Document:

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                                                                    EXHIBIT 10.4

THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED
HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT.

                    PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
                             (outside North America)

                            Personal & Confidential

TO:               SMARTIRE SYSTEMS INC. (the "Company")
                  Richmond Corporate Centre
                  #150 - 13151 Vanier Place
                  Richmond, British Columbia
                  Canada V6V 2J1

AND TO:           WESTLB PANMURE LIMITED (the "Agent")
                  Woolgate Exchange,
                  25 Basinghall Street,
                  London, U.K., EC2V 5HA

                             Purchase of Securities

1.                Subscription

1.1 The undersigned (the "Subscriber") hereby irrevocably subscribes for and
agrees to purchase (such subscription and agreement to purchase being the
"Subscription") on the basis of the representations and warranties and subject
to the terms and conditions set forth herein, that number of Shares (each, a
"Share") in the capital of the Company set out on page 11 at the price per Share
of U.S. $1.75 (the "Subscription Price").

1.2 The Company hereby irrevocably agrees to sell, on the basis of the
representations and warranties and subject to the terms and conditions set forth
herein, to the Subscriber that number of Shares set out on page 11, at the
Subscription Price.

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                                     - 2 -

1.3 Subject to the terms hereof, the Subscription will be effective upon its
acceptance by the Company.

2.                Delivery and Payment

2.1 The Subscriber agrees that on or before the Closing Date (as defined below)
the following shall be delivered to the Agent at the above noted address or such
other address as the Agent may notify the Subscriber in writing:

      (a)   a completed and duly signed copy of this Subscription which shall
            include the direction to the Company with respect to the
            registration and delivery instructions as set out on page 11 hereof;
            and

      (b)   a certified cheque or bank draft made payable on or before the
            Closing Date to WestLB Panmure Limited representing the aggregate
            Subscription Price payable by the Subscriber for the Shares.
            Alternatively, the Subscription Price may be immediately wire
            transferred to the Agent according to written wire transfer
            instructions provided by the Agent to the Subscriber or such other
            method of payment as the Agent may accept.

2.2 The Subscription Price shall be held in escrow by WestLB Panmure Limited
(the "Escrow Agent") in accordance with the terms and conditions of the escrow
agreement (the "Escrow Agreement") dated [o] March 2002 between the Company and
the Escrow Agent. Pursuant to the terms of the Escrow Agreement:

      (a)   the Subscription Price will be deposited into an interest bearing
            bank account maintained by the Escrow Agent at a bank selected by
            the Escrow Agent;

      (b)   on the Closing Date, upon the Company notifying the Escrow Agent
            that the offering has closed and the Company delivering to the
            Escrow Agent the certificate representing the Shares for delivery to
            the Subscriber, the Subscription Price, together with any interest
            earned thereon, will be released and disbursed to the Company; and

      (c)   in the event the Closing Date does not occur by April 10, 2002, the
            Escrow Agent will release and disburse the Proceeds, together with
            any interest earned thereon, to the Subscriber.

3.                Undertaking and Direction

3. The Subscriber shall complete, sign and return to the Company as soon as
possible on request by the Company or the Agent any documents, questionnaires,
acknowledgements, notices and undertakings as may be required by regulatory
authorities, stock exchanges and applicable law.

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                                     - 3 -

4.                Closing

4.1 Closing of the offering (the "Closing") shall occur no later than March 25,
2002 or on such other date as may be mutually agreed to by the Subscriber and
the Company (the "Closing Date").

5.                Acknowledgements of Subscriber

5.1 The Subscriber acknowledges and agrees that:

      (a)   the Shares have not been registered under the 1933 Act, or under any
            state securities or "blue sky" laws of any state of the United
            States, and, unless so registered, may not be offered or sold in the
            United States or to U.S. Persons, as that term is defined in
            Regulation S promulgated under the 1933 Act ("Regulation S"), except
            pursuant to an exemption from, or in a transaction not subject to,
            the registration requirements of the 1933 Act;

      (b)   the Company does not intend to register any of the Shares under the
            1933 Act, or the securities laws of any such state and has no
            obligation to do so;

      (c)   the decision to execute this Agreement and purchase the Shares
            agreed to be purchased hereunder has not been based upon any oral or
            written representation as to fact or otherwise made by or on behalf
            of the Company or the Agent, and such decision is based entirely
            upon a review of information (the receipt of which is hereby
            acknowledged) which has been filed by the Company with the British
            Columbia Securities Commission and the United States Securities and
            Exchange Commission and in compliance, or intended compliance, with
            applicable securities legislation (collectively, the "Public
            Record") including the Company's audited financial statements,
            together with the related schedules and notes, for the year ending
            July 31, 2001 and the fiscal quarter ended October 31, 2001;

      (d)   the Subscriber and the Company acknowledge and agree with, and for
            the benefit of, the Agent and the Company, as applicable (such
            acknowledgement and agreements to survive the Closing) that:

            (i)   the Agent and its directors, officers, employees, agents,
                  representatives and advisers have no responsibility or
                  liability of any nature whatsoever for the accuracy or
                  adequacy of the information, agreements or provisions
                  contained in this Agreement, the Public Record or any other
                  publicly available information concerning the Company or the
                  Shares or other securities of the Company or as to whether all
                  information concerning the Company, the Shares or other
                  securities of the Company required to be disclosed by it or
                  them has generally been disclosed. The Agent has not engaged
                  in any independent due diligence, investigation or
                  verification

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                                     - 4 -

                  with respect to this Subscription, the Company, the Shares or
                  any such information;

            (ii)  the Agent makes no representations or warranties herein
                  whatsoever, and neither the Agent nor its directors, officers,
                  employees, agents, representatives or advisers shall have any
                  liability with respect to the sale of the Shares; and

            (iii) the Agent and the Company are entitled to rely on the
                  representations and warranties and the statements and answers
                  of the Subscriber contained in this Agreement and in the
                  questionnaires and undertakings attached as schedules to this
                  Agreement, and the Subscriber will hold harmless each of the
                  Agent and the Company from any loss or damage it or they may
                  suffer as a result of the Subscriber's failure to correctly
                  complete this Agreement or such questionnaires and
                  undertakings;

      (e)   by execution hereof the Subscriber has waived the need for the
            Company or the Agent to communicate the Company's acceptance of the
            purchase of the Shares pursuant to this Agreement;

      (f)   it will indemnify and hold harmless the Company and the Agent and,
            where applicable, their respective directors, officers, employees,
            agents, advisors and shareholders from and against any and all loss,
            liability, claim, damage and expense whatsoever (including, but not
            limited to, any and all fees, costs and expenses whatsoever
            reasonably incurred in investigating, preparing or defending against
            any claim, lawsuit, administrative proceeding or investigation
            whether commenced or threatened) arising out of or based upon any
            representation or warranty of the Subscriber contained herein or in
            any document furnished by the Subscriber to the Company or the Agent
            in connection herewith being untrue in any material respect or any
            breach or failure by the Subscriber to comply with any covenant or
            agreement made by the Subscriber to the Company or the Agent in
            connection therewith;

      (g)   the issuance and sale of the Shares to the Subscriber will not be
            completed if the Subscription is otherwise fully subscribed, if
            acceptance would be unlawful or if, in the discretion of the
            Company, acting reasonably, acceptance is not in the best interests
            of the Company;

