Document:

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                                                                    EXHIBIT 10.4

                            DATED 9TH DECEMBER, 1999

                            SMARTIRE EUROPE LIMITED
                                       AND
                               IAN ROBERT BATEMAN

                           --------------------------

                                SERVICE AGREEMENT

                           --------------------------

                                HAMMOND SUDDARDS
                               7 Devonshire Square
                                 Cutlers Gardens
                                     London
                                    EC2M 4YH

                               Tel: 0207 655 1000
                               Fax: 0207 655 1001

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1 THIS DEED is made on 9 th December 1999

BETWEEN:

(1)      SMARTIRE EUROPE LIMITED (Company No. 351661) whose registered office is
         situated at 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH (the
         "COMPANY"); and

(2)      IAN ROBERT BATEMAN of O'Deer O'Prey, The Green, Brightwalton,
         Berkshire, RG20 7BH (the "EXECUTIVE")

IT IS AGREED as follows:

         1.       INTERPRETATION

1.1      In this Agreement:

         (a)      "ASSOCIATED COMPANY" means:

                  (i)      a subsidiary of the Company or of the Company's
                           holding company; and

                  (ii)     the holding company (as defined in section 736
                           Companies Act 1985) of the Company.

         (b)      "BOARD" means the board of directors of the Company;

         (c)      "GROUP" means the Company and its associated companies for the
                  time being and "GROUP COMPANY" means any one of them;

         (d)      "RECOGNISED INVESTMENT EXCHANGE" has the same meaning as in
                  section 207 of the Financial Services Act 1986;

         (e)      "SENIOR EMPLOYEE" means any person who works for the Company
                  and earns in excess of L25,000 per annum;

         (f)      "SMARTIRE" means SmarTire Systems Inc. of British Columbia,
                  Canada.

         (g)      "STAFF HANDBOOK" means the Company's generally applicable
                  Staff Handbook as in force from time to time. On signing this
                  Agreement, the Executive acknowledges that he has been
                  provided with a current copy of the Staff Handbook and
                  confirms that he accepts the terms and agrees to comply with
                  the policies therein. For the avoidance of doubt, where there
                  is a discrepancy between the terms of this Agreement and the
                  general contractual terms and conditions in the Staff
                  Handbook, the terms and conditions set out in this Agreement
                  will prevail.

         (h)      "SUBSIDIARY" means a subsidiary within the meaning of section
                  736 of the Companies Act 1985; and

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         (i)      "WORKING DAY" means a day other than a Saturday, Sunday or
                  bank or other public holiday in England.

1.2      References in this Agreement to a person include a body corporate and
         an unincorporated association of persons and references to a company
         include any body corporate.

1.3      Any reference in this Agreement to a statutory provision includes any
         statutory modification or re-enactment of it for the time being in
         force.

1.4      Clauses 1.1 to 1.3 above apply unless the contrary intention appears.

1.5      The headings in this Agreement do not affect its interpretation.

1.6      Where appropriate, references to the Executive include his personal
         representatives.

         2.       APPOINTMENT

         The Company shall employ the Executive and the Executive shall serve
         the Company from 1 August 1999 as Managing Director, or in such other
         capacity as SmarTire and the Executive may from time to time agree on
         the terms set out in this Agreement (the "Appointment"). The
         Executive's period of continuous service started on 16 February 1998.

         3.       DUTIES OF EXECUTIVE

3.1      The Executive shall use his best endeavours to promote and protect the
         interests of the Group and shall not do anything which is harmful to
         those interests.

3.2      The Executive shall diligently and faithfully perform such duties and
         exercise such powers as may from time to time be assigned or delegated
         to or vested in him by SmarTire and/or the Board. An outline of the
         primary responsibilities of the Executive at the date of this Agreement
         is attached at Schedule 1. SmarTire and/or the Board may also suspend
         all or any of the Executive's duties and powers for such periods and on
         such terms as it considers expedient (including a term that the
         Executive shall not attend at the premises of any Group Company and/or
         not perform any work on the Group's behalf) provided that those terms
         are appropriate to the Executive's status as a Director.

3.3      During the Appointment the Executive shall promptly give to the Board
         and/or SmarTire such information in connection with the affairs of the
         Group and with such matters relating to the Appointment as it shall
         require and shall comply with all proper instructions of the Board.

3.4      The Executive shall (unless prevented by ill-health or accident or
         otherwise directed by the Board and/or SmarTire) devote the whole of
         his time skill, ability and attention during normal business hours to
         the duties of the Appointment and such additional time as is necessary
         for the proper fulfilment of those duties. The Executive shall, without
         additional remuneration, work such hours (including at weekends) as are
         reasonably necessary in order for him to properly carry out his duties
         under this Agreement.

