0000899140-01-500304.txt : 20011009 0000899140-01-500304.hdr.sgml : 20011009 ACCESSION NUMBER: 0000899140-01-500304 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20011002 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: STAKE TECHNOLOGY LTD CENTRAL INDEX KEY: 0000351834 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-59617 FILM NUMBER: 1750913 BUSINESS ADDRESS: STREET 1: 2838 HWY 7 STREET 2: NORVAL ONTARIO CITY: L0P 1K0 CANADA STATE: A6 ZIP: L0P 1K0 BUSINESS PHONE: 9054551990 MAIL ADDRESS: STREET 1: 2838 HWY 7 STREET 2: NORVAL ONTARIO CITY: CANADA L0P 1K0 ZIP: L0P 1K0 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CLARIDGE ISRAEL LLC CENTRAL INDEX KEY: 0001159558 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: C/O WILLKIE FARR & GALLAHGER STREET 2: 787 SEVENTH AVE CITY: NEW YORK STATE: NY ZIP: 10019-6099 BUSINESS PHONE: 2127288964 MAIL ADDRESS: STREET 1: C/O WILLKIE FARR & GALLAHGER STREET 2: 787 SEVENTH AVE CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 cill953268b.txt AMENDMENT NO. 1 TO SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 1) Stake Technology Ltd. -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, Without Par Value -------------------------------------------------------------------------------- (Title of Class of Securities) 85 25 59 103 -------------------------------------------------------------------------------- (CUSIP Number of Class of Securities) Guy P. Lander Claridge Israel LLC c/o Davies Ward Phillips & Vineberg 625 Madison Avenue, 12th Floor New York, New York 10022 (212) 588-5511 -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copies to: Michael A. Schwartz., Esq. Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019-6099 (212) 728-8000 September 28, 2001 -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Schedule) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent. SCHEDULE 13D ---------------------- ----------------- CUSIP No. 85 25 59 103 Page 2 of 9 Pages ---------------------- ----------------- ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Claridge Israel LLC ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] ----------- -------------------------------------------------------------------- 3 SEC USE ONLY ----------- -------------------------------------------------------------------- 4 SOURCE OF FUNDS AF ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 6,948,300 --------- ------------------------------------------------ NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 0 OWNED BY --------- ------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH 6,948,300 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 0 ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 6,948,300 ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.2 ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO ----------- -------------------------------------------------------------------- Introductory Note This Amendment No. 1 (as defined herein) is being filed by Claridge Israel LLC (the "Reporting Person") to update the Initial Statement (as defined below). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Initial Statement. This amendment amends the initial statement on Schedule 13D filed by the Reporting Person on September 27, 2001 (the "Initial Statement," and, collectively with this Amendment No. 1, the "Statement"). Item 2 Identity and Background. The second sentence of Item 2(a) is hereby amended to read as follows: Schedule I to this Statement contains the name, residence or business address, present principal occupation and citizenship of each of the executive officers and Managers of the Reporting Person; of the Charles Bronfman Trust ("CBT") and the Charles R. Bronfman Trust ("CRBT," and together with CBT, the "Members"), the members of the Reporting Person collectively, each with a 50% interest in the Reporting Person; and of the Trustees of the Members (collectively, the "Schedule I Persons"). Item 4. Purpose of Transaction. Item 4 is hereby amended by adding thereto the following: The purpose of the Reporting Person in effecting the transactions reported in this Amendment No. 1 is to continue in its effort to make a substantial, but not controlling, equity investment in the Issuer. For a more detailed description of the transactions reported herein, see Item 6 below. Item 5. Interest in Securities of the Issuer. Item 5(a) is hereby amended and restated in its entirety as follows: (a) The Reporting Person may be deemed to beneficially own 6,948,300 shares of Common Stock, which represents 18.2% of the Common Stock of the Issuer based on the 32,923,203 shares of Common Stock reported by the Issuer as outstanding as of August 7, 2001, and the 3,000,000 shares of Common Stock and warrants to purchase 2,250,000 shares of Common Stock issued in the Private Placement (as defined in Item 6 below). Except as disclosed in this Item 5(a), as of the date hereof, neither the Reporting Person nor, to the best of its knowledge, any of the Schedule I Persons beneficially owns any shares of Common Stock. Item 5(c) is hereby amended by adding thereto the following: (c) Except for the shares purchased on September 28, 2001, pursuant to that certain Subscription Agreement dated as of September 28, 2001, by and between the Reporting Person and the Issuer (the "Subscription Agreement"), which is more fully 4 described in Item 6 below and which is attached hereto as Exhibit 1, and except as set forth in Schedule II attached to this Amendment No. 1, since the filing of the Initial Statement there have been no transactions in the Common Stock effected by the Reporting Person, nor, to the best of its knowledge, any of the Schedule I Persons. All of the purchases set forth on Schedule II hereto were made in open market transactions effected in the NASDAQ small cap market. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. Item 6 is hereby amended by adding thereto the following: On September 28, 2001, pursuant to the Subscription Agreement, the Reporting Person purchased directly from the Issuer an aggregate of 3,000,000 units (the "Private Placement"), at a purchase price of US$2.00 per unit, each unit consisting of one share of Common Stock and a warrant to purchase 0.75 shares of Common Stock. The warrants issued (collectively, the "Warrant") represent the right to purchase an aggregate of 2,250,000 shares of Common Stock at a price of US$2.40 per full share at any time and from time to time until September 30, 2004. The terms and conditions of the Warrant are attached hereto as Exhibit 2. The Subscription Agreement entitles the Reporting Person to designate one person to serve on the Issuer's board of directors so long as the Reporting Person and certain related persons and entities own 5% of the issued and outstanding Common Stock and entitles the Reporting Person to designate a second director of the Issuer at such time as such persons own 15% of the Common Stock then issued and outstanding. Pursuant to the provisions of the Subscription Agreement, the Reporting Person has designated Stephen Bronfman, to the Issuer's board of directors. Additionally, the Subscription Agreement entitles the Reporting Person to certain preemptive rights to preserve its percentage ownership of the Issuer in the event the Issuer offers Common Stock or securities convertible into Common Stock to any third party for the purposes of obtaining financing for the Issuer, whether such offerings are made by private placement, registered public offering or otherwise. Also in connection with the Private Placement, the Reporting Person entered into that certain Registration Rights Agreement, dated September 28, 2001, by and between the Reporting Person and the Issuer (the "Registration Rights Agreement"), which is attached hereto as Exhibit 3, pursuant to which the Reporting Person has acquired certain registration rights with respect to all securities of the Issuer owned by it, regardless of how or when acquired. Item 7. Material to be Filed as Exhibits. Item 7 is amended by adding thereto the following exhibits: 5 1. Subscription Agreement, dated as of September 28, 2001, by and between the Reporting Person and the Issuer. 2. Terms and Conditions of Warrant to Purchase 2,250,000 shares of Common Stock. 3. Registration Rights Agreement, dated September 28, 2001, by and between the Reporting Person and the Issuer. 6 SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: October 2, 2001 CLARIDGE ISRAEL LLC By: /s/ Michel Boucher ------------------------------ Name: Michel Boucher Title: Vice President SCHEDULE I TO SCHEDULE 13D Information with Respect to Executive Officers and Directors of the Reporting Person and the Members of the Reporting Person The following sets forth as to each of the members, executive officers and Managers of the Reporting Person: his or her name; his or her business address; and his or her present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted. Unless otherwise specified, the principal employer of each such individual is Claridge, Inc., the business address of which is 1170 Peel Street, Montreal, Canada H3B 4P2, and each such individual identified below is a citizen of Canada. To the knowledge of the Reporting Person and the Members, during the last five years, no such person has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), and no such person was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he or she was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities law or finding any violation with respect to such laws. CLARIDGE ISRAEL LLC -------------------
Name and Present Business Address Present Principal Citizenship -------- ------------------------ ----------------- ----------- Position with Occupation ------------- ---------- the Reporting ------------- Person ------ Board of Managers: Charles R. Bronfman 375 Park Avenue, 6th Floor, Philanthropist Canadian New York, NY 10152 Bruce I. Judelson 157 Church St. Partner, Bergman, Horowitz United States New Haven, CT 6510 & Reynolds Guy P. Lander 625 Madison Ave. Resident Counsel, Davies, United States 12th Floor, New York, NY, 10022 Ward, Phillips & Vineberg Executive Officers: Charles R. Bronfman, Chairman Bruce I. Judelson, President Andrew J. Parsons, Senior Vice President & Vice President CFO, Claridge, Inc. Richard P. Doyle, Senior Vice President Vice President Claridge, Inc. Michel Boucher, Vice President Vice President Claridge, Inc. Geri F. Craig, Assistant Secretary Secretary Claridge, Inc. Robert M. Jamieson, Controller Controller Claridge, Inc. Samuel Minzberg, President & CEO Assistant Secretary Claridge, Inc.