      (h)   it has been advised to consult its own legal, tax and other advisors
            with respect to the merits and risks of an investment in the Shares
            and with respect to applicable resale restrictions and it is solely
            responsible (and neither the Agent nor the Company is in any way
            responsible except that the Company is responsible with regard to
            the Company's obligations arising from section 7 of this Agreement)
            for compliance with applicable resale restrictions;

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      (i)   the Shares are not listed on any stock exchange or subject to
            quotation except that the Shares currently are listed on the
            National Association of Securities Dealers, Inc. Automated Quotation
            System SmallCap Market, and no representation has been made to the
            Subscriber that the Shares will become listed on any other stock
            exchange or subject to quotation on any other quotation system;

      (j)   the Subscriber is not resident in Canada nor the United States and
            is not purchasing the Shares for such residents;

      (k)   no securities commission or similar regulatory authority has
            reviewed or passed on the merits of the Shares;

      (l)   there is no government or other insurance covering the Shares;

      (m)   there are risks associated with the purchase of the Shares;

      (n)   there are restrictions on the Subscriber's ability to resell the
            Shares and it is the responsibility of the Subscriber to find out
            what those restrictions are and to comply with them before selling
            the Shares;

      (o)   the Company has advised the Subscriber that the Company is relying
            on an exemption from the requirements to provide the Subscriber with
            a prospectus and to sell the Shares through a person registered to
            sell securities under the Securities Act (British Columbia) (the
            "B.C. Act") and, as a consequence of acquiring the Shares pursuant
            to this exemption, certain protections, rights and remedies provided
            by the B.C. Act, including statutory rights of rescission or
            damages, will not be available to the Subscriber;

      (p)   any resale of the Shares will be subject to resale restrictions
            contained in the securities legislation applicable to the Subscriber
            or any proposed transferee;

      (q)   the legend set out below will be placed on the Shares unless
            otherwise agreed by the Company:

            THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE
            TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN)
            PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF
            1933, AS AMENDED (THE "1933 ACT").

            NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
            THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
            REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN
            THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN
            ACCORDANCE

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                                     - 6 -

            WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO
            AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT
            TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
            THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY
            IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
            HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED
            UNLESS IN COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S.
            PERSON" ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.";

      (r)   the legends referred to in paragraph 5.1(q) above shall not be
            removed from any Shares purchased by it pursuant to this
            Subscription unless there is delivered to the Company such
            satisfactory evidence, which may include an opinion of counsel
            licensed to practice law in one of the states of the United States
            of America, as may be reasonably required by the Company, that such
            Shares are not "restricted" within the meaning of Rule 144;

      (s)   the Company and others will rely upon the truth and accuracy of the
            acknowledgments, representations and agreements contained in
            sections 5 and 6 hereof and agrees that if any of such
            acknowledgments, representations and agreements are no longer
            accurate or have been breached, it shall promptly notify the
            Company; and

      (t)   this Agreement is not enforceable by the Subscriber unless it has
            been accepted by the Company.

6.                Representations, Warranties and Covenants of the Subscriber

6.1 The Subscriber hereby represents and warrants to and covenants with the
Company and the Agent (which representations, warranties and covenants shall
survive the Closing) that:

      (a)   the Subscriber and any beneficial purchaser for whom it is acting
            are resident in the jurisdiction set out under the heading "Name and
            Address of Subscriber" on page 11 of this Subscription;

      (b)   the Subscriber is not a U.S. Person;

      (c)   the Subscriber is not purchasing the Shares for the account or
            benefit of, directly or indirectly, any U.S. Person;

      (d)   when receiving and executing this Subscription the Subscriber is
            outside the United States;

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                                     - 7 -

      (e)   the Subscriber has the legal capacity and competence to enter into
            and execute this Subscription and to take all actions required
            pursuant hereto and, if the Subscriber is a corporation, it is duly
            incorporated and validly subsisting under the laws of its
            jurisdiction of incorporation and all necessary approvals by its
            directors, shareholders and others have been obtained to authorize
            execution and performance of this Subscription on behalf of the
            Subscriber;

      (f)   the entering into of this Subscription and the transactions
            contemplated hereby do not result in the violation of any of the
            terms and provisions of any law applicable to, or the constating
            documents of, the Subscriber or of any agreement, written or oral,
            to which the Subscriber may be a party or by which the Subscriber is
            or may be bound;

      (g)   the Subscriber has duly executed and delivered this Subscription and
            it constitutes a valid and binding agreement of the Subscriber
            enforceable against the Subscriber;

      (h)   it understands and agrees that none of the Shares has been
            registered under the 1933 Act, and they may not be sold under U.S.
            law except pursuant to an exemption from, or in a transaction not
            subject to, the registration requirements of the 1933 Act;

      (i)   it is not acquiring the Shares as a result of, and has not itself
            engaged in (and will not engage in), any "directed selling efforts"
            (as defined in Regulation S under the 1933 Act) in the United States
            in respect of any of the Shares which would include any activities
            undertaken for the purpose of, or that could reasonably be expected
            to have the effect of, conditioning the market in the United States
            for the resale of any of the Shares;

      (j)   the Subscriber is not part of a plan or scheme to evade the
            registration provisions of the 1933 Act with respect to the Shares;

      (k)   it is not an underwriter of, or dealer in, the common shares of the
            Company, nor is the Subscriber participating, pursuant to a
            contractual agreement or otherwise, in the distribution of the
            Shares;

      (l)   it will not engage in any hedging transactions involving any of the
            Shares unless such transactions are in compliance with the
            provisions of the 1933 Act;

      (m)   it (i) is able to fend for itself in the Subscription; (ii) has such
            knowledge and experience in business matters as to be capable of
            evaluating the merits and risks of its prospective investment in the
            Shares; and (iii) has the ability to bear the economic risks of its
            prospective investment and can afford the complete loss of such
            investment;

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                                     - 8 -

      (n)   if it is acquiring the Shares as a fiduciary or agent for one or
            more investor accounts, it has sole investment discretion with
            respect to each such account and it has full power to make the
            foregoing acknowledgments, representations and agreements on behalf
            of such account;

      (o)   the Subscriber is not aware of any advertisement of any of the
            Shares;

      (p)   in purchasing the Shares the Subscriber has complied with all
            securities laws of its jurisdiction of residence and warrants that
            the sale of the Shares by the Company is in full compliance with
            such laws, and the Subscriber will make all filings necessary in
            such jurisdiction to ensure the Company complies with securities
            laws of such jurisdiction; and

      (q)   no person has made to the Subscriber any written or oral
            representations:

            (i)   that any person will resell or repurchase any of the Shares;

            (ii)  that any person will refund the purchase price of any of the
                  Shares; or

            (iii) as to the future price or value of any of the Shares.

6.2 In this Subscription, the term "U.S. Person" shall have the meaning ascribed
thereto in Regulation S and for the purpose of the Subscription includes any
person in the United States.

7.                Representations and Warranties of the Company

7.1 The Company acknowledges and agrees that the Subscriber is entitled to rely
upon the representations and warranties of the Company contained in this
Agreement and further acknowledges that the Subscriber will be relying upon such
representations and warranties in purchasing the Shares.

7.2 The Company warrants that the Public Record fairly represents the status of
the Company as at the dates indicated in the Public Record.

8.                Commission to the Agent

8.1 The Subscriber understands that upon Closing, the Agent will receive from
the Company a commission of up to three percent (3%) of the gross proceeds
raised from the sale of the Shares, payable to the Agent in cash.

