EXHIBIT 10.3 (d)

DEBENTURE PURCHASE AGREEMENT entered into on the 4th day of December, 2002


BY AND AMONG:           STAKE TECHNOLOGY LTD., a corporation duly incorporated
                        according to law, herein acting and represented by
                        Jeremy N. Kendall, its Chairman and Chief Executive
                        Officer, and John Dietrich, its Vice-President and
                        Treasurer,

                        (hereinafter referred to as the "Corporation")

AND:                    CLARIDGE ISRAEL LLC, a company duly formed according to
                        law, herein acting and represented by Guy Lander, its
                        Manager,

                        (hereinafter referred to as the "Purchaser")

                  WHEREAS the Corporation desires to issue and sell to the
Purchaser and the Purchaser, subject to the terms and conditions hereinafter set
forth, desires to purchase an aggregate of Five Million Dollars (U.S. Funds)
(U.S.$5,000,000) principal amount of debentures;

                  WHEREAS, subject to the terms and conditions hereinafter set
forth, the Purchaser desire to purchase the debentures.

                  NOW, THEREFORE, THIS AGREEMENT WITNESSETH:


                                   Article 1
                                 INTERPRETATION

1.1      DEFINITIONS.  For the purposes hereof, the following terms shall have
the following respective meanings:

         (a)    "Additional Shares" means all Common Shares, Options or
                Convertible Securities issued by the Company, other than:

                (i)    the Shares issuable upon conversion of Debentures or upon
                       the exercise of the Warrants issued hereunder;

                (ii)   in connection with a Capital Reorganization;

                (iii)  Employee Shares,

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                (iv)   three million, nine hundred and seventy-four thousand,
                       six hundred (3,974,600) shares issuable upon the exercise
                       of currently outstanding warrants;

         (b)    "Applicable Laws" means in respect of any Person, property,
                transaction or event, all applicable federal, provincial, state,
                local, municipal and regional laws, statutes, ordinances, rules,
                by-laws, policies, guidelines, treaties and all applicable
                regulations, guidelines, directives, standards, requirements,
                judgments, orders, decisions, rulings, permits, authorizations,
                injunctions, awards and decrees of any Governmental Authority
                and all applicable common laws and laws of equity;

         (c)    "Bank" means the Bank of Montreal and Harris Trust and Savings
                Bank;

         (d)    "Business" means the business carried on by the Corporation on
                the date hereof;

         (e)    "Business Day" means a day, other than Saturday or Sunday, on
                which Canadian chartered banks are open for the transaction of
                business in Toronto, Ontario;

         (f)    "Capital Reorganization" has the meaning ascribed thereto in
                section 4.5;

         (g)    "Closing Date" means the closing date with respect to the sale
                or other disposition of a Property;

         (h)    "Common Shares" means the shares of any class in the capital of
                the Corporation which shall not limit the holder thereof to a
                fixed sum or percentage in respect of dividends and in the
                distribution of assets upon the liquidation, dissolution or
                winding up of the Corporation;

         (i)    "Conversion Period" means the period commencing on the earlier
                of

                (i)    fifteen (15) Business Days following a Closing Date
                       unless a Repayment Notice is sent to the Debentureholders
                       and the Sales Proceeds are applied in accordance
                       therewith, and

                (ii)   December 1, 2003

                       and terminating on the date of repayment in full of
                       the Debentures (and, for greater certainty, shall not
                       be curtailed by the transmission of a Repayment
                       Notice or a Prepayment Notice);

         (j)    "Conversion Price" means the price per Share at which the
                Debentures shall be convertible into Shares in accordance with
                the provisions hereof, such price being Three Dollars (U.S.
                Funds) (U.S.$3.00), subject to adjustment in accordance with the
                provisions of sections 4.5 and 4.6;

         (k)    "Conversion Right" has the meaning ascribed thereto in section
                4.1;

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         (l)    "Convertible Securities" means any evidences of indebtedness,
                preferred shares or other securities convertible into or
                exchangeable for Common Shares;

         (m)    "Corporation's Auditors" means the independent firm of chartered
                accountants duly appointed as auditors of the Corporation;

         (n)    "Debentureholders" means the Debentureholders of the Debentures
                from time to time;

         (o)    "Debentureholders Resolution" means a written instrument or
                instruments in counterpart executed by holders of not less than
                sixty-six and two thirds percent (66-2/3rds %) of the principal
                amount of the outstanding Debentures;

         (p)    "Debentures" means the Debentures to be issued pursuant to
                section 2 hereof;

         (q)    "Default" means the occurrence of an Event of Default;

         (r)    "Default Rate" means a fluctuating interest rate per annum equal
                to the Prime Rate plus four percent (4%) per annum. Each change
                in such fluctuating interest rate shall take effect
                simultaneously with the corresponding change in the Prime Rate;

         (s)    "Documents" means this agreement, the Registration Agreement
                Amendment and the Debentures and Warrants;

         (t)    "Employee Shares" means options to subscribe for Common Shares
                under existing stock option plans or any similar plans hereafter
                adopted;