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3.5      The Executive shall not accept any appointment to any office in
         relation to any body, whether corporate or not, (other than a Group
         Company) or directly or indirectly be interested in any manner in any
         other business except:

         (a)      as holder or beneficial owner (for investment purposes only)
                  of any class of securities in a company if those securities
                  are listed or dealt in on a Recognised Investment Exchange and
                  if the Executive (together with his spouse, children, parents
                  and parents' issue) neither holds nor is beneficially
                  interested in more than five per cent. of the securities of
                  that class; or

         (b)      with the consent in writing of SmarTire and/or the Board (such
                  consent being in their absolute and sole discretion) which may
                  be given subject to any terms or conditions which the Company
                  requires.

3.6      The duties of the Appointment shall relate primarily to the United
         Kingdom at such places as the Company may from time to time reasonably
         require but shall extend to travel abroad (subject to the payment of
         proper expenses) when reasonably required by the Company for the proper
         performance of his duties.

3.7      Subject always to Clause 3.6 above, the Executive will normally be
         based at the Company's premises at 6 Berkshire Business Centre,
         Berkshire Drive, Thatcham, Berkshire, RG19 4EW.

         4.       REMUNERATION

4.1      The Company shall pay to the Executive a salary at the rate of L67,000
         per annum.

4.2      The Executive's salary shall be reviewed by the SmarTire Board of
         Directors at the end of each Company financial year unless otherwise
         agreed, the first review to be on or about 1 August 2000, but without
         any obligation to increase the same.

4.3      The Executive's bonus provision shall be as set out in Schedule 2.

         5.       EXPENSES

         The Company shall reimburse the Executive (on production by him of such
         evidence as it may reasonably require) the amount of all travelling,
         hotel and other expenses properly and reasonably incurred by him in the
         discharge of his duties under this Agreement.

         6.       CAR

6.1      The Company shall provide the Executive with a car of a type from time
         to time mutually agreed upon between the Company and the Executive in
         accordance with Company policy as in force from time to time but of a
         quality reasonably appropriate to his status (in the reasonable opinion
         of the Board) for his use in the performance of his duties and, subject
         to any restrictions or conditions from time to time imposed by the
         Company, the Executive may use the car for his private purposes.

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6.2      The Company shall pay all normal servicing, road tax, insurance and
         running expenses in relation to the car and all fuel expenses whether
         related to business or, subject to 6.1 above, such private use as the
         Board considers reasonable.

6.3      The Executive shall at the expense of the Company maintain the car in
         good running order, and shall observe the terms and conditions of the
         insurance policy relating to it and shall keep such records in relation
         to business use as may be necessary to satisfy any queries in relation
         thereto which may be raised by the Inland Revenue and the Executive
         shall be responsible for the payment of any taxes assessed on him for
         the use of the car.

6.4      As at the date of this Agreement the car provided to the Executive is a
         Saab 9.5, as delivered on 23 April 1998. The Company reserves the right
         in its absolute discretion to revise the policy in part or in whole at
         the date of termination of the existing lease in April 2000 in favour
         of a comparable car allowance.

6.5      The Executive shall inform the Company immediately if he is
         disqualified from holding a driving licence and this clause shall not
         apply during any period of disqualification or any period during which
         he is in receipt of benefits under the PHI scheme at Clause 7.1(c)
         below.

6.6      The Executive shall return the car, its keys and all associated
         documentation to the Company's registered office or such other location
         as the Company shall request immediately upon the termination of the
         Appointment (whether terminated lawfully or not) or at any other
         reasonable time, if so requested, for the purpose of inspection and/or
         maintenance. The Company shall be entitled to withhold any sums owing
         to the Executive on the termination of his Appointment in any way
         (whether lawfully or not) until this obligation is complied with.

         7.       BENEFIT SCHEMES

7.1      The Executive is entitled to membership of the following schemes (each
         referred to below as an "insurance scheme"):

         (a)      a private medical expenses insurance scheme providing such
                  cover for the Executive his wife and dependent children under
                  the age of 18 as the Company may from time to time notify to
                  him;

         (b)      a life insurance scheme under which a lump sum benefit shall
                  be payable on the Executive's death while the Appointment
                  continues; the benefit shall be paid to such dependants of the
                  Executive or other beneficiary as the trustees of the scheme
                  select at their discretion, after considering any
                  beneficiaries identified by the Executive in any expression of
                  his wishes delivered to the trustees before his death. The
                  benefit is equal to two times the Executive's basic annual
                  salary at his death;

         (c)      a long-term disability insurance scheme ("PHI") providing
                  salary continuance for the Executive for such period and on
                  such terms as the Company shall from time to time notify him.

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7.2      Benefits under any insurance scheme shall be subject to the rules of
         the scheme and the terms of any applicable insurance policy and are
         conditional on the Executive complying with and satisfying any
         applicable requirements of the insurers. Copies of these rules and
         policies and particulars of the requirements as amended from time to
         time shall be provided to the Executive on request. The Company shall
         not have any liability to pay any benefit to the Executive under any
         insurance scheme unless it receives payment of the benefit from the
         insurer under the scheme.