Members of the Reporting Person ------------------------------- Each of the Members is a New York trust and has its principal business address at c/o Davies Ward Phillips and Vineberg LLP, 625 Madison Avenue, 12th Floor, New York, NY 10022.
Charles R. Bronfman Trust ------------------------- Steven H. Levin, 625 Madison Ave. Resident Counsel, United States Trustee 12th Floor, New York, Davies, Ward, Phillips & NY, 10022 Vineberg Guy P. Lander, Trustee Bruce I. Judelson, Trustee Charles Bronfman Trust ---------------------- Steven H. Levin, Trustee Guy P. Lander, Trustee Bruce I. Judelson, Trustee
2 SCHEDULE II TO SCHEDULE 13D Information with Respect to Transactions in the Class of Securities Reported on that were Effected on the NASDAQ Small Cap Market since the filing of the Initial Statement. Trade Date Shares Purchased Price per Share -------------------------------------------------------------------------------- 1-Oct-01 800 US$1.66 10,000 1.80 1,200 1.75 5,000 1.82 Total 17,000 1 EX-1 4 cill951400.txt SUBSCRIPTION AGREEMENT Execution Copy SUBSCRIPTION AGREEMENT ---------------------- TO: STAKE TECHNOLOGY LTD. (the "Company") 2838 Highway 7 Norval, Ontario L0P 1K0 Claridge Israel LLC (the "Purchaser"), hereby irrevocably subscribes, subject to the terms and conditions set forth below, for 3,000,000 units ("Units") of the capital of the Company at the price of US$2.00 per Unit for an aggregate subscription price of US$6,000,000 (the "Offering"), each Unit consisting of one common share of the Company (a "Common Share") and three-quarters of one Common Share purchase warrant (a "Warrant") as set forth in the form of Warrant attached hereto as Schedule "A" (the "Warrant Certificate") to purchase one Common Share. Each Warrant entitles the holder thereof to purchase one Common Share at a purchase price of US$2.40 at any time on or before 5:00pm (Toronto time) on September 30, 2004. Covenants of Company -------------------- 1. The Company covenants with the Purchaser and acknowledges that the Purchaser is relying on such covenants in completing the Offering that the Company shall: a. make all necessary filings with, and obtain all necessary approvals from, the Ontario Securities Commission and the National Association of Securities Dealers in order to complete the Offering and ensure that Common Shares are quoted for trading on the NASDAQ Smallcap Market; b. use its reasonable best efforts to maintain its status as a reporting company under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act" and together with the Securities Act, the "U.S. Securities Laws"), as applicable, and to acquire status as a "reporting issuer" under the Securities Act (Ontario) and to continue to be in compliance with its obligations thereunder, without default; c. use its reasonable best efforts to maintain a quotation for the Common Shares on the NASDAQ Smallcap Market and on such other recognized stock exchange(s) as the Company may determine, acting reasonably; d. ensure that at all times prior to the expiry thereof, sufficient Common Shares are allotted and reserved or deposited for issuance upon the due exercise of the 2 Warrant; and e. allow and assist the Purchaser and its representatives to conduct all due diligence which it may reasonably require to be conducted. Representations and Warranties of Company ----------------------------------------- 1. The Company represents and warrants to the Purchaser, and acknowledges that the Purchaser is relying upon such representations and warranties in completing the Offering, that: (i) the Company and each of Temisca Inc., Sunrich Food Group Inc., Northern Food & Dairy, Inc. Sunrich, Inc. and Nordic Aseptic, Inc. (each a "Material Subsidiary" and collectively, the "Material Subsidiaries") has been duly organized and is validly existing under the laws of its jurisdiction of incorporation, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets and the Company has all requisite power and authority to carry out its obligations under each of this Subscription Agreement and the Warrant; (ii) except for the Material Subsidiaries, the Company has no subsidiaries and has no investment or proposed investment in any person which is or would be material to the business and affairs of the Company; (iii) the Company is a reporting company under the U.S. Securities Laws and is not in default of any requirement thereof, is in compliance with its timely disclosure ___ obligations thereunder and there are no outstanding reports filed under the U.S. Securities Laws on a confidential basis; (iv) the Common Shares, the Warrant and the Common Shares issuable on the exercise of the Warrant (collectively, the "Underlying Securities") upon full payment therefor, have been or shall be, as the case may be, validly created, authorized and issued as fully paid and non-assessable securities in the capital of the Company; (v) all consents, approvals, permits, authorizations or filings as may be required under applicable securities laws or otherwise necessary for the execution and delivery of, and the performance by the Company of its obligations under this Subscription Agreement and the transactions contemplated hereby have been made or obtained, as applicable; (vi) each of this Subscription Agreement, the Registration Rights Agreement (as defined below) and the Warrant has been duly authorized, executed 3 and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms; (vii) none of the execution and delivery of this Subscription Agreement, the Registration Rights Agreement and the Warrant, the performance by the Company of its obligations hereunder or thereunder, the issue and sale of the Units hereunder and the consummation of the transactions contemplated by this Subscription Agreement, the Registration Rights Agreement and the Warrant, including the issuance and delivery of the Underlying Securities conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (whether after notice or lapse of time or both), (A) any statute, rule or regulation applicable to the Company and including, without limitation, applicable securities laws; (B) the constating documents, by-laws or resolutions of the directors and shareholders of the Company which are in full force and effect at and as of the date hereof; (C) any mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company is a party or by which it is bound; or (D) any judgement, decree or order binding the Company or, the property or assets of the Company in each case which default or breach might reasonably be expected to materially adversely affect the business, operations, capital or condition (financial or otherwise) of the Company or its assets; (viii) all necessary corporate action has been taken by the Company to allot and authorize the issuance of the Underlying Securities; (ix) the authorized capital of the Company consists of an unlimited number of Common Shares of which 32,923,203 Common Shares are issued and outstanding as fully paid and non-assessable as at the date hereof prior to giving effect to the Offering and an unlimited number of special shares, none of which have been issued or are outstanding. Except for the conversion, exercise or exchange rights that attach to the Warrant, or to warrants, options and convertible securities listed on Section 1(ix) of the Disclosure Schedule made a part hereof and attached hereto (the "Disclosure Schedule"), there exist no rights to purchase or otherwise acquire any securities of the Company; (x) other than as specifically set forth in the Form 10-KSB for the annual period ended December 31, 2000 (the "10-K") and the Form 10-Q for the quarterly period ended June 30, 2001, (the "10-Q" and together with the 10-K, the "SEC Reports") filed by the Company, there has not occurred any material adverse change, financial or otherwise, in the 4 assets, liabilities (contingent or otherwise), business, financial condition, capital or prospects of the Company and its subsidiaries since the effective date such of forms filed by the Company, and no transaction has been entered into by the Company or any of its subsidiaries which is or would be material to the Company on a consolidated basis; (xi) there have not been any material adverse changes to the assets, liabilities, financial position or business of the Company or any of its Material Subsidiaries since the filing of the SEC Reports; (xii) the SEC Reports were, on the dates of their respective filing, in compliance in all material respects with the requirements of their respective report forms and the Exchange Act and did not, on the date of filing, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (xiii) the financial statements in the SEC Reports have been prepared in accordance with generally accepted accounting principles and present fairly, in all material respects, the financial condition and results of operations of the Company for the periods then ended; (xiv) the Company is in good standing and entitled to all benefits under all contracts to which it is a party and is not dependent upon the guarantee of or any security provided by a third party. Except as set forth on Section 1(xiv) of the Disclosure Schedule, the Company is not knowingly in breach or default of any material obligations under any contract, arrangement or commitment, including agreements for the purchase of materials, supplies or services, agreements with the purchase or sale of any assets of the Company, management, consulting or similar contracts and leases or licenses, written or oral, to which the Company is a party, or by which it is bound, and breaches or defaults which either on their own or in the aggregate, have not had and will not have a material adverse effect on the Company or its successor, its business, affairs or prospects, financial or other. There is no breach or default of or under any agreement that has resulted or could result in the breach of any other agreement, deed or instrument to which the Company or any Material Subsidiary is a party or by which any of their property is bound. There exist no state of facts which, after notice or lapse of time, or both, would constitute a default or breach by the Company of any contracts or commitments to which it is a party. 