         (u)    "Environmental Laws" shall mean all applicable federal,
                provincial, state, municipal, local and foreign laws and
                regulations, ordinance, code, guideline, policy, rule of civil
                or common law now or hereafter in effect of any governmental,
                judicial or administrative authority having jurisdiction and in
                each case as amended and any judicial or administrative order,
                consent, decree or judgment of any governmental, judicial or
                administrative authority having jurisdiction relating to
                pollution or protection of human health, Hazardous Materials or
                safety, the environment and natural resources (including,
                without limitation, ambient air, surface water, ground water,
                wetlands, land surface or sub-surface strata, wildlife, aquatic
                species, vegetation or sub-surface strata, emissions,
                discharges, releases or threatened releases of Hazardous
                Materials, or otherwise relating to the manufacture, processing,
                distribution, treatment, storage, disposal, transport or
                handling of Hazardous Materials and vegetation);

         (v)    "Event of Default" has the meaning set out in section 7.1;

         (w)    "Financial Statements" means the audited consolidated financial
                statements for the annual periods ended December 31, 2000 and
                2001

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                and the unaudited interim consolidated financial statements
                for the nine (9) months ended September 30, 2002;

         (x)    "Financial Statements Date" means the date ten (10) Business
                Days following delivery by the Corporation to the Bank of the
                audited consolidated financial statements of the Corporation for
                the 2003 fiscal year;

         (y)    "GAAP" means Canadian generally accepted accounting principles
                as adopted by the Canadian Institute of Chartered Accountants
                from time to time, consistently applied;

         (z)    "Governmental Authority" means any government, parliament,
                legislature or commission or board of government, parliament or
                legislature, or any political subdivision thereof, or any
                quasi-governmental authority, or any court or, without
                limitation of the foregoing, any other law, regulation or
                rule-making entity, including, without limitation, any central
                bank, fiscal or monetary authority or authority regulating
                financial institutions, having or purporting to have
                jurisdiction in the relevant circumstances, or any Person acting
                or purporting to act under the authority of any of the
                foregoing, including, without limitation, any arbitrator, or any
                other authority charged with the administration or enforcement
                of any Applicable Laws;

         (aa)   "Hazardous Materials" means any substance, material or waste
                which is regulated by or forms the basis of liability now or
                hereafter under any Environmental Laws, including any material
                or substance which is (i) defined as a "solid waste", "hazardous
                waste", "hazardous substance", "extremely hazardous waste",
                restricted hazardous waste", "pollutant", "hazardous
                constituent", "special waste", "toxic substance", "toxic waste",
                "dangerous waste" or other similar term or phrase under any
                Environmental Laws, and (ii) petroleum or any fraction or
                by-product thereof, asbestos, polychlorinated biphenyls (PCB's),
                or any radioactive substance;

         (bb)   "Interest Period" means each three month period commencing on
                the first day of January, April, July and October of each year,
                provided that the first Interest Period shall commence on the
                date hereof and terminate on December 31, 2002;

         (cc)   "Licenses" has the meaning ascribed thereto in section 5.1(a);

         (dd)   "Liens" means all mortgages, charges, assignments, hypothecs,
                pledges, security interests, liens, restrictions and other
                encumbrances and adverse claims of every nature and kind and
                howsoever arising;

         (ee)   "Material Adverse Change" means a material adverse effect on:
                (i) the business, operations, management, property, financial
                condition or prospects of the Corporation and the Subsidiaries,
                taken as a whole; (ii) the ability of the Corporation or any
                Subsidiary to perform any of its obligations under any Document
                to which it is a party; or (iii) the validity

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                or effectiveness as against, or the enforceability against, the
                Corporation or any Subsidiary of any Material Contract to which
                it is a party;

         (ff)   "Material Authorization" means, with respect to any Person, any
                approval, permit, licence or similar authorization (including
                any trademark, trade name or patent) from, and any filing or
                registration with, any Governmental Authority required by such
                Person to own its undertaking and property or to carry on its
                business as currently carried on by it or as contemplated to be
                carried on by it in each jurisdiction in which it does so or is
                contemplated to do so, where the failure to have such approval,
                permit, licence, authorization, filing or registration would or
                could reasonably be expected to result in a Material Adverse
                Change in the Corporation or any Subsidiary;

         (gg)   "Material Contract" means any agreement, instrument or other
                document to which the Corporation or any Subsidiary is a party
                or to which any of its undertaking or property may be subject:
                (i) which if breached, not performed, cancelled, terminated or
                not renewed, would or may reasonably be expected to result in a
                Material Adverse Change in the Corporation or any Subsidiary, or
                (ii) other than those agreements which are terminable without
                penalty on notice from the Corporation of thirty (30) days or
                less, those for the supply of materials intended for resale and
                which have been entered into in the ordinary course of business
                having a value, in each case, of less than Five Hundred Thousand
                Dollars ($500,000) and verbal employment agreements of
                indefinite duration;

         (hh)   "Material Subsidiaries" means collectively International
                Materials & Supplies Inc.; Nordic Aseptic, Inc., Northern Food
                and Dairy, Inc., Stake Technology (U.S.A.) Inc., Stake Tech LP,
                Stake Technology LLC, SunRich, Inc., SunRich Food Group, Inc.,
                Temisca, Inc., Virginia Materials, Inc., 1108176 Ontario
                Limited, 3060385 Nova Scotia Co. and 558497 Ontario Ltd. and
                "Material Subsidiary" means any of the foregoing. If and when
                acquired the following will also be "Material Subsidiaries" from
                the date of acquisition, Opta Food Ingredients, Inc., Simply
                Organic Inc. and 632100 B.C. Ltd.;