7.3      Any insurance scheme which is provided for the Executive is also
         subject to the Company's right to alter the cover provided or any term
         of the scheme or to cease to provide (without replacement) the scheme
         at any time if in the opinion of the Board (after the Executive has
         been examined by a medical practitioner nominated by the insurers or by
         the Company) the state of health of the Executive is or becomes such
         that the Company is unable to insure the benefits under the scheme at
         the normal premiums applicable to a person of the Executive's age. In
         addition, the Executive shall be responsible for and shall indemnify
         the Company in respect of any taxation or statutory levy assessed upon
         him in respect of any benefits he receives under any insurance scheme
         cover provided for him by the Company.

         8.       MEDICAL AND SICKNESS

8.1      The Executive shall be paid in full during any period of absence from
         work due to sickness or injury not exceeding 60 Working Days (in
         aggregate) in any period of 12 consecutive months subject to the
         provisions of Clause 13 and to the production of satisfactory evidence
         from a registered medical practitioner in respect of any period of
         absence if required by the Company. The Executive's salary during any
         period of absence due to sickness or injury shall be inclusive of any
         statutory sick pay to which he is entitled and the Company may deduct
         from his salary the amount of any social security benefits he may be
         entitled to receive.

8.2      In the case of prolonged or frequent absences the Company may require
         the Executive to be examined by a medical adviser nominated by the
         Company and the Executive consents to the medical adviser disclosing
         the results of the examination to the Company and shall provide the
         Company with such formal consents as may be necessary for this purpose
         in accordance with the Access to Medical Reports 1988 with a view to
         the Company establishing his likely future fitness for work.

8.3      If in the reasonable opinion of the Company, the Executive is incapable
         by reason of physical or mental health to carry out his duties under
         this Agreement the Executive may be suspended from carrying out those
         duties for so long as the Company in its discretion considers such ill
         health to continue subject to the remuneration provisions of Clause 8.1
         above.

8.4      If the Executive is incapable of performing his duties by reason of
         injury sustained wholly or partly as a result of negligence, nuisance
         or breach of any statutory duty on the part of a third party and the
         Executive recovers any amount by way of compensation for loss of
         earnings from that third party, he shall pay to the Company a sum equal
         to the amount recovered or, if less, the amount paid to him by the
         Company under Clause 8.1 above in respect of the relevant period of
         absence as a result of that injury.

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         9.       HOLIDAYS

9.1      The Executive shall be entitled to holidays in accordance with the
         provisions set out in the Staff Handbook for full-time employees.

9.2      The Executive may take his holiday at such time or times as may be
         agreed in advance with the Company (to ensure that the Executive's
         holiday does not unduly affect the operations of the Company).

9.3      The entitlement to holiday set out in Clause 9.1 above may be increased
         from time to time subject to the approval of the SmarTire Board of
         Directors.

         10.      CONFIDENTIAL INFORMATION

10.1     The Executive shall not (except with the prior written consent of the
         Board) make use of, publish or divulge to any person, and shall use all
         reasonable endeavours to prevent the use, publication or disclosure of,
         any information of a confidential or secret nature:

         (a)      concerning the business of the Company or any Group Company
                  and which comes to his knowledge during the course of or in
                  connection with his employment or his holding any office
                  within the Group from any source within the Company or any
                  Group Company: or

         (b)      concerning the business of any person having dealings with the
                  Company or any Group Company and which is obtained directly or
                  indirectly in circumstances in which the Company or any Group
                  Company is subject to a duty of confidentiality in relation to
                  that information.

10.2     In relation to Clause 10.1 above, the Company specifically, but
         without limitation, draws to the Executive's attention the confidential
         nature of information relating to:-

         (a)      the business methods, corporate plans, management systems,
                  finances, new business opportunities or development projects
                  of any Group Company; or

         (b)      the marketing or sales of any past or present or future
                  products, goods or services of any Group Company including but
                  not limited to customer names and lists and other details of
                  customers, sales targets, sales statistics, market share
                  statistics, prices, market research reports and surveys and
                  other professional materials; or

         (c)      future projects, business development or planning, commercial
                  relationships and negotiations; or

         (d)      any trade secrets or other information relating to the
                  provision of any product or service of any Group Company; or

         (e)      methods of manufacturing, storing, distributing and labeling
                  any products manufactured by any Group Company; or

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         (f)      any other information specifically identified by the Company
                  as confidential from time to time or known to the Executive as
                  being held by the Company or any Group Company under a duty of
                  confidentiality to a third party, in either case coming to his
                  attention in the course of or for the purposes of his duties
                  under this Agreement.

10.3     This clause shall not apply to information which is:

         (a)      used or disclosed in the proper performance of the Executive's
                  duties or with the prior written consent of the Company;

         (b)      ordered to be disclosed by a court of competent jurisdiction
                  or otherwise required to be disclosed by law; or

         (c)      in the public domain, other than directly or indirectly by
                  reason of the act or default of the Executive.

10.4     In relation to information of a confidential nature the Executive:

         (a)      shall notify the Company immediately upon discovery of any
                  unauthorised use or disclosure of such information and shall
                  actively assist the Company in every reasonable manner to aid
                  the Company to regain possession of such information and
                  prevent all such further use;

         (b)      the Executive shall return all originals, copies,
                  reproductions and summaries of or relating to such information
                  at the request of the Company or, on the Company's
                  instructions, ensure destruction of the same.

