MARKETING AND DISTRIBUTION AGREEMENT

         This MARKETING AND  DISTRIBUTION  AGREEMENT is made and entered into as
of the date of last signature below, by and between DANA CORPORATION, a Virginia
corporation,  through  its Heavy  Vehicle  Technology  and  Systems  Group;  and
SMARTIRE SYSTEMS INC., a Yukon corporation.

         WHEREAS,  DANA  is  a  leading  Tier  I  supplier  in  the  design  and
manufacture  of commercial  vehicle drive train  components for medium and heavy
duty  vehicles  for sale to  original  equipment  manufacturers  and  associated
original equipment service and the independent aftermarket;

         WHEREAS,  SMARTIRE  is a Tier I and  Tier II  supplier  engaged  in the
design and manufacture of wireless sensing systems and associated components for
medium and heavy duty vehicles;

         WHEREAS,  the  Parties  desire to enter into an  agreement  pursuant to
which DANA would  market,  sell,  and  distribute  SMARTIRE  products for use in
VEHICLES, both independently and through ROAD RANGER (defined below); and

         WHEREAS,  SMARTIRE's  tire  monitoring  system is based on a  "wireless
gateway"  concept that may be compatible  with other sensing  opportunities  for
other products,  and the PARTIES may wish to co-develop  further products in the
future.

     NOW,  THEREFORE,  in  consideration  of the premises  and mutual  covenants
contained herein, the PARTIES hereby agree as follows:

1.       DEFINITIONS

         "AGREEMENT" means this Marketing and Distribution Agreement.

         "COMPONENTS" means components supplied by SMARTIRE as part of a SYSTEM,
whether now existing or developed during the term of this AGREEMENT.  References
to COMPONENTS include, where appropriate, the entire SYSTEM.

         "CONFIDENTIAL INFORMATION" means all nonpublic information disclosed by
either PARTY to the other,  whether before or after the date of this  AGREEMENT,
which relates to the design,  production,  marketing,  distribution,  or sale of
COMPONENTS.

         "CUSTOMERS" means OEMs, fleets and INDEPENDENT DISTRIBUTORS.

         "DANA" means the Heavy  Vehicle  Technology  and Systems  Group of Dana
Corporation, a Virginia corporation.

         "DISCOVERIES"  means  all  ideas,  concepts,  creations,  developments,
enhancements,  modifications,  know-how,  techniques,  business  methods,  other
methods,  procedures,   processes,  notes,  drawings,   compositions,   computer
programs,   product  formulations,   source  codes,  layout  designs,  works  of
authorship,  copyrights  (whether  registered  or  unregistered),  improvements,
processes,  apparatuses,  formulations,  inventions and discoveries and physical
embodiments  thereof,  whether  patentable or not, with respect to COMPONENTS or
SYSTEMS.

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<PAGE>

         "INDEPENDENT  DISTRIBUTOR" means aftermarket distributors not under the
direct or indirect control of an OEM.

         "LOSS" is defined in Section 9.5

         "NOTICE" means formal notice in accordance with Section 13.

         "OEM"  means an original  equipment  manufacturer,  which  manufactures
POWER UNITS and/or TRAILERS, including its dealers and distributors.

         "PARTY" means DANA or SMARTIRE. "PARTIES" means both DANA and SMARTIRE.

         "PERSON" means any individual or entity.

         "POWER UNIT" means a Class 4 through Class 8 truck, bus, motorhome,  or
tractor (excluding agricultural tractors).

         "ROAD  RANGER" means DANA's Road Ranger  marketing  alliance with Eaton
Corporation.

         "SMARTIRE" means SmarTire Systems Inc., a Yukon corporation.

         "SYSTEM" means any wireless sensor system developed by SMARTIRE,  using
a wireless gateway,  sensors,  and other COMPONENTS for tire pressure monitoring
and other remote sensor tasks, whether now existing or developed during the term
of this AGREEMENT.

         "TERRITORY"  means  the  United  States  of  America,  Canada,  Mexico,
Australia, and New Zealand.

         "TRAILER" means a highway  trailer,  dolly and chassis designed for use
with a POWER UNIT.

         "VEHICLE" means a POWER UNIT or TRAILER.

2.       SCOPE OF RELATIONSHIP

2.1.     SMARTIRE  hereby grants to DANA,  directly or through ROAD RANGER,  the
         non-exclusive  right to market,  sell,  and  distribute  COMPONENTS  to
         CUSTOMERS in the TERRITORY for use in POWER UNITS and TRAILERS.

2.2.     As of  the  date  of  this  AGREEMENT,  SMARTIRE  represents  and  DANA
         acknowledges   SMARTIRE's   representation   that  that   SMARTIRE  has
         previously  entered into  agreements  with third parties related to the
         marketing,  sale and  distribution of COMPONENTS  within the TERRITORY,
         which  agreements may be extended from time to time, which SMARTIRE may
         only  generally  describe,  as  set  for  in  Exhibit  A,  pursuant  to
         SMARTIRE's confidentiality obligations.  Provided that DANA shall be in
         compliance  with this AGREEMENT in all material  respects  specifically
         using reasonable  commercial  efforts to meet the mutually agreed sales
         targets  as set  forth  elsewhere  herein,  during  the  term  of  this
         AGREEMENT,  SMARTIRE  will not:  (i)  except as  permitted  in  current
         agreements  described  in Exhibit A, the term of which may be extended,
         sell directly any COMPONENTS to any new CUSTOMERS in the TERRITORY;  or

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<PAGE>

         (ii) grant rights related to the marketing,  sale and  distribution  of
         COMPONENTS  in the  TERRITORY  to any other third  party.  SMARTIRE may
         request a waiver of DANA's right to market and sell to a particular OEM
         in the  TERRITORY  by giving  DANA  NOTICE.  If DANA does not affirm by
         NOTICE to SMARTIRE, within ten business (10) days after receipt of such
         NOTICE, DANA's intention to market and sell to such OEM, then DANA will
         be deemed to have waived its right to market and sell to such OEM.

2.3.     Notwithstanding Section 2.1, SMARTIRE may continue to provide
         COMPONENTS directly to CUSTOMERS in the TERRITORY under existing part
         numbers, purchase orders and contracts. Subject to mutual agreement
         between Dana and SmarTire, the parties may agree to transfer these
         contracts to Dana providing that the customer is in agreement with this
         transfer, and that mutual pricing terms between Dana and SmarTire can
         be established. These agreements shall not be transferred to a third
         party.

2.4.     SMARTIRE hereby grants to DANA the nonexclusive right to market,  sell,
         and distribute  COMPONENTS to CUSTOMERS  outside the TERRITORY,  or for
         use other than in POWER UNITS and  TRAILERS;  provided  that DANA shall
         give  NOTICE to  SMARTIRE of its  intention  and if  SMARTIRE  does not
         advise DANA of its  rejection of the request  within ten business  (10)
         days after receipt of such NOTICE,  DANA may exercise its rights to the
         extent of the NOTICE and of this AGREEMENT.

2.5.     SMARTIRE  shall  negotiate in good faith with DANA prior to granting to
         any other PERSON  nonexclusive or exclusive rights to market,  sell, or
         distribute COMPONENTS to CUSTOMERS outside the TERRITORY, or for use in
         vehicles other than POWER UNITS and TRAILERS.

2.6.     At the request of either  PARTY,  SMARTIRE and DANA shall  negotiate in
         good faith  regarding  the  expansion  of the  TERRITORY  and/or of the
         markets within the TERRITORY.

2.7.     Throughout the term of this AGREEMENT,  DANA shall not market, sell, or
         distribute any system for wireless tire pressure  monitoring other than
         the  SYSTEMS.  This  covenant  shall not affect in any way DANA's  tire
         pressure control business.

2.8.     Throughout  the term of this  AGREEMENT,  SMARTIRE  shall  not  design,
         develop, manufacture, or sell, any tire pressure control system.

2.9.     The PARTIES  acknowledge and agree that money damages may be inadequate
         to compensate a PARTY for any breach of Section 2.7 or 2.8.  Therefore,
         in the event of any actual or threatened  breach of Section 2.7 or 2.8,
         in addition to any other  remedies  that may be  available at law or in
         equity, the aggrieved PARTY shall be entitled to appropriate  temporary
         and/or permanent injunctive relief.

                                      -3-
<PAGE>

3.       SMARTIRE'S AND DANA'S OBLIGATIONS

3.1.     SMARTIRE shall design, develop,  manufacture and sell to DANA, and DANA
         shall  purchase from  SMARTIRE,  one hundred  percent  (100%) of DANA's
         requirements  for COMPONENTS for CUSTOMERS in the TERRITORY  during the
         term of this AGREEMENT. The COMPONENTS shall be supplied by SMARTIRE to
         DANA in  compliance  with all  specifications  as  agreed  between  the
         PARTIES.

3.2.     SMARTIRE shall make reasonable  commercial  efforts, on a timely basis,
         to assure that all COMPONENTS are  competitive  with similar  products,
         and to assure its suppliers are competitive,  taking into consideration
         all relevant factors including, but not limited to, design, technology,
         performance,  features,  quality,  reliability,  service, delivery, and
         cost.

3.3.     SMARTIRE shall use reasonable  commercial efforts to assure that it has
         (or its  suppliers  have)  adequate  production  capacities to meet the
         estimated annual  requirements  provided by DANA. Any estimates are for
         planning purposes only, and are not obligations to purchase COMPONENTS.