5 (xv) the Company is the sole registered and beneficial owner of all issued and outstanding securities of each Material Subsidiary (except for certain Class "H" Shares of Temisca, Inc. pledged to its creditors) and no holder of outstanding shares in the capital of the Company will be entitled to any pre-emptive or any similar rights to subscribe for any of the Common Shares or other securities of the Company and no rights, warrants or options to acquire, or instruments convertible into or exchangeable for any shares in the capital of the Company or any of its Material Subsidiaries are outstanding or are contemplated; (xvi) the Company and each of its Material Subsidiaries has conducted and is conducting its business in compliance in all material respects with all applicable laws of each jurisdiction in which such business is carried on, except where the failure to do so would not have an adverse material effect on the Company or any Material Subsidiary; (xvii) Except as specifically disclosed in the SEC Reports, no legal or governmental proceedings are pending to which the Company or any of its Material Subsidiaries is a party or to which the property of the Company or any of its Material Subsidiaries is subject that would result individually or in the aggregate in any material adverse change in the operation, business or condition of the Company taken as a whole and, to the best of its knowledge, information and belief, no such proceedings have been threatened against or are contemplated with respect to the Company or any of its property; (xviii) the Company and each of its Material Subsidiaries has timely filed all necessary tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due except where the failure to file such tax returns and notices would not have an adverse material effect on the Company or any Material Subsidiary and the Company is not aware of any material tax deficiencies or material interest or penalties accrued or accruing, or alleged to be accrued or accruing thereon which have not otherwise been provided for by the Company and its subsidiaries; (xix) the Company and its Material Subsidiaries possess all material certificates, authorizations, permits or licences issued by the appropriate regulatory authorities necessary to conduct the business operated by it and neither the Company nor any Material Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, permit or licence which, by itself or in the aggregate, if the subject of an unfavourable decision, ruling or finding, 6 would have an adverse material effect on the conduct of the business, operations, financial condition or income of the Company taken as a whole; (xx) to the best of the Company's knowledge, information and belief, none of the directors or officers of the Company or any of its subsidiaries (or such shareholders' respective principals) is or has ever been subject to prior regulatory, criminal or bankruptcy proceedings in Canada or elsewhere; (xxi) the Company or one of its subsidiaries has all proprietary rights provided in law to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property (collectively, "Intellectual Property") necessary to permit it to conduct its business, except where the failure to do so would not have an adverse material effect on the Company; (xxii) the Company or one of its subsidiaries is the exclusive owner of or possesses adequate enforceable rights to use the Intellectual Property free and clear of any encumbrances which would have an adverse material effect on the Company, and has no knowledge of any claim of adverse ownership in respect thereof; (xxiii) the Company is not aware of a claim of any infringement or breach by the Company or any of its subsidiaries of any industrial or intellectual property rights of any other person, nor has the Company or any of its subsidiaries received any notice, nor is the Company otherwise aware, that the use of the business names, trademarks, servicemarks, copyrights and other industrial or intellectual property of the Company or any of its subsidiaries infringes upon or breaches any industrial or intellectual property rights of any other person and the Company has no knowledge of any infringement or violation of any of the rights of the Company in such intellectual and industrial property and is not aware of any state of facts that casts doubt on the validity or enforceability of any such intellectual or industrial property rights; (xxiv) no royalty or other fee is required to be paid by the Company to any other Person (as defined by applicable securities laws) in respect of the Intellectual Property and there are no restrictions on the ability of the Company to exploit or assign all rights in the Intellectual Property; (xxv) there are no claims against the Company in connection with product warranties or the production or sale of defective or inferior products; 7 (xxvi) except as specifically disclosed in the SEC Reports, there is presently no material plan in place for retirement bonus, pension benefits, unemployment benefits, deferred compensation, severance or termination pay, insurance, sick leave, disability, salary continuation, legal benefits, vacation or other employee incentives or compensation that is contributed to or required to be contributed to, by the Company for the benefit of any current or former director, senior officer, or consultant of the Company; (xxvii) except as specifically disclosed in the SEC Reports, neither the Company nor any of its subsidiaries owes any money to, nor has the Company or any of its subsidiaries any present loans to, or borrowed any monies from, is or otherwise indebted to any officer, director, employee, shareholder or any person not dealing at "arms length" (as such term is defined in the Income Tax Act (Canada)) with the Company except for usual employee reimbursements and compensation paid in the ordinary and normal course of the business of the Company; (xxviii) except as specifically disclosed in the SEC Reports, neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding except in the normal course of business with any officer, director, employee, shareholder or any other person not dealing at arm's length with the Company; (xxix) except as specifically disclosed in the SEC Reports, to the best of the Company's knowledge, information and belief, no present or former officer, director or shareholder of the Company or any of its subsidiaries has any cause of action, or other claim whatsoever, against, or owes any amount to, the Company or any of its subsidiaries except for any liabilities reflected in the SEC Reports and claims in the ordinary and normal course of the business such as for accrued vacation pay and accrued benefits under any employee plans the particulars of which have been disclosed to the Agent; (xxx) all material accruals for unpaid vacation pay, premiums for unemployment insurance, health premiums, pension plan premiums, accrued wages, salaries and commissions and employee benefit plan payments have been reflected in the books and records of the Company; (xxxi) there has not been and there is not currently any material disagreement or other difficulty with any of the employees of the Company or any of its subsidiaries which is adversely affecting or could reasonably 8 adversely affect, in a material manner, the carrying on of the business of the Company or any of its subsidiaries; (xxxii) to the best of the Company's knowledge, information and belief, the Company is in compliance with the provisions of applicable worker's compensation, applicable employee health and safety, training or similar legislation in each jurisdiction where it carries on business; (xxxiii) no property or asset of the Company or any of its subsidiaries has been taken or expropriated by any federal, state, provincial, municipal or other authority nor has any notice or proceeding in respect thereof been given or commenced nor is the Company aware of any intent or proposal to give any such notice or commence any such proceeding; (xxxiv) with respect to each premises which is material to the Company and which the Company or any of its subsidiaries occupies (the "Material Premises"), the Company or one of its subsidiaries either owns such Material Premises or has the exclusive right to occupy and use the Material Premises; (xxxv) each of the leases pursuant to which the Company or any of its subsidiaries occupies any Material Premises is in good standing and in full force and effect, and none of the Company or any of its subsidiaries (as the case may be) or, to the best of the knowledge, information and belief of the Company, any other party thereto, is in breach of any material covenants, conditions or obligations contained therein; (xxxvi) to the best of the Company's knowledge, information and belief, the business of the Company and each of its subsidiaries has been and is in compliance with all applicable Environmental Laws except where such non-compliance would not have an adverse material effect on the Company or any Material Subsidiary; neither the Company nor any of its subsidiaries has used or permitted to be used, except in compliance with all Environmental Laws, any of its properties or facilities or any property or facility which it previously owned or leased, to generate, manufacture each and every element, compound, chemical mixture, contaminant, pollutant, material waste or other substance which is defined, determined or identified as hazardous or toxic under any environmental law to which the Company or its subsidiaries is subject or release of which is prohibited under any such environmental law ("Hazardous Materials"), process, distribute, use, treat, store, dispose of, transport or handle any Hazardous Materials and neither the Company nor any of its subsidiaries has caused or permitted, nor has there been any release, of any Hazardous Materials on, in, around, from or in 9 connection with any of its properties or assets or their use, or any property or facility which it previously owned or leased, or any such release on or from a facility owned or operated by any third party but with respect to which the Company or one of its subsidiaries is or may reasonably be alleged to have liability. All Hazardous Materials and all other wastes and other materials and substances used in whole or in part by the Company and its subsidiaries have been disposed of, treated and stored by the Company and its subsidiaries in compliance with all environmental laws; neither the Company nor any of its subsidiaries has received any