         (ii)   "Maturity Date" means the earliest of (a) November 30, 2004, (b)
                a Repayment Date, or (c) such other date as the principal of the
                Debentures shall become payable in accordance with the
                provisions hereof;

         (jj)   "Officers' Certificate" means a certificate signed by the
                Chairman of the Board and/or the President and one of the
                Vice-Presidents of the Corporation;

         (kk)   "Ontario Properties" means the properties bearing civic numbers
                2838 Highway #7, Norval Ontario, 407 Parkside Drive, Hamilton
                (formerly Town of Flamborough), Ontario and 70 Brant Street,
                Hamilton, Ontario, together with all buildings and appurtenances
                situate thereon;

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         (ll)   "Opta Property" means the property bearing civic number 25
                Wiggins Avenue, Bedford, Massachusetts, together with all
                buildings and appurtenances situate thereon;

         (mm)   "Opta Documents" means the security documents contemplated in
                section 3.6 hereof with respect to the Opta Property, together
                with a legal opinion in form and content satisfactory to the
                Purchaser;

         (nn)   "Options" means any rights, options or warrants to subscribe
                for, purchase or otherwise acquire either Shares or Convertible
                Securities;

         (oo)   "Person" means an individual, partnership, corporation, trust,
                unincorporated association, joint venture or other entity or a
                foreign state or political subdivision thereof or any agency of
                such state or subdivision;

         (pp)   "Prepayment Notice" means a prepayment notice contemplated in
                section 3.4;

         (qq)   "Prime Rate" means the rate of interest expressed as the annual
                rate announced by Bank of Montreal, as its prime rate from time
                to time for commercial loans denominated in Canadian currency
                made in Canada to commercial borrowers;

         (rr)   "Property" means one of the Ontario Properties or the Opta
                Property, as the case may be;

         (ss)   "Registration Agreement Amendment" means the agreement of even
                date between the Corporation and the Purchaser supplementing the
                registration agreement between the parties dated September 26,
                2001;

         (tt)   "Repayment Date" means the dated fixed by the Corporation for
                the repayment of the Sales Proceeds in the Repayment Notice,
                which date shall be not less than thirty (30) days nor more than
                sixty (60) days after the date of transmission of the Repayment
                Notice;

         (uu)   "Repayment Notice" means a notice from the Corporation to the
                Debentureholders stipulating (i) that it will apply the full
                Sales Proceeds (save and except that in the event of the sale of
                the Opta Property, the Corporation shall be entitled to apply a
                minimum Two Million Dollar (U.S. Funds) (U.S.$2,000,000) cash
                amount or grant the Debentureholders a first security interest
                on such amount) in repayment of the Debentures on a pro rata
                basis among the Debentureholders, (ii) the amount thereof, and
                (iii) the Repayment Date (other than in the event that the
                Corporation grants a first security interest as contemplated in
                subparagraph (i) above);

         (vv)   "Sales Proceeds" means the gross sales price of a Property, net
                of real estate commissions;

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         (ww)   "Securities Law Reports" means (i) the Form 10-K for the annual
                period ended December 31, 2001 and the Form 10-Q for the
                quarterly periods ended March 31, June 30 and September 30, 2002
                filed in accordance with U.S. Securities Laws and (ii) quarterly
                or annual financial statements and other information filed in
                accordance with Canadian Securities Laws;

         (xx)   "Securities Laws" means the Federal, Provincial or state laws,
                regulations or policies of Canada and the United States or any
                other Governmental Authority having jurisdiction and the rules,
                regulations and policies of the TSX or NASDAQ on which the
                Shares are listed for trading;

         (yy)   "Shares" means the Common Shares of the Corporation as currently
                constituted or, upon any subdivision or consolidation thereof,
                the shares resulting therefrom or, upon the occurrence of a
                Capital Reorganization, the shares and/or other securities
                and/or property substituted for the Shares or into which Shares
                are reclassified or changed;

         (zz)   "Subsidiary" has the meaning given to that term in the Canada
                Business Corporations Act;

         (aaa)  "2003 Budget" means the budget of the Corporation for its 2003
                fiscal year, a copy of which has been delivered to the Bank and
                the Purchaser;

         (bbb)  "Taxes" means all taxes of any kind or nature whatsoever
                including, without limitation, income taxes, sales or
                value-added taxes, levies, stamp taxes, royalties, duties, and
                all fees, deductions, compulsory loans and withholdings imposed,
                levied, collected, withheld or assessed as of the date hereof or
                at any time in the future, by any Governmental Authority having
                power to tax, together with penalties, fines, additions to tax
                and interest thereon;

         (ccc)  "Underlying Securities" means the Common Shares issuable upon
                exercise of the Warrants or conversion of the Debentures;

         (ddd)  "Warrantholders" means the Warrantholders of the Warrants from
                time to time;

         (eee)  "Warrants" means the Warrants to be issued pursuant to Article 2
                hereof.

1.2   GENDER AND NUMBER. Words importing the singular number include the plural
and vice versa and words importing gender include the neuter, feminine and
masculine genders.

1.3   HEADINGS. The division of a Debenture into Articles, Sections, subsections
and clauses, and the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation hereof.

1.4   APPLICABLE LAW. A Debenture shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.

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1.5   BUSINESS DAY. In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken on or before the requisite time on the next succeeding day
that is a Business Day.

