Document:

exhibit101.htm

     

    
      

    

    
      

    

    EXHIBIT
10.1

     

    

    YA
GLOBAL INVESTMENTS, L.P.

    101
Hudson Street, Suite 3700

    Jersey
City, New Jersey 07092

    

    March 11,
2008

    

    

    SmarTire
Systems Inc.

    13151
Vanier Place, Suite 150

    Richmond,
British Columbia V6V 2J1

    

    ATTN:  Jeff
Finkelstein, Chief Financial Officer

    

    Dear Mr.
Finkelstein:

    

    This letter sets forth our agreement
regarding the March 2005 Convertible Preferred and the May 2005 Debenture owed
by SmarTire Systems, Inc. (“SmarTire” or the “Company”) to YA Global
Investments, L.P. (f/k/a Cornell Capital Partners,
L.P.).  (hereinafter, “YA)

    

    
      	
              1.  

            	
              YA
      hereby agrees (i) to extend the Maturity Date of (a) the convertible
      preferred stock issued by the Company to YA with issue date March 22, 2005
      (the “March 2005 Convertible Preferred”) and (b) the May 5, 2005,
      debenture (the “May 2005 Debenture”), issued by the Company held by YA as
      well as the due date for any periodic payments due under either of the
      March 2005 Convertible Preferred or the May 2005 Debenture to March 31,
      2008.  As modified herein, the Existing Debentures and Existing
      Agreements remain in full force and
effect.

            

    

     

    
      	
              2.  

            	
              All
      amounts owed by the Company to YA pursuant to the March 2005 Convertible
      Preferred, or on any other instrument of indebtedness, together with any
      fees, costs, expenses and other charges now or hereafter payable by the
      Company to YA are unconditionally owing by the Company to YA, without
      offset, setoff, defense or counterclaim of any kind, nature or description
      whatsoever except as set forth in this Agreement.  The Company
      further acknowledges, confirms and agrees that (a) all agreements
      between SmarTire and YA (the “Existing
      Agreements”) have been duly executed and delivered by the Company
      to YA, and each is in full force and effect as of the date hereof;
      (b) the agreements and obligations of SmarTire contained in the
      Existing Agreements, as amended by this Agreement, constitute the legal,
      valid and binding obligations of SmarTire, enforceable against it in
      accordance with their respective terms, and the Company has no valid
      defense to the enforcement of such obligations; and (c)  YA is and
      shall be entitled to the rights, remedies and benefits provided for in the
      Existing Agreements and applicable law, without offset, setoff, defense or
      counterclaim of any kind, nature or descriptions
    whatsoever.

            

    

     

    
      	
              3.  

            	
              In
      exchange for the consideration described herein, and except as otherwise
      set forth in this Agreement, SmarTire does hereby RELEASE AND FOREVER
      DISCHARGE YA and its subsidiaries and its respective affiliates, parents,
      joint ventures, officers, directors, shareholders, interest holders,
      members, managers, employees, consultants, representatives, successors and
      assigns, heirs, executors and administrators (collectively, “Buyer Parties”)
      from all causes of action, suits, debts, claims and demands whatsoever
      known or unknown, at law, in equity or otherwise, which the Company had,
      now has, or hereafter may have, arising from or relating in any way to the
      Company’s status as a debtor of YA on or prior to the date hereof, any
      agreement between SmarTire and YA entered into prior to the date hereof,
      any claims for reasonable attorneys’ fees and costs, and including,
      without limitation, any claims relating to fees, penalties, liquidated
      damages, and indemnification for losses, liabilities and
      expenses.  This release is effective without regard to the legal
      nature of the claims raised and without regard to whether any such claims
      are based upon tort, equity, or implied or express contract.  It
      is expressly understood and agreed that this release shall operate as a
      clear and unequivocal waiver by SmarTire of any such claim
      whatsoever.

            

    

     

    If the
foregoing correctly sets forth the terms of our agreement, please sign this
letter on the line provided below, whereupon it will constitute a binding
agreement among us.

     

    Sincerely,

    

    YA GLOBAL INVESTMENTS,
L.P.

    

    By: Yorkville Advisors,
LLC

    Its:  General
Partner

    

    By:                         /s/ Mark
Angelo                             

    Name:                    Mark
Angelo

                          
 Title:                      Portfolio
Manager

    

    

    

    ACCEPTED
AND AGREED:

    SMARTIRE
SYSTEMS INC.

    

    By:      /s/ Jeff
Finkelstein                                                

    Name:
Jeff Finkelstein

    Title:  Chief
Financial OfficerFiled by Automated Filing Services Inc. (604) 609-0244 - Bioshaft Water Technology, Inc. - Exhibit 10.5

BIOSHAFT WATER TECHNOLOGY, INC.
(the "Company")

Stock Option Plan

DATED: December 15, 2007

This Stock Option Plan (the "Plan") provides for the
grant of stock options to acquire shares in the common stock of the Company (the
"Common Shares"), a corporation organized under the laws of the State of
Nevada. Stock options granted under this Plan that qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") are referred
to in this Plan as "Incentive Stock Options" and stock options
that do not qualify under Section 422 of the Code are referred to as
"Non-Qualified Stock Options". Incentive Stock Options and Non-Qualified
Stock Options granted under this Plan are collectively referred to as
"Options".