3.4.     SMARTIRE shall provide  technical and  application  support to DANA and
         the  CUSTOMERS as agreed  between  SMARTIRE and DANA from time to time.
         Such support shall be at  SMARTIRE's  or CUSTOMER's  expense as agreed.
         SMARTIRE  shall  keep DANA  informed  of any  environmental  or vehicle
         installation  issues  that may  affect  performance  of the  SYSTEM  or
         COMPONENTS  of which  SMARTIRE  is, or should,  through the exercise of
         reasonable diligence, becomes aware.

3.5.     SMARTIRE shall provide  reasonable  amounts of training to DANA's sales
         and service technicians and to CUSTOMERS as agreed between SMARTIRE and
         DANA from time to time.

3.6.     SMARTIRE  shall  provide   prototypes  and  reasonable   quantities  of
         production  samples of COMPONENTS to DANA free of charge as agreed on a
         case by case basis to facilitate DANA's sale of the COMPONENTS.

3.7.     DANA shall use  reasonable  commercial  efforts to actively  market and
         sell  COMPONENTS  to  CUSTOMERS  and  INDEPENDENT  DISTRIBUTORS  in the
         TERRITORY,   and  obtain  the  highest  practical  market   penetration
         throughout the TERRITORY.

3.8.     The PARTIES will consult each other regularly, at least twice annually
         or as mutually agreed, to review market developments, discuss proposed
         amendments to this AGREEMENT, and to address new opportunities outside
         the TERRITORY, CUSTOMER needs, competing products, production planning,
         COMPONENT developments, COMPONENTS and SYSTEMS developments, COMPONENTS
         and SYSTEMS costs, product performance, warranty, competitiveness,
         sales targets, promotions, advertising campaigns, sales and service
         actions. One of these meetings will be held annually in September.

                                      -4-
<PAGE>

3.9.     DANA and SMARTIRE  shall mutually  agree on monthly,  quarterly  and/or
         annual sales targets to be achieved by DANA. At any time, if DANA fails
         to meet the mutually  agreed sales  targets,  the parties shall meet to
         discuss the reasons for such failure and mutually  develop a corrective
         action plan which shall  provide for no less than two (2)  quarters for
         DANA to achieve the sales targets. During such a period, SmarTire shall
         be able to provide  increased  sales support to the Customers to assist
         in the attainment of the targets,  and Dana shall provide SmarTire with
         any relevant customer  information  required to assist in this process.
         Provided  DANA shall be meeting  its  obligations  set forth in Section
         3.7,  the failure of DANA to achieve  such sales  targets  will not, by
         itself, be considered  grounds for termination of this AGREEMENT.  DANA
         shall provide  SMARTIRE  with timely sales reports  listing all current
         sales prospects and opportunities for the COMPONENTS and participate in
         conference  calls with  SMARTIRE to discuss  goals and plans to achieve
         the  highest  sales  reasonably  possible.  DANA shall,  at  SMARTIRE's
         reasonable request, provide any information relating to the actual sale
         of  COMPONENTS   including  e-mails,   status  reports,   sales  plans,
         proposals, or related items.

3.10.    If DANA fails to meet it sales targets despite having participated in a
         corrective  action  plan and  having met its  obligations  set forth in
         Section 3.7,  following the second year of the AGREEMENT,  DANA may, on
         sixty (60) days prior written notice in advance of any annual AGREEMENT
         anniversary  date, advise SMARTIRE of DANA's intention to terminate the
         AGREEMENT without cause.

3.11.    SMARTIRE will own, develop and provide technical and training materials
         and,  at  CUSTOMERS'  or  INDEPENDENT  DISTRIBUTORS'  expense,  provide
         marketing   and  technical   counsel  to  CUSTOMERS   and   INDEPENDENT
         DISTRIBUTORS  to  assist  with  the  application  and  installation  of
         retrofit SYSTEMS.

3.12.    DANA will own, develop and provide  reasonable and customary amounts of
         marketing  and sales  materials  for the  SYSTEMS  and  COMPONENTS.  At
         SMARTIRE's  option,  SMARTIRE may develop or fund additional  marketing
         and sales materials.

3.13.    In order to assure mutual  success,  SMARTIRE shall furnish to DANA any
         relevant technical and commercial  information regarding COMPONENTS and
         SYSTEMS, including market leads and competitive market knowledge, which
         might come into  SMARTIRE's  possession,  except through  agreements or
         relationships described in Exhibit A.

3.14.    Each Party shall, in connection with its performance hereunder,  comply
         with all applicable, rules, and regulations.

4.       BRANDING AND TRADEMARKS

4.1.     DANA has the right to market,  sell, and distribute  COMPONENTS under a
         brand owned by DANA; provided,  however,  that COMPONENT packaging will
         identify SMARTIRE as the manufacturer of the COMPONENTS.

                                      -5-
<PAGE>

4.2.     Subject to the provisions of this AGREEMENT, DANA grants to SMARTIRE
         for the term of this AGREEMENT a non-exclusive license to use the trade
         names, trademarks, logo marks and other similar markings of DANA as
         provided by DANA from time to time or other marks that DANA may
         identify from time to time in writing to SMARTIRE ("DANA MARKS") on
         COMPONENTS and packaging for COMPONENTS that it sells to DANA so long
         as COMPONENTS are manufactured and distributed in accordance with the
         standards, specifications and instructions established and approved by
         DANA. SMARTIRE may not use the DANA MARKS on COMPONENTS or packaging
         for COMPONENTS sold to third parties outside of this AGREEMENT.

4.3.     Upon expiration or termination of this AGREEMENT, SMARTIRE agrees to
         discontinue the use of the DANA MARKS or any mark confusingly similar
         thereto immediately, not to attempt to register or to use any
         trademark, service mark, trade name, logo, trade dress, or other
         similar marking that in the opinion of DANA is confusingly similar to
         any DANA MARKS. SMARTIRE agrees that it will destroy all materials
         bearing the DANA MARKS or remove the DANA MARKS from web sites and
         other electronic media.

4.4.     DANA shall have the right, at reasonable times and upon reasonable
         prior notice, to (a) inspect samples of SMARTIRE's finished COMPONENTS,
         packaging, labels or advertising bearing the DANA MARKS at a mutually
         agreeable location, or (b) receive, at SMARTIRE's expense, reasonable
         quantities of samples of SMARTIRE's finished COMPONENTS, packaging,
         labels or advertising bearing the DANA MARKS for the purpose of
         determining that they are of the proper quality. SMARTIRE shall change
         all COMPONENTS, packaging, labels or advertising bearing the DANA MARKS
         that are not approved by DANA.

4.5.     Subject to the provisions of this AGREEMENT, SMARTIRE grants to DANA
         for the term of this AGREEMENT a non-exclusive license to use the trade
         names, trademarks, logo marks and other similar markings of SMARTIRE as
         provided by SMARTIRE or other marks that SMARTIRE may identify from
         time to time in writing to DANA ("SMARTIRE MARKS") on printed material,
         including but not limited to technical materials, brochures, catalogs,
         instruction manuals, advertising, and marketing materials related to
         COMPONENTS and SYSTEMS.

4.6.     Upon expiration or termination of this AGREEMENT, DANA agrees to
         discontinue the use of the SMARTIRE MARKS or any mark confusingly
         similar thereto immediately, not to attempt to register or to use any
         trademark, service mark, trade name, logo, trade dress, or other
         similar marking that in the opinion of SMARTIRE is confusingly similar
         to any SMARTIRE MARKS. DANA agrees that it will destroy all materials
         bearing the SMARTIRE MARKS or remove the SMARTIRE MARKS from web sites
         and other electronic media, except that DANA may use printed materials
         until COMPONENTS in inventory are sold or returned for credit.

4.7.     SMARTIRE shall have the right, at reasonable times and upon reasonable
         prior notice, to (a) inspect samples of DANA's packaging, labels or
         advertising bearing the SMARTIRE MARKS at a mutually agreeable
         location, or (b) receive, at DANA's expense, reasonable quantities of
         samples of DANA's packaging, labels or advertising bearing the SMARTIRE
         MARKS for the purpose of determining that they meet quality standards
         and proper use of SMARTIRE MARKS previously defined by SMARTIRE. DANA
         shall change all packaging, labels or advertising bearing the SMARTIRE
         MARKS in a manner not previously approved by SMARTIRE.

                                      -6-
<PAGE>

5.       PURCHASE ORDERS AND FORECASTS

5.1.     DANA shall issue biweekly  shipping  releases by direct  computer order
         entry,  specifying  the  quantities  of  COMPONENTS,  delivery date and
         delivery location.  Each such release will indicate an twelve (12) week
         rolling  estimate of weekly  volumes,  the last ten (10) weeks of which
         are forecasts for planning purposes and the first two (2) weeks' volume
         requirements  shall be a firm commitment.  The firm orders submitted by
         DANA shall be effective after  confirmation by SMARTIRE.  SMARTIRE will
         use its best  efforts  to  provide  such  confirmation  within  one (1)
         business  day  after  receipt  of the  order.  On  specific  long  lead
         components (greater than six months lead time), DANA will develop a one
         year forecast.  SMARTIRE  shall provide a list of long lead  components
         for DANA's  acknowledgement.  Requests for additions or changes to this
         list shall be  submitted to DANA for approval in writing and include an
         estimate of the associated costs and lead times by component.

5.2.     At any time,  DANA may place an  emergency  order for  COMPONENTS  with
         SMARTIRE.  SMARTIRE shall make reasonable efforts to accept such orders
         and  notify  DANA  within  one (1)  business  day after  receipt of the
         emergency order if it accepts the order. Any incremental costs required
         to fulfill such emergency  order shall be borne by DANA unless the need
         for the emergency order is created by SMARTIRE.