1.6   MONETARY REFERENCE. Any reference in a Debenture to "Dollars", "dollars"
or "$" shall be deemed to be a reference to lawful money of the United States of
America.

1.7   INVALIDITY OF PROVISIONS. Each of the provisions contained in a Debenture
is distinct and severable and a declaration of invalidity or unenforceability of
any such provision by a court of competent jurisdiction shall not affect the
validity or enforceability of any other provision hereof or thereof.

1.8   TIME OF THE ESSENCE. Time shall be of the essence hereof.

                                   Article 2
                           ISSUANCE OF THE DEBENTURES

2.1   ISSUANCE. On the date hereof, the Corporation shall issue to the Purchaser
and the Purchaser shall purchase from the Corporation, (i) Five Million Dollars
($5,000,000.00) principal amount of Debentures, payable on the date hereof by
certified cheque or wire transfer of immediately available funds. In addition,
on the date hereof in conjunction with the issuance of the Debentures and
without additional consideration, the Corporation will issue to the Purchaser a
Share Purchase Warrant to purchase two hundred and fifty thousand (250,000)
common shares at a price of Three Dollars and Twenty-Five Cents ($3.25) per
share.

2.2   FORM OF DEBENTURE. The Debentures shall be issued in the form set forth in
the first schedule of this agreement with such additions, deletions and
alterations as the parties may agree.

2.3   FORM OF WARRANT. The Warrants shall be issued in the form set forth in the
second schedule of this agreement with such additions, deletions and alterations
as the parties may agree.

2.4   EXCHANGE OF DEBENTURES. A Debenture may be exchanged for a similar
Debenture in an equal aggregate amount but in any other denomination upon
presentation and surrender thereof by the Debentureholders.

2.5   LOST OR DEFACED DEBENTURES. If any Debenture is lost or defaced, the
Corporation shall execute and deliver a replacement Debenture for the same
series and denomination upon indemnification in an amount and subject to terms
and conditions satisfactory to the Corporation.

2.6   TRANSFER OF DEBENTURES. The Corporation shall record transfers of
Debentures made by the registered holder (or by his duly appointed attorney) by
written instrument. No service charge shall be paid for any registration of
transfer or exchange of the Debentures (or the conversion thereof pursuant to
Article 4) and the Corporation shall pay any tax or other governmental charge
that may be imposed in connection with any registration of transfer or exchange
of the Debentures (or the conversion thereof pursuant to Article 4), excluding
therefrom any income or analogous taxes upon the Debentureholders.

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2.7   The provisions of sections 2.4, 2.5 and 2.6 shall apply mutatis mutandis
with respect to the Warrants and the Warrantholders.

                                   Article 3
                   PRINCIPAL, INTEREST AND COLLATERAL SECURITY

3.1   PRINCIPAL. The Corporation shall pay to the Debentureholder the
outstanding principal amount of the Debentures (unless such Debentures shall
have been converted in accordance with the provisions hereof) together with all
accrued and unpaid interest thereon on the Maturity Date on presentation and
surrender of the Debenture. In the event of a Repayment Notice, the Corporation
shall pay to the Debentureholders, on a pro rata basis, the Sales Proceeds on
the Repayment Date. In such event, the principal amount and accrued interest on
the Debentures shall be adjusted accordingly.

3.2   INTEREST. Subject to deduction for any applicable Canadian withholding
tax, interest shall be payable on the principal amount of each Debenture,
together with accrued and unpaid interest for any prior Interest Period on the
last Business Day of each Interest Period from the date hereof at the rate of
five and one-half percent (5.5%) per annum from the date hereof until the
Maturity Date and from the Maturity Date if not paid thereon at a rate equal to
the Default Rate.

3.3   PLACE OF PAYMENT. The Corporation shall make all principal and interest
payments pursuant to the Debentures to the Debentureholders at such place or
places as the Debentureholders may individually advise the Corporation. The
Shares issuable to the Debentureholders pursuant to the conversion of the
Debentures shall also be delivered to the Debentureholders as aforesaid.

3.4   RIGHT OF PREPAYMENT. The Corporation may prepay the Debentures, in whole
or in part, at any time upon fifteen (15) Business Days prior written notice. In
the event that the date fixed for prepayment occurs during the Conversion
Period, the Debentureholders may exercise the Conversion Right at any time prior
to the repayment on the date fixed for prepayment.

3.5   MANDATORY PREPAYMENT. In the event that the Closing Date precedes the
Financial Statements Date and in the event that the Bank consents to the
transmission of the Repayment Notice, the Corporation shall, within the ten (10)
Business Days next following obtention of the Bank's consent, transmit a
Repayment Notice to the Debentureholders and shall apply the Sales Proceeds
(other than such portion of the Sales Proceeds relating to the Opta Property the
immediate repayment of which is waived at such time by Debentureholders
Resolution transmitted at least ten (10) days prior to the Repayment Date) to
the repayment of the Debentures on the Repayment Date.

      In the event that the Closing Date is subsequent to the Financial
Statements Date and the Corporation's financial results meet the 2003 Budget
in the opinion of the Bank (or in the event that the Bank otherwise consents to
the application of the Sales Proceeds to the repayment of the Debentures), the
Corporation shall, within the ten (10) Business Days next following the Closing
Date, transmit a Repayment Notice to the Debentureholders and shall apply the
Sales Proceeds to the repayment of the Debentures on the Repayment Date.