	1. 	PURPOSE 

1.1         The
purpose of this Plan is to retain the services of valued key employees and
consultants of the Company and such other persons as the Plan Administrator (as
defined in Section 2.1 hereof) shall select in accordance with Section 2 hereof,
and to encourage such persons to acquire a greater proprietary interest in the
Company, thereby strengthening their incentive to achieve the objectives of the
shareholders of the Company, and to serve as an aid and inducement in the hiring
of new employees and to provide an equity incentive to consultants and other
persons selected by the Plan Administrator.

1.2          This
Plan shall at all times be subject to all legal requirements relating to the
administration of stock option plans, if any, under applicable corporate laws,
applicable federal, state and provincial securities laws, the Code, the rules of
any applicable stock exchange or stock quotation system, and the rules of any
foreign jurisdiction applicable to Options granted to residents therein
(collectively, the "Applicable Laws").

	2. 	ADMINISTRATION 

2.1          This
Plan shall be administered initially by the board of directors of the Company
(the "Board"), except that the Board may, in its discretion, establish a
committee composed of two or more members of the Board or two or more other
persons to administer the Plan, which committee (the "Committee") may be
an executive, compensation or other committee, including a separate committee
especially created for this purpose. The Board or, if applicable, the Committee
is referred to herein as the "Plan Administrator".

2.2          If
and so long as the Common Shares are registered under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Company wishes to grant Incentive Stock Options, then the
Board shall consider in selecting the Plan Administrator and the membership of
any Committee, with respect to any persons subject or likely to become subject
to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as 

- 2 -

contemplated by Section 162(m) of the Code, and (b)
"Non-Employee Directors" as contemplated by Rule 16b-3 under the Exchange
Act.

2.3         The
Committee shall have the powers and authority vested in the Board hereunder
(including the power and authority to interpret any provision of the Plan or of
any Option). The members of any such Committee shall serve at the pleasure of
the Board. A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully effective as if
it had been taken at a meeting.

2.4         Subject to
the provisions of this Plan and any Applicable Laws, and with a view to
effecting the purpose of the Plan, the Plan Administrator shall have sole
authority, in its absolute discretion, to:

	(a) 	
      construe and interpret this Plan;

	 	 
	(b) 	
      define the terms used in the Plan;

	 	 
	(c) 	
      prescribe, amend and rescind the rules and regulations
      relating to this Plan;

	 	 
	(d) 	
      correct any defect, supply any omission or reconcile any
      inconsistency in this Plan;

	 	 
	(e) 	
      grant Options under this Plan;

	 	 
	(f) 	
      determine the individuals to whom Options shall be
      granted under this Plan and whether the Option is granted as an Incentive
      Stock Option or a Non-Qualified Stock Option;

	 	 
	(g) 	
      determine the time or times at which Options shall be
      granted under this Plan;

	 	 
	(h) 	
      determine the number of Common Shares subject to each
      Option, the exercise price of each Option, the duration of each Option and
      the times at which each Option shall become exercisable;

	 	 
	(i) 	
      determine all other terms and conditions of the Options;
      and

	 	 
	(j) 	
      make all other determinations and interpretations
      necessary and advisable for the administration of the
  Plan.

2.5         All
decisions, determinations and interpretations made by the Plan Administrator
shall be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries.

	3. 	ELIGIBILITY 

3.1         Incentive
Stock Options may be granted to any individual who, at the time the Option is
granted, is an employee of the Company or any Related Corporation (as defined in
Section 3.5 hereof) ("Employees").

- 3 -

3.2        
Non-Qualified Stock Options may be granted to Employees and to such other
persons who are not Employees as the Plan Administrator shall select, subject to
any Applicable Laws.

3.3         Options may
be granted in substitution for outstanding Options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Company or any
subsidiary of the Company. Options also may be granted in exchange for
outstanding Options.

3.4         Any person
to whom an Option is granted under this Plan is referred to as an
"Optionee". Any person who is the owner of an Option is referred to as a
"Holder".

3.5         As used in
this Plan, the term "Related Corporation" shall mean any corporation
(other than the Company) that is a "Parent Corporation" of the Company or
"Subsidiary Corporation" of the Company, as those terms are defined in Sections
424(e) and 424(f), respectively, of the Code (or any successor provisions) and
the regulations thereunder (as amended from time to time).