notice of, nor been prosecuted for, non-compliance with any environmental laws, and neither the Company nor any of its subsidiaries has settled any allegation of non-compliance prior to prosecution; and there are no notices, orders or directions relating to environmental matters requiring, or notifying the Company or one of its subsidiaries that it is or may be responsible for, any containment, clean-up, remediation or corrective action, or any work, repairs, construction or capital expenditures to be made under environmental laws with respect to the business or any property of the Company and its subsidiaries; and (xxxvii) Neither the Company nor any of its Material Subsidiaries nor any person acting on behalf of either of them has offered or sold any of the Underlying Securities by any form of solicitation or general advertising. Representations and Warranties of Purchaser ------------------------------------------- 1. The Purchaser represents and warrants to the Company, and acknowledges that the Company is relying upon such representations and warranties in completing the Offering; (i) The Purchaser is a valid and subsisting limited liability company, has the necessary capacity and authority to execute and deliver this subscription agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary power in respect thereof. (ii) Each of this Subscription Agreement and the Registration Rights Agreement has been duly executed and delivered by the Purchaser and constitutes a legal, valid and binding contract of the Purchaser enforceable against the Purchaser in accordance with its terms. (iii) The Purchaser is a resident of the United States and executed and delivered this Subscription Agreement in the United States. (iv) The Purchaser is acting as principal and is acquiring the Units to be held 10 for investment only and not with a view to immediate resale or distribution and will not resell or otherwise transfer or dispose of the Common Shares and Warrant comprising the Units except in accordance with provisions of applicable securities laws. (v) No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Purchaser is required for the execution, delivery or performance by the Purchaser of its obligations hereunder, including without limitation the purchase of the Underlying Securities. (vi) Neither the acquisition of the Underlying Securities nor the performance of the Purchaser's obligations hereunder will violate, conflict with, result in a breach of, or constitute a default (or an event that, with the giving of notice or the lapse of time, or both, would constitute a default) under (i) the operating agreement or other organizational documents of the Purchaser, (ii) any decree, judgment, order, law, treaty, rule, regulation or determination of any court, governmental agency or body or arbitrator having jurisdiction over the Purchaser or any of its assets or properties or (iii) the terms of any material agreement to which the Purchaser is a party or to which any of the Purchaser's properties is subject. (vii) The Purchaser understands that the Underlying Securities have not been registered under the Securities Act, nor qualified under any state securities laws, and that they are being offered and sold pursuant to an exemption from such registration and qualification based in part upon the representations of the Purchaser contained herein. (viii) The Purchaser is an "accredited investor" as such term is defined in Rule 501(a) of the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Subscription Agreement; the Purchaser is able to bear the economic risk of its investment in the Company (including a complete loss of its investment). (ix) The Purchaser understands that it must bear the economic risk of this investment indefinitely unless its Underlying Securities are registered pursuant to the Securities Act or an exemption from such registration is available, and unless the disposition of such securities is qualified under applicable state securities laws or an exemption from such qualification is available. The Purchaser further understands that there is no assurance that any exemption from the Securities Act will be available, or, if available, that such exemption will allow the Purchaser to sell, 11 assign, pledge, hypothecate, or otherwise dispose or encumber any or all of the Underlying Securities, in the amounts, or at the time the Purchaser might propose. (x) The Purchaser is acquiring the Underlying Securities solely for its own account for investment and not with a view toward the resale, assignment, pledge, hypothecation, or other disposition, encumbrance or distribution thereof (collectively, "Transfer"), nor with any present intention of distributing the Underlying Securities. No other person has any right with respect to or interest in the Underlying Securities to be purchased by the Purchaser, nor has the Purchaser agreed to give any person any such interest or right in the future. (xi) The Purchaser was not provided with, has not requested, and does not need to receive an offering memorandum or a prospectus as defined in applicable securities laws. The offer and sale to the Purchaser of the Units was not made through or as a result of, and the distribution of Units is not being accompanied by, any advertisement in printed public media, radio or television or telecommunication, including electronic display or any other form of advertisement and, except for the this subscription agreement, the only documents delivered or otherwise furnished to the subscriber in connection with such offering and sale were a term sheet describing the terms of this offering, copies of news releases issued by the Company, public available research reports, public filings with the Securities and Exchange Commission, none of which have been prepared for delivery to the Purchaser in order to assist it in making an investment decision in respect of the Units. (xii) Other than as specifically set forth in this Subscription Agreement, the Purchaser makes no representation or warranty. EXCEPT AS SPECIFICALLY SET FORTH IN THIS SUBSCRIPTION AGREEMENT, ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED. Pre-emptive Rights ------------------ 1. For so long as any members of the Claridge Group (as defined below) collectively remain the beneficial owners of five percent (5%) or more of the outstanding Common Shares, the Company shall give notice to the Purchaser and/or to the members of the Claridge Group who hold Common Shares (collectively, the "Notified Parties") of all proposed offerings of Common Shares or securities convertible into Common Shares to any third party for the purposes of obtaining financing for the Company, whether such offerings be 12 by way of private placement or to the public by way of prospectus or registration statement or otherwise. Every such notice shall be made in writing given by the Secretary of the Company to the Notified Parties by sending the same by prepaid registered mail addressed to, or by delivering the same personally to, the Notified Parties at their latest address as shown in the records of the Company. Such notice shall specify the total number of Common Shares or securities convertible into Common Shares then being offered for allotment and issue, the issue price for each such Common Share or securities convertible into Common Shares (or unit if being offered in units), the method by which such offering is being made and the number of such Common Shares or securities convertible into Common Shares (or units if being made by units) being offered to the Notified Parties and shall limit the time (which shall not be less than 2 days from the date on which such notice is deemed to have been given) within which such offer, if not accepted, will be deemed to be declined. The number of Common Shares or securities convertible into Common Shares (or units if offered in units) to be offered to the Notified Parties in any such notice shall be equal to the percentage that the Common Shares owned by the Notified Parties represents of the total number of Common Shares issued and outstanding at the time of giving of such notice. Acceptance of such offer by the Notified Parties shall be made (within the time limited for acceptance as aforesaid) by a reply notice in writing given to the Company by prepaid registered mail addressed to, or by delivering the same personally to, the Company at its registered office. Upon the expiration of the time limited for acceptance as aforesaid or upon receipt of written advice from the Notified Parties that they decline to accept the Common Shares offered to it, the Company shall have the right within one hundred and twenty (120) days to allot and issue Common Shares or securities convertible into Common Shares offered for allotment and issue in accordance with the foregoing provisions and not accepted by the Notified Parties to any person or persons at such price and upon such terms as such Common Shares or securities convertible into Common Shares were offered for allotment and issue. Following the expiration of such one hundred and twenty (120) days the foregoing provisions hereof shall again apply in respect of unissued Common Shares or securities convertible into Common Shares and so on from time to time. Any offer, reply or notice as aforesaid, if delivered, shall be deemed to have been given on the date on which it was delivered, or if mailed by prepaid registered post, shall be deemed to have been given on third business day following the day on which it was mailed. Except as aforesaid, no holder of Common Shares or securities convertible into Common Shares should be entitled as of right to subscribe for, purchase or receive any part of any issue of shares or securities of the Company now or hereafter authorized. 2. If the Company proceeds with a rights offering to any or all of its shareholders and/or securityholders and all or any part of such rights offering is not taken up by the shareholders and/or securityholders of the Company then the Notified Parties shall have the right to take up any or all of the unexercised portion of such rights offering upon the same terms and conditions and at the same price of the rights offering. Upon the expiry of any rights offering, the Company shall send to the Notified Parties a notice specifying the shares or securities which have not been taken up under the rights offering. The Notified 13 Parties shall, within twenty one (21) days of receipt of such notice send the Company a notice specifying the number of shares or securities which have not been taken up under the rights offering which the Notified Parties wish to purchase. 