10.5     The Executive shall not other than with the approval of the Board make
         or issue any press, radio or television statement or publish or submit
         for publication any letter or article relating directly or indirectly
         to the business or affairs of the Company, nor will the Executive
         encourage, assist or procure any other person, firm or Company to do
         anything, if done by him, which would be in breach of this sub-clause.

10.6     This Clause shall continue to apply after the termination of the
         Appointment (whether terminated lawfully or not) without limit of time.

         11.      INTELLECTUAL PROPERTY

11.1     In this Clause 11 "Intellectual Property Rights" means a formula,
         process, invention, improvement, utility model, trade mark, service
         mark, business name, copyright, design right, patent, know-how, trade
         secret and any other intellectual property right of any nature
         whatsoever throughout the world (whether registered or unregistered and
         including all applications and rights to apply for the same) which:

         (a)      relates to or is useful in connection with the business or any
                  product or service of a Group Company; and

         (b)      is invented, developed, created or acquired by the Executive
                  (whether alone or jointly with any other person) during the
                  period of the Appointment.

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11.2     Subject to the provisions of the Patents Act 1977, the entire interest
         of the Executive in any Intellectual Property Right shall, as between
         the Executive and the Company, become the property of the Company as
         absolute beneficial owner without any payment to the Executive for it.

11.3     The Executive shall promptly communicate in confidence to the Company
         full particulars of any Intellectual Property Right (whether or not it
         is vested in the Company pursuant to Clause 11.2 above or otherwise)
         and the Executive shall not use, disclose to any person or exploit any
         Intellectual Property Right belonging to the Company without the prior
         written consent of the Company.

11.4     With respect to any Intellectual Property Right which is not vested in
         the Company pursuant to Clause 11.2 above or otherwise, the Executive
         shall negotiate in good faith with the Company with a view to the
         Company acquiring all the Executive's right, title and interest in that
         Intellectual Property Right and, unless the Company has declined in
         writing to negotiate or acquire such Intellectual Property Right, the
         Executive shall not jeopardise the grant of any registration in respect
         of that Intellectual Property Right by any public or non-confidential
         disclosure for a period of three months from the date on which full
         particulars of it are communicated to the Company.

11.5     The Executive shall, at the request and expense of the Company, prepare
         and execute such instruments and do such other acts and things as may
         be necessary or desirable to enable the Company or its nominee to
         obtain protection of any Intellectual Property Right vested in the
         Company in such parts of the world as may be specified by the Company
         or its nominee and to enable the Company to exploit any Intellectual
         Property Right vested in the Company to best advantage.

11.6     The Executive hereby irrevocably appoints the Company to be his
         attorney in his name and on his behalf to sign, execute or do any
         instrument or thing and generally to use his name for the purpose of
         giving to the Company or its nominee the full benefit of the provisions
         of this clause and in favour of any third party a certificate in
         writing signed by any Director or the Secretary of the Company that any
         instrument or act falls within the authority conferred by this clause
         shall be conclusive evidence that such is the case.

11.7     The Executive hereby waives all of his moral rights (as defined in the
         Copyright Designs and Patents Act 1988) in respect of any act of the
         Company and any act of a third party done with the Company's authority
         in relation to any Intellectual Property Right which is or becomes the
         property of the Company.

11.8     The obligations of the Executive under Clauses 11.2 to 11.7 above shall
         continue to apply after the termination of the Appointment (whether
         terminated lawfully or not). Each of those obligations is enforceable
         independently of each of the others and its validity shall not be
         affected if any of the others are unenforceable to any extent.

         12.      CODES OF CONDUCT AND DISCIPLINARY AND GRIEVANCE PROCEDURES

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12.1     The Executive shall not directly or indirectly accept any commission,
         rebate, discount or gratuity, in cash or in kind, from any person who
         has or is likely to have a business relationship with any Group
         Company.

12.2     The Executive shall comply with all codes of conduct from time to time
         adopted by the Board and with all proper standards of corporate
         governance.

12.3     The Company's usual disciplinary procedure does not apply to the
         Executive. Any disciplinary hearing will usually be heard by a SmarTire
         Director. If the Executive seeks to appeal against any disciplinary
         action taken against him, he should do so to the SmarTire Board
         submitting written grounds for his appeal within seven days of the
         action appealed against.

12.4     If the Executive has a grievance in relation to his employment he may
         apply in writing to the SmarTire Board who will afford the Executive
         the opportunity of a hearing before the SmarTire Board or a committee
         of the SmarTire Board whose decision shall be final.