9.                Acknowledgement and Waiver

9.1 The Subscriber has acknowledged that the decision to purchase the Shares was
solely made on the basis of publicly available information. The Subscriber
hereby waives, to the

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                                     - 9 -

fullest extent permitted by law, any rights of withdrawal, rescission or
compensation for damages (other than as expressly described herein).

10.               B.C. Resale Restrictions

10.1 Subscriber acknowledges that the Shares are subject to resale restrictions
in British Columbia and may not be traded in British Columbia except as
permitted by the Securities Act (British Columbia) and the Rules made
thereunder.

10.2 Pursuant to Multilateral Instrument 45-102, as adopted by the British
Columbia Securities Commission effective November 30, 2001, a subsequent trade
in the Shares will be a distribution subject to the prospectus and registration
requirements of applicable Canadian securities legislation (including the B.C.
Act) unless certain conditions are met, including the following:

      (a)   at least four months (the "Canadian Hold Period") shall have elapsed
            from the date on which the Shares were issued to the undersigned;

      (b)   during the currency of the Canadian Hold Period, any certificate
            representing the Shares is imprinted with a legend (the "Canadian
            Legend") stating:

            "Unless permitted under securities legislation, the holder of the
            securities shall not trade the securities before [insert the date
            that is four months and a day after the distribution date]."

      (c)   the trade is not a control distribution (as defined in Multilateral
            Instrument 45-102);

      (d)   no unusual effort is made to prepare the market or to create a
            demand for the Shares that are the subject of the trade;

      (e)   no extraordinary commission or consideration is paid to a person or
            company in respect of the trade; and

      (f)   if the selling security holder is an insider or officer of the
            Company, the selling security holder has no reasonable grounds to
            believe that the Company is in default of securities legislation.

            By executing and delivering this Subscription, the undersigned will
            have directed the Company not to include the Canadian Legend on any
            certificates representing the Shares to be issued to the
            undersigned.

10.3 AS A CONSEQUENCE, THE UNDERSIGNED WILL NOT BE ABLE TO RELY ON THE RESALE
PROVISIONS OF MULTILATERAL INSTRUMENT 45-102, AND ANY SUBSEQUENT TRADE IN THE
SHARES DURING OR AFTER THE CANADIAN HOLD PERIOD WILL BE A DISTRIBUTION SUBJECT
TO THE PROSPECTUS

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                                     - 10 -

AND REGISTRATION REQUIREMENTS OF CANADIAN SECURITIES LEGISLATION, TO THE EXTENT
THAT THE TRADE IS AT THAT TIME SUBJECT TO ANY SUCH CANADIAN SECURITIES
LEGISLATION.

11.               Costs

11.1 The Subscriber acknowledges and agrees that all costs and expenses incurred
by the Subscriber (including any fees and disbursements of any special counsel
retained by the Subscriber) relating to the purchase of the Shares shall be
borne by the Subscriber.

12.               Governing Law

12.1 This Subscription Agreement is governed by the laws of the province of
British Columbia and the federal laws of Canada applicable therein. The
Subscriber, in its personal or corporate capacity and, if applicable, on behalf
of each beneficial purchaser for whom it is acting, irrevocably attorns to the
jurisdiction of the courts of the Province of British Columbia.

13.               Survival

13.1 This Subscription, including without limitation the representations,
warranties and covenants contained herein, shall survive and continue in full
force and effect and be binding upon the parties hereto notwithstanding the
completion of the purchase of the Shares by the Subscriber pursuant hereto, the
completion of the issue of Shares of the Company and any subsequent disposition
by the Subscriber of the Shares.

14.               Assignment

14.1 This Subscription is not transferable or assignable.

15.               Execution

15.1 The Company shall be entitled to rely on delivery by facsimile machine of
an executed copy of this Subscription and acceptance by the Company of such
facsimile copy shall be equally effective to create a valid and binding
agreement between the Subscriber and the Company in accordance with the terms
hereof.

16.               Severability

16.1 The invalidity or unenforceability of any particular provision of this
Subscription shall not affect or limit the validity or enforceability of the
remaining provisions of this Subscription.

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                                     - 11 -

17.               Termination

17.1 If, prior to Closing, the Company determines for valid cause to terminate
this Subscription, this Agreement and the obligations of the parties hereto are
deemed to have terminated as at the effective date of such termination.

18.               Entire Agreement

18.1 Except as expressly provided in this Agreement and in the agreements,
instruments and other documents contemplated or provided for herein, this
Agreement contains the entire agreement between the parties with respect to the
sale of the Shares and there are no other terms, conditions, representations or
warranties, whether expressed, implied, oral or written, by statute or common
law, by the Company, the Agent, the Subscriber or by anyone else.

19.               Notices and Counterparts

19.1 All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Subscriber shall be directed to the
address on page 11; notices to the Company shall be directed to it at Richmond
Corporate Centre, #150 - 13151 Vanier Place, Richmond, British Columbia, V6V
2J1, attention of The President; notices to the Agent shall be directed to it at
the address first above written.

19.2 This Agreement may be executed in any number of counterparts, each of
which, when so executed and delivered, shall constitute an original and all of
which together shall constitute one instrument.

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                                     - 12 -

IN WITNESS WHEREOF the Subscriber has duly executed this Subscription as of the
date first above mentioned.

Number of Shares
to be purchased at U.S. $1.75 each: 750,000
                                    --------------------------------------------

Total purchase price: 1,312,500
                      ----------------------------------------------------------

DELIVERY INSTRUCTIONS

1.       Delivery - please deliver the Share certificate(s) to:

         JPM Chase, 4 New York Plaza
         -----------------------------------------------------------------------

         Attn: John Bouguet - Physical Receive 11th floor, New York, NY 10004
         -----------------------------------------------------------------------

2.       Registration - registration of the Share certificates which are to be
delivered at Closing should be made as follows:

         Cudd and Co.
         -----------------------------------------------------------------------
         (name)

         JPM Chase P.O. Box 35308 Newark, NJ 07101-8006
         -----------------------------------------------------------------------
         (address)

5.       The undersigned hereby acknowledges that it will deliver to the Company
all such additional completed forms in respect of the Subscriber's purchase of
Shares as may be required for filing with the appropriate securities commissions
and regulatory authorities and stock exchanges.

                            Fidelity Investment Services Limited
                            for the account of Fidelity Recovery Fund
                            ----------------------------------------------------
                            (Name of Subscriber - Please type or print)

                            /s/ Brian Martin
                            ----------------------------------------------------
                            (Signature and, if applicable, Office)

                            Oakhill House
                            ----------------------------------------------------
                            (Address of Subscriber)

                            130 Tonbridge Road, Hildenborough
                            ----------------------------------------------------
                            (City, State or Province, Postal Code of Subscriber)

                            Kent-TN11902 England
                            ----------------------------------------------------
                            (Country of Subscriber)

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                                     - 13 -

                               A C C E P T A N C E

The above-mentioned Subscription in respect of the Shares is hereby accepted by
SMARTIRE SYSTEMS INC.

DATED at London, England, the 21st day of March, 2002.

SMARTIRE SYSTEMS INC.

Per:  /s/ Robert V. Rudman
      ---------------------------
      Authorized Signatory<PAGE>

                                                                    EXHIBIT 10.5

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED
HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT.

