Document:

REDEMPTION, SETTLEMENT, AMENDMENT AND LIMITED RELEASE AGREEMENT

                  REDEMPTION, SETTLEMENT, AMENDMENT AND LIMITED RELEASE
AGREEMENT, dated as of May __, 2005 (this "Agreement"), by and between SMARTIRE
SYSTEMS INC., a corporation organized and existing under the laws of the Yukon
Territory (the "Purchaser"), Crescent International Ltd., a Bermuda corporation
(the "Seller" or "Crescent").

                  WHEREAS, on December 24, 2003, the Purchaser issued to
Crescent a Convertible Debenture due April 1, 2006 (the "December Convertible
Debenture"), evidencing the Purchaser's indebtedness to Crescent in the
principal amount of $750,000 pursuant to that certain Securities Purchase
Agreement dated as of December 24, 2003 (the "December Purchase Agreement");

                  WHEREAS, on July 17, 2003, the Purchaser issued to Crescent an
8% Convertible Debenture due July 16, 2006 (the "July Convertible Debenture"),
evidencing the Purchaser's indebtedness to Crescent in the principal amount of
$500,000 pursuant to that certain Securities Purchase Agreement dated as of July
17, 2003 (the "July Purchase Agreement", collectively with the December
Convertible Debenture, the "Debentures" and collectively with the December
Purchase Agreement and all other documents and agreement entered in connection
with the July Purchase Agreement and the December Purchase Agreement, the
"Transaction Documents");

                  WHEREAS, a dispute arose between the Purchaser and the Seller
over certain provisions contained in the December Convertible Debenture and July
Convertible Debenture;

                  WHEREAS, the Purchaser and the Seller have previously
attempted to settle their differences with respect to this dispute;

                  WHEREAS, the Purchaser and the Seller desire to resolve all
remaining disputes over the December Convertible Debenture and July Convertible
Debenture, and for this reason, have entered into this Agreement, which sets
forth the terms and conditions upon which the Seller is conveying to the
Purchaser and the Purchaser is redeeming from the Seller $150,000 principal
amount of the December Convertible Debenture due to Seller under the December
Convertible Debenture and pursuant to which the Purchaser makes certain
representations and covenants to the Seller regarding prior and future
transactions of the Seller; and

                  WHEREAS, capitalized terms not otherwise defined herein have
the meanings given to such terms in the Transaction Documents.

                  NOW THEREFORE, in consideration of the mutual agreements
contained herein, the parties agree as follows:

         1. Resale of Shares of Common Stock Underlying the Debentures. The
Purchaser acknowledges and agrees that all of the shares of Common Stock
issuable upon conversion of the Debentures (the "Conversion Shares") may be
resold pursuant to, and in accordance with, Rule 144(d) under the Securities Act
of 1933, as amended ("Rule 144"). The Purchaser acknowledges and agrees that (a)
all Conversion Shares underlying the July Convertible Debentures shall be
eligible for resale pursuant to Rule 144(k) on July 17, 2005 and (b) all
Conversion Shares underlying the December Convertible Debentures shall be
eligible for resale pursuant to Rule 144(k) on December 24, 2005 (each such date
in clauses (a) and (b), a "144 Legend Removal Date") without volume and manner
restrictions. After a 144 Legend Removal Date, upon receipt by the Purchaser of
a conversion notice to the applicable Debenture or applicable Conversion Shares
with restrictive legends from the Seller, the Purchaser shall cause all legends
to be removed, as to already existing applicable legended Conversion Shares, and
clean, unlegended certificates representing the applicable Conversion Shares to
be issued or returned, as the case may be, to the Seller promptly, but in no

<PAGE>

event later than 5 Trading Days following such conversion or delivery. Otherwise
in accordance with Section 4.1 of the December Purchase Agreement and July
Purchase Agreement, the Purchaser confirms that it shall timely process or cause
its transfer agent to process all requests for legend removal following a Rule
144 sale, provided that the Seller shall have provided the Purchaser or its
transfer agent with a copy of its Form 144, selling shareholder's representation
letter and brokers representation letter, in customary form for such Rule 144
sales.

         2. Redemption of December Convertible Debenture. Subject to the terms
and conditions of this Agreement, and in reliance on the respective
representations, warranties and covenants contained herein, at and immediately
following the Closing described in Section 3 hereof, the Seller will sell,
assign, transfer and convey to the Purchaser free and clear of all Liens (as
such term is defined in Section 4(c)) and the Purchaser will redeem from the
Seller, $150,000 of the December Convertible Debenture for aggregate
consideration of $180,000 in cash (the "Purchase Price"). The Seller shall not
be required to surrender the December Convertible Debenture but rather the
Purchaser and Seller shall reflect and record such redemption in their
respective conversion schedules or other records maintained for similar purposes
as a reduction in the principal amount of the December Convertible Debenture of
$150,000.