3.6   COLLATERAL SECURITY. The obligations of the Corporation hereunder shall be
secured by (a) a mortgage on the Ontario Properties in the form set forth in the
third schedule of

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this agreement, and (b) a mortgage over the Opta Property by Opta Food
Ingredients, Inc., together with such other documents from Opta Food
Ingredients, Inc as may be required to give a valid and enforceable mortgage
over the Opta Property, in each case with such additions, deletions and
alterations as the parties may agree.

3.7   CANCELLATION of Matured Debentures. All matured Debentures after payment
or conversion shall be cancelled by the Corporation and no Debentures shall be
issued in substitution therefor.

                                   Article 4
                                   CONVERSION

4.1   CONVERSION AT THE OPTION OF THE DEBENTUREHOLDERS. A Debentureholder may
elect at any time or from time to time, at the Debentureholder's option, during
the Conversion Period or in the circumstances set forth in section 7.3, to
convert a Debenture or any portion of the then outstanding principal and all
accrued and unpaid interest of a Debenture into fully paid and non-assessable
Shares at the Conversion Price (the "Conversion Right").

4.2   CONVERSION PROCEDURE. Upon the exercise of its Conversion Right, the
Debentureholder shall surrender the Debenture, together with the conversion form
attached thereto, duly executed (the "Conversion Notice"), to the Corporation at
its address set forth under section 8.1 or at such other place as the
Corporation may advise the Debentureholder in writing. Conversion shall be
deemed to have been effected on the date (the "Conversion Date") on which the
Conversion Notice is actually received by the Corporation. Within the next five
(5) Business Days, the Corporation shall issue and deliver to the
Debentureholder:

         (a)    a certificate or certificates representing the number of Common
                Shares (and/or other Shares, as the case may be) purchased upon
                exercise of the Conversion Right, rounded down to the nearest
                whole number, registered in the name of the Debentureholder or
                otherwise as directed in the Conversion Notice; and

         (b)    cash for any fractional shares in an amount equal to the product
                of (x) the Conversion Price per Share and (y) any fraction of a
                Share remaining after conversion pursuant to section 4.2((a);
                and

         (c)    in the event of any partial conversion of a Debenture, a new
                Debenture in identical form, the principal amount of which shall
                be equal to the amount of principal and accrued and unpaid
                interest owing under a Debenture which was not converted under
                this Article 4 hereof.

        The Debentureholder shall be deemed to have become a beneficial
shareholder and shareholder of record of Common Shares (and/or other Shares, as
the case may be) on the date that conversion is deemed to have been effected
pursuant to this Article 4.

4.3   RESERVATION AND ISSUANCE OF SHARES. The Corporation shall, prior to
issuance of any Shares hereunder, and from time to time as may be necessary
(and within the five [5] Business Days next following an adjustment pursuant to
this Article 4), reserve out of its authorized but unissued Shares a sufficient
number of Shares to permit the conversion of all Debentures into Shares. The
Corporation covenants that all securities, including any shares into which the
Shares may be converted, that may be issued upon exercise of the Conversion
Right

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                                    Page 11

will, upon issuance, be duly authorized, validly issued, fully paid and
non-assessable and free from pre-emptive rights, adverse claims and all taxes,
liens and charges caused or created by the Corporation with respect to the
issuance thereof.

      The Corporation will use its best efforts to cause prompt compliance with
all applicable securities laws regulating the offer and delivery of Shares upon
conversion of the Debenture, if any.

4.4   CASH DISTRIBUTIONS. In case the Corporation shall pay or make a dividend
or other distribution on its Shares exclusively in cash subsequent to the date
hereof and prior to the Conversion Period, adequate provision shall be made so
that the Debentureholder shall have the right to receive upon conversion the
amount of cash it would have received had it exercised its Conversion Right
immediately prior to the record date for such dividend or distribution.

4.5   ADJUSTMENT FOR CAPITAL REORGANIZATION. If at any time after the date
hereof and prior to the Conversion Date, there is (i) a payment of a stock
dividend or other distribution of securities of the Corporation to holders of
the Corporation's Shares (and/or other Common Shares, as the case may be), or
(ii) a subdivision, consolidation, split or other reclassification of the Shares
(and/or other Common Shares, as the case may be) at any time outstanding, or
(iii) a change of the Shares (and/or other Common Shares, as the case may be)
into other shares or into other securities, whether of the Corporation or of
another body corporate, or (iv) a consolidation, amalgamation or merger of the
Corporation with or into any other Person (other than a consolidation,
amalgamation or merger which does not result in any reclassification of the
outstanding Shares [and/or other Common Shares, as the case may be] or a change
of the Shares [and/or other Common Shares, as the case may be] into other
shares), or (v) a transfer of the undertaking or assets of the Corporation as an
entirety or substantially as an entirety to another Person in which the
Shareholders of the Corporation are entitled to receive shares, other securities
or other property, or (vi) any other capital reorganization, (any of such events
being called a "Capital Reorganization"), the Debentureholder who exercises the
Conversion Right after the effective date of such Capital Reorganization will be
entitled to receive, in lieu of the number of Shares (and/or other Common
Shares, as the case may be) to which the Debentureholder was previously entitled
upon such conversion, the aggregate number of shares, other securities or other
property which the Debentureholder would have been entitled to receive as a
result of such Capital Reorganization if the Conversion Right had been exercised
immediately prior to the Capital Reorganization.