                 ADVISORY FEE PAYMENT AND SUBSCRIPTION AGREEMENT

                  This ADVISORY FEE PAYMENT AND SUBSCRIPTION AGREEMENT (the
"Agreement") is made as of the 26th day of March, 2002, by and between SmarTire
Systems Inc. ("SmarTire"), a company formed under the laws of British Columbia,
and Seraph Capital AG ("Seraph Capital"), a corporation formed under the laws of
Switzerland.

                                    RECITALS

                  WHEREAS:

A. The parties have entered into an Advisory Agreement dated as of September 15,
2001 (the "Advisory Agreement"), pursuant to which Seraph Capital has agreed to
act as a non-exclusive advisor to SmarTire in raising new equity and/or debt
financing, and, in partial consideration for such services (the "Services"),
SmarTire has agreed to issue to Seraph Capital three year warrants (the
"Warrants") to purchase common shares in the capital of SmarTire (the "Warrant
Shares") equal in number to seven percent (7%) of the total number of common
shares in the capital of SmarTire purchased by investors (the "Investors")
introduced to SmarTire by Seraph Capital; and

B. Investors have agreed to subscribe for a total of 750,000 common shares in
the capital of SmarTire.

                  NOW, THEREFORE, the parties hereto agree as follows:

1.                ISSUANCE OF THE WARRANTS

1.1 In consideration for the Services provided to SmarTire under the Advisory
Agreement, SmarTire hereby grants to Seraph Capital 52,500 Warrants, each
entitling Seraph Capital to purchase one Warrant Share at an exercise price of
U.S. $1.75 per Warrant Share until 4:30 p.m. (Vancouver time) on that day that
is three years following the date hereof, at which time any unexercised Warrants
will expire.

1.2 SmarTire agrees to issue to Seraph Capital a certificate representing the
Warrants, in the form attached as Appendix I hereto, as soon as practicable
following delivery by Seraph Capital to SmarTire of two fully-executed copies of
this Agreement.

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                                     - 2 -

1.3 The Warrants and the Warrant Shares are sometimes collectively referred to
in this Agreement as the "Securities".

2.                ACKNOWLEDGEMENTS OF SERAPH CAPITAL

2.1 Seraph Capital acknowledges and agrees that:

      (a)   none of the Warrants or the Warrant Shares have been registered
            under the 1933 Act, or under any state securities or "blue sky" laws
            of any state of the United States, and, unless so registered, may
            not be offered or sold in the United States or, directly or
            indirectly, to U.S. Persons, as that term is defined in Regulation S
            under the 1933 Act ("Regulation S"), except in accordance with the
            provisions of Regulation S, pursuant to an effective registration
            statement under the 1933 Act, or pursuant to an exemption from, or
            in a transaction not subject to, the registration requirements of
            the 1933 Act;

      (b)   Seraph Capital acknowledges that SmarTire has not undertaken, and
            will have no obligation, to register any of the Securities under the
            1933 Act;

      (c)   the decision to execute this Agreement and acquire the Securities
            hereunder has not been based upon any oral or written representation
            as to fact or otherwise made by or on behalf of SmarTire, and such
            decision is based entirely upon a review of information (the receipt
            of which is hereby acknowledged) which has been filed by SmarTire
            with the United States Shares and Exchange Commission and in
            compliance, or intended compliance, with applicable securities
            legislation (collectively, the "Public Record");

      (d)   if SmarTire has presented a business plan to Seraph Capital, Seraph
            Capital acknowledges that the business plan may not be achieved or
            be achievable;

      (e)   no securities commission or similar regulatory authority has
            reviewed or passed on the merits of the Securities;

      (f)   there is no government or other insurance covering the Securities;

      (g)   there are risks associated with an investment in the Securities, as
            more fully described in certain information forming part of the
            Public Record;

      (h)   SmarTire has advised Seraph Capital that SmarTire is relying on an
            exemption from the requirements to provide Seraph Capital with a
            prospectus and to sell the Securities through a person registered to
            sell securities under the Securities Act (British Columbia) (the
            "B.C. Act") and, as a consequence of acquiring the Shares pursuant
            to this exemption, certain protections, rights and remedies provided
            by the B.C. Act, including statutory rights of rescission or
            damages, will not be available to Seraph Capital;

      (i)   Seraph Capital has not acquired the Securities as a result of, and
            will not itself engage in, any "directed selling efforts" (as
            defined in Regulation S under the 1933 Act) in the United States in
            respect of any of the Securities which would include any activities
            undertaken for the purpose of, or that could reasonably be expected
            to have the effect of, conditioning the market in the United States
            for the resale of any of the Warrant Shares; provided, however, that
            Seraph Capital may sell or otherwise dispose of any of the Warrant
            Shares pursuant to registration of any of the Warrant Shares under
            the 1933 Act and any applicable state securities laws or under an
            exemption from such registration requirements;

<PAGE>

                                     - 3 -

      (j)   Seraph Capital and Seraph Capital's advisor(s) have had a reasonable
            opportunity to ask questions of and receive answers from SmarTire in
            connection with the distribution of the Securities hereunder, and to
            obtain additional information, to the extent possessed or obtainable
            without unreasonable effort or expense, necessary to verify the
            accuracy of the information about SmarTire;

      (k)   the books and records of SmarTire were available upon reasonable
            notice for inspection, subject to certain confidentiality
            restrictions, by Seraph Capital during reasonable business hours at
            its principal place of business, and all documents, records and
            books in connection with the distribution of the Securities
            hereunder have been made available for inspection by Seraph Capital,
            Seraph Capital's attorney and/or advisor(s);

      (l)   Seraph Capital will indemnify and hold harmless SmarTire and, where
            applicable, its directors, officers, employees, agents, advisors and
            shareholders, from and against any and all loss, liability, claim,
            damage and expense whatsoever (including, but not limited to, any
            and all fees, costs and expenses whatsoever reasonably incurred in
            investigating, preparing or defending against any claim, lawsuit,
            administrative proceeding or investigation whether commenced or
            threatened) arising out of or based upon any representation or
            warranty of Seraph Capital contained herein or in any document
            furnished by Seraph Capital to SmarTire in connection herewith being
            untrue in any material respect or any breach or failure by Seraph
            Capital to comply with any covenant or agreement made by Seraph
            Capital to SmarTire in connection therewith;

      (m)   none of the Securities are listed on any stock exchange or automated
            dealer quotation system and no representation has been made to
            Seraph Capital that any of the Securities will become listed on any
            stock exchange or automated dealer quotation system; except that
            currently the common shares of SmarTire are listed for trading on
            the Nasdaq SmallCap Market;

      (n)   none of the Securities may be offered or sold to a U.S. Person or
            for the account or benefit of a U.S. Person (other than a
            distributor) prior to the end of the Restricted Period (as defined
            herein);

      (o)   offers and sales of any of the Securities prior to the expiration of
            a period of forty days after the date of issuance of such Securities
            (the "Restricted Period") shall only be made in compliance with the
            safe harbor provisions set forth in Regulation S, pursuant to the
            registration provisions of the 1933 Act or an exemption therefrom,
            and that all offers and sales after the Restricted Period shall be
            made only in compliance with the registration provisions of the 1933
            Act or an exemption therefrom;

      (p)   there are additional restrictions on Seraph Capital's ability to
            resell the Securities under the B.C. Act and Multilateral Instrument
            45-102 adopted by the British Columbia Securities Commission;

      (q)   SmarTire will refuse to register any transfer of the Securities not
            made in accordance with the provisions of Regulation S, pursuant to
            an effective registration statement under the 1933 Act or pursuant
            to an available exemption from the registration requirements of the
            1933 Act;

      (r)   the statutory and regulatory basis for the exemption claimed for the
            offer Securities, although in technical compliance with Regulation
            S, would not be available if the offering is part of a plan or
            scheme to evade the registration provisions of the 1933 Act; and

<PAGE>

                                     - 4 -

      (s)   Seraph Capital has been advised to consult Seraph Capital's own
            legal, tax and other advisors with respect to the merits and risks
            of an investment in the Securities and with respect to applicable
            resale restrictions, and it is solely responsible (and SmarTire is
            not in any way responsible) for compliance with:

            (i)   any applicable laws of Switzerland in connection with the
                  distribution of the Securities hereunder, and

            (ii)  applicable resale restrictions.