         3. Deliveries at the Closing. At the closing of the sale and purchase
of the December Convertible Debenture contemplated by Section 2 hereof (the
"Closing"), presently contemplated to occur on May __, 2005, the Purchaser shall
deliver to the Seller the Purchase Price by a wire transfer of immediately
available funds to a bank account or accounts previously designated to the
Purchaser by the Seller. Additionally, at the Closing, the Purchaser shall
deliver to the Seller a written representation from Cornell Capital Partners, LP
as to any shares of Common Stock it has received, or Common Stock Equivalents
pursuant to which it has the right to receive shares of Common Stock, for an
effective per share purchase price of less than $0.028, subject to adjustment
for forward and reverse stock splits and the like. The Purchaser hereby
acknowledges and affirms its obligation under the Transaction Documents to
promptly notify the Seller any time it issues shares of Common Stock for an
effective per share purchase price of less than 0.028, subject to adjustment for
forward and reverse stock splits and the like. The Closing shall be held at the
offices of Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York,
New York 10166.

         4. Representations and Warranties of the Seller. The Seller represents
and warrants to the Purchaser both on the date hereof and on the date of the
Closing as follows:

                  (a) The Seller has the requisite power and authority to
         execute, deliver and carry out the terms and provisions of this
         Agreement and to consummate the transactions contemplated hereby, and
         has taken all necessary action to authorize the execution, delivery and
         performance of this Agreement;

                  (b) The Seller is duly organized and validly existing and in
         good standing under the laws of the jurisdiction of its incorporation,
         has the requisite corporate power and authority to execute, deliver and
         to consummate the transactions contemplated hereby, and has taken all
         necessary corporate action to authorize the execution, delivery and
         performance of this Agreement;

                  (c) The Seller is the beneficial owner (within the meaning of
         Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
         the principal amount of the December Convertible Debenture being
         redeemed pursuant to Section 2 and has good and marketable title to
         such principal amount of the December Convertible Debenture and there
         exists no liens, claims, options, proxies, voting agreements, charges
         or encumbrances of whatever nature ("Liens") affecting such principal
         amount of the December Convertible Debenture;

                                       2
<PAGE>

                  (d) Upon transfer to the Purchaser of the principal amount of
         the December Convertible Debenture being redeemed pursuant to Section 2
         Purchaser, the Purchaser will have good and marketable title to such
         principal amount of the December Convertible Debenture free and clear
         of all Liens;

                  (e) The December Convertible Debenture and the July
         Convertible Debenture, together with 3,161,925 shares of Common Stock,
         constitutes all of the securities of the Purchaser beneficially owned,
         directly or indirectly, by the Seller or any of its "affiliates" (as
         such term is defined in Rule 12b-2 under the Securities Exchange Act of
         1934, as amended, which definition shall apply for all purposes of this
         Agreement);

                  (f) The execution of this Agreement by the Seller does not,
         and the performance by the Seller of its obligations hereunder will
         not, constitute a violation of, conflict with or result in a default
         under any contract, commitment, agreement, understanding, arrangement
         or restriction of any kind to which the Seller is a party or by which
         the Seller is bound or any judgment, decree or order applicable to the
         Seller; and

                  (g) Neither the execution and delivery of this Agreement nor
         the performance by the Seller of its obligations hereunder will violate
         any provision of law applicable to the Seller or require any consent or
         approval of, or filing with or notice to any public body or authority
         under any provision of law applicable to the Seller other than notices
         or filings pursuant to the federal securities laws.

         5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Seller both on the date hereof and on the date of
the Closing as follows:

                  (a) The Purchaser is duly organized and validly existing and
         in good standing under the laws of the jurisdiction of its
         incorporation, has the requisite corporate power and authority to
         execute, deliver and to consummate the transactions contemplated
         hereby, and has taken all necessary corporate action to authorize the
         execution, delivery and performance of this Agreement;

                  (b) The execution of this Agreement by the Purchaser does not,
         and the performance by the Purchaser of its obligations hereunder will
         not, constitute a violation of, conflict with or result in a default
         under any contract, commitment, agreement, understanding, arrangement
         or restriction of any kind to which the Purchaser is a party or by
         which the Purchaser is bound or any judgment, decree or order
         applicable to the Purchaser;

                  (c) Neither the execution and delivery of this Agreement nor
         the performance by the Purchaser of its obligations hereunder will
         violate any provision of law applicable to the Purchaser or require any
         consent or approval of, or filing with or notice to any public body or
         authority under, any provision of law applicable to the Purchaser other
         than notice or filings pursuant to the federal securities laws; and

                  (d) Other than the shares underlying the $4 million of
         preferred stock of the Purchaser issued to Cornell Capital Partners, LP
         (the "Cornell Securities"), as described in that certain Current Report
         on Form 8-K filed on March 29, 2004, at no time during the 12 month
         period prior to the date hereof has the Purchaser issued, offered,
         sold, granted any option or other agreement to purchase or offer, sold
         or granted any right to reprice its securities, or otherwise disposed
         of any Common Stock or Capital Stock Equivalents (as defined in the

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<PAGE>

         Transaction Documents) for an effective per share purchase price of
         less than $0.028, subject to adjustment for reverse and forward stock
         splits and the like.