	4. 	STOCK 

4.1         The Plan
Administrator is authorized to grant Options to acquire, in aggregate, up to a
total of 10% of the issued and outstanding Common Shares from time to time (the
"Option Limit"). The number of Common Shares with respect to which
Options may be granted hereunder is subject to adjustment as set out in Section
5.1(m) hereof. In the event that any outstanding Option expires or is terminated
for any reason, the Common Shares allocable to the unexercised portion of such
Option may again be subject to an Option granted to the same Optionee or to a
different person eligible under Section 3 hereof; provided however, that any
cancelled Options will be counted against the maximum number of shares with
respect to which Options may be granted to any particular person as set out in
Section 5.1(a) hereof.

	5. 	TERMS AND CONDITIONS OF OPTIONS
  

5.1 Each Option granted under this Plan shall be evidenced by
an option certificate in substantially the form attached hereto as Schedule
"A" or such written agreement as may be approved by the Plan Administrator
from time to time (each, an "Agreement"). Agreements may contain such
provisions, not inconsistent with this Plan or any Applicable Laws, as the Plan
Administrator in its discretion may deem advisable. All Options also shall
comply with the following requirements:

	(a) 	Number of Shares and Type of Option
  

Each Agreement shall state the number of Common Shares to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option; provided that:

	 	(i) 	
      subject to the Option Limit set out in Section 4.1
      hereof, the number of Common Shares that may be reserved pursuant to the
      exercise of Options granted to any person shall not exceed 10% of the
      issued and outstanding Common Shares of the
Company;

- 4 -

	 	(ii) 	
      in the absence of action to the contrary by the Plan
      Administrator in connection with the grant of an Option, all Options shall
      be Non-Qualified Stock Options;

	 	 	 
	 	(iii) 	
      the aggregate fair market value (determined at the Date
      of Grant, as defined in Section 5.1(b) hereof) of the Common Shares with
      respect to which Incentive Stock Options are exercisable for the first
      time by the Optionee during any calendar year (granted under this Plan and
      all other Incentive Stock Option plans of the Company, a Related
      Corporation or a predecessor corporation) shall not exceed US$100,000, or
      such other limit as may be prescribed by the Code as it may be amended
      from time to time (the "Annual Limit"); and

	 	 	 
	 	(iv) 	
      any portion of an Option which exceeds the Annual Limit
      shall not be void but rather shall be a Non-Qualified Stock
  Option.

	(b) 	Date of Grant 

Each Agreement shall state the date the Plan Administrator has
deemed to be the effective date of the Option for purposes of this Plan (the
"Date of Grant").

	(c) 	Option Price 

Each Agreement shall state the price per Common Share at which
it is exercisable. The Plan Administrator shall act in good faith to establish
the exercise price in accordance with Applicable Laws; provided that:

	 	(i) 	
      the per share exercise price for an Incentive Stock
      Option or any Option granted to a "covered employee" as such term
      is defined for purposes of Section 162(m) of the Code shall not be less
      than the fair market value per Common Share at the Date of Grant as
      determined by the Plan Administrator in good faith;

	 	 	 	 
	 	(ii) 	
      with respect to Incentive Stock Options granted to
      greater-than-ten percent (>10%) shareholders of the Company (as
      determined with reference to Section 424(d) of the Code), the exercise
      price per share shall not be less than one hundred ten percent (110%) of
      the fair market value per Common Share at the Date of Grant as determined
      by the Plan Administrator in good faith; and

	 	 	 	 
	 	(iii) 	
      Options granted in substitution for outstanding options
      of another corporation in connection with the merger, consolidation,
      acquisition of property or stock or other reorganization involving such
      other corporation and the Company or any subsidiary of the Company may be
      granted with an exercise price equal to the exercise price for the
      substituted option of the other corporation, subject to any adjustment
      consistent with the terms of the transaction pursuant to which the
      substitution is to occur, and provided that for Incentive Stock
      Options:

	 	 	 	 
	 		A. 	
      the excess of the aggregate fair market value of the
      shares subject to the option immediately after the substitution over the
      aggregate exercise price of such shares is not more than the excess of the
      aggregate fair market

- 5 -

	 			value of all shares subject to the option immediately before such
      substitution over the aggregate exercise price of such shares, and
	 	 	 	 
	 		B. 	
      the substituted option does not give the employee
      additional benefits which he did not have under the previously held
      Option; and

	 	 	 	 
	 	(iv) 	
      with respect to Non-Qualified Stock Options, the exercise
      price per share shall be the fair market value of the Common Shares as
      determined by the Plan Administrator in good
faith.

	(d) 	Duration of Options 

At the time of the grant of the Option, the Plan Administrator
shall designate, subject to Section 5.1(g) hereof, the expiration date of the
Option, which date shall not be later than ten (10) years from the Date of
Grant; provided, that the expiration date of any Incentive Stock Option granted
to a greater-than-ten percent (>10%) shareholder of the Company (as
determined with reference to Section 424(d) of the Code) shall not be later than
five (5) years from the Date of Grant. In the absence of action to the contrary
by the Plan Administrator in connection with the grant of a particular Option,
and except in the case of Incentive Stock Options as set out above, all Options
granted under this Section 5 shall expire ten (10) years from the Date of
Grant.