5.3.     In addition to the foregoing,  DANA shall,  twice annually in the first
         (1st) and third (3rd)  quarter of each year give  SMARTIRE a good faith
         estimate of its COMPONENT  purchases  during the next applicable  year.
         These estimates are for planning purposes only, and are not obligations
         to purchase COMPONENTS.

5.4.     If any COMPONENTS are delivered in excess of volumes ordered or in
         advance of schedule, DANA may return them at SMARTIRE's expense or
         retain them and invoice SMARTIRE for any resulting handling and storage
         costs. DANA will not process invoices for COMPONENTS shipped in advance
         of schedule until the scheduled delivery date. DANA may change
         scheduled deliveries at any time by written notice to SMARTIRE and will
         reimburse SMARTIRE for reasonable, documented, unavoidable incremental
         costs incurred by SMARTIRE due to such changes. If SMARTIRE fails to
         deliver any shipment of COMPONENTS in accordance with DANA's
         instructions, DANA may, at its option, cancel the shipment, accept
         partial or delayed delivery.

                                      -7-
<PAGE>

6.       PRICES AND PAYMENT CONDITIONS

6.1.     SMARTIRE  shall give DANA NOTICE of its price for each COMPONENT at the
         time of execution of this AGREEMENT or, for new COMPONENTS,  as soon as
         the price is  determined.  SMARTIRE may change these prices upon ninety
         (90) days NOTICE to DANA; provided,  however, that SMARTIRE shall honor
         the old price with respect to any binding  commitments DANA has made to
         a CUSTOMER  prior to receiving  NOTICE of the price change.  All prices
         shall be stated in United States dollars.

6.2.     SMARTIRE  warrants that its prices to DANA for the  COMPONENTS  are and
         will remain no less  favorable  than its prices to other  customers for
         the same or comparable goods in comparable quantities and in comparable
         terms of sale.

6.3.     DANA shall mark up SMARTIRE  prices  (excluding  any shipping,  duties,
         handling,  packaging or dunnage charges) by an amount solely determined
         by DANA for resale to CUSTOMERS.

6.4.     Where specific  opportunities  or pricing issues arise with existing or
         potential  CUSTOMERS,  the PARTIES shall  negotiate,  on a case by case
         basis,  in good faith a suitable  pricing  structure  between  DANA and
         SMARTIRE to meet the CUSTOMERS' request.

6.5.     SMARTIRE shall invoice DANA in United States dollars on a regular basis
         upon delivery of COMPONENTS. Payment terms from DANA are net on the
         sixty-second (62nd) day following the date of invoice. All PRODUCTS
         shall be sold Delivery Duty Paid to the delivery point, which may be a
         CUSTOMER location or DANA facility. As such, SMARTIRE is liable for
         paying all costs of transport, insurance, duties and brokerage fees to
         the delivery point. Title and risk of loss shall pass at the delivery
         point.

6.6.     Without  limiting any other  remedies  available to DANA,  DANA has the
         right to offset,  against amounts due to SMARTIRE,  any amounts due and
         payable from SMARTIRE to DANA under this AGREEMENT.

6.7.     All other terms and  conditions of the sale of COMPONENTS to DANA shall
         be in accordance with the terms and conditions of DANA'S purchase order
         as set forth in Exhibit C. To the extent that the terms and  conditions
         of such order are  inconsistent  with or  contradictory  to the express
         terms of this  AGREEMENT,  the  terms of this  AGREEMENT  shall  govern
         without modification by the provisions contained in such order or sales
         terms.

7.       CONFIDENTIALITY

The  following  terms govern the  confidentiality  of  information  disclosed by
either PARTY ("DISCLOSING PARTY") to the other PARTY ("RECEIVING PARTY"):

                                      -8-
<PAGE>

7.1.     RECEIVING  PARTY  shall  restrict  access  to  and  disclosure  of  the
         CONFIDENTIAL  INFORMATION  to its  affiliates  and  suppliers and their
         respective directors,  officers,  employees, and agents who have a need
         to  know  the  CONFIDENTIAL  INFORMATION.  RECEIVING  PARTY  shall  not
         disclose CONFIDENTIAL INFORMATION, directly or indirectly, to any other
         PERSON.  RECEIVING  PARTY  shall not use  CONFIDENTIAL  INFORMATION  to
         reproduce,  redesign,  reverse  engineer,  or  manufacture  products or
         equipment of  DISCLOSING  PARTY,  to perform  services  relating to the
         products or  equipment  of  DISCLOSING  PARTY,  or for its own benefit,
         except as expressly provided in this AGREEMENT.

7.2.     RECEIVING   PARTY  may  only  use   DISCLOSING   PARTY's   CONFIDENTIAL
         INFORMATION in accordance with the purpose of this AGREEMENT.  No other
         rights or  licenses  are  granted to either  PARTY in the  CONFIDENTIAL
         INFORMATION.

7.3.     RECEIVING PARTY shall use at least the same high degree of care, but no
         less than a reasonable degree of care, to avoid inadvertent  disclosure
         or unpermitted use of DISCLOSING PARTY's CONFIDENTIAL INFORMATION which
         it  employs  with  respect  to  its  own  proprietary  or  CONFIDENTIAL
         INFORMATION and that it does not wish to have  disseminated,  published
         or disclosed.

7.4.     There shall be no restrictions under this AGREEMENT with respect to any
         portion of the  CONFIDENTIAL  INFORMATION,  which  RECEIVING  PARTY can
         establish through documentary evidence:

         a.       was known to RECEIVING  PARTY at the time of its disclosure to
                  RECEIVING  PARTY;

         b.       was or becomes  publicly known through no fault,  wrongful act
                  or omission of RECEIVING PARTY;

         c.       was  received by RECEIVING  PARTY from a third party,  without
                  solicitation,  such third party having a bona fide right to do
                  so, and not having any confidential relationship or obligation
                  to DISCLOSING  PARTY,  and without breach of the  restrictions
                  contained in this AGREEMENT;

         d.       was independently  developed by RECEIVING PARTY without access
                  to DISCLOSING PARTY's CONFIDENTIAL  INFORMATION or a breach of
                  this AGREEMENT;

         e.       was approved for release in writing by DISCLOSING PARTY; or

         f.       was required by law, court order or governmental  agency to be
                  disclosed.  In such cases,  RECEIVING PARTY shall  immediately
                  notify DISCLOSING PARTY that production or disclosure has been
                  ordered,  and to take all reasonable  steps and cooperate with
                  DISCLOSING  PARTY  to  limit  disclosure  of the  CONFIDENTIAL
                  INFORMATION.

7.5.     CONFIDENTIAL INFORMATION shall not be deemed to be in the public domain
         merely because any part of such CONFIDENTIAL INFORMATION is embodied in
         general  disclosures  or because  individual  features,  components  or
         combinations  thereof  are  now or  become  known  to the  public.  All
         CONFIDENTIAL  INFORMATION  delivered by  DISCLOSING  PARTY to RECEIVING
         PARTY  pursuant to this  AGREEMENT  shall be and remain the property of
         DISCLOSING PARTY unless otherwise provided herein.

                                      -9-
<PAGE>

7.6.     The PARTIES do not seek the  confidential  information or trade secrets
         of any third party, and the PARTIES shall not use in the performance of
         this  AGREEMENT  or  disclose  to the  other  PARTY  such  confidential
         information or trade secrets.

7.7.     In any judicial proceeding,  it will be presumed that matters which are
         designated  as  Confidential  or  Proprietary  constitute  CONFIDENTIAL
         INFORMATION,  and that RECEIVING  PARTY will bear the burden of proving
         such matters or information are unrestricted pursuant to Section 7.4.

7.8.     RECEIVING  PARTY is  liable  for any  breach  of this  Section 7 by all
         PERSONS to whom it has disclosed CONFIDENTIAL INFORMATION.

7.9.     Upon the expiration or termination of this AGREEMENT,  each PARTY shall
         return or destroy  and  certify the  destruction  of the other  PARTY's
         CONFIDENTIAL  INFORMATION  within  thirty  (30)  days of such  request.
         Counsel for each PARTY is  entitled to keep one copy in a  confidential
         file as evidence of the disclosure.

8.       QUALITY ASSURANCE, PRODUCT APPLICATIONS and PACKAGING

8.1.     SMARTIRE or its  suppliers  shall  manufacture  or assemble  COMPONENTS
         according  to its  normal  quality  assurance  procedures  and  TSI6949
         standards so as to ensure  COMPONENTS'  conformity  with the applicable
         engineering drawings and specifications.  SMARTIRE shall submit to DANA
         a  written  summary  of  its  quality  assurance  plan  and,  prior  to
         initiating the supply of COMPONENTS to DANA,  shall furnish  inspection
         data to show adherence to such plan.

8.2.     Prior to  making  any  subsequent  modifications  to its  manufacturing
         process or quality  system,  SMARTIRE  shall  furnish to DANA a written
         summary  of its  revised  quality  assurance  plan,  together  with the
         applicable inspection data.

8.3.     Any changes to  COMPONENTS or their  specifications  are subject to the
         prior written agreement of the PARTIES and, if required, the CUSTOMER.

8.4.     At DANA'S request, SMARTIRE shall provide ongoing evidence of
         conformance to SMARTIRE'S quality assurance plan and TSI6949 standards
         in the form of a certification from SMARTIRE'S quality department.
         SMARTIRE shall also permit DANA or its designee at reasonable times and
         on reasonable notice to audit SMARTIRE'S quality assurance procedure
         and review pertinent inspection records at the manufacturing and
         assembly locations of SMARTIRE and its suppliers. The PARTIES agree to
         work toward the objective of SMARTIRE becoming a qualified supplier
         pursuant to DANA'S supplier quality requirements.