         6. Release.

                  (a) Effective upon the Closing, the Seller, for itself and its
         affiliates and successors and assigns, hereby releases and discharges
         the Purchaser and its respective directors and officers, affiliates,
         representatives, attorneys, agents, successors and assigns from all
         suits, claims, charges, liabilities and causes of action, whatsoever,
         whether known or unknown, in law or equity or otherwise, which the
         Seller or its affiliates, successors and assigns have or may have
         against any or all of them arising out of, relating to, or in
         connection with any occurrences or events whatsoever occurring up to
         the Closing pursuant to the Transaction Documents, but excluding
         obligations under this Agreement or under any indemnification
         provisions of the Transaction Documents. The Seller, for itself and its
         affiliates and successors and assigns, hereby consents to the
         Purchaser's redemption hereunder of $150,000 principal amount of the
         December Convertible Debenture. Notwithstanding anything herein to the
         contrary, Purchaser acknowledges and agrees that this release does not
         reduce or excuse the Purchaser from performing its obligations under
         the Transaction Documents, which obligations thereunder remain in full
         force and effect after the execution of this Agreement, and shall not
         be in any way changed, modified or superseded by the terms set forth
         herein except as expressly set forth herein. Notwithstanding anything
         herein to the contrary, the Seller acknowledges and agrees to
         conditionally waive the adjustment of the conversion price of the
         Debentures to $0.01 on account of the issuance of the Cornell
         Securities if and until the Cornell Securities are actually converted,
         exercised or otherwise into Common Stock for less than $0.028, subject
         to adjustment for reverse and forward stock splits and the like;
         provided, however, that this conditional waiver to said anti-dilution
         provisions is applicable to the Cornell Securities only as set forth
         hereunder and the anti-dilution provisions shall otherwise remain in
         full force and effect as to past and future issuances by the Purchaser,
         and shall not be in any way changed, modified or superseded.

                  (b) Effective upon the Closing, the Purchaser, for itself and
         its affiliates and successors and assigns, hereby releases and
         discharges the Seller and its respective directors and officers,
         affiliates, representatives, attorneys, agents, successors and assigns
         from all suits, claims, charges, liabilities and causes of action,
         whatsoever, whether known or unknown, in law or equity or otherwise,
         which the Purchaser or its affiliates, successors and assigns have or
         may have against any or all of them arising out of, relating to, or in
         connection with any occurrences or events whatsoever occurring up to
         the Closing pursuant to the Transaction Documents, but excluding
         obligations under this Agreement or under any indemnification
         provisions of the Transaction Documents. Notwithstanding anything
         herein to the contrary, Seller acknowledges and agrees that this
         release does not reduce or excuse the Seller from performing its
         obligations under the Transaction Documents, which obligations
         thereunder remain in full force and effect after the execution of this
         Agreement, and shall not be in any way changed, modified or superseded
         by the terms set forth herein except as expressly set forth herein.

         7. Specific Performance. Each of the Purchaser and the Seller
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching party would be irreparably harmed and would not be made whole by
monetary damages. It is accordingly agreed that the Purchaser and the Seller, in
addition to any other remedy to which they may be entitled at law or in equity,
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and/or to compel specific performance of this Agreement in any action
instituted in any court of the United States or any state thereof having
personal and/or subject matter jurisdiction.

                                       4
<PAGE>

         8. Expenses. All fees and expenses incurred by any of the parties
hereto shall be borne by the party incurring such fees and expenses and all
sales, transfer or other similar taxes payable in connection with this Agreement
(including, but not limited to, any transfer taxes payable in connection with
the sale of the December Convertible Debenture), will be borne by the party
incurring such taxes.

         9. Brokerage. Each of the Purchaser and the Seller represents and
warrants to the other that the negotiations relevant to this Agreement have been
carried on by each of the Purchaser, on the one hand, and the Seller, on the
other hand, directly with the other, and that there are no claims for finder's
fees or brokerage commissions or other like payments in connection with this
Agreement.