      The Corporation will take all steps necessary to ensure that, on a Capital
Reorganization, the Debentureholder will, if it exercises its Conversion Right
hereto, receive the aggregate number of Shares, other securities or other
property to which it is entitled as a result of the Capital Reorganization.
Appropriate adjustments will be made in the application of the provisions set
forth in this Article 4 with respect to the rights of the Debentureholder under
a Debenture after such Capital Reorganization such that the provisions set forth
in this Article 4 (including adjustment of the Conversion Price then in effect
and the number of shares issuable upon conversion of the Debenture) shall be
applicable after that event as nearly equivalently as may be practicable.

4.6   ADJUSTMENT FOR DILUTING ISSUES. In the event that the Corporation shall
issue Additional Shares without consideration or for a consideration per share
less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue (the "Effective Conversion Price"), then the
Effective Conversion Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by multiplying the Effective

<PAGE>

                                    Page 12


Conversion Price by a fraction, the numerator of which shall be the number of
Shares outstanding immediately prior to such issue plus the number of Shares
which the aggregate consideration received by the Corporation for the total
number of Additional Shares so issued would purchase at the Effective Conversion
Price, and the denominator of which shall be the number of Shares outstanding
immediately prior to such issue plus the number of such Additional Shares so
issued. For all purposes of this section 4.6, all Shares issuable upon the
exercise, conversion or exchange of outstanding Options or Convertible
Securities, as the case may be, shall be deemed to be outstanding and have been
issued at the lowest applicable exercise of conversion price of such options or
convertible securities. To the extent that any Options (or the conversion or
exercise right for any Convertible Securities) are not exercised prior to the
expiration thereof, the Conversion Price shall be readjusted appropriately.

      In determining whether any Additional Shares are issued for less than the
Effective Conversion Price, and in determining the aggregate offering
consideration received for such Additional Shares, there shall be taken into
account the fair market value of any consideration received by the Corporation
for such Additional Shares (the fair market value of any such non-cash
consideration to be determined in good faith by the board of directors of the
Corporation).

      The maximum cumulative reduction of the Conversion Price pursuant to this
section 4.6 shall be fifteen percent (15%).

4.7   NOTICE AS TO ADJUSTMENT. The Corporation shall from time to time, within
the ten (10) Business Days following the occurrence of any event which requires
an adjustment or readjustment as provided in sections 4.5 or 4.6, deliver a
notice in writing (an "Adjustment Notice") to the Debentureholders specifying
the nature of the event requiring the same, the amount of the adjustment or
readjustment and the new Conversion Price, and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.

      Within the fifteen (15) Business Days next following receipt of an
Adjustment Notice, a Debentureholder may notify the Corporation and the
Corporation's Auditors in writing that it disputes the contents of the
Adjustment Notice. In the event that the parties are unable to resolve such
dispute, the subject matter will be conclusively determined by a firm of
chartered accountants (other than the Corporation's Auditors) as may be selected
by a majority in interest of the Debentureholders and the Corporation. Such
chartered accountants will be given access to all necessary records of the
Corporation and will deliver a notice to the Corporation and the
Debentureholders setting forth their determination and the definitive adjustment
or readjustment.

                                   Article 5
                         REPRESENTATIONS AND WARRANTIES

5.1   In order to induce the Purchaser to enter into the present agreement and
to purchase the Debentures, the Corporation represents and warrants as follows:

      (a)   the Corporation and each Material Subsidiary has been duly organized
            and is validly existing under the laws of its jurisdiction of
            incorporation. The Corporation has all requisite power and authority
            to carry out its obligations under each of the Documents. The
            Corporation and the Material Subsidiaries have the full corporate
            power and authority and possesses all governmental franchises,
            licenses, permits, authorizations

<PAGE>

                                    Page 13

            and approvals (collectively the "Licenses") necessary to enable it
            to own, lease or otherwise hold its properties and assets and to
            carry on its business as it is now being conducted and to own its
            property and none of the business operations of the Corporation or
            any Material Subsidiary are presently being conducted in a manner
            that violates in any respect any of the terms or conditions under
            which any License was granted and there has not been any claim by
            any jurisdiction to the effect that the Corporation or any Material
            Subsidiary is required to qualify or otherwise be authorized to do
            business therein;

      (b)   except for the Material Subsidiaries, the Corporation 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 Corporation;

      (c)   the Corporation is a reporting company under the 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 Securities Laws on a
            confidential basis;

      (d)   the Underlying Securities upon full payment for the Warrants or
            exercise of the Conversion Right, 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 Corporation. All
            necessary corporate action has been taken by the Corporation to
            allot and authorize the issuance of the Underlying Securities;

      (e)   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
            Corporation of its obligations under the Documents and the
            transactions contemplated hereby have been made or obtained, as
            applicable;

      (f)   the Corporation has all requisite power and authority to execute and
            deliver the Documents and to consummate the transactions
            contemplated therein. All acts and other proceedings required to be
            taken by the Corporation to authorize the execution, delivery and
            performance of the Documents and the consummation of the
            transactions contemplated hereby and thereby have been duly and
            properly taken. Each of the Documents has been duly authorized,
            executed and delivered by the Corporation and constitutes a valid
            and binding obligation of the Corporation enforceable against the
            Corporation in accordance with its terms, except as enforceability
            may be limited by bankruptcy, insolvency, fraudulent conveyance or
            similar laws affecting creditors' rights generally and general
            principles of equity (regardless of whether the application of such
            principles is considered in a proceeding in equity or at law);