	(e) 	Vesting Schedule 

No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Plan Administrator at the
time of grant of the Option prior to the provision of services with respect to
which such Option is granted; provided, that if no vesting schedule is specified
at the time of grant, the Option shall vest according to the following
schedule:

	Number of Months 
Following
      Date of Grant 	Percentage of Total
      
Option Vested 
	6 	16
      2/3% 
	12 	33 1/3% 
	18 	50% 
	24 	66 2/3% 
	30 	83 1/3% 
	36 	100% 

The Plan Administrator may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of objective criteria, including but not limited to, one
or more of the following: return on equity, return on assets, share price,
market share, sales, earnings per 

- 6 -

share, costs, net earnings, net worth, inventories, cash and
cash equivalents, gross margin or the Company's performance relative to its
internal business plan. Performance objectives may be in respect of the
performance of the Company as a whole (whether on a consolidated or
unconsolidated basis), a Related Corporation, or a subdivision, operating unit,
product or product line of either of the foregoing. Performance objectives may
be absolute or relative and may be expressed in terms of a progression or a
range. An Option that is exercisable (in full or in part) upon the achievement
of one or more performance objectives may be exercised only following written
notice to the Optionee and the Company by the Plan Administrator that the
performance objective has been achieved.

	(f) 	Acceleration of Vesting

The vesting of one or more outstanding Options may be
accelerated by the Plan Administrator at such times and in such amounts as it
shall determine in its sole discretion.

	(g) 	
      Term of Option

	 	 	 	 
		(i) 	
      Vested Options shall terminate, to the extent not
      previously exercised, upon the occurrence of the first of the following
      events:

	 	 	 	 
			A. 	
      the expiration of the Option, as designated by the Plan
      Administrator in accordance with Section 5.1(d) hereof;

	 	 	 	 
			B. 	
      the date of an Optionee's termination of employment or
      contractual relationship with the Company or any Related Corporation for
      cause (as determined by the Plan Administrator, acting
  reasonably);

	 	 	 	 
			C. 	
      the date of an Optionee's resignation or termination of
      employment or contractual relationship with the Company or any Related
      Corporation for any reason whatsoever other than cause, death or
      Disability (as defined in Section 5.1(g)(iv) hereof); or

	 	 	 	 
			D. 	
      the expiration of one year from termination of an
      Optionee's employment or contractual relationship by reason of death or
      Disability unless, in the case of a Non-Qualified Stock Option, the
      exercise period is extended by the Plan Administrator until a date not
      later than the expiration date of the Option.

	 	 	 	 
		(ii) 	
      Notwithstanding Section 5.1(g)(i) hereof, any vested
      Options which have been granted to the Optionee in the Optionee's capacity
      as a director of the Company or any Related Corporation shall terminate
      upon the occurrence of the first of the following events:

	 	 	 	 
			A. 	
      the event specified in Section 5.1(g)(i)A
  hereof;

	 	 	 	 
			B. 	
      the event specified in Section 5.1(g)(i)D hereof;
    and

- 7 -

	 		C. 	
      the date the Optionee ceases to serve as a director of
      the Company or Related Corporation, as the case may be unless, in the case
      of a Non- Qualified Stock Option, the exercise period is extended by the
      Plan Administrator until a date not later than the expiration date of the
      Option.

	 	 	 	 
	 	(iii) 	
      Upon the death of an Optionee, any vested Options held by
      the Optionee shall be exercisable only by the person or persons to whom
      such Optionee's rights under such Option shall pass by the Optionee's will
      or by the laws of descent and distribution of the Optionee's domicile at
      the time of death and only until such Options terminate as set out
      above.

	 	 	 	 
	 	(iv) 	
      For purposes of the Plan, unless otherwise defined in the
      Agreement, "Disability" shall mean medically determinable physical
      or mental impairment which has lasted or can be expected to last for a
      continuous period of not less than twelve months or that can be expected
      to result in death. The Plan Administrator shall determine whether an
      Optionee has incurred a Disability on the basis of medical evidence
      acceptable to the Plan Administrator. Upon making a determination of
      Disability, the Plan Administrator shall, for purposes of the Plan,
      determine the date of an Optionee's termination of employment or
      contractual relationship.

	 	 	 	 
	 	(v) 	
      Unless accelerated in accordance with Section 5.1(f)
      hereof, unvested Options shall terminate immediately upon termination of
      employment of the Optionee by the Company for any reason whatsoever,
      including death or Disability.

	 	 	 	 
	 	(vi) 	
      For purposes of this Plan, transfer of employment between
      or among the Company and/or any Related Corporation shall not be deemed to
      constitute a termination of employment with the Company or any Related
      Corporation. Employment shall be deemed to continue while the Optionee is
      on military leave, sick leave or other bona fide leave of absence
      (as determined by the Plan Administrator). The foregoing notwithstanding,
      employment shall not be deemed to continue beyond the first ninety days of
      such leave, unless the Optionee's re- employment rights are guaranteed by
      statute or by contract.