10. Conversion Shares Price Protection. From the date hereof until the earlier
of (a) such time as Seller no longer holds any Debentures or Conversion Shares
or (b) March 31, 2006, if in connection with a financing by the Purchaser or any
subsidiary thereof of Capital Shares or Capital Shares Equivalents, including
but not limited to the issuance of shares of Common Stock upon conversion of the
Cornell Securities, the Purchaser or any subsidiary thereof shall issue, offer,
sell, grant any option to purchase or offer, sell or grant any right to reprice
its securities, or otherwise dispose of or issue any Capital Shares or Capital
Stock Equivalents at an effective price per share of Common Stock less than
$0.028 (subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement) (the "Discounted Purchase Price"
and such transaction, "Price Protection Dilutive Issuance"), if at the time of
the Price Protection Dilutive Issuance the Seller held Conversion Shares, the
Purchaser shall, within 3 Trading Days of such issuance, issue to the Seller
that number of additional shares of Common Stock equal to (a) (i) the number of
Conversion Shares held by the Seller at the time of the Price Protection
Dilutive Issuance ("Then Current Conversion Shares") multiplied by $0.028
(subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement) divided by (ii) the Discounted Purchase Price,
less (b) the Then Current Conversion Shares. The term "Discounted Purchase
Price" shall mean the amount actually paid by third parties for a share of
Common Stock. The sale of Common Stock underlying any Capital Stock Equivalents
shall be deemed to have occurred at the time of the issuance of the Capital
Stock Equivalents and the Discounted Purchase Price covered thereby shall also
include, if subsequently reduced, the actual exercise or conversion price
thereof at the time of the conversion or exercise (in addition to the
consideration per share of Common Stock underlying the Capital Stock Equivalents
received by the Purchaser upon such sale or issuance of the Capital Stock
Equivalents). In the case of any Subsequent Financing involving a "Variable Rate
Transaction" (as defined below), the Discounted Purchase Price shall be deemed
to be the lowest actual conversion or exercise price at which such securities
may be converted or exercised in the case of a Variable Rate Transaction. If
shares are issued for a consideration other than cash, the per share selling
price shall be the fair value of such consideration as determined in good faith
by the Board of Directors of the Purchaser. The term "Variable Rate Transaction"
shall mean a transaction in which the Purchaser issues or sells any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or (y)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Purchaser or the market for the Common Stock,
including pursuant to an equity line of credit arrangement. By way of example,
if the Purchaser enters into a Variable Rate Transaction pursuant to which a
security is convertible into Common Stock at a price based on the market price
of the Common Stock at the time of conversion, but in no event greater than a
ceiling price that is less than $0.028, then the Purchaser shall be deemed to
have issued Common Stock on the date such Capital Stock Equivalents are issued
for a Discounted Purchase Price equal to the ceiling price and, if at a later
date conversions occur at less than the ceiling price, the Discounted Purchase
Price shall be lowered to such lower price. Accordingly, pursuant to such
example, the Purchaser shall be obligated to issue additional shares on the date
of the issuance of the Capital Stock Equivalents and again on such date of
conversion. The Purchaser may not refuse to issue the Seller additional shares
hereunder based on any claim that such Seller or any one associated or

                                       5
<PAGE>

affiliated with such Seller has been engaged in any violation of law, agreement
or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining an issuance hereunder shall have been sought and
obtained and the Purchaser posts a surety bond for the benefit of such Seller in
the amount of 150% of the market value of such Shares (based on the Closing
Price of the Common Stock on the date of the event giving rise to the
Purchaser's obligation hereunder), which is subject to the injunction, which
bond shall remain in effect until the completion of litigation of the dispute
and the proceeds of which shall be payable to the Seller to the extent it
obtains judgment. Nothing herein shall limit a Seller's right to pursue actual
damages for the Purchaser's failure to deliver Shares hereunder and such Seller
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. Additionally, prior to any issuance hereunder, a Seller shall
have the right to continuously defer such issuances for up to periods of 75
days. Notwithstanding anything herein to the contrary, the Purchaser
acknowledges and agrees that this provision does not in any way change, modify
or supersede any anti-dilution provisions previously granted to the Seller on
the securities issued to the Seller pursuant to the Transaction Documents, which
anti-dilution provisions shall remain in full force and effect after the
execution of this Agreement.

         11. Registration Obligations. The Purchaser shall include all shares of
Common Stock issued and issuable under the Transaction Documents, including but
not limited to, the shares underlying the Debentures and the 3,161,925 shares of
Common Stock referenced in Section 4(e), on a registration statement to be filed
on or before the earlier of (a) May 31, 2005 and (b) the next date the Purchaser
files a registration statement with the Commission (the "Amended Filing Date").
In consideration of the foregoing, the parties acknowledge and agree that any
references to "Filing Date" in the Transaction Documents are amended and
hereafter defined as the Amended Filing Date and any references to
"Effectiveness Date" in the Transaction Documents are amended and hereafter
defined as the date that is 90 days following the Amended Filing Date. Section
1.1(d) of that certain Forbearance and Escrow Agreement, dated September 24,
2004, by and among Purchaser and Seller is hereby terminated and of no further
force or effect.

         12. Suspension of Monthly Redemptions. Subject to the performance of
the Purchaser hereunder and under the Transaction Documents, henceforth the
Seller and Purchaser agree to suspend any future Monthly Redemptions pursuant to
Section 5 of the December Convertible Debenture.

         13. Further Assurances. The Seller and Purchaser shall use its best
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things necessary, proper or advisable under applicable law, and to
execute and deliver such documents and other papers, as may be required to carry
out the provisions of this Agreement and consummate and make effective the
transactions contemplated hereby.