                                      -10-
<PAGE>

8.5.     SMARTIRE shall develop approval guidelines for acceptable  applications
         and  installations of COMPONENTS with regard to wheel  installation and
         signal  integrity within 60 days after validation of any COMPONENTS and
         may  revise   the  same  from  time  to  time  to   reflect   COMPONENT
         modifications, COMPONENT packaging modification or additional COMPONENT
         configurations, upon agreement by the PARTIES.

8.6.     DANA shall approve COMPONENT  applications and installations  which are
         within the limits of the  guidelines  referred  to in Section  8.5.  In
         those cases where an  application or  installation  does not conform to
         the standard conditions,  DANA shall request SMARTIRE'S  assistance and
         SMARTIRE will respond to such request by approving or disapproving  the
         proposed application within ten (10) days.

8.7.     The  engineering  departments  of  SMARTIRE  and  DANA  shall  maintain
         information on approved  applications and  installations of COMPONENTS.
         DANA  shall be  responsible  for the  communications  of  CUSTOMER  and
         applications and installation approval or disapproval to its CUSTOMERS.
         DANA shall promptly notify SMARTIRE regarding such communications.

8.8.     The PARTIES  will  mutually  agree upon  COMPONENT  packaging  prior to
         initial deliveries.

9.       WARRANTY & LIABILITY

9.1.     SMARTIRE shall provide DANA with SMARTIRE's express warranty with
         respect to the SYSTEMS and COMPONENTS, a copy of which is attached as
         Exhibit B and made an integral part hereof. DANA shall pass the
         aforesaid SMARTIRE warranty on to its CUSTOMERS, and SMARTIRE shall
         fully honor this warranty. SMARTIRE shall have no obligation to honor
         any warranty obligations--with respect to the SYSTEMS and
         COMPONENTS--which are in addition to those obligations set forth on
         Exhibit B, except to the extent that DANA and SMARTIRE shall previously
         have agreed otherwise.

9.2.     Decisions on warranty claims made against DANA for COMPONENTS shall be
         made by DANA in its reasonable discretion. DANA shall use reasonable
         commercial efforts to justify all such warranty claims. If SMARTIRE
         disagrees with DANA'S decisions on these warranty claims, the PARTIES
         shall negotiate an agreeable settlement within a reasonable period.
         DANA shall provide SMARTIRE with adequate written documentation in
         support of all warranty claims for COMPONENTS that are submitted to
         SMARTIRE by DANA. DANA will invoice SMARTIRE at quarterly intervals for
         all warranty payments made by DANA against COMPONENTS and payment will
         be made by SMARTIRE within thirty (30) days of determination of
         settlement.

                                      -11-
<PAGE>

9.3.     If a recall,  service  campaign or similar action is required by law or
         regulation, or if any such action is ordered by any governmental agency
         with  respect to  COMPONENTS,  then to the extent  permitted  by law or
         regulation,  the PARTIES shall negotiate in good faith to determine the
         corrective  actions to be taken,  the costs of which  shall be borne by
         the PARTIES in proportion to their  respective  responsibility  for the
         alleged defect.

9.4.     SMARTIRE shall be liable to DANA hereunder for: (a) the  replacement of
         all  defective   COMPONENTS;   and  (b)  reimbursement  for  reasonable
         removal/installation  costs, as well as for all other  reasonable costs
         incurred by DANA or its  customers  to perform the  corrective  action,
         excluding  internal handling and  administrative  costs and any mark-up
         normally  accruing  to  DANA or its  customer  in the  distribution  of
         service parts.

9.5.     Each PARTY shall defend (as provided in Section 9.6 below), indemnify
         and save harmless the other PARTY, its directors, officers and
         employees and agents, from any and all actual and alleged costs,
         expenses, claims, suits, damages and liabilities (collectively "LOSS")
         based upon injury or death to persons or damaged property, to the
         extent such LOSS is caused by or arises out of or in connection with a
         claim, suit or proceeding brought by a third party based on a) any
         negligent or wrongful act or omission of the other PARTY, its supplier,
         or their respective employees, agents or representatives in the
         performance of this AGREEMENT; and b) in the case of SMARTIRE to DANA,
         any defects in the design, material and/or workmanship of COMPONENTS.

9.6.     Where the cause of the LOSS is the negligence, fault or other breach of
         duty of both  DANA  and  SMARTIRE  or a third  party's,  the  liability
         therefor shall be allocated,  reallocated or prorated,  as the case may
         be,   between   the  PARTIES   hereto  and  any  other  party   bearing
         responsibility in accordance with their percentage of negligence, fault
         or other breach of duty in causing  such LOSS and the  liability of the
         indemnifying PARTY proportionately reduced. Each PARTY shall notify the
         other  within  fifteen  (15) days  after  receipt of  knowledge  of any
         accident involving  COMPONENTS and shall fully cooperate with the other
         in the  investigation  and  determination  of  the  cause  of any  such
         accident.  The furnishing of information and  investigation  by a PARTY
         shall in no manner  constitute  or be  construed  as an  assumption  of
         liability by such party. The foregoing  indemnification  obligations in
         Sections  9.5  and 9.6  are  conditioned  upon  the  indemnified  PARTY
         promptly notifying the indemnifying PARTY in writing of the claim, suit
         or proceeding for which the indemnifying PARTY is obligated under these
         Sections,   the  indemnified  PARTY  cooperating  with,  assisting  and
         providing information to, the indemnifying PARTY as reasonably required
         and at the indemnifying  PARTY's expense, and granting the indemnifying
         PARTY the  exclusive  right to defend or  settle  such  claim,  suit or
         proceeding.

9.7.     SUBJECT TO THE INDEMNIFICATION OR WARRANTY OBLIGATIONS, IMPOSED UPON
         EACH PARTY PURSUANT TO THIS AGREEMENT, IN NO EVENT SHALL THE LIABILITY
         OF EITHER PARTY OR THEIR RESPECTIVE SUBSIDIARIES, EMPLOYEES, DIRECTORS
         OR OFFICERS, TO THE OTHER PARTY PURSUANT TO THIS CONTRACT, WHETHER
         ARISING IN CONTRACT OR IN TORT, OR ANY OTHER LEGAL THEORY (BUT
         EXCLUDING WILLFUL MISCONDUCT) BE THE GREATER OF IN AGGREGATE (i) THE
         AMOUNT PAID BY DANA TO SMARTIRE IN THE TWELVE (12) MONTHS PRECEDING THE
         CLAIM OR CIRCUMSTANCES FIRST GIVING RISE TO THE EVENT OR (ii) THREE
         MILLION DOLLARS ($3,000,000).

                                      -12-
<PAGE>

         EACH  PARTY  HEREBY  RELEASES  THE OTHER  PARTY  AND ITS  SUBSIDIARIES,
         EMPLOYEES,  DIRECTORS AND OFFICERS FROM ANY LIABILITY IN EXCESS OF SUCH
         AMOUNT.  THIS  SECTION  SHALL  PREVAIL  AND  TAKE  PRECEDENCE  OVER ANY
         CONFLICTING OR INCONSISTENT PROVISIONS IN THE CONTRACT. NOTHING IN THIS
         AGREEMENT  SHALL LIMIT EITHER PARTY'S  LIABILITY TO THE OTHER PARTY FOR
         BODILY INJURY OR DEATH CAUSED BY THE INDEMNIFYING  PARTY'S  NEGLIGENCE.
         THIS LIMITATION OF LIABILITY IS CUMULATIVE AND  NOT PER-INCIDENT (I.E.,
         THE EXISTENCE OF TWO OR MORE CLAIMS WILL NOT ENLARGE THIS LIMIT.)

         NOTWITHSTANDING THE FOREGOING, IF EITHER PARTY IS SUED BY A THIRD PARTY
         IN ANY COURT FOR  DAMAGES  FOR REASON OF THE ACTS OR  OMISSIONS  OF THE
         OTHER PARTY  INCLUDING  BUT NOT LIMITED TO CLAIMS  RELATED TO WARRANTY,
         INTELLECTUAL PROPERTY INFRINGEMENT OR PRODUCTS LIABILITY, TO THE EXTENT
         SUCH LAWSUIT RELATES TO THE ACTS OR OMISSIONS OF THE OTHER PARTY,  SUCH
         OTHER PARTY SHALL DEFEND SUCH ACTION (OR CAUSE THE SAME TO BE DEFENDED)
         AT ITS OWN EXPENSE AND SHALL PAY AND DISCHARGE ANY JUDGMENT THAT MAY BE
         RENDERED  IN SUCH  ACTION.  IF SUCH OTHER PARTY FAILS OR NEGLECTS TO SO
         DEFEND IN SAID  ACTION,  THE  PARTY  SUED MAY  DEFEND  THE SAME AND ANY
         EXPENSES,  INCLUDING  REASONABLE  ATTORNEYS'  FEES, WHICH IT MAY PAY OR
         INCUR IN DEFENDING  SAID ACTION AND THE AMOUNT OF ANY JUDGMENT WHICH IT
         MAY BE REQUIRED TO PAY SHALL BE  REIMBURSABLE BY THE OTHER PARTY TO THE
         EXTENT  SUCH  LAWSUIT  RELATES  TO THE ACTS OR  OMISSIONS  OF THE OTHER
         PARTY.

         SMARTIRE  shall maintain  product  liability  insurance,  with coverage
         amounts no less than USD $25,000,000,  with a reputable insurer,  which
         policy shall name DANA as an additional insured.

9.8.     Each PARTY  represents and warrants that it has the right to enter into
         this  AGREEMENT,  and that entry into this AGREEMENT will not result in
         the  breach  or  violation  of or  constitute  default  under any other
         AGREEMENT,  statute, court order, judgment, rule or regulation,  court,
         regulatory  authority or  government  body to which the such PARTY is a
         party or bound.