	(h) 	
      Exercise of Options

	 	 	 
		(i) 	
      Options shall be exercisable, in full or in part, at any
      time after vesting, until termination. If less than all of the Common
      Shares included in the vested portion of any Option are purchased, the
      remainder may be purchased at any subsequent time prior to the expiration
      of the Option term. Only whole Common Shares may be issued pursuant to an
      Option, and to the extent that an Option covers less than one (1) share,
      it is unexercisable.

	 	 	 
		(ii) 	
      Options or portions thereof may be exercised by giving
      written notice, in substantially the form of notice attached as
      Schedule "B" hereto, to the Company and be accompanied by payment
      in the amount of the aggregate exercise price for the Common Shares so
      purchased, which payment shall be in the form specified in Section 5.1(i)
      hereof. The Company shall not be obligated to issue, transfer
  or

- 8 -

deliver a certificate representing
Common Shares to the Holder of any Option, until provision has been made by the
Holder, to the satisfaction of the Company, for the payment of the aggregate
exercise price for all Common Shares for which the Option shall have been
exercised and for satisfaction of any tax withholding obligations associated
with such exercise. During the lifetime of an Optionee, Options are exercisable
only by the Optionee.

	(i) 	Payment upon Exercise of Option
  

Upon the exercise of any Option, the aggregate exercise price
shall be paid to the Company in cash or by certified or cashier's check. In
addition, if pre-approved in writing by the Plan Administrator who may
arbitrarily withhold consent, the Holder may pay for all or any portion of the
aggregate exercise price by complying with one or more of the following
alternatives:

	 	(i) 	
      by delivering a properly executed exercise notice
      together with irrevocable instructions to a broker promptly to sell or
      margin a sufficient portion of the Common Shares and deliver directly to
      the Company the amount of sale or margin loan proceeds to pay the exercise
      price; or

	 	 	 
	 	(ii) 	
      by complying with any other payment mechanism approved by
      the Plan Administrator at the time of
exercise.

	(j) 	No Rights as a Shareholder

A Holder shall have no rights as a shareholder of the Company
with respect to any Common Shares covered by an Option until such Holder becomes
a record holder of such Common Shares, irrespective of whether such Holder has
given notice of exercise. Subject to the provisions of Section 5.1(m) hereof, no
rights shall accrue to a Holder and no adjustments shall be made on account of
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights declared on, or created in, the
Common Shares for which the record date is prior to the date the Holder becomes
a record holder of the Common Shares covered by the Option, irrespective of
whether such Holder has given notice of exercise.

	(k) 	
      Non-transferability of Options

	 	 	 	 
		(i) 	
      Options granted under this Plan and the rights and
      privileges conferred by this Plan may not be transferred, assigned,
      pledged or hypothecated in any manner (whether by operation of law or
      otherwise) other than by will or by applicable laws of descent and
      distribution or, in the case of a Non-Qualified Stock Option, pursuant to
      a qualified domestic relations order, and shall not be subject to
      execution, attachment or similar process; provided however that, subject
      to applicable laws:

	 	 	 	 
			A. 	
      for Non-Qualified Stock Options, any Agreement may
      provide or be amended to provide that a Non-Qualified Stock Option to
      which it relates is transferable without payment of consideration to
      immediate family members of the Optionee or to trusts or partnerships or
      limited liability

- 9 -

				companies established exclusively for the benefit of the
      Optionee and the Optionee's immediate family members; and
	 	 	 	 
			B. 	
      for all Options, the Optionee's heirs or administrators
      may exercise any portion of the outstanding Options within one year of the
      Optionee's death.

	 	 	 	 
		(ii) 	
      Upon any attempt to transfer, assign, pledge, hypothecate
      or otherwise dispose of any Option or of any right or privilege conferred
      by this Plan contrary to the provisions hereof, or upon the sale, levy or
      any attachment or similar process upon the rights and privileges conferred
      by this Plan, such Option shall thereupon terminate and become null and
      void.

	 	 	 	 
	(l) 	
      Securities Regulation and Tax
Withholding

	 	 	 	 
		(i) 	
      Common Shares shall not be issued with respect to an
      Option unless the exercise of such Option and the issuance and delivery of
      such Common Shares shall comply with all Applicable Laws, and such
      issuance shall be further subject to the approval of counsel for the
      Company with respect to such compliance, including the availability of an
      exemption from prospectus and registration requirements for the issuance
      and sale of such Common Shares. The inability of the Company to obtain
      from any regulatory body the authority deemed by the Company to be
      necessary for the lawful issuance and sale of any Common Shares under this
      Plan, or the unavailability of an exemption from prospectus and
      registration requirements for the issuance and sale of any Common Shares
      under this Plan, shall relieve the Company of any liability with respect
      to the non-issuance or sale of such Common Shares.