         14. Miscellaneous.

                  (f) This Agreement constitutes the entire agreement and
         supersedes all prior agreements and understandings, whether oral or
         written, between the parties hereto with respect to the subject matter
         hereof. This Agreement may not be amended orally, but only by an
         instrument in writing signed by each of the parties to this Agreement.

                  (g) This Agreement shall inure to the benefit of and be
         binding upon the parties hereto and their respective directors,
         officers, heirs, legal representatives, attorneys, successors and

                                       6
<PAGE>

         assigns, including any person who may succeed to the assets or business
         of the Purchaser by way of a consolidation, merger, sale of
         substantially all of the Purchaser's assets or purchase of
         substantially all of the Purchaser's stock.

                  (h) All representations, warranties and covenants shall
         survive the Closing.

                  (i) All questions concerning the construction, validity,
         enforcement and interpretation of this Agreement shall be determined
         with the provisions of the December Purchase Agreement.

                  (j) All notices and other communications under this Agreement
         shall be in accordance with the notice provisions of the December
         Purchase Agreement except that:

                           (i) if to the Purchaser, addressed to:

                           SmarTire Systems Inc.
                           Suite 150, 13151 Vanier Place
                           Richmond, British Columbia
                           Attn:  Jeff Finkelstein
                           Fax:  604-276-2350

                           with a copy to:

                           Greenberg Traurig, LLP
                           The MetLife Building
                           200 Park Avenue
                           New York, New York 10166
                           Attn:  Spencer G. Feldman, Esq.
                           Fax:  (212) 801-6400

                           (ii) if to the Seller, addressed to (and delivery of
                                securities to):

                           Crescent International Ltd.
                           c/o GreenLight (Switzerland) SA
                           84, Avenue Louis-Casai
                           CH 1216 Cointrin, Geneva
                           Switzerland
                           Attn:  Mel Craw/Maxi Brezzi
                           Fax:  011 41 22 791 7171

                           with a copy to:

                           Feldman Weinstein, LLP
                           The Graybar Building
                           420 Lexington Avenue
                           New York, New York 10170-0002
                           Attn:  Robert Charron
                           Fax: (212) 401 4741

                  (k) Any waiver by any party of a breach of any provision of
         this Agreement shall not operate as or be construed to be a waiver of
         any other breach of such provision or of any breach of any other
         provision of this Agreement. The failure of a party to insist upon
         strict adherence to any term of this Agreement or one or more sections

                                       7
<PAGE>

         shall not be considered a waiver or deprive that party of the right
         thereafter to insist upon strict adherence to that term or any other
         terms of this Agreement. This Agreement may be executed in
         counterparts.

(g)      Within 1 Trading Day of the date hereof, the Purchaser shall file a
         Current Report on Form 8-K disclosing the material terms of this
         Agreement and attaching this Agreement as an exhibit thereto.

(h)      Except as expressly set forth above, all of the terms and conditions of
         the Transaction Documents shall continue in full force and effect after
         the execution of this Agreement, and shall not be in any way changed,
         modified or superseded by the terms set forth herein.

                  (l) Time is of the essence with respect to the obligations of
         the parties under this Agreement.

                           **************************

                                       8
<PAGE>

                  IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Purchaser and the Seller have executed this Agreement on the date first
above written.

                                    SMARTIRE SYSTEMS, INC.

                                    By:      /s/R. Rudman
                                       --------------------------------------
                                         Name:R.Rudman
                                         Title: President and CEO

                                    CRESCENT INTERNATIONAL LTD.

                                    By:      /s/Mel Craw   /s/maxi Brezzi
                                       --------------------------------------
                                         Name: Mel Craw     Maxi Brezzi
                                         Title:

                                       9REDEMPTION, SETTLEMENT AND RELEASE AGREEMENT

                  REDEMPTION, SETTLEMENT AND RELEASE AGREEMENT, dated as of May
___, 2005 (this "Agreement"), by and between SMARTIRE SYSTEMS INC., a
corporation organized and existing under the laws of the Yukon Territory (the
"Purchaser") and GOLDPLATE INVESTMENT PARTNERS, a Panama offshore fund (the
"Seller").