                                      -13-
<PAGE>

9.9.     Each PARTY represents and warrants that it will not make any agreements
         or  assignments  with or in  favor  of any  third  party,  which  would
         conflict  with or  render it  unable  to  comply  with its  obligations
         hereunder.

9.10.    Except for  liability  arising  out of or in  connection  with death or
         bodily  injury,  the  tort  of  deceit  or  where  it is not  otherwise
         permissible  under  applicable  law to exclude  liability,  in no event
         shall either PARTY,  its respective  affiliates,  officers,  directors,
         employees,  agents or suppliers be liable for any special,  incidental,
         indirect or consequential  damages,  or lost revenue,  lost profits, or
         lost or damaged  data,  whether  arising in contract,  tort  (including
         negligence),  or otherwise, even if such PARTY has been informed of the
         possibility thereof. Notwithstanding the foregoing, damages arising out
         of or in connection  with amounts  owing under the express  obligations
         under Section 9.5, Section 9.7, third paragraph and Section 10.5, shall
         not be considered  consequential in nature  regardless of their form or
         origin.

9.11.    This Section 9 shall survive the expiration and/or  termination of this
         AGREEMENT.

10.      INTELLECTUAL PROPERTY MATTERS

10.1.    All  DISCOVERIES  authored,  made,  conceived or reduced to practice by
         DANA or for DANA by a third  party for  DANA's  benefit,  prior to this
         AGREEMENT,  will remain the property of DANA. All DISCOVERIES authored,
         made, conceived or reduced to practice from time to time solely by DANA
         or solely for DANA by a third party for DANA's benefit, during the term
         this  AGREEMENT and after its  termination  will remain the property of
         DANA.

10.2.    All  DISCOVERIES  authored,  made,  conceived or reduced to practice by
         SMARTIRE or for SMARTIRE by a third party for SMARTIRE'S benefit, prior
         this AGREEMENT,  will remain the property of SMARTIRE.  All DISCOVERIES
         authored,  made,  conceived  or reduced to  practice  from time to time
         solely  by  SMARTIRE  or  solely  for  SMARTIRE  by a third  party  for
         SMARTIRE'S  benefit,  during the term of this  AGREEMENT  and after its
         termination will remain the property of SMARTIRE.

10.3.    The  PARTIES  anticipate  that  they may  engage  in one or more  joint
         product development or co-development  projects in the future involving
         the PARTIES and potentially one or more CUSTOMERS.  Prior to commencing
         any such  project,  the PARTIES and any  participating  CUSTOMERS  will
         negotiate  in  good  faith  and  enter  into  a   comprehensive   joint
         development agreement for such project.

10.4.    SMARTIRE  represents  and  warrants  that all  COMPONENTS  it furnishes
         hereunder  are free of  encumbrances  or claims,  that SMARTIRE has the
         right to convey ownership of COMPONENTS to DANA.

                                      -14-
<PAGE>

10.5.    Subject to the following provisions of this Section, SMARTIRE shall, at
         its own  expense,  indemnify,  hold  harmless,  defend or at its option
         settle any claim,  suit or proceeding  brought against DANA or CUSTOMER
         which is based on an allegation  that any  COMPONENTS or any components
         thereof sold and supplied to DANA under this  AGREEMENT  constitute  an
         infringement of a patent issued within the TERRITORY,  design right, or
         copyright,  constitutes  a misuse or  misappropriation  of  proprietary
         information,   or  violates  another  form  of  intellectual   property
         ("CLAIM").  This  obligation  shall be  effective  only if  SMARTIRE is
         notified  promptly  in writing  and given  authority,  information  and
         assistance (including, without limitation, making available to SMARTIRE
         such  documents  and  witnesses  as are within the control of DANA,  at
         DANA'S  expense)  for the  defense of such claim,  suit or  proceeding.
         SMARTIRE  shall pay all damages  (compensatory  or punitive),  attorney
         fees,  and costs  awarded in such suit or  proceeding  so  defended  or
         payable as a result of any settlement  which  SMARTIRE  enters into. If
         any COMPONENTS or any components thereof furnished hereunder become the
         subject of any CLAIM and a settlement  or an  adjudication  establishes
         that such  COMPONENTS or components  thereof do in fact infringe such a
         patent,   design  right,   or   copyright,   constitutes  a  misuse  or
         misappropriation of proprietary  information,  or violates another form
         of  intellectual  property or if the use or sale of such  COMPONENTS or
         components  thereof is enjoined,  SMARTIRE  shall,  at its own expense,
         either:

         a.       procure for DANA and  CUSTOMERS  the right to  continue  using
                  such COMPONENTS or components thereof;

         b.       replace   such   COMPONENTS   or   components   thereof   with
                  non-infringing  COMPONENTS  or components  thereof  reasonably
                  acceptable to DANA and CUSTOMERS; or

         c.       modify  such  COMPONENTS  or  components  thereof  in a manner
                  reasonably acceptable to DANA and CUSTOMERS so such COMPONENTS
                  or components thereof become non-infringing.

Notwithstanding  the  foregoing,  SMARTIRE  shall have no liability  for a CLAIM
arising from:

         a)       the  combination,  operation,  or use of a COMPONENT  supplied
                  under this Agreement with any product, device, or software not
                  supplied  by or  through  SMARTIRE  to the extent the CLAIM is
                  based on the combination;

         b)       the alteration or  modification  of any  COMPONENTS  except as
                  authorized by SMARTIRE;

         c)       SMARTIRE's compliance with DANA's designs, specifications,  or
                  instructions; and,

         d)       DANA or  CUSTOMER's  use of the COMPONENT  after  SMARTIRE has
                  informed DANA of  modifications  or changes in the  COMPONENTS
                  required  to avoid  such a CLAIM if the  alleged  infringement
                  would  have  been  avoided  by  implementation  of  SMARTIRE's
                  recommended  modifications or changes where such modifications
                  or changes have been provided to DANA at no additional charge.

                                      -15-
<PAGE>

This Section  10.5 states the entire  liability of SMARTIRE to DANA with respect
to  infringement  of design  right or  copyright  that  constitutes  a misuse or
misappropriation  of proprietary  information,  constitutes any competition,  or
violates  another  form  of  intellectual  property,  by any  COMPONENTS  or any
components  thereof.  TO THE EXTENT PERMITTED BY LAW, THIS INDEMNITY  OBLIGATION
AND  REMEDY  ARE GIVEN TO DANA AND ITS  CUSTOMERS  SOLELY  FOR THEIR  RESPECTIVE
BENEFIT AND IN LIEU OF, AND SMARTIRE DISCLAIMS,  ALL WARRANTIES,  CONDITIONS AND
OTHER TERMS OF NON-INFRINGEMENT WITH RESPECT TO ANY COMPONENT.

11.      TERM AND TERMINATION

11.1.    This  AGREEMENT  shall  remain in effect  for a term of seven (7) years
         from the  effective  date as of the date of last  signature  below,  at
         which  time  this  AGREEMENT  shall  be  continue   indefinitely  until
         terminated  by either  PARTY,  upon one (1) year's  NOTICE to the other
         PARTY.

11.2.    Either PARTY may terminate  this AGREEMENT  immediately  upon NOTICE to
         the other PARTY upon the occurrence of one of the following events:

         a.       the  failure  or  refusal  of the other  PARTY for a period of
                  ninety (90) days after  NOTICE to perform  fully and  promptly
                  its obligations under this AGREEMENT.

         b.       either PARTY  defaults or breaches  any material  provision of
                  this  AGREEMENT  and does not  remedy  the  default  or breach
                  within thirty (30) days after NOTICE by the other PARTY.

         c.       the  commencement of any proceeding by or against either PARTY
                  or  its  property  under  any  law  dealing  with  bankruptcy,
                  insolvency, receivership or other relief of debtors.

         d.       the insolvency or dissolution of either PARTY.

         e.       by the other PARTY, if the maximum amount payable by one PARTY
                  to the other PARTY,  in the  limitation of liability set forth
                  in paragraph 1 of Section 9.7, has been exhausted.

11.3.    If DANA has failed to make any  payments,  unless a reasonable  dispute
         exists and the PARTIES are  negotiating  a  resolution  with respect to
         such invoice,  when due,  SMARTIRE may terminate  this  AGREEMENT  upon
         thirty (30) days written notice to DANA.

11.4.    If SMARTIRE is (i) in breach of this AGREEMENT, (ii) ceases to carry on
         business as a going concern;  (iii) becomes or may become the object of
         the  institution of voluntary or involuntary  proceedings in bankruptcy
         or  liquidation;  (iv) a receiver or similar  officer is appointed with
         respect to the whole or a  substantial  part of its  assets;  or (v) an
         event similar to any of the foregoing  occurs under applicable law, and

                                      -16-
<PAGE>

         fails or refuses to supply  COMPONENTS  to DANA as required  under this
         AGREEMENT, provided that DANA shall not be in breach of this AGREEMENT,
         then DANA shall have the right to manufacture,  have  manufactured,  or
         acquire from SMARTIRE's  suppliers,  substitutes for COMPONENTS for the
         sole purpose of DANA  continuing  to supply its then current  CUSTOMERS
         with  COMPONENTS.  In such  case,  DANA shall have the right to utilize
         SMARTIRE's  intellectual property rights,  DISCOVERIES and CONFIDENTIAL
         INFORMATION for such purposes,  subject to the terms of this Agreement,
         and DANA shall pay SMARTIRE a reasonable royalty to SMARTIRE for use of
         its intellectual  property  rights.  SMARTIRE shall not obstruct DANA's
         efforts  or  ability  to find  and  qualify  alternate  supplier(s)  of
         substitute  products.  This  Section  does not grant  DANA the right to
         develop  the  SYSTEMS or  COMPONENTS  including  adding new or enhanced
         functionality.  The rights of DANA under this Section shall survive the
         termination of this AGREEMENT for one (1) year; provided, however, that
         if DANA's  contractual  commitment as at the date of SMARTIRE's failure
         or refusal to supply  COMPONENTS  to DANA to supply  COMPONENTS  to any
         CUSTOMER is longer, the rights of DANA under this Section shall survive
         the  termination  of this  AGREEMENT with respect to such CUSTOMER only
         for the length of DANA's contractual commitment.