	 	 	 	 
		(ii) 	
      As a condition to the exercise of an Option, the Plan
      Administrator may require the Holder to represent and warrant in writing
      at the time of such exercise that the Common Shares are being purchased
      only for investment and without any then- present intention to sell or
      distribute such Common Shares. If necessary under Applicable Laws, the
      Plan Administrator may cause a stop-transfer order against such Common
      Shares to be placed on the stock books and records of the Company, and a
      legend indicating that the Common Shares may not be pledged, sold or
      otherwise transferred unless an opinion of counsel is provided stating
      that such transfer is not in violation of any Applicable Laws, may be
      stamped on the certificates representing such Common Shares in order to
      assure an exemption from registration. The Plan Administrator also may
      require such other documentation as may from time to time be necessary to
      comply with applicable securities laws. THE CORPORATION HAS NO OBLIGATION
      TO UNDERTAKE REGISTRATION OF OPTIONS OR THE COMMON SHARES ISSUABLE UPON
      THE EXERCISE OF OPTIONS.

	 	 	 	 
		(iii) 	
      The Holder shall pay to the Company by certified or
      cashier's check, promptly upon exercise of an Option or, if later, the
      date that the amount of such obligations becomes determinable, all
      applicable federal, state, local and foreign withholding taxes that the
      Plan Administrator, in its discretion, determines
to

- 10 -

		
       
	result upon exercise of an Option or from a
      transfer or other disposition of Common Shares acquired upon exercise of
      an Option or otherwise related to an Option or Common Shares acquired in
      connection with an Option. Upon approval of the Plan Administrator, a
      Holder may satisfy such obligation by complying with one or more of the
      following alternatives selected by the Plan Administrator:
	 	
       
	
       
	
       

	 	
       
	
      A.
	
      by delivering to the Company Common Shares previously
      held by such Holder or by the Company withholding Common Shares otherwise
      deliverable pursuant to the exercise of the Option, which Common Shares
      received or withheld shall have a fair market value at the date of
      exercise (as determined by the Plan Administrator) equal to any
      withholding tax obligations arising as a result of such exercise, transfer
      or other disposition; or

	 	 	 	 
			B. 	
      by complying with any other payment mechanism approved by
      the Plan Administrator from time to time.

	 	 	 	 
		(iv) 	
      The issuance, transfer or delivery of certificates
      representing Common Shares pursuant to the exercise of Options may be
      delayed, at the discretion of the Plan Administrator, until the Plan
      Administrator is satisfied that the applicable requirements of all
      Applicable Laws and the withholding provisions of the Code have been met
      and that the Holder has paid or otherwise satisfied any withholding tax
      obligation as described in Section 5.1(l)(iii) hereof.

	 	 	 	 
	(m) 	
      Adjustments Upon Changes In
  Capitalization

	 	 	 	 
		(i) 	
      The aggregate number and class of shares for which
      Options may be granted under this Plan, the number and class of shares
      covered by each outstanding Option, and the exercise price per share
      thereof (but not the total price), and each such Option, shall all be
      proportionately adjusted for any increase or decrease in the number of
      issued Common Shares of the Company resulting from:

	 	 	 	 
			A. 	
      a subdivision or consolidation of Common Shares or any
      like capital adjustment, or

	 	 	 	 
			B. 	
      the issuance of any Common Shares, or securities
      exchangeable for or convertible into Common Shares, to the holders of all
      or substantially all of the outstanding Common Shares by way of a stock
      dividend (other than the issue of Common Shares, or securities
      exchangeable for or convertible into Common Shares, to holders of Common
      Shares pursuant to their exercise of options to receive dividends in the
      form of Common Shares, or securities convertible into Common Shares, in
      lieu of dividends paid in the ordinary course on the Common
  Shares).

	 	 	 	 
		(ii) 	
      Except as provided in Section 5.1(m)(iii) hereof, upon a
      merger (other than a merger of the Company in which the holders of Common
      Shares immediately prior to the merger have the same proportionate
      ownership of common shares in

- 11 -

	 		
      the surviving corporation immediately after the merger),
      consolidation, acquisition of property or stock, separation,
      reorganization (other than a mere re- incorporation or the creation of a
      holding Company) or liquidation of the Company, as a result of which the
      shareholders of the Company, receive cash, shares or other property in
      exchange for or in connection with their Common Shares, any Option granted
      hereunder shall terminate, but the Holder shall have the right to exercise
      such Holder's Option immediately prior to any such merger, consolidation,
      acquisition of property or shares, separation, reorganization or
      liquidation, and to be treated as a shareholder of record for the purposes
      thereof, to the extent the vesting requirements set out in the Option
      agreement have been satisfied.