                  WHEREAS, on December 24, 2003, the Purchaser issued to the
Seller a Convertible Debenture due April 1, 2006 (the "Convertible Debenture"),
evidencing the Purchaser's indebtedness to the Seller in the principal amount of
$150,000.00;

                  WHEREAS, the Purchaser made monthly payments to the Seller
under the Convertible Debenture in cash and shares that total $37,500 in
addition to $275.00 in withholding taxes;

                  WHEREAS, a dispute arose between the Purchaser and the Seller
over certain provisions contained in the Convertible Debenture;

                  WHEREAS, the Purchaser and the Seller have previously
attempted to settle their differences with respect to this dispute; and

                  WHEREAS, the Purchaser and the Seller desire to resolve all
remaining disputes over the Convertible Debenture, and for this reason, have
entered into this Agreement, which sets forth the terms and conditions upon
which (i) the Seller is conveying to the Purchaser and the Purchaser is
redeeming from the Seller 120% of a portion of the principal balance of
$11,207.03 due to the Seller under the Convertible Debenture (comprised of gross
proceeds of $6,770.77), (ii) the Purchaser will issue to the Seller 198,740
shares (the "Shares") of its common stock, no par value (the "Common Stock") in
consideration of the Seller's conversion of the remaining $5,564.72 due to the
Seller under the Convertible Debenture into shares of Common Stock at a price
per share of $0.028 and (iii) the Purchaser will issue to the Seller 1,296,455
shares of Common Stock (the "Warrant Shares") upon the cashless exercise of the
warrant, dated July 17, 2003, issued by the Purchaser in favor of the Seller
(the "Warrant").

                  NOW THEREFORE, in consideration of the mutual agreements
contained herein, the parties agree as follows:

                  1. Purchase and Sale of Convertible Debenture and Shares. (a)
Subject to the terms and conditions of this Agreement, and in reliance on the
respective representations, warranties and covenants contained herein, at and
immediately following the Closing described in Section 2 hereof, the Seller will
sell, assign, transfer and convey to the Purchaser free and clear of all Liens
(as such term is defined in Section 4(c)) and the Purchaser will redeem from the
Seller, $5,642.31 of the principal balance of $11,207.03 due to the Seller under
the Convertible Debenture, for aggregate consideration of $6,770.77 in cash
($5,642.31 plus $1,128.46), net of withholding tax of $148.96 (calculated on
$1,489.57) for net cash consideration of $6,621.82 (the "Purchase Price").

                  (b) Subject to the terms and conditions of this Agreement, and
in reliance on the respective representations, warranties and covenants
contained herein, at and immediately following the Closing described in Section
2 hereof, the Purchaser will issue the Shares in consideration of the Seller's
conversion of the remaining $5,564.72 due to the Seller under the Convertible
Debenture (after payment by the Purchaser of the Purchase Price under Section
1(a) above) into shares of Common Stock at a price per share of $0.028.

<PAGE>

                  (c) Subject to the terms and conditions of this Agreement, and
in reliance on the respective representations, warranties and covenants
contained herein, at and immediately following the Closing described in Section
2 hereof, the Purchaser will issue the Warrant Shares in consideration of the
cashless exercise of the Warrant using a per share price equal to the closing
price of the Purchaser's shares of Common Stock on May 8, 2005 of $0.28.

                  2. Deliveries at the Closing. At the closing of the sale and
purchase of the Convertible Debenture contemplated by Section 1 hereof (the
"Closing"), presently contemplated to occur on May __, 2005, (i) the Seller (or
Escrow Agent, as hereinafter defined) shall deliver to the Purchaser the
Convertible Debenture and the Warrant and (ii) the Purchaser shall deliver to
the Seller (or Escrow Agent) (A) the Purchase Price by a wire transfer of
immediately available funds to a bank account or accounts previously designated
to the Purchaser by the Seller (or Escrow Agent), (B) a "restricted" stock
certificate registered in the name of the Seller for 1,135,889 shares of Common
Stock and (C) a "freely-tradable" stock certificate for 359,306 shares of Common
Stock; provided, however, that in the case of (C), the "freely-tradable" shares
of Common Stock will only be issued if, in the opinion of counsel for the
Company, a sale, transfer or assignment of such shares of Common Stock may be
made without registration in reliance upon Rule 144 of the Securities Act of
1933, as amended (the "Securities Act"). The Closing shall be held at the
offices of Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York,
New York 10166. The Purchaser will furnish advance notice to the Seller (or
Escrow Agent) of the time and date of the Closing.

                  3. Escrow of Convertible Debenture and Warrant. Concurrently
with the execution of this Agreement, the Seller shall deliver to Greenberg
Traurig, LLP, as escrow agent (the "Escrow Agent"), the Convertible Debenture
and the Warrant to be held in escrow pending the Closing. The Seller hereby
irrevocably appoints the Escrow Agent as its attorney-in-fact to deliver the
Convertible Debenture and the Warrant to the Purchaser at the Closing.