         13.      TERMINATION OF APPOINTMENT

13.1     Notwithstanding any other provision contained herein, the parties
         hereto agree that the Manager may terminate this Agreement, with or
         without cause, by giving ninety (90) days' written notice of such
         intention to terminate. The Company may terminate this agreement at any
         time for just cause without further obligation. In the event of
         termination for any reason other than for just cause, the Company, at
         its option, will either (a) continue to pay the salary under Clause 4.1
         and provide the benefits under Clauses 6 and 7 until one year from the
         date of termination or (b) pay one year's salary under Clause 4.1 in
         lieu of notice. Any stock options that have been granted but that have
         not yet vested shall immediately vest at the date of the final payment,
         and may be exercised for a period of 30 days only after vesting.

13.2     Any payments made by the Company to the Executive upon the termination
         of this Agreement shall be made in cash, or, if the Company does not
         have available funds, in equal monthly cash installments over one year,
         or in Remuneration Shares, or in a combination of cash and Remuneration
         Shares, subject to regulatory approval. All payments required to be
         made by the Company to the Manager pursuant to Section 13 hereof shall
         be made in full, irrespective of the amount of the term remaining under
         this Agreement.

13.2     If the Executive:

         (a)      becomes of unsound mind or is, or may be, suffering from
                  mental disorder and either:

                  (i)      he is admitted to hospital for treatment under the
                           Mental Health Act 1983; or

                  (ii)     an order is made by any competent court for his
                           detention or for the appointment of a receiver,
                           curator bonis or other person to exercise powers with
                           respect to his property or affairs; or

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         (b)      is unable to perform his duties by reason of ill-health,
                  accident or otherwise for a period or periods aggregating to
                  at least 60 Working Days in any period of 12 months;

         (c)      fails or neglects efficiently and diligently to discharge his
                  duties or is guilty of any material breach of his obligations
                  under this Agreement (including any consent granted under it);
                  or

         (d)      refuses to accept any changes in his Executive
                  responsibilities, duties or status from time to time as
                  reasonably determined by the Company provided that any such
                  changes will not affect his remuneration (including bonus) or
                  seniority; or

         (e)      is guilty of any serious breach or non-observance of any of
                  the provisions of this Agreement or directions of the Board or
                  SmarTire Board or continues after written warning to be guilty
                  of any continued or successive breaches or nonobservance of
                  any such provisions or directions or any other conduct which
                  affects or is likely to affect prejudicially the interests of
                  the Company, SmarTire or the Group or is convicted of an
                  arrestable offence (other than a road traffic offence for
                  which a non-custodial penalty is imposed); or

         (f)      makes a statement, promise or forecast which he knows to be
                  misleading, false or deceptive or dishonestly conceals any
                  material facts, or recklessly makes (dishonestly or otherwise)
                  a statement, promise or forecast which is misleading, false or
                  deceptive in relation to the affairs of the Company or any
                  Group Company; or

         (g)      becomes bankrupt or makes any arrangement or composition with
                  his creditors; or

         (h)      is disqualified from being a director of any company by reason
                  of an order made by any competent court; or

         (i)      carries out or neglects to carry out any action which in the
                  reasonable opinion of the Company may seriously damage the
                  interests of the Company or SmarTire or is willfully or
                  negligently guilty of any breach or non-observance of any code
                  of conduct, rule or regulation referred to in Clause 12.2 and
                  such breach has actually or potentially a material adverse
                  effect on the Company or the Group, and/or the business of the
                  Company or the Group and/or on the ability of the Executive to
                  properly carry out the terms of this Appointment; or

         (j)      commits any act of deliberate discrimination or harassment on
                  grounds of race, sex or disability; or

         (k)      is, in the reasonable opinion of the Company, unable at any
                  time properly to discharge his duties under this Agreement due
                  to the effects of drugs or alcohol; or

         (1)      commits any other act warranting summary termination at common
                  law including (but not limited to) any act justifying
                  dismissal with immediate effect

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                  in the terms of the Company's generally-applicable
                  Disciplinary Rules as laid out in the staff handbook (receipt
                  of which the Executive hereby acknowledges).

         the Company may (whether or not any notice of termination has been
         given under Clause 13.1 above) by written notice to the Executive
         terminate the Appointment with immediate effect.

13.3     Any delay or forbearance by the Company in exercising its right of
         termination shall not constitute a waiver of it.

13.4     During any period of notice of termination of the Appointment (whether
         or not such notice has been given by the Company or the Executive) the
         Company may require the Executive to take any holiday to which the
         Executive is entitled under Clause 9 above at such time or times as the
         Company may decide.

13.5     Clause 13.1 above does not limit the rights of the Company to suspend
         any of the Executive's duties and powers under Clause 3.2 above during
         any period after notice of termination of the Appointment has been
         given by either party and in particular (without limitation) the
         Company may exercise this right where the Executive leaves the
         Company's employment in circumstances where it is reasonable for the
         Board to believe that he shall be interested or concerned in a
         business, company or firm carrying on, or about to commence, a business
         which is, or is likely to be, competitive with any part of the business
         of any Group Company with which the Executive was engaged or concerned
         in the previous 12 months before the suspension started. In addition or
         alternatively, the Company may during the whole or any part of such
         period of notice require the Executive to perform duties (including any
         modified duties arising from an exercise by the Company of its rights
         under Clause 3.2 above) at such locations as the Company may require
         consistent with Clause 3.6 above. Throughout any such period of
         suspension the Executive's salary, and other benefits to which he is
         entitled under this Agreement shall continue to be paid or provided by
         the Company and during such time, the Executive acknowledges that his
         duties of confidentiality and good faith continue to apply and that he
         is not permitted to work for any other person, firm, client,
         corporation or on his own behalf without the Company's prior written
         permission (which is not to be unreasonably withheld). At any time
         during such period the Executive shall, at the request of the Company,
         immediately resign without claim for compensation from his office as a
         Director of the Company and any Group Company and from any other office
         held by him in the Company or any Group Company.