11.5.    Except with respect to  injunctive  relief sought by either PARTY where
         appropriate, in the event of a dispute between the PARTIES, the PARTIES
         shall use the following  procedure prior to either PARTY pursuing other
         available remedies.

         a.       Meeting. A meeting shall be held promptly between the PARTIES,
                  attended  by  individuals   with   decision-making   authority
                  regarding the dispute, to attempt in good faith to negotiate a
                  resolution of the dispute.

         b.       If the PARTIES have not succeeded in  negotiating a resolution
                  of the dispute within sixty (60) days after the first meeting,
                  they shall submit the dispute to mediation in accordance  with
                  the  Mediation  of Business  Disputes  Model  Procedure of the
                  Center for Public Resources.

         c.       Mediation.   The  PARTIES  will  jointly  appoint  a  mutually
                  acceptable  mediator,  seeking  assistance in such regard from
                  the CPR  International  Institute for Conflict  Prevention and
                  Resolution  if they  have  been  unable  to  agree  upon  such
                  appointment  within twenty (20) days after one PARTY has given
                  the other NOTICE of its intent to invoke mediation.

         d.       Participation.  The PARTIES shall participate in good faith in
                  the mediation and  negotiations  related thereto for a minimum
                  period of thirty (30) days after the initial  meeting with the
                  mediator.  If the PARTIES are not  successful in resolving the
                  dispute  through the  mediation,  then either PARTY may pursue
                  other available remedies. Sections 11.4 and 11.5 shall survive
                  the expiration or other termination of this AGREEMENT.

                                      -17-
<PAGE>

12.      SEVERABILITY AND FORCE MAJEURE

12.1.    All provisions of this AGREEMENT are intended to be in conformance with
         applicable  laws and  regulations  binding on the  PARTIES and to which
         each of them are subject,  and each PARTY hereby undertakes to take all
         necessary  measures to comply with all such laws and regulations and to
         ensure that this AGREEMENT  remains valid at all times.  Any provisions
         of  this  AGREEMENT  which  may  be in  conflict  with  such  laws  and
         regulations shall be so modified,  in an amendment to this AGREEMENT to
         be  agreed  between  the  PARTIES,  so as to  conform  to such laws and
         regulations.Neither  PARTY  shall be liable for damages for delay in or
         prevention  of  its  performance  arising  out  of  causes  beyond  its
         reasonable  control,  including,  but not limited to, acts of God or of
         the public enemy,  acts of any  government  in its sovereign  capacity,
         fires,  floods,  epidemics,  and  strikes or other labor  disputes.  If
         either  PARTY's  performance  in  meeting  an agreed  shipping  date is
         delayed due to continuing causes covered by this Section,  the shipping
         date shall be extended  only for the period  during which they continue
         to exist.  Delay in  performance by either PARTY shall be excused under
         this  Section  only if the PARTY  whose  performance  is delayed  gives
         NOTICE of the delay to the other  PARTY  promptly  and in no event more
         than fifteen (15) days after the event causing the delay.

13.      NOTICES, AMENDMENTS, ASSIGNMENT, NO AGENCY & GOVERNING LAW

13.1.    All  notices,  requests,  consents and other  communications  hereunder
         shall be deemed to have been duly given  hereunder  if in writing  and,
         upon  receipt  when  delivered  by hand or sent by  courier,  facsimile
         transmission or telex, or three (3) calendar days after being mailed by
         first class mail, postage prepaid, in each case addressed as follows:

           If given to DANA, to:                          Copy to:

           Vice President, Marketing and Planning         Dana Corporation
           Commercial Vehicle Systems Group               4500 Dorr Street
           Dana Corporation                               P.O. Box 1000
           6938 Elm Valley Drive                          Toledo, OH 43697-1000
           Kalamazoo, MI 49009                            Attn:  General Counsel
           Fax: 616.567.1550                              Fax:  419.535.4790

           If given to SMARTIRE, to:
           President and CEO
           SMARTIRE SYSTEMS INC.
           Suite 150, 13151 Vanier Place
           Richmond, BC  Canada  V6V 2J1
           Fax: 604.276.2353

         or such other  persons or  addresses  as the  addressee  PARTY may have
         previously designated in writing by NOTICE to the other PARTY, and such
         notice or  communication  shall be deemed to have been  given as of the
         date so delivered or mailed.

                                      -18-
<PAGE>

13.2.    This AGREEMENT, including the Exhibits hereto, sets forth the entire
         understanding of DANA and SMARTIRE with respect to the matters covered
         and supersedes all prior agreements, representations and
         understandings, whether oral or written, between them as to the subject
         matter herein. Any amendments, waivers, or modifications of this
         AGREEMENT, or of any exhibit hereto, shall be valid only when they have
         been reduced to writing and duly signed by the PARTIES. The terms of
         this Section shall not be deemed to have been waived by oral agreement,
         course of performance or by any other means other than a written
         agreement expressly providing for such waiver.

13.3.    Neither  PARTY may assign  this  AGREEMENT  without  the prior  written
         consent of the other PARTY.

13.4.    No Agency. This AGREEMENT does not create any agency, partnership,
         joint venture, or franchise relationship. No employee of either PARTY
         shall be or become, or shall be deemed to be or become, an employee of
         the other PARTY by virtue of the existence or implementation of this
         Agreement. Each PARTY hereto is an independent contractor. Neither
         PARTY has the right or authority to, and shall not, assume or create
         any obligation of any nature whatsoever on behalf of the other PARTY or
         bind the other PARTY in any respect whatsoever.

13.5.    This  AGREEMENT  shall in all respects be  interpreted,  construed  and
         governed  by and in  accordance  with the laws of the State of Ohio and
         the United  States of America,  without  regard to the conflict of laws
         provisions thereof.  The United Nations Convention on Contracts for the
         International Sale of Goods shall not govern this AGREEMENT.

                                      -19-
<PAGE>

IN WITNESS  WHEREOF,  the PARTIES  hereto have executed this AGREEMENT as of the
date of last signature below.

DANA CORPORATION


By /s/ Frank Sheehan                              By  /s/ Glenn Salpizio
  ------------------------------------------        ----------------------------
Frank Sheehan                                       Glenn Salpizio
Vice President Sales, Marketing and Planning
Commercial Vehicle Systems Group


Date: October 12, 2005
     ---------------------------------------


SMARTIRE SYSTEMS INC.


By /s/ Al Kozak
  ------------------------------------------
Al Kozak
President and CEO


Date: September 23, 2005
     ---------------------------------------

                                      -20-
<PAGE>

                                    EXHIBIT A

                       SMARTIRE CONTRACTUAL RELATIONSHIPS

<TABLE>
<CAPTION>
--------------------- ---------------- ------------------------------------------- -----------------------------------
    Third Party          Territory                  Market Segments                             Comments
--------------------- ---------------- ------------------------------------------- -----------------------------------
<S>                   <C>              <C>                                         <C>
Company A             United States    o    OEM and Aftermarket for                Current market focus is RV and
                                            recreational vehicles                  towed vehicles.  In some cases
                                       o    OEM and Aftermarket for                they may equip Class 1-3 trucks
                                            passenger cars                         that tow other vehicles or small
                                       o    OEM and Aftermarket for towed          trailers.
                                            vehicles
                                       o    OEM and Aftermarket for
                                            commercial vehicles
                                       o    OEM and Aftermarket for buses
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company B             North America    o    OEM Customer                           SmarTire direct account
                                       o    OEM Aftermarket service centers
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company C             North America    o    OEM Customer                           SmarTire direct account
                                       o    OEM and Aftermarket service
                                            centers
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company D             North America    o    OEM and Aftermarket for                Internet/on-line sales normally
                                            passenger cars                         to individual customers or
                                       o    OEM and Aftermarket for                vehicle users.
                                            motorcycles
                                       o    OEM and Aftermarket for
                                            recreational vehicles
                                       o    OEM and Aftermarket for trucks
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company E             North America    o    OEM and Aftermarket for                Internet/on-line sales normally
                                            passenger cars                         to individual customers or
                                       o    OEM and Aftermarket for                vehicle users.  Virtually all
                                            motorcycles                            sales are to vehicle owners.
                                       o    OEM and Aftermarket for                Truck systems are typically Class
                                            recreational vehicles                  1-3.
                                       o    OEM and Aftermarket for trucks
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company F             United States    o    OEM and Aftermarket for                Sells to aftermarket and some
                                            recreational vehicles                  select RV OEMs.  Works closely
                                                                                   with RV manufacturer to retrofit
                                                                                   units in aftermarket.
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company G             United States    o    Light trucks and trucks                Second stage company that
                                                                                   retrofits commercial vehicles for
                                                                                   military and specialty markets.
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company H             Mexico           o    Bus aftermarket
--------------------- ---------------- ------------------------------------------- -----------------------------------
Company I             Australia        o    OEM and aftermarket Passcar            May possibly sell to Class 1-3
                                       o    Aftermarket Motorcycle                 trucks.
--------------------- ---------------- ------------------------------------------- -----------------------------------
Various small         United States    o    Varied market segments                 These organizations do not have
companies                                                                          formal agreements with SmarTire
                                                                                   and all have sales less than $15K
                                                                                   per year.
--------------------- ---------------- ------------------------------------------- -----------------------------------
</TABLE>

                                      -21-
<PAGE>

                                    EXHIBIT B
                                SMARTIRE WARRANTY

                                [SMARTIRE LOGO]

                     Original Equipment Commercial Vehicles
                         North America (Canada and USA)

Warranty Statement

Subject to the conditions  stated  herein,  SmarTire  Systems Ltd.  ("SmarTire")
warrants to Original Equipment  Manufacturer ("OEM") that the parts,  components
and assemblies sold as original  equipment or service parts,  ("Product")  will,
when  properly  installed on  commercial  vehicles  approved  for such  purpose,
conform  to  Product  specifications  and will be free from  defects  in design,
material  and  workmanship  under  normal  use and  service  for the  applicable
warranty  period as described in the Warranty  Period section of this statement.
SmarTire assumes no responsibility,  in the absence of its written approval, for
the selection of Product for specific applications that have not been approved.