      (g)   there has not been filed any petition or application, or any
            proceeding commenced which has not been discharged, by or against
            the Corporation or any Material Subsidiary with respect to any
            assets of the Corporation or any Material Subsidiary under any law,
            domestic or

<PAGE>

                                    Page 14

            foreign, relating to bankruptcy, reorganization, fraudulent
            transfer, compromise, arrangements, insolvency, readjustment of debt
            or creditors' rights, and no assignment has been made by the
            Corporation or any Material Subsidiary for the benefit of creditors;

      (h)   none of the execution and delivery of the Documents, the performance
            by the Corporation of its obligations thereunder and the
            consummation of the transactions contemplated by the Documents,
            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 Corporation and including, without
            limitation, applicable Securities Laws; (B) the constating
            documents, by-laws or resolutions of the directors and shareholders
            of the Corporation 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
            Corporation is a party or by which it is bound; or (D) any
            judgement, decree or order binding the Corporation or, the property
            or assets of the Corporation 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 Corporation or its assets;

      (i)   the authorized capital of the Corporation consists of an unlimited
            number of Shares of which forty-one million, nine hundred and
            eighty-two thousand, five hundred and eighteen (41,982,518) Shares
            are issued and outstanding as fully paid and non-assessable as at
            the date hereof 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
            Debentures, Warrants, or to warrants, options and convertible
            securities listed on the Disclosure Schedule made as part hereof and
            attached hereto (the "Disclosure Schedule"), there exist no rights
            to purchase or otherwise acquire any securities of the Corporation;

      (j)   there has not occurred any Material Adverse Change with respect to
            the Corporation or any of its Subsidiaries which is or would be
            material to the Corporation on a consolidated basis;

      (k)   the Securities Law Reports were, on the dates of their respective
            filings, in compliance in all material respects with the
            requirements of their respective report forms and the Securities
            Laws 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. There have not been any Material Adverse
            Changes to the assets, liabilities, financial position or business
            of the Corporation or any of its Material Subsidiaries since the
            filing of the Securities Law Reports and no transaction has been
            entered into by the Corporation or any Material Subsidiary which is
            or may be material to the Corporation on a consolidated basis;

<PAGE>

                                    Page 15

      (l)   the Financial Statements have been prepared in accordance with GAAP
            and present fairly, in all material respects, the assets,
            liabilities, retained earnings, profit and loss, financial condition
            and results of operations of the Corporation for the periods then
            ended;

      (m)   the Corporation and each Material Subsidiary 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. The Corporation and each Material Subsidiary is
            not knowingly in breach or default of any material obligations under
            any Material Contract. 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 Corporation 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
            Corporation (or any Material Subsidiary) of any Material Contracts
            to which it is a party;

      (n)   the Corporation or one of its Material Subsidiaries 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 the Class A and
            B preferred shares of 1108176 Ontario Limited which are owned by
            Peter Barnes) and no holder of outstanding shares in the capital of
            the Corporation will be entitled to any pre-emptive or any similar
            rights to subscribe for any of the Common Shares or other securities
            of the Corporation and, except as set forth on the Disclosure
            Schedule or contemplated by the present agreement, no rights,
            warrants or options to acquire, or instruments convertible into or
            exchangeable for any shares in the capital of the Corporation or any
            of its Material Subsidiaries are outstanding or are contemplated;


      (o)   the Corporation and each of its Material Subsidiaries has conducted
            and is conducting its business in compliance 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 Corporation or any Material Subsidiary. Neither the
            Corporation nor any of its Material Subsidiaries has received any
            notice or other communication with respect to a possible violation
            or contravention of Applicable Laws;

      (p)   the business of the Corporation and each of its Material
            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 Corporation or any Material
            Subsidiary; neither the Corporation 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 and other substance
            which is defined, determined or identified as hazardous or

<PAGE>

                                    Page 16

            toxic under any Environmental Law to which the Corporation 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 Corporation 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 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 releases
            on or from a facility owned or operated by any third party but with
            respect to which the Corporation 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 Corporation or its Subsidiaries have been
            disposed of, treated and stored by the Corporation and its
            Subsidiaries in compliance with all Environmental Laws; neither the
            Corporation nor any of its Subsidiaries has received any notice of,
            nor been prosecuted for, non-compliance with any Environmental Laws,
            and neither the Corporation 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 Corporation or one of its Subsidiaries
            that it is or may be responsible for, any contaminant, 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 Corporation and its
            Subsidiaries;

      (q)   the Corporation is a "qualifying issuer", as such term is defined in
            section 1.1 of the Multilateral Instrument 45-102-Resale of
            Securities";

      (r)   except as specifically disclosed in the Securities Law Reports, no
            legal or governmental proceedings are pending by any Governmental
            Authority to which the Corporation or any of its Material
            Subsidiaries is a party or to which the property of the Corporation
            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 Corporation or any
            Material Subsidiary and, to the best of its knowledge, information
            and belief, no such proceedings have been threatened against or are
            contemplated with respect to the Corporation, a Material Subsidiary
            or any of its or their property;

      (s)   the Corporation 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 whatsoever 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 Corporation or any Material Subsidiary and the Corporation 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
            Corporation and its Subsidiaries;