                  4. Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser both on the date hereof and on the date
of the Closing as follows:

                           (a) The Seller has the requisite power and authority
to execute, deliver and carry
out the terms and provisions of this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement;

                           (b) The Seller is duly organized and validly existing
and in good standing under
the laws of the jurisdiction of its incorporation, has the requisite corporate
power and authority to execute, deliver and to consummate the transactions
contemplated hereby, and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement;

                           (c) The Seller is the sole beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of the Convertible Debenture and has good and marketable title to the
Convertible Debenture and there exists no liens, claims, options, proxies,
voting agreements, charges or encumbrances of whatever nature ("Liens")
affecting the Convertible Debenture;

                           (d) Upon transfer to the Purchaser by the Seller of
the Convertible Debenture, the Purchaser will have good and marketable title to
the Convertible Debenture free and clear of all Liens;

                           (e) The Convertible Debenture constitutes all of the
securities of the Purchaser beneficially owned, directly or indirectly, by the
Seller or any of its "affiliates" (as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, which definition shall apply
for all purposes of this Agreement);

                                       2
<PAGE>

                           (f) The Convertible Debenture has never been
converted, in whole or in part, into shares of Common Stock of the Purchaser
other than the partial conversions of $34,937.97 on September 24, 2004 and
$66,080.00 on April 15, 2005;

                           (g) The execution of this Agreement by the Seller
does not, and the performance by the Seller of its obligations hereunder will
not, constitute a violation of, conflict with or result in a default under any
contract, commitment, agreement, understanding, arrangement or restriction of
any kind to which the Seller is a party or by which the Seller is bound or any
judgment, decree or order applicable to the Seller; and

                           (h) Neither the execution and delivery of this
Agreement nor the performance by the Seller of its obligations hereunder will
violate any provision of law applicable to the Seller or require any consent or
approval of, or filing with or notice to any public body or authority under any
provision of law applicable to the Seller other than notices or filings pursuant
to the federal securities laws.

                           (i) Seller (A) understands that the Shares and
Warrant Shares have not been, and will not be, registered under the Securities
Act of 1933, as amended (the "Securities Act"), or under any state securities
laws, and are being issued to Seller in reliance upon federal and state
exemptions for transactions not involving any public offering, (B) is acquiring
the Shares solely for its own account for investment purposes, and not with a
view to the distribution thereof, (C) is a sophisticated investor with knowledge
and experience in business and financial matters, (D) has received certain
information concerning the Company and has had an opportunity to obtain
additional information as desired in order to evaluate the merits and risks
inherent in holding the Shares and Warrant Shares, and (E) is able to bear the
economic risk and lack of liquidity inherent in holding the Shares and Warrant
Shares.

                  5. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Seller both on the date hereof and on
the date of the Closing as follows:

                           (a) The Purchaser is duly organized and validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the requisite corporate power and authority to execute,
deliver and to consummate the transactions contemplated hereby, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement;

                           (b) The execution of this Agreement by the Purchaser
does not, and the performance by the Purchaser of its obligations hereunder will
not, constitute a violation of, conflict with or result in a default under any
contract, commitment, agreement, understanding, arrangement or restriction of
any kind to which the Purchaser is a party or by which the Purchaser is bound or
any judgment, decree or order applicable to the Purchaser;

                           (c) Neither the execution and delivery of this
Agreement nor the performance by the Purchaser of its obligations hereunder will
violate any provision of law applicable to the Purchaser or require any consent
or approval of, or filing with or notice to any public body or authority under,
any provision of law applicable to the Purchaser other than notice or filings
pursuant to the federal securities laws; and

                           (d) The Shares and the Warrant Shares are duly
authorized and, upon issuance in accordance with the terms of this Agreement
will be validly issued, fully paid, and non-assessable and free from all Liens
with respect to the issue thereof.

                  6. Release and Waiver. Effective upon the Closing, each party,
for itself and its affiliates and successors and assigns, hereby releases and

                                       3
<PAGE>

discharges the other party and its respective directors and officers,
affiliates, representatives, attorneys, agents, successors and assigns from all
suits, claims, charges, liabilities and causes of action, whatsoever, whether
known or unknown, in law or equity or otherwise, which such party or its
affiliates, successors and assigns have or may have against any or all of them
arising out of, relating to, or in connection with any occurrences or events
whatsoever occurring up to the Closing, but excluding obligations under this
Agreement. The Seller, for itself and its affiliates and successors and assigns,
hereby waives any right it may have under any provision contained in the
Convertible Debenture and hereby consents to the Purchaser's prepayment of the
Convertible Debenture.

                  7. Specific Performance. Each of the Purchaser and the Seller
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching party would be irreparably harmed and would not be made whole by
monetary damages. It is accordingly agreed that the Purchaser and the Seller, in
addition to any other remedy to which they may be entitled at law or in equity,
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and/or to compel specific performance of this Agreement in any action
instituted in any court of the United States or any state thereof having
personal and/or subject matter jurisdiction.

                  8. Expenses. All fees and expenses incurred by any of the
parties hereto shall be borne by the party incurring such fees and expenses and
all sales, transfer or other similar taxes payable in connection with this
Agreement (including, but not limited to, any transfer taxes payable in
connection with the sale of the Convertible Debenture), will be borne by the
party incurring such taxes.

                  9. Brokerage. Each of the Purchaser and the Seller represents
and warrants to the other that the negotiations relevant to this Agreement have
been carried on by each of the Purchaser, on the one hand, and the Seller, on
the other hand, directly with the other, and that there are no claims for
finder's fees or brokerage commissions or other like payments in connection with
this Agreement.