3. Notwithstanding the foregoing, the Purchaser shall have no pre-emptive right in respect of Common Shares or securities convertible into Common Shares to be issued: a. as consideration for the acquisition of the shares or assets of another company or in connection with an amalgamation or merger of the Company with another company; b. as a share dividend; c. pursuant to an employee stock option plan of the Company; or d. pursuant to the exercise of conversion privileges, options or rights previously granted by the Company. For purposes of this Subscription Agreement, "Claridge Group" shall mean: (i) Charles R. Bronfman and his lineal descendants; (ii) the spouses of any one or more of the foregoing; (iii) any trust of which any one or more of such persons is a beneficiary; (iv) a partnership in which one or more of the foregoing entities owns a majority equity interest; and (v)any company directly or indirectly under the Control of one or more of the foregoing. "Control" means, in the case of a company or corporation, the beneficial ownership of (a) voting securities carrying not less than 50.1% of the votes that may be cast at a meeting of shareholders of the company (other than meetings of a particular class); and (b) securities carrying the right to receive not less than 50.1% of the residual assets of a company upon liquidation or dissolution, after provision for any shares entitled to receive property of a fixed or determinable value upon liquidation or dissolution in property to the right of any other class or classes of shares. Directors --------- 1. For so long as any member of the Claridge Group remains the beneficial owner of at least five percent (5%) of the issued and outstanding Common Shares the Company will nominate for election, and recommend to its shareholders, a person designated by the Purchaser to serve on the board of directors of the Company at all meetings of shareholders of the Company held for the purpose of electing directors. In the event that, and for so long as, the beneficial holdings of Common Shares by the Purchaser shall be at least fifteen percent (15%) of all Common Shares then issued and outstanding, the Company shall nominate for election, and recommend to its shareholders, a second 14 person designated by the Purchaser to serve on the board of directors of the Company at all meetings of shareholders of the Company held for the purpose of electing directors. Conditions of Closing --------------------- 1. The Company's obligation to sell the Units to the Purchaser is subject to the condition that the Purchaser execute and return to the Company all relevant documentation required by applicable securities laws as the sale of the Units by the Company to the Purchaser will not be qualified by a prospectus. The Purchaser agrees to comply with the Securities Act (Ontario) and the U.S. Securities Laws, as applicable, and all other relevant securities legislation and policies concerning any resale of the Underlying Securities. 2. The following are conditions of the Purchaser's obligation to purchase the Units hereunder, which conditions must be fulfilled at or prior to closing and which may be waived in writing, in whole or in part by the Purchaser: a. the board of directors of the Company shall have accepted the Subscription Agreement and the Registration Rights Agreement and shall have authorized the execution and delivery of this Subscription Agreement and the Registration Rights Agreement and approved the issuance of the Units including the Common Shares, the Warrant and the Common Shares issuable upon exercise of the Warrant; b. the Purchaser and the Company shall have entered into the Registration Rights Agreement attached hereto as Schedule "B" (the "Registration Rights Agreement"); c. the Company shall deliver to the Purchaser a certificate of the Company under its corporate seal and signed on behalf of the Company by the Chief Executive Officer and Chief Financial Officer of the Company addressed to the Purchaser and dated the closing date in form satisfactory to counsel to the Purchaser to the effect that: i. the representations of the Company made herein are true and correct in all material respects at and as of the Closing Date and with the same force and effect as though made at and as of the Closing Date, except for changes permitted or contemplated by this Subscription Agreement and except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty shall be true and correct in all respects as of such date; ii. the Company has performed and complied in all respects with all of its covenants and agreements required by this Subscription Agreement to be performed or complied with by it prior to or at the Closing Date; 15 d. the Purchaser shall have received a certificate of a public official attesting to the good standing of the Company and each of its Material Subsidiaries dated not more than two (2) days prior to the Closing Date; e. the Purchaser shall have received a certified copy of a resolution of the board of directors of the Company authorizing the execution and delivery of this Subscription Agreement, the Registration Rights Agreement and the issuance of the Common Shares, the Warrant and Common Shares issuable upon exercise of the Warrant; and f. the Purchaser shall have received a legal opinion from counsel to the Company, acceptable to Purchaser's counsel, acting reasonably and substantially in the form attached hereto as Schedule "C." Closing ------- 1. Delivery and payment for the Units shall be completed at the offices of the Company at 2:00 pm (local time) on September 28, 2001 (the "Closing Date"). 2. A single share certificate representing the Common Shares forming a part of the Units and the Warrant Certificate representing the Warrant shall be delivered to the Company for the amount of the Purchase Price at closing. Applicable Law -------------- 1. This agreement is governed by the laws of the Province of Ontario. By acceptance, the Purchaser irrevocably accepts the jurisdiction of the courts of the Province of Ontario. General ------- 1. Time shall, in all respects be of the essence hereof; 2. Unless otherwise expressly indicated, all references herein to dollar amounts are to lawful money of the United States; 3. This agreement constitutes the only agreement between the Company and the Purchaser with respect to the subject matter hereof and may be amended or modified by written instrument only executed by both the parties hereto; and 4. The terms and provisions of this agreement shall be binding upon and enure to the benefit of the Company and the Purchaser and their respective successors and permitted assigns. 16 5. This Subscription Agreement may be executed in any number of counterparts each of which shall be deemed an original. Execution Copy IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement as of the __ day of September, 2001. CLARIDGE ISRAEL LLC By: /s/ Guy P. Lander ------------------------------ Name: Guy P. Lander Title: Stake Technology Ltd. Hereby accepts the subscription on the terms and conditions above set forth. Dated the __ day of September, 2001. STAKE TECHNOLOGY LTD. By: /s/ Jeremy N. Kendall ------------------------------ Name: Jeremy N. Kendall Title: Chairman and Chief Executive Officer on Behalf of Stake EX-2 5 cill500500.txt TERMS AND CONDITIONS OF WARRANT TO PURCHASE TERMS AND CONDITIONS ATTACHING TO WARRANTS EXPIRING SEPTEMBER 30, 2004 ---------------------------------------------------------------------- ARTICLE I - INTERPRETATION SECTION 1.01 - DEFINITION ------------------------- In these Terms and Conditions, unless there is something in the subject matter or context inconsistent therewith: (a) "Herein", "hereby" and similar expressions, refer to these Terms and Conditions as the same may be amended or modified from time to time; and the expressions "Article" and "Section" followed by a number refer to the specified Article or Section of these Terms and Conditions; (b) "Warrants" means the Warrants of the Company issued and presently authorized as set out in Section 2.01 hereof and for the time being outstanding; (c) "Warrant Holders" or "Holders" means the registered holders of the Warrants for the time being; (d) "Company" means STAKE TECHNOLOGY LTD.; (e) "Director" means a director of the Company for the time being and reference, without more, to action by the directors means action by the directors of the Company as a board, or whenever duly empowered, action by an executive committee of the board; (f) "Company's auditors" means an independent firm of accountants duly appointed as auditors of the Company; (g) "Security" means any note or share of the Company's issue or any Warrant to purchase shares of the Company's issue or any other instrument of whatever nature issued by the Company and commonly known as a security; (h) "Common Shares" or "Shares" means the common shares without par value in the capital of the Company as constituted at the 28th day of September, 2001 and any shares resulting from any increase, subdivision or consolidation of the said shares or any conversion thereof into another form of securities; (i) "Person" means an individual, a corporation, a partnership, a trustee or any unincorporated organization and words importing persons have a similar meaning; and (j) Words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. SECTION 1.02 - INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. ------------------------------------------------------------ The division of these Terms and Conditions into Articles and Sections, and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation thereof. SECTION 1.03 - APPLICABLE LAW ----------------------------- The Warrants shall be construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable thereto and shall be treated in all respects as Ontario contracts. ARTICLE 2 - ISSUE OF WARRANTS SECTION 2.01 - ISSUE OF WARRANTS -------------------------------- Warrants entitling the holders thereof to purchase an aggregate of up 2,250,000 Common Shares are authorized to be issued by the Company. SECTION 2.02 - ADDITIONAL WARRANTS ---------------------------------- The Company may at any time and from time to time issue additional Warrants or grant options or similar rights to purchase Securities of its issue. SECTION 2.03 - APPLICATION AND TERMS ------------------------------------ The provisions of Articles 1 to and including 7 hereof shall apply to all the Warrants. SECTION 2.04 - ISSUE IN SUBSTITUTION FOR LOST WARRANTS ------------------------------------------------------ 1. In case this Warrant shall become mutilated or be lost, destroyed or stolen, the Company in its discretion may issue and deliver a new Warrant of like date and tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon cancellation of such mutilated warrant or in lieu of, and in substitution for such lost, destroyed or stolen warrant and the substitute Warrant shall be entitled to the benefit hereof. 