligated by law, regulation
or executive order to close.

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly
authorized officer.

SMARTIRE SYSTEMS INC.



By:
       --------------------------------------------
Name:  Robert Rudman
Title: President


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