Commercial  vehicles  include  Class 3 to 8 Trucks  (Rigid  Truck and  Tractor),
Commercial Trailers, Bus and Recreational Vehicles.

Warranty Period

The term of SmarTire's warranty to OEM shall be for three years or 300,000 miles
of vehicle use, whichever comes first, for original equipment parts and one year
unlimited miles for service parts:

      (a)   Warranty  coverage  for  Product  furnished  as  original  equipment
            commences on the vehicle in-service date.

      (b)   Warranty  coverage for Product  furnished as service parts commences
            on the date of retail sale.

Remedy

For  Products  sold as  Original  Equipment  production  parts,  SmarTire  shall
reimburse  (a) the cost of parts and labor  (subject to  pre-established  dealer
retail prices and posted labor rates subject to attached labor hour  guidelines)
to replace the Product.

For Products sold as Original Equipment service parts,  SmarTire shall reimburse
(a) the cost of parts only (subject to pre-established  dealer retail prices) to
replace the Product.

SmarTire's  obligation  to satisfy a warranty  claim is subject to the following
conditions:

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -22-
<PAGE>

      (a)   all such claims must be  submitted  to SmarTire no later than ninety
            (90)  days  from the date of the  failure  occurrence  and  shall be
            supported  by  satisfactory  evidence  in respect of the  conditions
            stated herein;

      (b)   if requested by SmarTire,  the Product  involved  shall be returned,
            freight collect, to SmarTire Systems Inc. for examination; and

      (c)   SmarTire's   examination   of  the  Product  must  disclose  to  its
            satisfaction that none of the Warranty  Exclusions  described herein
            apply. In all cases,  SmarTire shall make the final determination as
            to the warrantability of the Product.

Products  replaced under warranty are covered hereunder by the remaining portion
of the original warranty period or 12 months whichever is longer.

General Limits and Exclusions

SmarTire must provide  documented and signed off  installation  approval for the
specified OEM application for this warranty to be in effect.

Coverage is not provided for the following failures or expenses:

      (a)   Towing.
      (b)   Downtime, lodging, meals, and travel time or transportation.
      (c)   Troubleshooting / Diagnostics - except where allowed as indicated in
            the OEM and SmarTire approved guidelines
      (d)   Freight for expedited or rush parts shipments. Parts will be shipped
            by the most economical means possible.
      (e)   Non-genuine  replacement parts void the component warranty when used
            to make a repair.
      (f)   Component damage due to failure of other chassis components.
      (g)   Parts and  labor  markup  in  excess  of OEM and  SmarTire  approved
            guidelines.
      (h)   Undefined or unidentifiable miscellaneous changes.
      (i)   Failures  due to  product  mis-application  or  SmarTire  unapproved
            application.
      (j)   Failures  due to  unapproved  alterations  or  modifications  to the
            vehicle or the SmarTire component.
      (k)   Failures  caused by improper  installation  or improper prior repair
            including damage to Product by tire removal or installation.
      (l)   Miscellaneous shop supplies and/or fees.
      (m)   Corrosion and rust.
      (n)   Tires
      (o)   Failures due to dirt, snow, or ice build-up.
      (p)   Accident, damage, negligence, abuse or misuse

Claims Procedure

Warranty  claims may be made to the OEM through an authorized  dealer,  per your
OEM  warranty  procedures.  Please  refer to stated  warranty  coverage for your
specific OEM.

Claims submitted must:
      (a) be for verifiable defects in material or workmanship.

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -23-
<PAGE>

      (b)   be  submitted  within  ninety  (90)  days from the date on which the
            failure occurred.

      (c)   provide the following information on or with the OEM claim:

            1.    Complete  Vehicle  Identification  Number,  model and  vehicle
                  type, tire and rim description

            2.    Date in service

            3.    Model and serial number of failed component(s)

            4.    Itemized SmarTire part numbers and dealer parts prices

            5.    Description of complaint,  failure, fault code(s), dealer test
                  results, cause, correction (repair)

            6.    Date of failure and mileage at time of failure

            7.    Hourly labor rate and number of labor hours requested

            8.    OEM published labor code and hours

In the event the OEM  rejects  Product  or makes a claim  under  this  warranty,
SmarTire may request the return of the Product and SmarTire will issue the OEM a
return material authorization (RMA) number.

If requested by SmarTire, the Product shall be returned, freight collect, to

Attention: Customer Service
SmarTire Systems Inc.
Suite 150, 13151 Vanier Place
Richmond, British Columbia
Canada, V6V 2J1

for examination. All returned Products shall become SmarTire's property.

SmarTire's determination of warranty coverage shall be final in all cases.

SmarTire  reserves  the right to reject a  warranty  claim for any or all of the
following reasons:

      a.    Original  claim was filed  after  ninety  (90) days from the date of
            failure
      b.    Failure occurred beyond applicable warranty period
      c.    Claim information is insufficient
      d.    Product was not returned for inspection as requested
      e.    Product inspection does not substantiate claim or indicate a failure

Policy / Goodwill:

If OEM agrees to reimburse  customer from Product failure due to  non-conforming
material or workmanship beyond the standard warranty period in order to maintain
good will and customer satisfaction,  SmarTire agrees to negotiate in good faith
with OEM regarding the reimbursement of OEM for these expenses on a case-by-case
basis. All Policy / Goodwill must be approved by SmarTire Systems Inc.

Warranty Disclaimer

SMARTIRE'S  EXPRESS WARRANTY AND PURCHASER'S  REMEDIES  THEREUNDER ARE EXCLUSIVE
AND GIVEN IN PLACE OF (a) ALL OTHER WARRANTIES,  EXPRESS,  IMPLIED OR STATUTORY,

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -24-
<PAGE>

WHETHER  WRITTEN  OR ORAL,  INCLUDING,  BUT NOT  LIMITED  TO,  ANY  WARRANTY  OF
MERCHANTABILITY,  FITNESS FOR PARTICULAR  PURPOSE,  OR IMPLIED  WARRANTY ARISING
FROM  PERFORMANCE,  COURSE  OF  DEALING  OR USAGE OF  TRADE,  AND (b) ALL  OTHER
OBLIGATIONS,  LIABILITIES,  RIGHTS,  CLAIMS OR REMEDIES,  INCLUDING ANY RIGHT IN
CONTRACT, TORT, EXTRA-CONTRACTUALLY,  STRICT LIABILITY OR ANY RIGHT ARISING FROM
SMARTIRE'S NEGLIGENCE, ACTUAL OR IMPUTED.

Limitation of Liability

SMARTIRE'S   OBLIGATIONS  AND  PURCHASER'S  REMEDIES  UNDER  SMARTIRE'S  EXPRESS
WARRANTY ARE LIMITED TO SMARTIRE'S  CHOICE OF REPAIR OR REPLACEMENT  AND EXCLUDE
LIABILITY  FOR  INCIDENTAL,   SPECIAL,   CONSEQUENTIAL  OR  ANY  OTHER  DAMAGES,
INCLUDING,  WITHOUT LIMITATION,  REPLACEMENT COSTS, ECONOMIC LOSS, LOST REVENUE,
LOST PROFITS, OR LOSS OF USE OR DAMAGE TO OTHER PROPERTY.

PRODUCTS ARE CONSIDERED TO BE MONITORING  DEVICES,  AND ARE NOT TO BE CONSIDERED
AS SAFETY DEVICES.

Effective Date

This  warranty  shall  become  effective  October 1, 2005,  and applies  only to
Product sold in the United States and Canada.  This warranty supersedes all past
warranties expressed by SmarTire and may not be changed,  altered or modified in
any way except in writing by SmarTire.

Part Return Requirements

Be sure the parts are properly identified.

      a.    Clearly  print the RMA  number on the bill of  lading  and  shipping
            container.

      b.    If parts for more than one claim are shipped all together,  list all
            claim  numbers on the bill of lading or  provide a detailed  packing
            list. This will ensure proof of shipment for a specific claim if the
            parts are lost.

      c.    When shipping parts for several  different claims  together,  do not
            mix the parts in the same  container,  box,  etc.  This could  cause
            confusion  in  performing  a  failure  analysis,  a delay  in  claim
            processing, and possible rejection of the claim.

      d.    Package the parts  carefully  to avoid  shipping  damage which could
            distort or mask the true cause of the failure.

      e.    Return all parts collect,  per SmarTire  approved carrier and to the
            correct  designated  location.  Failure to return requested parts to
            designated SmarTire location may result in rejection of the claim.

      f.    Parts  lost  from  broken  boxes,   damaged   shipping   containers,
            negligence  in   packaging,   or  returned   without   proper  claim
            identification,  may  result in no  reimbursement  for the parts not
            received and shall be the responsibility of the dealer.