2. The applicant for the issue of a new Warrant pursuant hereto shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Company such evidence of ownership and of the loss, destruction or theft of the Warrant so lost, destroyed or stolen as shall be satisfactory to the Company in its discretion and such applicant may also be required to furnish indemnity in amount and form satisfactory to the Company in its discretion and shall pay the reasonable charges of the Company in connection therewith. SECTION 2.05 - WARRANT HOLDER NOT A SHAREHOLDER ----------------------------------------------- The holding of a Warrant shall not constitute the holder thereof a shareholder of the Company nor entitle him or her to any right or interest in respect thereof except as in the Warrant expressly provided. SECTION 2.06 - TIME OF ESSENCE ------------------------------ Time shall be strictly of the essence hereof. ARTICLE 3 - OWNERSHIP AND TRANSFER SECTION 3.01 - EXCHANGE OF WARRANTS ----------------------------------- Warrant certificates shall be held intact and not subdivided or exchanged into certificates representing a lesser number of Warrants except in the event of the death of a Warrant Holder in which event the personal representatives of the deceased Warrant Holder will be entitled to have Warrant Certificates held by such Holder subdivided as required to administer the estate. SECTION 3.02 - CHARGES FOR TRANSFER ----------------------------------- For each Warrant transferred the Company, except as otherwise herein provided, may charge a sum not exceeding $3.00(U.S.) for each new Warrant certificate issued; payment of such charges and of any transfer taxes or governmental or other charges required to be paid shall be made by the party requesting such transfer as a condition precedent thereto. SECTION 3.03 - OWNERSHIP AND TRANSFER OF WARRANTS ------------------------------------------------- The Company may deem and treat the registered holder of any Warrant, as set forth on the warrant certificate, as the absolute holder of such Warrant for all purposes and shall not be affected by any notice or knowledge to the contrary. The holder of any Warrant shall be entitled to the rights evidenced by such Warrant free from all equities or rights of set off or counter-claim between the Company and the original or any intermediate holder thereof and all persons may act accordingly and the receipt of any such holder for the Shares purchasable pursuant thereto shall be a good discharge to the Company for the same and the Company shall not be bound to inquire into the title of any such holder. Warrants shall not be negotiable nor transferable by Warrant Holders without the prior written consent of the Company, which consent shall not be unreasonably withheld provided that any such transfer shall be in compliance with applicable provisions of the Securities Act (Ontario) and the Regulations thereunder and the United States Securities Act of 1933. SECTION 3.04 - ASSIGNMENT OF WARRANT ------------------------------------ Notwithstanding anything herein to the contrary, the Warrant Holder may transfer and assign the Warrant, in whole or in part, to any subsidiary or affiliate (as such term is defined in the Canada Business Corporations Act) of the Warrant Holder. SECTION 3.05 - NOTICE TO WARRANT HOLDERS ---------------------------------------- Any notice, communication or other document to be given by the Company to the Warrant Holder shall be sufficiently given if delivered to the Person to whom it is to be given or mailed by prepaid ordinary mail at his or her last address as recorded in the books of the Company. Any notice, communication or document so delivered shall be deemed to have been given when it is delivered personally or at the time the same is mailed. The secretary of the Company may change the address on the books of the Company of any Warrant Holder in accordance with any information believed by him to be reliable. ARTICLE 4 - EXERCISE AND REDEMPTION OF WARRANTS SECTION 4.01 - METHOD OF EXERCISE OF WARRANTS --------------------------------------------- The right to purchase Shares conferred by any of the Warrants may be exercised by the holder of such Warrant surrendering it, with a duly completed and executed subscription in the form attached hereto and cash or a certified check payable in U.S. funds to or to the order of the Company for the subscription price applicable at the time of the surrender in respect of the Shares subscribed for to the office of the Company's transfer agent in the City of New York. SECTION 4.02 - EFFECT OF EXERCISE OF WARRANTS --------------------------------------------- 1. Upon surrender and payment as aforesaid, the Shares so subscribed for shall be deemed to have been issued and such Person or Persons shall be deemed to have become the holder or holders of record of such Shares on the date of such surrender and payment, unless the register of shareholders of the Company shall be closed on the said date of such surrender and payment, in which case the Shares so subscribed for shall be deemed to have been issued and such Person or Persons shall be deemed to have become the holder or holders of record of such Shares on the date on which such register of shareholders was reopened, and such Shares shall be issued at the subscription price in effect on the date of such surrender and payment. 2. Within five business days after surrender and payment as aforesaid, the Company shall cause to be delivered to the Person or Persons in whose name or names the Shares so subscribed for are to be issued as specified in such subscription or mailed to him or them at his or their respective addresses specified in such subscription, a certificate or certificates for the appropriate number of Shares which the Warrant Holder is entitled to purchase pursuant to the Warrant surrendered. SECTION 4.03 - SUBSCRIPTION FOR LESS THAN ENTITLEMENT ----------------------------------------------------- The holder of any Warrant may subscribe for and purchase up to the total number of Shares of the Company specified in the Warrant certificate surrendered. Provided, however, that if at the time of surrender and presentation of the Warrant certificate the same is not fully exercised, a new Warrant certificate representing the unexercised portion thereof will be issued upon surrender of the prior Warrant Certificate. SECTION 4.04 - WARRANTS FOR FRACTIONS OF SHARES ----------------------------------------------- No Warrant to purchase a fraction of a Share may be exercised. SECTION 4.05 - EXPIRATION OF WARRANT ------------------------------------ The Warrants in respect of the right to purchase Common Shares, and in respect of the right to use the unexercised balance thereof to purchase Common Shares shall expire at 5:00 o'clock in the afternoon, New York time, on September, 30, 2004 and thereafter all rights under the Warrant shall wholly cease and terminate and the Warrant shall be void and of no effect. SECTION 4.06 - ADJUSTMENT OF SHARES UPON EXERCISE ------------------------------------------------- If and whenever prior to the expiration of the Warrants: (a) the outstanding Common Shares are subdivided or are consolidated into a greater or lesser number of Common Shares, respectively; (b) the Common Shares are reclassified, exchanged for or converted into other shares, securities or property; (c) a stock dividend or other distribution or issuance has been declared and paid or made on the Common Shares or to the existing holders of Common Shares or other securities of the Company; (d) there has been an amalgamation, merger, consolidation or other reorganization affecting the Company; or (e) there has been a transfer of all or substantially all of the undertaking or assets of the Company to another corporation or entity, (any of such events being referred to in this Section 4.06 as a "Change"), then the Holder, in exercising its Warrants, whether in whole or in part, after the effective date of the Change shall be entitled to receive and shall accept and the Company shall deliver upon such exercise in accordance with this Warrant, in lieu of the number of Common Shares deliverable prior to the effective date, the aggregate number and kinds of Common Shares or other securities or amount of property to which the Holder would have been entitled to as a result of the Change if, on the effective date thereof, it had been the registered holder of the number of Common Shares it would have received had it exercised the Warrants or relevant portion thereof immediately before the effective date of the Change. The adjustments provided for in this Section 4.06 shall be cumulative. The necessary adjustments shall be made in the application of the provisions of this Warrant with respect to the rights and options of the Holder after any Change to the end that the provisions hereof shall thereafter correspondingly apply, as nearly as may reasonably be, in relation to any Common Shares or other securities or property to which the Holder is entitled on the exercise of the option granted hereunder. The Company shall, as soon as practicable after becoming aware of any Change, notify the Holder thereof and set forth in a supplement to this Warrant approved by the board of directors of the Company the adjustment resulting from such change. In the event that the Holder shall disagree with an adjustment, the adjustment shall be determined conclusively by the Company's auditors at the sole expense of the Company. ARTICLE 5 - COVENANTS BY COMPANY SECTION 5.01 ------------ The Company will reserve and there will remain unissued out of its authorized capital a sufficient number of Shares to satisfy the rights of purchase provided for in the Warrants should the holders of all the Warrants from time to time