13.6     On the termination of the Appointment in any way (whether lawfully or
         otherwise) the Executive shall immediately deliver to the Company or
         its authorized representative all property in his possession, custody
         or under his control belonging to any Group Company including (but not
         limited to) business cards, credit and charge cards, security and
         computer passes, original and copy documents or other media on which
         information is held in his possession relating to the business or
         affairs of any Group Company, without keeping any copies, notes or
         extracts thereof. The Company may withhold any sums owing to the
         Executive on the termination of his employment until the obligations in
         Clause 13.6 have been complied with.

<PAGE>   13

13.7     The Executive hereby agrees that he will not at any time after the
         termination of the Appointment in any way (whether lawfully or
         otherwise) either personally or by his agent, directly or indirectly
         represent himself as being in any way still connected with or
         interested in the business of the Company or any Group Company.

         14.      PROTECTIVE COVENANTS

14.1     For the purposes of this clause:

         (a)      "Termination Date" means the date of termination of the
                  Appointment.

         (b)      references to a Group Company include its successors in
                  business where the succession occurs after the Termination
                  Date.

14.2     The Executive covenants with the Company (for itself and as trustee for
         each Group Company but only whilst it remains a Group Company) that he
         shall not for a period of 6 months after the Termination Date be
         concerned in any business within the United Kingdom which is
         competitive with any business carried on by the Company or a Group
         Company and with which the Executive was actively involved during the
         course of the 12 months immediately preceding the Termination Date and
         in particular any tyre monitoring business provided by the Company or
         any of its Group Companies (all of which is hereinafter referred to as
         the "Restricted Business"). For this purpose the Executive is concerned
         in a business if (without limitation):-

         (a)      he carries it on as principal or agent; or

         (b)      he is a partner, director, employee, secondee, consultant or
                  agent in, of or to any person who carries on the business;

         disregarding any financial interest of a person in securities which are
         listed or dealt in on any Recognised Investment Exchange if that
         person, the Executive and any person connected with him (within the
         meaning of Section 839 of the Income and Corporation Taxes Act 1988)
         are interested in securities which amount to less than five per cent
         of the issued securities of that class and which, in all circumstances,
         carry less than five per cent of the voting rights (if any) attaching
         to the issued securities of that class.

14.3     The Executive covenants with the Company (for itself and as trustee for
         each Group Company) that he shall not directly or indirectly on his own
         account or on behalf of or in conjunction with any person for a period
         of 6 months after the Termination Date within the United Kingdom
         canvass or solicit business or custom from any customer or client of
         the Company or a Group Company with whom the Executive was actively
         involved in the course of his employment during the 12 months ending on
         the Termination Date.

14.4     The Executive covenants with the Company (for itself and as trustee for
         each Group Company) that he shall not directly or indirectly on his own
         account or on behalf of or in conjunction with any person for a period
         of 6 months after the Termination Date within the United Kingdom induce
         or attempt to induce any supplier of the Company or a Group Company,
         with whom the Executive was actively involved in the last 12 months of
         his employment to cease to supply, or to restrict or vary the terms of
         supply to, the

<PAGE>   14

         Company or the Group Company or otherwise interfere with the
         relationship between such a supplier and the Company or the Group
         Company.

14.5     The Executive covenants with the Company (for itself and as trustee for
         each Group Company) that he will not directly or indirectly on his own
         account or on behalf of or in conjunction with any person for a period
         of 6 months after the Termination Date induce or attempt to induce any
         person who was a Senior Employee of the Company or Group Company at the
         Termination Date, and with whom the Executive had material dealings in
         the course of the last 12 months of his employment, to leave the
         employment of the Company or Group Company (whether or not this would
         be a breach of contract by the Senior Employee) with a view to that
         Senior Employee providing to another person, firm or company services
         similar to and competitive with those he/she had provided to the
         Company or Group Company in the 6 months preceding his/her departure.

14.6     The Executive covenants with the Company (for itself and as trustee for
         each Group Company) that he will not directly or indirectly on his own
         account or on behalf of or in conjunction with any person for a period
         of 3 months after the Termination Date deal with or accept orders from
         any customer or client of the Company or a Group Company as is referred
         to in Clause 14.3 above in respect of the Restricted Business.

14.7     The Executive covenants with the Company (for itself and as trustee for
         each Group Company) that he will not encourage, assist or procure any
         other person, firm or company to do anything which, if done by him,
         would be in breach of any of Clauses 14.2 to 14.6 above.