                  10. Indemnity.

                           (a) In addition to his other obligations hereunder,
the Seller agrees to indemnify and hold harmless the Purchaser from and against
any and all claims, liabilities, costs and expenses (including reasonable
attorneys' fees, which shall be paid by the Seller on a monthly basis) arising
out of, based upon or related to (i) any breach by the Seller in the performance
of his obligations under this Agreement and (ii) any breach of a representation
contained herein.

                           (b) The Purchaser agrees to indemnify and hold
harmless the Seller from and against any and all liabilities, damages, costs and
expenses (including reasonable attorneys' fees, which shall be paid by the
Purchaser on a monthly basis) arising out of, based upon or related to (i) any
breach by the Purchaser in the performance of its obligations under this
Agreement and (ii) any breach of a representation contained herein.

                           (c) Neither the Seller nor the Purchaser shall be
entitled to indemnity under this Section with respect to any claim, action or
proceeding asserted by any party not signatory hereto, which it settles,
terminates or compromises without the prior consent of the indemnifying party.

                           (d) In any such claim, action or proceeding, each of
the Seller and the Purchaser shall, to the extent reasonably requested by the
Purchaser or the Seller, respectfully, cooperate in the defense thereof,
including without limitation, by providing non-privileged documents and making
available to the Purchaser or the Seller, respectfully, personnel of the Seller
or the Purchaser, respectfully, for interviews, depositions and proceedings.

                  11. Further Assurances. Each party shall use its best efforts
to take, or cause to be taken, all appropriate action, do or cause to be done

                                       4
<PAGE>

all things necessary, proper or advisable under applicable law, and to execute
and deliver such documents and other papers, as may be required to carry out the
provisions of this Agreement and consummate and make effective the transactions
contemplated hereby.

                  12. Miscellaneous.

                           (a) This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, whether oral or written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an instrument in writing signed
by each of the parties to this Agreement.

                           (b) This Agreement shall inure to the benefit of and
be binding upon the parties
hereto and their respective directors, officers, heirs, legal representatives,
attorneys, successors and assigns, including any person who may succeed to the
assets or business of the Purchaser by way of a consolidation, merger, sale of
substantially all of the Purchaser's assets or purchase of substantially all of
the Purchaser's stock.

                           (c) All representations, warranties and covenants
shall survive the Closing.

                           (d) This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
reference to the conflict of laws principles thereof. The Purchaser and the
Seller consent to the jurisdiction and venue of the Courts of the State of New
York within the County of New York and the United States District Court of the
Southern District of New York in connection with any claim or controversy
arising out of or relating to this Agreement.

                           (e) All notices and other communications under this
Agreement shall be in writing and delivery thereof shall be deemed to have been
made when transmitted by hand delivery, commercial overnight delivery service,
telegram, telex, telecopier or facsimile transmission, when confirmed, to the
party entitled to receive the same at the address indicated below or at such
other address as such party shall have specified by written notice to the other
parties hereto given in accordance herewith:

                           (i)      if to the Purchaser, addressed to:

                                    SmarTire Systems Inc.
                                    Suite 150, 13151 Vanier Place
                                    Richmond, British Columbia
                                    Attn:  Jeff Finkelstein
                                    Fax:  604-276-2350

                                    with a copy to:

                                    Greenberg Traurig, LLP
                                    The MetLife Building
                                    200 Park Avenue
                                    New York, New York 10166
                                    Attn:  Spencer G. Feldman, Esq.
                                    Fax:  (212) 801-6400

                           (ii)     if to the Seller, addressed to:

                                    Goldplate Investment Partners

                                       5
<PAGE>

                                    c/o SDC Capital LLC
                                    20 East Sunrise Hwy.
                                    Suite 302
                                    Valley Stream, New York 11581
                                    Attention: Reka Kikeli

                           (f) Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement or one or more sections shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other terms of this Agreement. This Agreement may be executed
in counterparts.

                           (g) Time is of the essence with respect to the
obligations of the parties under
this Agreement.

                           (h) The parties hereby acknowledge that for the
purposes of determining the Seller's holding period of the Warrant Shares under
Rule 144 of the Securities Act upon the cashless exercise of the Warrant, the
Warrant Shares will be deemed to have been acquired at the time the Warrant was
acquired.

                                       6
<PAGE>

                  IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Purchaser and the Seller have executed this Agreement on the date first
above written.

                                 SMARTIRE SYSTEMS INC.

                                 By:      /s/Jeff Finkelstein
                                    ------------------------------------
                                      Name: Jeff Finkelstein
                                      Title: Chief Financial Officer

                                 GOLDPLATE INVESTMENT PARTNERS

                                 By:      /s/Ron Shapiro
                                    ------------------------------------
                                      Name: Ron Shapiro
                                      Title:

                                       7

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