	 	 	 
	 	(iii) 	
      If the shareholders of the Company receive shares in the
      capital of another corporation ("Exchange Shares") in exchange for
      their Common Shares in any transaction involving a merger (other than a
      merger of the Company in which the holders of Common Shares immediately
      prior to the merger have the same proportionate ownership of Common Shares
      in the surviving corporation immediately after the merger), consolidation,
      acquisition of property or shares, separation or reorganization (other
      than a mere re-incorporation or the creation of a holding Company), all
      Options granted hereunder shall be converted into options to purchase
      Exchange Shares unless the Company and the corporation issuing the
      Exchange Shares, in their sole discretion, determine that any or all such
      Options granted hereunder shall not be converted into options to purchase
      Exchange Shares but instead shall terminate in accordance with, and
      subject to the Holder's right to exercise the Holder's Options pursuant
      to, the provisions of Section 5.1(m)(ii) hereof. The amount and price of
      converted options shall be determined by adjusting the amount and price of
      the Options granted hereunder in the same proportion as used for
      determining the number of Exchange Shares the holders of the Common Shares
      receive in such merger, consolidation, acquisition or property or stock,
      separation or reorganization. Unless accelerated by the Board, the vesting
      schedule set out in the option agreement shall continue to apply to the
      options granted for the Exchange Shares.

	 	 	 
	 	(iv) 	
      In the event of any adjustment in the number of Common
      Shares covered by any Option, any fractional shares resulting from such
      adjustment shall be disregarded and each such Option shall cover only the
      number of full shares resulting from such adjustment.

	 	 	 
	 	(v) 	
      All adjustments pursuant to Section 5.1(m) hereof shall
      be made by the Plan Administrator, and its determination as to what
      adjustments shall be made, and the extent thereof, shall be final, binding
      and conclusive.

	 	 	 
	 	(vi) 	
      The grant of an Option shall not affect in any way the
      right or power of the Company to make adjustments, reclassifications,
      reorganizations or changes of its capital or business structure, to merge,
      consolidate or dissolve, to liquidate or to sell or transfer all or any
      part of its business or assets.

- 12 -

	6. 	EFFECTIVE DATE; AMENDMENT; SHAREHOLDER
      APPROVAL 

6.1         Options may
be granted by the Plan Administrator from time to time on or after the date on
which this Plan is adopted by the Board (the "Effective Date").

6.2         Unless
sooner terminated by the Board, this Plan shall terminate on the tenth
anniversary of the Effective Date. No Option may be granted after such
termination or during any suspension of this Plan.

6.3         Any
Incentive Stock Options granted by the Plan Administrator prior to the
ratification of this Plan by the shareholders of the Company shall be granted
subject to approval of this Plan by the holders of a majority of the Company's
outstanding voting shares, voting either in person or by proxy at a duly held
shareholders' meeting within twelve months before or after the Effective Date.
If such shareholder approval is sought and not obtained, all Incentive Stock
Options granted prior thereto and thereafter shall be considered Non-Qualified
Stock Options and any Options granted to Covered Employees will not be eligible
for the exclusion set out in Section 162(m) of the Code with respect to the
deductibility by the Company of certain compensation.

	7. 	NO OBLIGATIONS TO EXERCISE OPTION
  

7.1         The grant
of an Option shall impose no obligation upon the Optionee to exercise such
Option.

	8. 	NO RIGHT TO OPTIONS OR TO EMPLOYMENT
  

8.1         Whether or
not any Options are to be granted under this Plan shall be exclusively within
the discretion of the Plan Administrator, and nothing contained in this Plan
shall be construed as giving any person any right to participate under this
Plan. The grant of an Option shall in no way constitute any form of agreement or
understanding binding on the Company or any Related Corporation, express or
implied, that the Company or any Related Corporation will employ or contract
with an Optionee for any length of time, nor shall it interfere in any way with
the Company's or, where applicable, a Related Corporation's right to terminate
Optionee's employment at any time, which right is hereby reserved.

	9. 	APPLICATION OF FUNDS

9.1         The
proceeds received by the Company from the sale of Common Shares issued upon the
exercise of Options shall be used for general corporate purposes, unless
otherwise directed by the Board.

	10. 	INDEMNIFICATION OF PLAN ADMINISTRATOR
  

10.1         In
addition to all other rights of indemnification they may have as members of the
Board, members of the Plan Administrator shall be indemnified by the Company for
all reasonable expenses and liabilities of any type or nature, including
attorneys' fees, incurred in connection with any action, suit or proceeding to
which they or any of them are a party by reason of, or in connection with, this
Plan or any Option granted under this Plan, and against all amounts paid by them
in settlement thereof (provided that such settlement is approved by independent
legal 

- 13 -

counsel selected by the Company), except to the extent that
such expenses relate to matters for which it is adjudged that such Plan
Administrator member is liable for willful misconduct; provided, that within
fifteen days after the institution of any such action, suit or proceeding, the
Plan Administrator member involved therein shall, in writing, notify the Company
of such action, suit or proceeding, so that the Company may have the opportunity
to make appropriate arrangements to prosecute or defend the same.