outstanding determine to exercise such rights in respect of all Shares which they are or may be entitled to purchase pursuant thereto. SECTION 5.02 ------------ So long as any Warrants remain outstanding, the Company will not: (a) Issue to the holders of Shares any option or right to subscribe for any additional Shares in the capital of the Company (other than such an option or right granted to an officer or employee of the Company and exercisable only during the tenure of his employment by the Company or following his death while in the Company's employ and for a period of three months thereafter in each case); (b) Make any repayment of capital on Shares; (c) Subdivide or consolidate the issued and outstanding Shares or in any other way reorganize or reclassify any of the outstanding Common Shares of the Company; until 20 days after it has given written notice of such event to the Warrant Holders in the manner provided in Article 3 hereof its intention so to do and of the particulars of such proposed action. SECTION 5.03 ------------ The Company will not close its register of shareholders or take any other corporate action which might deprive the holder of a Warrant of the opportunity of exercising his or her right of purchase pursuant thereto during the period of 30 days after the giving of the notice required by Section 5.02 or Section 4.05 hereof, or unduly restrict such opportunity. ARTICLE 6 - SECURITIES QUALIFICATION SECTION 6.01 ------------ If, in the opinion of counsel to the Company, any prospectus or registration statement is required to be filed with or any permission is required to be obtained from any securities commission or other governmental authority before any Share which a Warrant Holder is entitled or permitted to acquire on the exercise of this Warrant may properly and legally be issued, the Company covenants that it will take such action within a reasonable period of time. SECTION 6.02 ------------ The Company will file, as soon as possible following the first anniversary after the issuance of the Warrants, a registration statement under the United States Securities Act of 1933, as amended, to register the shares of common stock issuable upon the exercise of this Warrant. The Company will also pay the costs associated with filing such registration statement and will use its best efforts to keep the registration statement effective until the expiration date for the Warrants or until all the Warrants have been exercised and the shares of common stock received upon exercise of the Warrants have been sold. M:\STAKE\private placement\Claridge\warrant terms and conditions v.3.doc EX-3 6 cill951249.txt REGISTRATION RIGHTS AGREEMENT Execution Copy STAKE TECHNOLOGY LTD. REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of September 26, 2001, between Claridge Israel LLC, a limited liability company existing under the laws of the State of Delaware (the "Investor"), and Stake Technology Ltd., a corporation existing under the laws of Canada (the "Company"). R E C I T A L S WHEREAS, the Investor has purchased 3,000,000 Units (as defined below) from the Company; and WHEREAS, the Investor has purchased, pursuant to the terms of the Securities Purchase Agreement, dated as of September 14, 2001, by and among the Christopher J. Anderson, Dennis W. Anderson and the Investor 1,200,000 shares of Common Stock (the "Anderson Shares"); and WHEREAS, the Company has agreed, as a condition precedent to the Investor's purchase of the Units, to grant the Investors certain registration rights; and WHEREAS, the Company and the Investor desire to define the registration rights of the Investor and certain other persons; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following terms have the respective meaning set forth below: Affiliate: shall have the meaning set forth in Rule 144; Commission: shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act; Exchange Act: shall mean the Securities Exchange Act of 1934, as amended; Holder: shall mean (x) any holder of Registrable Securities described in clause (A) of the definition of Registrable Securities and in clause (C) thereof to the extent such clause (C) applies to such clause (A), regardless of the identity of such Holder, and (y) any holder of any other Registrable Securities, provided such Holder is the Investor or an Affiliate of the Investor; Initiating Holder: shall mean any Holder or Holders who in the aggregate are Holders of more than 50% of the then outstanding Registrable Securities; Person: shall mean an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof; Public Offering: shall mean a public offering of shares of Common Stock pursuant to a registration under the Securities Act; Register, Registered and Registration: shall mean to a registration effected by preparing and filing a registration statement in compliance with the Securities Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; Registrable Securities: shall mean (A) the Anderson Shares, any shares of Common Stock included in the Units and any shares of Common Stock acquired pursuant to exercise of the Unit Warrants, (B) all other Shares of Common Stock held by the Investor or any of its Affiliates, regardless of when or the manner in which acquired, and (C) any stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the Common Stock referred to in clauses (A) and (B) of this definition; Registration Expenses: shall mean all expenses incurred by the Company in compliance with Section 2(a) and (b) hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, fees and expenses of one counsel for all the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company); Rule 144: shall mean the Commission's Rule 144 under the Securities Act or any successor rule or regulation thereto; Security, Securities: shall have the meaning set forth in Section 2(a)(1) of the Securities Act; Securities Act: shall mean the Securities Act of 1933, as amended; Selling Expenses: shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for each of the Holders other than fees and expenses of one counsel for all the Holders; -2- Unit: shall mean an equity interest in the Company consisting of one share of Common Stock and one Unit Warrant; and Unit Warrant: shall mean a warrant to purchase 0.75 of a share of Common Stock. SECTION 2. REGISTRATION RIGHTS (a) Requested Registration. (i) Request for Registration. If the Company shall receive from an Initiating Holder, at any time from and after September 30, 2002, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the Company will: (1) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; provided that such notice shall not be required to be given to any Affiliate of the Investor (if provided to the Investor) or to any Holder (other than the Investor) that is described in clause (y) of the definition of Holder if such Holder is not known by the Company to be such; and (2) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 10 business days after written notice from the Company is given under Section 2(a)(i)(1) above; provided that the Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2(a): (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder; (B) After the Company has effected two (2) such registrations pursuant to this Section 2(a) and such registrations have been declared or ordered effective and the sales of such Registrable Securities shall have closed; The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2(a)(ii) below, include other securities of the Company which are held -3- by Persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration ("Other Stockholders"). In the event any Holder requests a registration pursuant to this Section 2(a) in connection with a distribution of Registrable Securities to its equity owners, the registration shall provide for the resale by such equity owners, if requested by such Holder. The registration rights set forth in this Section 2 may be assigned, in whole or in part, to any transferee of Registrable Securities (who shall be bound by all obligations of this Agreement). (ii) Underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to Section 2(a). If Other Stockholders request inclusion in such registration, then the Holders shall offer to include the securities of such Other Stockholders in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section 2. The Holders whose shares are to be included in such registration and the Company shall (together with all Other Stockholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2(a), if the representative advises the Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by Other Stockholders shall be excluded from such registration to the extent so required by such limitation. If, after the exclusion of such shares, further reductions are still required, the number of shares included in the registration by each Holder shall be reduced on a pro rata basis (based on the number of shares held by such Holder), by such minimum number of shares as is necessary to comply with such request. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Other Stockholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities so withdrawn shall also be withdrawn from registration. If the underwriter has not limited the number of Registrable Securities or other securities to be underwritten, then the Company and officers and directors of the Company may include its or their securities for its or their own account in such registration if the representative so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (b) Company Registration. (i) If the Company shall determine to register any of its equity securities either for its own account or for the account of Other Stockholders, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as -4- would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (1) promptly give to each of the Holders (other than the Holders referenced in the proviso to Section 2(a)(i)(1) hereof) a written notice thereof (which notice shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (2) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by the Holders within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 2(b)(ii) below. Such written request may specify all or a part of the Holders' Registrable Securities. In the event any Holder requests inclusion in a registration pursuant to this Section 2(b) in connection with a distribution of Registrable Securities to its equity owners, the registration shall provide for the resale by such equity owners, if requested by such Holder. (ii) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise each of the Holders as a part of the written notice given pursuant to Section 2(b)(i)(1). In such event, the right of each of the Holders to registration pursuant to this Section 2(b) shall be conditioned upon such Holders' participation in such underwriting and the inclusion of such Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders whose shares are to be included in such registration shall (together with the Company and the Other Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this Section 2(b), if the representative determines that marketing factors require a limitation on the number of shares to be underwritten, the representative may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than twenty five percent (25%) of the shares included therein (based on the number of shares). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner: The securities of the Company held by officers, directors and Other Stockholders of the Company (other than Registrable Securities and other than securities held by holders who by contractual right demanded such registration ("Demanding Holders")) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting by each of the Holders and Demanding Holders shall be reduced, on a pro rata basis (based on the number of shares held by such Holder), by such minimum number of shares as is necessary to comply with such limitation. If any of the Holders or any officer, director or Other Stockholder disapproves of the terms of any such underwriting, he may elect to withdraw -5- therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) Expenses of Registration. Registration Expenses and Selling Expenses incurred in connection with any registration, qualification or compliance pursuant to this Section 2 shall be borne by the Holders of the securities so registered pro rata on the basis of the number of their shares so registered in relation to the total number of shares registered. All other Registration Expenses shall be borne by the Company and/or the Other Stockholders, as the case may be. (d) Registration Procedures. In the case of each registration effected by the Company pursuant to this Section 2, the Company will keep the Holders, as applicable, advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (i) keep such registration effective for a period of one hundred twenty (120) days or until the Holders (or in the case of a distribution to the partners of such Holder, such partners), as applicable, have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (A) such 120-day period shall be extended for a period of time equal to the period during which the Holders or partners, as applicable, refrain from selling any securities included in such registration as a result of notification pursuant to Section 2(d)(iii) hereof or at any time when the registration statement is otherwise not available for the making of sales; and (B) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a) of the Securities Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 12 or 15(d) of the Exchange Act in the registration statement; (ii) furnish such number of prospectuses and other documents incident thereto as each of the Holders, as applicable, from time to time may reasonably request; (iii) notify each Holder of Registrable Securities covered by such registration at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and -6- (iv) furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (1) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in such registration, addressed to the underwriters, if any, and to the Holders participating in such registration and (2) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in such registration, addressed to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders participating in such registration. (e) Indemnification. (i) The Company will indemnify each of the Holders, as applicable, each of its officers, directors and partners, and each person controlling each of the Holders, with respect to each registration which has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, or any violation by the Company of the Securities Act or the Exchange Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Holders, each of its officers, directors and equity owners, and each person controlling each of the Holders, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Holders or underwriter and stated to be specifically for use therein. (ii) Each of the Holders will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter, each Other Stockholder and each of their officers, directors, and equity owners, and each person controlling such Other -7- Stockholder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document made by such Holder, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements by such Holder therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, and will reimburse the Company and such Other Stockholders, directors, officers, equity owners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of each of the Holders hereunder shall be limited to an amount equal to the net proceeds to such Holder of securities sold as contemplated herein. (iii) Each party entitled to indemnification under this Section 2(e) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party's expense (unless the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2 unless the Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (iv) If the indemnification provided for in this Section 2(e) is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or -8- payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling. (vi) The foregoing indemnity agreement of the Company and Holders is subject to the condition that, insofar as they relate to any loss, claim, liability or damage arising out of a statement made in or omitted from a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement in question becomes effective or the amended prospectus filed with the Commission pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity or contribution agreement shall not inure to the benefit of any underwriter or Holder if a copy of the Final Prospectus was furnished to the underwriter or Holder, as the case may be, and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (f) Information by the Holders. (i) Each of the Holders holding securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 2. (ii) In the event that, either immediately prior to or subsequent to the effectiveness of any registration statement, any Holder shall distribute Registrable Securities to its equity owners, such Holder shall so advise the Company and provide such information as shall be necessary to permit an amendment to such registration statement to provide information with respect to such equity owners, as selling securityholders. Promptly following receipt of such information, the Company shall file an appropriate amendment to such registration statement reflecting the information so provided. Any incremental expense to the Company resulting from such amendment shall be borne by such Holder. -9- (g) Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of restricted securities to the public without registration, the Company agrees to: (i) make and keep public information available as those terms are understood and defined in Rule 144, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (iii) so long as the Holder owns any Registrable Securities, furnish to the Holder upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. (h) Termination. The registration rights set forth in this Section 2 shall not be available to any Holder if, (i) in the written opinion of counsel to the Company, all of the Registrable Securities then owned by such Holder could be sold in any 90-day period pursuant to Rule 144 (without giving effect to the provisions of Rule 144(k)) or (ii) all of the Registrable Securities held by such Holder have been sold in a registration pursuant to the Securities Act or pursuant to Rule 144. SECTION 3. MISCELLANEOUS (a) Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. (c) Section Headings. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof. (d) Notices. -10- (i) All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered or certified mail, postage prepaid: (1) if to the Company, at: 2838 Highway 7, Norval, Ontario, Canada L0P 1K, Attention: Jeremy N. Kendall, or at such other address or facsimile number as it may have furnished the Investors in writing, with a copy to Michael Armstrong, Q.C. LaFleur Brown LLP, National Bank Building, 150 York St. 14th Floor, Toronto, Ontario, Canada M5H 3S5. (2) if to the Investor, to Claridge Israel LLC, c/o Davies Ward Phillips & Vineberg LLP, 625 Madison Avenue, 12th floor, New York, NY 10022, Facsimile: (212) 308-0132, Attention: Guy P. Lander, or at such other address or facsimile number as may have been furnished the Company in writing, with a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, NY 10019 (facsimile: (212) 728-8111), Attention: Michael A. Schwartz, Esq. (ii) Any notice so addressed shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. (e) Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, any consents, waivers and modifications which may hereafter be executed may be reproduced by the Holders by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and the Holders may destroy any original document so reproduced. The parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Holders in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (g) Entire Agreement; Amendment and Waiver. This Agreement constitutes the entire understanding of the parties hereto and supersedes all prior understanding among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company, Phillips and the Holders holding a majority of the then outstanding Registrable Securities. (h) Severability. In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Agreement which shall remain in full force and effect. -11- (i) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. -12- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above. STAKE TECHNOLOGY LTD. By: /s/ Jeremy N. Kendall ------------------------------ Name: Jeremy N. Kendall Title: Chairman and Chief Executive Officer CLARIDGE ISRAEL LLC By: /s/ Guy P. Lander ------------------------------ Name: Guy P. Lander Title: -13-