3.                REPRESENTATIONS, WARRANTIES AND COVENANTS OF SERAPH CAPITAL

      (a)   Seraph Capital hereby represents and warrants to and covenants with
            SmarTire (which representations, warranties and covenants shall
            survive the Closing) that:

      (b)   Seraph Capital is resident in Switzerland, and is neither a U.S.
            Person nor a resident of British Columbia;

      (c)   Seraph Capital is or will be acquiring the Securities as principal
            for its own account, for investment only and not with a view to
            resale or distribution, and, in particular:

      (d)   no other person has a direct or indirect beneficial interest in such
            Securities;

      (e)   Seraph Capital is not and will not be acquiring the Securities for
            the account or benefit of, directly or indirectly, any U.S. Person
            or any resident of British Columbia; and

      (f)   it has no intention to distribute either directly or indirectly any
            of the Securities in the United States or to U.S. Persons;

      (g)   Seraph Capital is outside the United States when receiving and
            executing this Agreement;

      (h)   Seraph Capital has the legal capacity and competence to enter into
            and execute this Agreement and to take all actions required pursuant
            hereto, it is duly incorporated and validly subsisting under the
            laws of its jurisdiction of incorporation, and all necessary
            approvals by its directors, shareholders and others have been
            obtained to authorize execution and performance of this Agreement on
            behalf of Seraph Capital;

      (i)   the entering into of this Agreement and the transactions
            contemplated hereby do not and will not result in the violation of
            any of the terms and provisions of any law applicable to, or the
            constating documents of, Seraph Capital or of any material
            agreement, written or oral, to which Seraph Capital may be a party
            or by which Seraph Capital is or may be bound;

      (j)   Seraph Capital has duly executed and delivered this Agreement and it
            constitutes a valid and binding agreement of Seraph Capital
            enforceable against Seraph Capital;

      (k)   Seraph Capital is not an underwriter of, or dealer in, the common
            shares of SmarTire, nor is Seraph Capital participating, pursuant to
            a contractual agreement or otherwise, in the distribution of the
            Securities;

<PAGE>

                                     - 5 -

      (l)   Seraph Capital (i) is able to fend for itself in the Subscription;
            (ii) has such knowledge and experience in business matters as to be
            capable of evaluating the merits and risks of its prospective
            investment in the Shares; and (iii) has the ability to bear the
            economic risks of its prospective investment and can afford the
            complete loss of such investment;

      (m)   Seraph Capital is not aware of any advertisement of any of the
            Securities; and

      (n)   no person has made to Seraph Capital any written or oral
            representations:

            (i)   that any person will resell or repurchase any of the
                  Securities;

            (ii)  that any person will refund the purchase price of any of the
                  Securities; or

            (iii) as to the future price or value of any of the Securities.

4.                ACKNOWLEDGEMENT AND WAIVER

4.1 Seraph Capital has acknowledged that the decision to purchase the Shares was
solely made on the basis of publicly available information contained in the
Public Record. Seraph Capital hereby waives, to the fullest extent permitted by
law, any rights of withdrawal, rescission or compensation for damages to which
Seraph Capital might be entitled in connection with the distribution of any of
the Securities.

5.                LEGENDING OF SUBJECT SECURITIES

5.1 Seraph Capital hereby acknowledges that that upon the issuance thereof, and
until such time as the same is no longer required under the applicable
securities laws and regulations, the certificates representing any of the
Securities will bear legends in substantially the following forms:

            "THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE
            TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN)
            PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF
            1933, AS AMENDED (THE "1933 ACT").

            NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
            THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
            REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN
            THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN
            ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT,
            PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT,
            OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
            SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
            EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
            IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT
            BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT. "UNITED STATES"
            AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE 1933
            ACT."

5.2 Seraph Capital hereby acknowledges and agrees to SmarTire making a notation
on its records or giving instructions to the registrar and transfer agent of
SmarTire in order to implement the restrictions on transfer set forth and
described in this Agreement.

<PAGE>

                                     - 6 -

6.                COSTS

6.1 Seraph Capital acknowledges and agrees that all costs and expenses incurred
by Seraph Capital (including any fees and disbursements of any special counsel
retained by Seraph Capital) relating to the acquisition of the Securities shall
be borne by Seraph Capital.

7.                GOVERNING LAW

7.1 This Agreement is governed by the laws of the Province of British Columbia
and the federal laws of Canada applicable therein. Seraph Capital irrevocably
attorns to the jurisdiction of the courts of the Province of British Columbia.

8.                SURVIVAL

8.1 This Agreement, including without limitation the representations, warranties
and covenants contained herein, shall survive and continue in full force and
effect and be binding upon the parties hereto notwithstanding the completion of
the purchase of the Shares by Seraph Capital pursuant hereto.

9.                ASSIGNMENT

9.1 This Agreement is not transferable or assignable.

10.               COUNTERPARTS AND ELECTRONIC MEANS

10.1 This Agreement may be executed in several counterparts, each of which will
be deemed to be an original and all of which will together constitute one and
the same instrument. Delivery of an executed copy of this Agreement by
electronic facsimile transmission or other means of electronic communication
capable of producing a printed copy will be deemed to be execution and delivery
of this Agreement as of the date first above written.

11.               SEVERABILITY

11.1 The invalidity or unenforceability of any particular provision of this
Agreement shall not affect or limit the validity or enforceability of the
remaining provisions of this Agreement.

12.               ENTIRE AGREEMENT

12.1 Except as expressly provided in this Agreement and in the agreements,
instruments and other documents contemplated or provided for herein, this
Agreement contains the entire agreement between the parties with respect to the
subject matter hereof and there are no other terms, conditions, representations
or warranties, whether expressed, implied, oral or written, by statute or common
law, by SmarTire or by anyone else.

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

SMARTIRE SYSTEMS INC.                              SERAPH CAPITAL AG

By: /s/ Kevin A. Carlson                           By: /s/ Michael Minder
   -------------------------------------------        --------------------------
   Kevin A. Carlson, Managing Director and CFO        Authorized Signatory

<PAGE>

                                     - 7 -

THIS IS PAGE 7 OF THE ADVISORY FEE PAYMENT AND SUBSCRIPTION AGREEMENT BETWEEN
SMARTIRE SYSTEMS INC. AND SERAPH CAPITAL AG

<PAGE>

                                   APPENDIX 1

                           FORM OF WARRANT CERTIFICATE

"THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED
HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT."