	11. 	AMENDMENT OF PLAN 

11.1         The Plan
Administrator may, at any time, modify, amend or terminate this Plan or modify
or amend Options granted under this Plan, including, without limitation, such
modifications or amendments as are necessary to maintain compliance with the
Applicable Laws. The Plan Administrator may condition the effectiveness of any
such amendment on the receipt of shareholder approval at such time and in such
manner as the Plan Administrator may consider necessary for the Company to
comply with or to avail the Company and/or the Optionees of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirements.

SCHEDULE "A"

BIOSHAFT WATER TECHNOLOGY, INC. 
(the "Company")

Stock Option Plan 
Option Certificate

This Certificate is issued pursuant to the provisions of the
stock option plan of the Company dated October 24, 2007 (the "Plan") and
evidences that ____________________ is the holder of a stock option (the
"Option") to purchase up to ____________________ shares in the common
stock of the Company (the "Common Shares") at a purchase price of US
$__________per Common Share. (the "Exercise Price"). Subject to the
provisions of the Plan:

	 	(a) 	
      the Option is intended to be [an Incentive Stock
      Option] OR [a Non-Qualified Stock Option] [Pick one] within the
      meaning of Section 422 of the Internal Revenue Code of 1986 (United
      States), as amended ;

	 	 	 
	 	(b) 	
      the award date of this Option is ____________________
      (the "Award Date"); and

	 	 	 
	 	(c) 	
      the expiry date of this Option is ____________________
      (the "Expiry Date").

The right to purchase Common Shares under the Option will vest
in the holder in increments over the term of the Option as follows:

	Date
    	Cumulative Number of Common Shares which may be Purchased
  
	 	 
	 	 

This Option may be exercised in accordance with its terms at
any time and from time to time from and including the Award Date through to and
including up to 5:00 p.m. (Carlsbad, California time) on the Expiry Date, by
delivery to the Administrator of the Plan an exercise notice, in the form
provided in the Plan, together with this Certificate and a certified cheque or
bank draft payable to BIOSHAFT WATER TECHNOLOGY, INC. in an amount equal to the
aggregate of the Exercise Price of the Shares in respect of which this Option is
being exercised.

This Certificate and the Option evidenced hereby are not
assignable, transferable or negotiable and are subject to the detailed terms and
conditions contained in the Plan. This Certificate is issued for convenience
only and in the case of any dispute with regard to any matter in respect hereof,
the provisions of the Plan and the records of the Company shall prevail.

The foregoing Option has been awarded this ______day of
_______________________.

	 	BIOSHAFT WATER
      TECHNOLOGY, INC. 
	 	 	 
	 	Per: 	

SCHEDULE "B"

BIOSHAFT WATER TECHNOLOGY, INC. 
(the "Company")

Stock Option Plan 
Exercise Notice

	TO: 	The Administrator, Stock Option Plan 
		Bioshaft Water Technology, Inc.  
		5927 Balfour Court, Suite 201  
	  	Carlsbad, California 92008 

The undersigned hereby irrevocably gives notice, pursuant to
the terms of the stock option plan of the Company dated October 24, 2007 (the
"Plan"), of the exercise of certain stock options granted under the Plan
to acquire, and hereby subscribes for, the following shares in the common stock
of the Company (the "Shares") (strike out the inapplicable item):

	 	(a) 	
      all of the Common Shares which are set out in the option
      certificate attached hereto ; OR

	 	 	 
	 	(b) 	
      of the Common Shares which are set out in the certificate
      attached hereto, _____________Common Shares

CALCULATION OF TOTAL EXERCISE PRICE:

	 	Number of Common Shares to be acquired on exercise: 	Common
      Shares 
	 	MULTIPLIED BY the Exercise Price per Common Share: 	US$
  
	 	EQUALS the total Exercise Price, as enclosed herewith: 	US$
    

If the undersigned is a "U.S. person", as such term is defined
in Regulation S under the United States Securities Act of 1933 (the
"Securities Act"), the undersigned represents and warrants to the Company
that, at the time of the exercise of the Option, the undersigned is an
"accredited investor", as such term defined in Regulation D under the Securities
Act.

The undersigned tenders herewith a cheque or bank draft (circle
one) in the amount of US$____________ , payable to BIOSHAFT WATER TECHNOLOGY,
INC. in an amount equal to the total Exercise Price of the Common Shares, as
calculated above, and directs the Company to issue, register and deliver the
certificates representing the Common Shares as follows:

	 	 	 	 	 	 	 	 	 	 
	 	 	Registration Information: 	 	 	 	 	 	Delivery Instructions: 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Name to appear on certificates 	 	 	 	 	 	Name 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Address 	 	 	 	 	 	Address 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	  	 	 	 	 	 	  	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	  	 	 	 	 	 	Telephone Number 	 
	 	 	 	 	 	 	 	 	 	 

All capitalized terms, unless otherwise defined in this
exercise notice, will have the meaning provided in the Plan. DATED the ______
day of  _______________________ .

	 	 	 
	Witness 	 	Signature of Option Holder 
	 	 	 
	Name of Witness (Print) 	 	Name of Option Holder (Print) 
	 	 	 
	  	 	(Fax Number)

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