14.8     Each of the restrictions in each sub-clause in this Clause 14 above
         shall be enforceable independently of each of the others and its
         validity shall not be affected if any of the others is invalid. If any
         of those restrictions is void but would be valid if some part of the
         restriction were deleted, the restriction in question shall apply with
         such modification as may be necessary to make it valid.

14.9     The Executive acknowledges that the provisions of this Clause 14 are no
         more extensive than is reasonable to protect the legitimate business
         interests of the Company and the Group, and further that the effect of
         those provisions is not such as to prevent the Executive from earning a
         living.

         15.      GENERAL

15.1     As from the effective date of the Appointment the Executive
         acknowledges and warrants that all other Agreements or arrangements
         between the Executive and any Group Company relating to the employment
         of the Executive shall cease to have effect and accordingly any sum or
         sums paid to the Executive by way of remuneration or other benefit
         under any such other Agreements or arrangements in respect of any
         periods since that date shall be deemed to have been received by the
         Executive on account of the relevant amounts payable to him under this
         Agreement.

15.2     This Agreement shall be governed by and construed in accordance with
         English law.

15.3     No collective agreement forms any part of the Executive's contract of
         employment.

<PAGE>   15

         16.      NOTICES

16.1     Any notice or other document to be served under this Agreement shall,
         in the case of the Company, be delivered or sent by first class post or
         telex or facsimile process to the Company at its registered office for
         the time being and, in the case of the Executive, shall be delivered to
         him or sent by first class post to his usual or last known place of
         residence.

16.2     Any such notice or other document shall be deemed to have been served:

         (a)      if delivered, at the time of delivery;

         (b)      if posted, at 10.00 a.m. on the second Working Day after it
                  was put into the post]; or

         (c)      if sent by telex or facsimile process, at the expiration of
                  two hours after the time of despatch, if despatched before
                  5.00 p.m. on any Working Day, and in any other case at 10.00
                  a.m. on the Working Day following the date of despatch.

16.3     In proving such service it shall be sufficient to prove that delivery
         was made or that the envelope containing such notice or other document
         was properly addressed and posted as a pre-paid first class letter or
         that the telex or facsimile message was properly addressed and
         despatched as the case may be.

IN WITNESS of which this deed has been executed and has been delivered on the
first date which appears on page 1.

EXECUTED as a deed by the Company acting by: )
                                             )
                                             )
and                                          )
                                             )

/s/ W. A. PAGE
 ............................................
Director

/s/ ROBERT RUDMAN
 ............................................
Director/Secretary

                                             )
SIGNED as a deed by the Executive            )
                                             )    /s/ IAN BATEMAN
in the presence of:                          )

<PAGE>   16

/s/ NIGEL HAMMOND
 ............................................
Witness signature

NIGEL HAMMOND
 ............................................
Name

48 Woodley Close
 ............................................

Abingdon, Oxon.
 ............................................
Address

<PAGE>   17

                                   SCHEDULE I

                      EXECUTIVE'S PRIMARY RESPONSIBILITIES

1.       The Executive will be expected as part of his duties to create value
         for SmarTire's shareholders by leading and managing the European
         Operations of the Company.

2.       The Executive shall be responsible for the management of the European
         Operations of SmarTire including the development and execution of
         business plans, marketing strategies, sales and financial objectives
         for the Company. The Executive is responsible for providing regular
         reports to SmarTire which measure the Company's progress towards
         achieving defined goals and objectives and define actions to address
         issues. The Executive is responsible for the development of the
         European organization structure, staffing and operations to achieve the
         Company's business plan and financial objectives. The Executive shall
         work with SmarTire management to assist in defining and completing
         corporate objectives as may be determined. The Executive shall report
         to the President and Chief Operating Officer of SmarTire.

<PAGE>   18

                                   SCHEDULE 2

                          EXECUTIVE'S BONUS PROVISIONS

1.       The Executive shall be entitled to be considered for a performance
         related bonus wholly at the discretion of the SmarTire Board of
         Directors. The bonus payments shall be calculated by the SmarTire Board
         of Directors in accordance with certain criteria to be set by the
         SmarTire Board of Directors as the SmarTire Board of Directors may from
         time to time notify the Executive, but without any obligation on the
         part of the SmarTire Board of Directors to award any bonus payment.

2.       In any year in which a bonus payment is approved by the SmarTire Board
         of Directors, the bonus payment will be made within four months of the
         publication of the annual accounts for the relevant year.

3.       Subject to the commencement of the SmarTire's "Incentive Compensation
         Plan" (the "Plan"), the Executive's bonus provisions will be governed
         by the Plan and the arrangements in paragraph 1 of this Schedule will
         cease to apply. As and when the Plan receives formal approval from the
         SmarTire Board of Directors the Executive will receive full details of
         the Plan and how it applies to him.<PAGE>   1

                                                                    EXHIBIT 10.5
                                                                  EXECUTION COPY

    **  THE ITEMS MARKED BY TWO ASTERISKS HAVE BEEN OMITTED FROM THIS FILING AND
        HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                      ASIS DEVELOPMENT/PURCHASE AGREEMENT

THIS AGREEMENT effective as of the 13th day of December, 1999.