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -25-
<PAGE>

      g.    Corrosion  or rust that  prevents  proper  inspection,  or  prevents
            identification  of the  primary  failure,  may  result in a rejected
            claim.

      h.    Rejected / Non-SmarTire Parts will be returned to dealer at dealer's
            expense.

Labor Hour Guidelines

This section contains a recently revised schedule of various labor hours allowed
for performing  warrantable  repairs.  The hours listed are the maximum  amounts
which will be paid on a warranty claim. To insure a better  understanding of its
content,  please  have all  personnel  involved  in  warranty,  read the section
thoroughly.

These guidelines reflect replacement times only. Components for this product are
not serviceable or rebuildable.

                                               Allowed Time (Hours)

Diagnostics                                          0.5

Replacement of Sensor and Strap in Tire              0.5

Replacement of Receiver                              0.5

Replacement of Strap Only                            0.5

Replacement of Display                               0.75

Replacement of Antenna                               1

Replacement of Display Cable                         0.5

Reprogramming of System                              0.5

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -26-
<PAGE>

                                    EXHIBIT C

                           ORDER TERMS AND CONDITIONS

1.  CONTRACT.  Notwithstanding  the terms and  conditions on any purchase  order
("Order") issued by DANA pursuant to this AGREEMENT, the terms of this AGREEMENT
including  this  Exhibit B shall  govern  with  respect  to DANA's  purchase  of
COMPONENTS  from SMARTIRE.  No additional or different terms proposed by DANA on
any  Order or by  SMARTIRE  in its  acknowledgement  shall be  binding  upon the
parties.  The terms of this AGREEMENT shall apply,  regardless of any additional
or conflicting  terms on any Order,  acknowledgement  or otherwise  submitted by
either party,  and any such additional or conflicting  terms are deemed rejected
by the other party.  Captions in these Terms are for  convenience  only. For the
purposes  of  this  Exhibit,  Seller  shall  mean  SMARTIRE;  Goods  shall  mean
COMPONENTS.

2.  ASSIGNMENT.  Seller may not assign or  subcontract  this Order or any of its
rights or obligations  hereunder,  other than the right to assign any amount due
which shall be freely  assignable,  without Dana's prior written consent and any
purported assignment in violation of this provision will be void.

3. PACKING AND SHIPMENT.  Seller will pack and ship the Goods in accordance with
Dana's  instructions,  furnish all  shipping  documents  required  by Dana,  and
plainly mark Dana's name and the Order number on all packages and documents.

4.  INSPECTIONS.  Dana may inspect and/or test the Goods at any time, at its own
expense,  and Seller  will make its  premises  available  for this  purpose  and
provide any necessary assistance at no charge.  However, no inspections or tests
by Dana will relieve Seller of any of its obligations  hereunder relating to the
Goods.  If Dana finds any Goods to be  defective or not in  conformity  with its
specifications or requirements,  it may return them for a refund of the purchase
price, or require Seller to repair or replace them.

5.  HAZARDOUS  MATERIALS.  Seller  warrants  that  it  will  properly  classify,
describe,  package,  mark, label and provide any necessary  Material Safety Data
Sheets  for the  Goods  and  will  pack  and ship  them in  compliance  with all
applicable hazardous materials laws, regulations, ordinances and orders.

6.  SPECIAL  TOOLING.  All dies,  jigs,  fixtures,  drawings,  molds,  patterns,
templates,  gages and the like that Dana  provides  to Seller or pays  Seller to
make or buy for use in performing  this Order  (collectively,  "Tooling") are at
all times the personal property of Dana or Dana's customer,  as the case may be.
Dana will not be obligated to pay for such Tooling, if applicable,  until Seller
has provided  Dana with an itemized  list and adequate cost records for the same
and Dana has  accepted  the  Tooling or the first run of Goods  manufactured  or
assembled therewith. If Seller fails to provide adequate cost records, Dana will
be not be  obligated  to pay more  than the fair  market  value of the  Tooling,
regardless of the Tooling purchase price set out in the Order. While the Tooling
is in its  possession  or custody,  Seller will be  responsible  for any loss or
damage to the Tooling and for all taxes, assessments, and similar charges levied
with  respect to or on it.  Seller  will label the  Tooling in  accordance  with
Dana's instructions to permit accurate identification and will segregate it from
other  tooling in  Seller's  possession  to the extent  practicable.  At its own
expense,  Seller will repair and maintain  the Tooling,  keep it in good working
condition,  and replace it when necessary for any reason,  including normal wear
and tear.  Seller will use the  Tooling  exclusively  to produce

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -27-
<PAGE>

Goods  for  Dana   hereunder  and  for  no  other  purpose.   Upon   expiration,
cancellation, or termination of this Order, Seller will hold the Tooling and any
operation sheets,  process data, or other information necessary to show its use,
at no  charge,  pending  receipt  of Dana's  instructions  about its  removal or
disposition,  which will be at Dana's expense.  Seller acknowledges that Dana or
Dana's customer, as the case may be, has title to and all rights in the Tooling,
all  accessories  and attachments  thereto,  all  substitutes  and  replacements
therefor and all proceeds therefrom.  Seller authorizes Dana or Dana's customer,
as applicable,  or their agents, on Seller's behalf and as its attorney-in-fact,
to prepare,  sign and file such Uniform Commercial Code financing statements and
amendments  thereto and similar  documents  as they deem  necessary  to evidence
their ownership of the Tooling.

7. TRADE CREDITS,  COUNTRY OF ORIGIN. All trade credits, export credits, customs
drawbacks,  tax and fee rebates and the like  relating to this Order will belong
to Dana.  Seller  will  cooperate  with Dana in  obtaining  these  benefits  and
credits.  Seller will furnish  Dana and its  designees  with such  documentation
establishing  the country of origin and value of the Goods as Dana may  request,
including,  as applicable,  affidavits of manufacture and NAFTA  certificates of
origin.

8. INSURANCE.  Seller will maintain,  at its own expense,  the following minimum
insurance  coverages with insurers  satisfactory to Dana: (i) statutory workers'
compensation;  (ii) employer's liability in the amount of U.S. $5 million; (iii)
commercial  general  liability  (including   products/completed  operations  and
contractual  liability  coverage) in the amount of $5 million  bodily  injury or
property damage per occurrence;  and (iv) automotive  liability (covering owned,
non-owned,  and hired  vehicles)  in the amount of $5 million  bodily  injury or
property  damage per  accident.  Such  coverages  can be provided  under primary
and/or excess policies. In addition, where applicable,  Seller will maintain all
risk property coverage (including transit) and theft coverage for Goods, whether
or not owned by Dana,  which have been  ordered  hereunder  and which are in the
care, custody,  or control of Seller, its agents, or contractors,  and any other
insurance coverages that Dana deems appropriate. On the acceptance of this Order
and each subsequent renewal of its insurance coverages, Seller will furnish Dana
with  certificates of insurance  evidencing  such  coverages,  naming Dana as an
additional  insured where deemed  appropriate  by Dana,  and  requiring  written
notice  to Dana at  least  15  days  prior  to the  cancellation,  reduction  or
non-renewal  of  coverage.  Compliance  with these  provisions  will not relieve
Seller of its  defense and  indemnity  obligations  under  Paragraph  19.  These
obligations  will survive the  expiration or  cancellation  of this Order to the
extent  necessary  to  cover  acts or  events  arising  in  connection  with the
performance of the Order.

9. ALLOCATION.  If Seller is unable,  at any time, to supply the entire quantity
of Goods  ordered by Dana,  Seller will meet all of Dana's  requirements  before
making any  allocation  among its other  customers  under  Section  2-615 of the
Uniform Commercial Code or the equivalent.

10.  TERMINATION.  Dana may terminate this Order for  convenience at any time by
fifteen (15) business days written notice to Seller.  On termination,  Dana will
be liable to Seller solely for unpaid invoices for conforming  Goods  previously
shipped  and  for  Seller's  reasonable,  documented  costs  of  raw  materials,
work-in-process  and finished Goods that cannot be canceled  without  penalty or
sold in the general trade, not to exceed the volumes specified in this Order (if
a spot Order) or in any open releases hereunder (if a blanket Order) and payable
only after Dana's receipt of the same.

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -28-
<PAGE>

11.  CANCELLATION.  Dana may cancel  this  Order  without  liability  or further
obligation  hereunder by 15 business  days'  written  notice to Seller if Seller
breaches any provision, term or condition of the Order (or Dana anticipates such
breach); provided, that the cancellation will be void if Seller cures the breach
(or provides  assurances  of  performance  acceptable to Dana) within the 15-day
notice  period.  Dana may cancel  this Order  immediately  by written  notice to
Seller without liability or further obligation  hereunder (i) if Seller fails or
refuses to furnish Dana promptly with such  information  and  assurances as Dana
may  request,  from  time  to  time,  about  Seller's  financial  and  operating
conditions and ability to supply Goods under this Order,  and (ii) to the extent
permitted by law, in the event of Seller's insolvency, the filing of a voluntary
or involuntary petition in bankruptcy by or against Seller, the appointment of a
receiver or trustee for Seller,  Seller's  execution  of an  assignment  for the
benefit of creditors, or a comparable event.

12.  BINDING  EFFECT.  This  Order  will be  binding  on the  parties  and their
respective agents, subcontractors, successors and permitted assigns.

SMARTIRE/DANA CONFIDENTIAL                                        September 2005
                                      -29-