               THESE WARRANTS WILL EXPIRE AND BECOME NULL AND VOID
             AT 4:30 P.M. (VANCOUVER TIME) ON _______________, 2005.

                             SHARE PURCHASE WARRANTS
                          TO PURCHASE COMMON SHARES OF

                              SMARTIRE SYSTEMS INC.

                incorporated in the Province of British Columbia

                  THIS IS TO CERTIFY THAT SERAPH CAPITAL AG, (the "Holder") of
Gubelstrasse 15, CH-6300 Zug, Switzerland, (has the right to purchase, upon and
subject to the terms and conditions hereinafter referred to, up to
________________________________ fully paid and non-assessable common shares
(the "Shares") in the capital of SmarTire Systems Inc. (hereinafter called the
"Company") on or before 4:30 p.m. (Vancouver time) on ____________________, 2004
(the "Expiry Date") at a price of US$  o   per Share.

      1.    ONE (1) WARRANT AND U.S.$  o   ARE REQUIRED TO PURCHASE ONE SHARE.
            THIS CERTIFICATE REPRESENTS __________________________ WARRANTS.

      2.    These Warrants are issued subject to the Terms and Conditions
            attached to the Warrants issued by SmarTire (the "Terms and
            Conditions") attached hereto as Appendix "A" and the Warrant Holder
            may exercise the right to purchase Shares only in accordance with
            those Terms and Conditions.

      3.    Nothing contained herein or in the Terms and Conditions will confer
            any right upon the Holder hereof or any other person to subscribe
            for or purchase any Shares at any time subsequent to the Expiry
            Date, and from and after such time, this Warrant and all rights
            hereunder will be void and of no value.

<PAGE>

                                     - 2 -

            IN WITNESS WHEREOF SmarTire has executed this Warrant Certificate
this ______ day of ___________________, 2002.

SMARTIRE SYSTEMS INC.

Per:  ___________________________________________
      Kevin A. Carlson, Managing Director and CFO

PLEASE NOTE THAT ALL SHARE CERTIFICATES MUST BE LEGENDED AS FOLLOWS DURING THE
CURRENCY OF APPLICABLE HOLD PERIODS:

      "THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE
TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO
REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT").

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED
HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT."

<PAGE>

                                  APPENDIX "A"

TERMS AND CONDITIONS dated ___________________, 2002, attached to the Warrants
issued by SmarTire Systems Inc.

1.                INTERPRETATION

1.1 Definitions

In these Terms and Conditions, unless there is something in the subject matter
or context inconsistent therewith:

      (a)   "Company" means SmarTire Systems Inc. until a successor corporation
            will have become such as a result of consolidation, amalgamation or
            merger with or into any other corporation or corporations, or as a
            result of the conveyance or transfer of all or substantially all of
            the properties and estates of SmarTire as an entirety to any other
            corporation and thereafter "Company" will mean such successor
            corporation;

      (b)   "Company's Auditors" means an independent firm of accountants duly
            appointed as auditors of SmarTire;

      (c)   "Director" means a director of SmarTire for the time being, and
            reference, without more, to action by the directors means action by
            the directors of SmarTire as a Board, or whenever duly empowered,
            action by an executive committee of the Board;

      (d)   "herein", "hereby" and similar expressions refer to these Terms and
            Conditions as the same may be amended or modified from time to time;
            and the expression "Article" and "Section," followed by a number
            refer to the specified Article or Section of these Terms and
            Conditions;

      (e)   "person" means an individual, corporation, partnership, trustee or
            any unincorporated organization and words importing persons have a
            similar meaning;

      (f)   "shares" means the common shares in the capital of SmarTire as
            constituted at the date hereof and any shares resulting from any
            subdivision or consolidation of the shares;

      (g)   "Warrant Holders" or "Holders" means the holders of the Warrants;
            and

      (h)   "Warrants" means the warrants of SmarTire issued and presently
            authorized and for the time being outstanding.

1.2 Gender

Words importing the singular number include the plural and vice versa and words
importing the masculine gender include the feminine and neuter genders.

1.3 Interpretation not affected by Headings

The division of these Terms and Conditions into Articles and Sections, and the
insertion of headings are for convenience of reference only and will not affect
the construction or interpretation thereof.

1.4 Applicable Law

The Warrants will be construed in accordance with the laws of the Province of
British Columbia.

<PAGE>

2.                ISSUE OF WARRANTS

2.1 Additional Warrants

SmarTire may at any time and from time to time issue additional warrants or
grant options or similar rights to purchase shares of its capital stock.

2.2 Warrant to Rank Pari-Passu

All Warrants and additional warrants, options or similar rights to purchase
shares from time to time issued or granted by SmarTire, will rank pari-passu
whatever may be the actual dates of issue or grant thereof, or of the dates of
the certificates by which they are evidenced.

2.3 Issue in Substitution for Mutilated Lost, Destroyed or Stolen Warrant
Certificates

      (a)   In case a Warrant Certificate becomes mutilated, lost, destroyed or
            stolen, the Company, at its discretion, may issue and deliver a new
            Warrant Certificate of like date and tenor as the one mutilated,
            lost, destroyed or stolen, in exchange for and in place of and upon
            cancellation of such mutilated Warrant Certificate, or in lieu of,
            and in substitution for such lost, destroyed or stolen Warrant
            Certificate and the substituted Warrant Certificate will be entitled
            to the benefit hereof and rank equally in accordance with its terms
            with all other Warrants issued or to be issued by the Company.

      (b)   The applicant for the issue of a new Warrant Certificate pursuant
            hereto will bear the cost of the issue thereof and in case of loss,
            destruction or theft furnish to the Company such evidence of
            ownership and of loss, destruction, or theft of the Warrant
            Certificate so lost, destroyed or stolen as will be satisfactory to
            the Company in its discretion and such applicant may also be
            required to furnish indemnity in amount and form satisfactory to the
            Company in its discretion, and will pay the reasonable charges of
            the Company in connection therewith.

2.4 Warrant Holder Not a Shareholder

The holding of a Warrant will not constitute the Holder thereof a shareholder of
SmarTire, nor entitle him to any right or interest in respect thereof except as
in the Warrant expressly provided.

3.                NOTICE

3.1 Notice to Warrant Holders

Any notice required or permitted to be given to the Holders will be in writing
and may be given by prepaid registered post, electronic facsimile transmission
or other means of electronic communication capable of producing a printed copy
to the address of the Holder appearing on the Holder's Warrant or to such other
address as any Holder may specify by notice in writing to SmarTire, and any such
notice will be deemed to have been given and received by the Holder to whom it
was addressed if mailed, on the third day following the mailing thereof, if by
facsimile or other electronic communication, on successful transmission, or, if
delivered, on delivery; but if at the time or mailing or between the time of
mailing and the third business day thereafter there is a strike, lockout, or
other labour disturbance affecting postal service, then the notice will not be
effectively given until actually delivered.