BETWEEN:

        SENSONOR ASA, a company duly incorporated pursuant to the laws of Norway
        having an office in Horten, Norway, P. O. Box 196, N-3192 Horten,
        Norway.

        ("SensoNor")

AND:

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

        ("SmarTire")

WHEREAS:

A. Pursuant to an agreement dated September 1, 1998 ("Agreement No. TA-3727")
among SensoNor, SmarTire and TRW Inc. acting for its Automotive Electronic Group
("AEG"), SensoNor agreed to develop for and supply to each of SmarTire and AEG
an application specific integrated sensor ("ASIS");

B. SmarTire and SensoNor have agreed that SensoNor will develop and supply a
second ASIS (the "SmarTire ASIS") for SmarTire only upon substantially the same
terms and conditions as Agreement No. TA-3727; and

C. Rather than restate the terms and conditions of Agreement No. TA-3727 to
effect the development and supply of the SmarTire ASIS, SmarTire and SensoNor
have agreed to the terms of Agreement No. TA-3727 amended only as set out
herein.

NOW THEREFORE in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto agree as follows:

1. Agreement No. TA-3727 shall form a part of this Agreement, and its terms
shall be the terms of this Agreement as amended in this Agreement.

2. All capitalized terms used herein and not otherwise defined shall have the
meaning given to them in Agreement No. TA-3727.

3. For the purpose of this Agreement only, SensoNor and SmarTire acknowledge and
agree that the terms of Agreement No. TA-3727 shall be amended as follows:

        (a)     delete all references to "TRW Inc." and "AEG" and where
                appropriate in the context substitute "SmarTire" therefor; the
                Specifications for the SmarTire ASIS

<PAGE>   2

                                      - 2 -

                will be designated by SmarTire alone and not in conjunction with
                AEG; and any consequential amendments which are necessary to
                make this Agreement grammatically correct as a result of this
                substitution shall be made;

        (b)     delete all references to "AEG part number 152008" and substitute
                "SmarTire part number 214.0003";

        (c)     delete all references to "Specification Doc# 152008" and
                substitute "Specification Doc# 214.0003";

        (d)     delete from Paragraph 4 the two references to "**" and opposite
                SmarTire substitute "**" ;

        (e)     delete the schedule of milestone payments in Paragraph 4 and
                substitute the following Schedule:

<TABLE>
<CAPTION>
         DEVELOPMENT MILESTONES                          PAYMENT ($ US)
         ----------------------                          --------------
         <S>                                             <C>
         Upon Signing of the Agreement for the           **
         Development of the SP11B

         Delivery of PVs that meet Specifications for    **
         Product SP11B
</TABLE>

        (f)     delete Attachment A, "Project Schedule" and substitute therefor
                Attachment A "SP11B Project Schedule", a copy of which is
                attached to this Agreement; and

        (g)     delete Attachment C, "Product Pricing" and substitute therefor
                Attachment C "SP11B Product Pricing", a copy of which is
                attached to this Agreement; and

        (h)     delete Attachment E, "Product Specifications" and substitute
                therefor Attachment E "SP11B Product Specifications", a copy of
                which is attached to this Agreement.

4. The development of the Product, as the definition of that term is amended
herein, shall be governed by the Supplier Development Manual.

5. Other than as amended herein, the terms and conditions set out in Agreement
No. TA-3727 shall be the terms of this Agreement.

6. For greater certainty, SmarTire and SensoNor acknowledge and agree that
Agreement No. TA-3727 among SensoNor, TRW Inc. and SmarTire is not amended by
this Agreement and remains in full force and effect; the amendments made to
Agreement No. TA-3727 are solely in respect of the development and supply of the
SmarTire ASIS.

7. The parties will execute and deliver all such further documents, do or cause
to be done all such further acts and things, and give all such further
assurances as may be necessary to give full effect to the provisions and intent
of this Agreement.

<PAGE>   3

                                      - 3 -

8. This Agreement shall be construed under and governed by the laws of the
Province of British Columbia and the laws of Canada applicable therein.

9. This Agreement may be executed by facsimile and in several counterparts, each
of which shall be deemed to be an original and all of which shall together
constitute one and the same instrument.

10. Delivery of an executed copy of this Agreement by telecopy, telex, or other
means of electronic communication producing a printed copy will be deemed to be
execution and delivery of this Agreement on the date of such communication by
the party so delivering such copy.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
13th day of December, 1999.

SENSONOR ASA                                SMARTIRE SYSTEMS INC.

Per:   /s/ SVERRE HORNTVEDT                 Per:   /s/   MARK DESMARAIS
    -------------------------------              -------------------------------
       Authorized Signatory                       Authorized Signatory

Title:        PRESIDENT                     Title: President & COO
      -----------------------------

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