3.2 Notice to SmarTire

Any notice required or permitted to be given to SmarTire will be in writing and
may be given by prepaid registered post, electronic facsimile transmission or
other means of electronic communication capable of producing a printed copy to
the address of SmarTire set forth below or such other address as SmarTire may
specify by notice in writing to the Holder, and any such notice will be deemed
to have been given and received by SmarTire to whom it was addressed if mailed,
on the third day following the mailing thereof, if by facsimile or other
electronic

<PAGE>

communication, on successful transmission, or, if delivered, on delivery; but if
at the time of mailing or between the time of mailing and the third business day
thereafter there is a strike, lockout, or other labour disturbance affecting
postal service, then the notice will not be effectively given until actually
delivered:

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

                  Attention: Chief Financial Officer

                  Fax No.: (604) 276-2350

4.                EXERCISE OF WARRANTS

4.1 Method of Exercise of Warrants

The right to purchase shares conferred by the Warrants may be exercised by the
Holder surrendering the Warrant Certificate representing same, with a duly
completed and executed subscription in the form attached hereto and a bank draft
or certified cheque payable to or to the order Company, at par, in Vancouver,
British Columbia, for the purchase price applicable at the time of surrender in
respect of the shares subscribed for in lawful money of the United States of
America, to SmarTire at the address set forth in, or from time to time specified
by SmarTire pursuant to, Section 3.2.

4.2 Effect of Exercise of Warrants

      (a)   Upon surrender and payment as aforesaid the shares so subscribed for
            will be deemed to have been issued and such person or persons will
            be deemed to have become the Holder or Holders of record of such
            shares on the date of such surrender and payment, and such shares
            will be issued at the subscription price in effect on the date of
            such surrender and payment.

      (b)   Within ten business days after surrender and payment as aforesaid,
            SmarTire will forthwith cause to be delivered to the person or
            persons in whose name or names the shares so subscribed for are to
            be issued as specified in such subscription or mailed to him or them
            at his or their respective addresses specified in such subscription,
            a certificate or certificates for the appropriate number of shares
            not exceeding those which the Warrant Holder is entitled to purchase
            pursuant to the Warrant surrendered.

4.3 Subscription for Less Than Entitlement

The Holder of any Warrant may subscribe for and purchase a number of shares less
than the number which he is entitled to purchase pursuant to the surrendered
Warrant. In the event of any purchase of a number of common shares less than the
number which can be purchased pursuant to a Warrant, the Holder thereof upon
exercise thereof will in addition be entitled to receive a new Warrant in
respect of the balance of the shares which he was entitled to purchase pursuant
to the surrendered Warrant and which were not then purchased.

4.4 Warrants for Fractions of Shares

To the extent that the Holder of any Warrant is entitled to receive on the
exercise or partial exercise thereof a fraction of a common share, such right
may be exercised in respect of such fraction only in combination with another
Warrant or other Warrants which in the aggregate entitle the Holder to receive a
whole number of such common shares.

<PAGE>

4.5 Expiration of Warrants

After the expiration of the period within which a Warrant is exercisable, all
rights thereunder will wholly cease and terminate and such Warrant will be void
and of no effect.

4.6 Time of Essence

Time will be of the essence hereof.

4.7 Subscription Price

One (1) Warrant and US$  o   are required to subscribe for each Share during the
term of the Warrants.

4.8 Adjustment of Exercise Price

      (a)   The exercise price and the number of common shares deliverable upon
            the exercise of the Warrants will be subject to adjustment in the
            event and in the manner following:

            (i)   If and whenever the shares at any time outstanding are
                  subdivided into a greater or consolidated into a lesser number
                  of shares the exercise price will be decreased or increased
                  proportionately as the case may be; upon any such subdivision
                  or consolidation the number of shares deliverable upon the
                  exercise of the Warrants will be increased or decreased
                  proportionately as the case may be.

            (ii)  In case of any capital reorganization or of any
                  reclassification of the capital of SmarTire or in the case of
                  the consolidation, merger or amalgamation of SmarTire with or
                  into any other Company (hereinafter collectively referred to
                  as a "Reorganization"), each Warrant will after such
                  Reorganization confer the right to purchase the number of
                  shares or other securities of SmarTire (or of SmarTire's
                  resulting from such Reorganization) which the Warrant Holder
                  would have been entitled to upon Reorganization if the Warrant
                  Holder had been a shareholder at the time of such
                  Reorganization.

                  In any such case, if necessary, appropriate adjustments will
                  be made in the application of the provisions of this Article
                  Four relating to the rights and interest thereafter of the
                  Holders of the Warrants so that the provisions of this Article
                  Four will be made applicable as nearly as reasonably possible
                  to any shares or other securities deliverable after the
                  Reorganization on the exercise of the Warrants.

                  The subdivision or consolidation of shares at any time
                  outstanding into a greater or lesser number of shares (whether
                  with or without par value) will not be deemed to be a
                  Reorganization for the purposes of this clause 4.8(a)(ii).

      (b)   The adjustments provided for in this Section 4.8 are cumulative and
            will become effective immediately after the record date or, if no
            record date is fixed, the effective date of the event which results
            in such adjustments.

4.9 Determination of Adjustments

If any questions will at any time arise with respect to the exercise price or
any adjustment provided for in Section 4.8, such questions will be conclusively
determined by SmarTire's Auditors, or, if they decline to so act any other firm
of chartered accountants, in Vancouver, British Columbia that SmarTire may
designate and who will have access to all appropriate records and such
determination will be binding upon SmarTire and the Holders of the Warrants.

<PAGE>

5.                COVENANTS BY SMARTIRE

5.1 Reservation of Shares

SmarTire will reserve and there will remain unissued out of its authorized
capital a sufficient number of shares to satisfy the rights of purchase provided
for herein and in the Warrants should the Holders of all the Warrants from time
to time outstanding determine to exercise such rights in respect of all shares
which they are or may be entitled to purchase pursuant thereto and hereto.

6.                WAIVER OF CERTAIN RIGHTS

6.1 Immunity of Shareholders, etc.

The Warrant Holder, as part of the consideration for the issue of the Warrants,
waives and will not have any right, cause of action or remedy now or hereafter
existing in any jurisdiction against any past, present or future incorporator,
shareholder, Director or Officer (as such) of SmarTire for the issue of shares
pursuant to any Warrant or on any covenant, agreement, representation or
warranty by SmarTire herein contained or in the Warrant.

7.                MODIFICATION OF TERMS, MERGER, SUCCESSORS

7.1 Modification of Terms and Conditions for Certain Purposes

From time to time SmarTire may, subject to the provisions of these presents,
modify the Terms and Conditions hereof, for the purpose of correction or
rectification of any ambiguities, defective provisions, errors or omissions
herein.

7.2 Warrants Transferable

The Warrants and all rights attached to them are transferable or assignable at
the sole discretion of the Warrant Holder, subject to applicable securities laws
and regulatory requirements. SmarTire will refuse to register and will not
otherwise recognize any transfer of the Warrants not made in accordance with the
provisions of Regulation S, pursuant to an effective registration statement
under the 1933 Act or pursuant to an available exemption from, or in a
transaction not subject to, the registration requirements of the 1933 Act.

DATED as of the date first above written in these Terms and Conditions.

                                  SMARTIRE SYSTEMS INC.

                                  By:
                                     -------------------------------------------
                                     Kevin A. Carlson, Managing Director and CFO

<PAGE>

                              FORM OF SUBSCRIPTION

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

The undersigned Holder of the within Warrants hereby subscribes for ____________
common shares (the "Shares") of SmarTire Systems Inc. (the "Company") pursuant
to the within Warrants at U.S.$1.75 per Share on the terms specified in the said
Warrants. This subscription is accompanied by a certified cheque or bank draft
payable to or to the order of SmarTire for the whole amount of the purchase
price of the Shares.

The undersigned hereby directs that the Shares be registered as follows:

NAME(S) IN FULL                    ADDRESS(ES)                  NUMBER OF SHARES
______________________________     ________________________     ________________

______________________________     ________________________     ________________

______________________________     ________________________     ________________

                                   TOTAL:                       ________________

(Please print full name in which share certificates are to be issued, stating
whether Mr., Mrs. or Miss is applicable).

DATED this _____ day of ____________________ , ______.

In the presence of:

__________________________________         _______________________________
Signature of Witness                       Signature of Warrant Holder

Please print below your name and address in full.

Name (Mr./Mrs./Miss) ___________________________________________________________

Address  _______________________________________________________________________

         _______________________________________________________________________

                         INSTRUCTIONS FOR SUBSCRIPTION

The signature to the subscription must correspond in every particular with the
name written upon the face of the Warrant without alteration or enlargement or
any change whatever. If there is more than one subscriber, all must sign.

In the case of persons signing by agent or attorney or by personal
representative(s), the authority of such agent, attorney or representative(s) to
sign must be proven to the satisfaction of SmarTire.

If the Warrant certificate and the form of subscription are being forwarded by
mail, registered mail must be employed.

<PAGE>

                                       2

                        AGREEMENTS OF THE WARRANT HOLDER

                                    ARTICLE 1
                    REPRESENTATIONS, WARRANTIES AND COVENANTS

1.1 By executing this Subscription, the Warrant Holder hereby covenants,
represents and warrants to and with SmarTire that:

      (a)   the Warrant Holder, is legally competent to execute this
            Subscription, to take all actions required pursuant hereto, and the
            execution and delivery of this Subscription by the Warrant Holder
            has been duly and validly authorized;

      (b)   the Warrant Holder is purchasing the Shares as a principal (and not
            as an agent) for investment purposes only with no intention or view
            to reselling or distributing any portion or beneficial interest in
            the Shares; provided, however, that the Warrant Holder may sell or
            otherwise dispose of any of the Shares pursuant to registration of
            any of the Shares pursuant to the United States Securities Act of
            1933 (the "1933 Act") and any applicable state securities laws or
            under an exemption from such registration requirements and as
            otherwise provided herein;

      (c)   the Warrant Holder is not an underwriter of, or dealer in, the
            common shares of SmarTire, nor is the Warrant Holder participating,
            pursuant to a contractual agreement or otherwise, in the
            distribution of the Shares; and

      (d)   the Warrant Holder is familiar with the aims and objectives of
            SmarTire and is aware of the risk and other characteristics of its
            investment in the Shares.

                                    ARTICLE 2
                     ACKNOWLEDGEMENTS OF THE WARRANT HOLDER

2.1 The Warrant Holder acknowledges and agrees that:

      (a)   none of the Shares have been registered under the 1933 Act, or under
            any state securities or "blue sky" laws of any state of the United
            States, and, unless so registered, may not be offered or sold in the
            United States or, directly or indirectly, to U.S. Persons except in
            accordance with the provisions of Regulation S, pursuant to an
            effective registration statement under the 1933 Act, or pursuant to
            an exemption from, or in a transaction not subject to, the
            registration requirements of the 1933 Act;

      (b)   none of the Shares are listed on any stock exchange or automated
            dealer quotation system and no representation has been made to the
            Warrant Holder that any of the Shares will become listed on any
            stock exchange or automated dealer quotation system, except that
            currently the common shares of SmarTire are listed for trading on
            the Nasdaq SmallCap Market;

      (c)   the decision to execute this Subscription and purchase the Shares
            agreed to be purchased hereunder has not been based upon any oral or
            written representation as to fact or otherwise made by or on behalf
            of SmarTire, and such decision is based entirely upon a review of
            information (the receipt of which is hereby acknowledged) which has
            been filed by SmarTire with the United States Securities and
            Exchange Commission (the "SEC") and in compliance, or intended
            compliance, with applicable securities legislation. If SmarTire has
            presented a business plan to the Warrant Holder, the Warrant Holder
            acknowledges that the business plan may not be achieved or be
            achievable;

      (d)   the Warrant Holder has been advised by SmarTire that the Warrant
            Holder should consult its own legal adviser before disposing of all
            or any part of any Shares that may be issued to the Warrant Holder
            pursuant to this Subscription to avoid breach of applicable
            Legislation;

<PAGE>

                                       3

      (e)   no person has made to the Warrant Holder any written or oral
            representations:

            (i)   that any person will resell or repurchase the Shares;

            (ii)  that any person will refund the exercise price for the Shares;
                  or

            (iii) as to the future price or value of the Shares;

      (f)   neither the SEC nor any other securities commission or similar
            regulatory authority has reviewed or passed on the merits of the
            Shares;

      (g)   the Warrant Holder understands and agrees that offers and sales of
            any of the Shares prior to the expiration of the applicable hold
            period (the "Restricted Period") shall only be made in compliance
            with the safe harbor provisions set forth in Regulation S, pursuant
            to the registration provisions of the 1933 Act or an exemption
            therefrom, and that all offers and sales after the Restricted Period
            shall be made only in compliance with the registration provisions of
            the 1933 Act or an exemption therefrom;

      (h)   the Warrant Holder understands and agrees not to engage in any
            hedging transactions involving any of the Shares unless such
            transactions are in compliance with the provisions of the 1933 Act;
            and

      (i)   the Warrant Holder acknowledges that it will not be acquiring the
            Shares as a result of, and will not itself engage in, any "directed
            selling efforts" (as defined in Regulation S under the 1933 Act) in
            the United States in respect of any of the Shares which would
            include any activities undertaken for the purpose of, or that could
            reasonably be expected to have the effect of, conditioning the
            market in the United States for the resale of any of the Shares;
            provided, however, that the Warrant Holder may sell or otherwise
            dispose of any of the Shares pursuant to registration of any of the
            Shares pursuant to the 1933 Act and any applicable state securities
            laws or under an exemption from such registration requirements; and

      (j)   the Warrant Holder is acquiring the Shares pursuant to an exemption
            from the registration and prospectus requirements of the securities
            legislation (the "Legislation") in all jurisdictions relevant to
            this Subscription. As a consequence, the Warrant Holder acknowledges
            and agrees that:

            (i)   the Warrant Holder will not be entitled to use most of the
                  civil remedies available under the Legislation;

            (ii)  the Warrant Holder will not receive information that would
                  otherwise be required to be provided to him or her pursuant to
                  the Legislation;

            (iii) prior to issuing any Shares to the Warrant Holder, SmarTire
                  may require the Warrant Holder to complete, sign and return to
                  SmarTire as soon as possible, on request by SmarTire, any such
                  documents, questionnaires, notices and undertakings as
                  SmarTire may in its sole discretion deem appropriate to ensure
                  compliance with applicable law, and with the rules and
                  policies of the relevant regulatory authorities and stock
                  exchanges; and

            (iv)  the issuance and sale of the Shares to the Warrant Holder will
                  not be completed if it would be unlawful.

<PAGE>

                                       4

                                    ARTICLE 3
                         LEGENDING OF SUBJECT SECURITIES

3.1 The Warrant Holder hereby acknowledges that that upon the issuance thereof,
and until such time as the same is no longer required, the certificates
representing any of the Shares will bear such legend(s) as shall be required
under applicable securities laws and regulations.

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