<PAGE>

                                    Page 17

      (t)   the Corporation and its Material Subsidiaries possess all Material
            Authorizations necessary or appropriate to conduct the business
            operated by them and neither the Corporation 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, would have
            an adverse material effect on the conduct of the business,
            operations, financial condition or income of the Corporation taken
            as a whole;

      (u)   to the best of the Corporation's knowledge, information and belief,
            none of the directors or officers of the Corporation or any of its
            Subsidiaries is or has ever been subject to prior regulatory,
            criminal or bankruptcy proceedings in Canada or elsewhere during the
            past five (5) years;

      (v)   the Corporation and Subsidiaries have all proprietary rights
            provided in law to all patents, trademarks, service marks, trade
            names, 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 them to conduct their business,
            except where the failure to do so would not have an adverse material
            effect. Neither the Corporation nor any of its Subsidiaries have
            interfered with or infringed upon, misappropriated or otherwise come
            into conflict with any Intellectual Property rights of third parties
            and the Corporation and the Subsidiaries have not received any
            complaint, claim, demand or notice alleging any such interference,
            misappropriation or violation;

      (w)   the Corporation 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 Corporation or a Subsidiary, and has
            no knowledge of any claim of adverse ownership in respect thereof;

      (x)   neither the Corporation nor any Subsidiary is aware of a claim of
            any infringement or breach by the Corporation or any of its
            Subsidiaries of any industrial or intellectual property rights of
            any other person, nor has the Corporation or any of its Subsidiaries
            received any notice, nor is the Corporation (or any Subsidiary)
            otherwise aware, that the use of the business names, trademarks,
            servicemarks, copyrights and other industrial or intellectual
            property of the Corporation or any of its Subsidiaries infringes
            upon or breaches any industrial or intellectual property rights of
            any other person and neither the Corporation nor any Subsidiary has
            any knowledge of any infringement or violation of any of the rights
            of the Corporation 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;

      (y)   no royalty or other fee is required to be paid by the Corporation or
            any Subsidiary to any other Person (as defined by applicable
            Securities Laws) in respect of the Intellectual Property and there
            are no restrictions

<PAGE>

                                    Page 18

            on the ability of the Corporation to exploit or assign all rights in
            the Intellectual Property;

      (z)   there are no claims against the Corporation or any Subsidiary in
            connection with product warranties or the product or sale of
            defective or inferior products. Neither the Corporation nor any
            Subsidiaries have during the past five (5) years, made or
            participated in any recall of products from their customers, whether
            on a voluntary basis or pursuant to a notice or request received
            from any Governmental Authority. Neither the Corporation nor any
            Subsidiaries have received any notice from any Governmental
            Authority during the past five (5) years alleging any violation or
            possible violation of any Applicable Laws or referring, directly or
            indirectly, to the possible potential recall of any products;

      (aa)  except as specifically disclosed in the Securities Law 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 Corporation for the benefit of any current or
            former director, senior officer, or consultant of the Corporation;

      (bb)  except as specifically disclosed in the Securities Law Reports,
            neither the Corporation nor any of its Subsidiaries owes any money
            to, nor has the Corporation 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 "arm's length" (as such term is defined in the Income Tax
            Act (Canada)) with the Corporation except for usual employee
            reimbursements and compensation paid in the ordinary and normal
            course of the business of the Corporation;

      (cc)  except as specifically disclosed in the Securities Law Reports or as
            set forth on the Disclosure Schedule, neither the Corporation 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 Corporation;

      (dd)  except as specifically disclosed in the Securities Law Reports, to
            the best of the Corporation's knowledge, information and belief, no
            present or former officer, director or shareholder of the
            Corporation or any of its Subsidiaries has any cause of action, or
            other claim whatsoever, against, or owes any amount to, the
            Corporation or any of its Subsidiaries except for any liabilities
            reflected in the Securities Law 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;

      (ee)  all material accruals for unpaid vacation pay, premiums for
            unemployment insurance, health premiums, pension plan premiums,

<PAGE>

                                    Page 19

            accrued wages, salaries and commissions and employee benefit plan
            payments have been reflected in the books and records of the
            Corporation and each Subsidiary;

      (ff)  there has not been and there is not currently any material
            disagreement or other difficulty with any of the employees of the
            Corporation or any of its Subsidiaries which is adversely affecting
            or could reasonably adversely affect, in a material manner, the
            carrying on of the business of the Corporation or any of its
            Subsidiaries;

      (gg)  to the best of the Corporation's knowledge, information and belief,
            the Corporation and each Material Subsidiary is in compliance with
            the provisions of applicable worker's compensation, applicable
            employee health and safety, training and similar legislation in each
            jurisdiction where it carries on business;

      (hh)  no property or asset of the Corporation 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 Corporation aware
            of any intent or proposal to give any such notice or commence any
            such proceeding;

      (ii)  with respect to each premises which is material to the Corporation
            or any Material Subsidiary and which the Corporation or any of its
            Subsidiaries occupies (the "Material Premises"), the Corporation or
            any of its Subsidiaries either owns such Material Premises or has
            the exclusive right to occupy and use the Material Premises;

      (jj)  the Corporation or a Subsidiary owns each of the assets shown or
            reflected on the Financial Statements or otherwise on the books of
            the Corporation or a Subsidiary (except only those assets which have
            been disposed of in the ordinary course of business since the dates
            thereof) and all other assets acquired since the dates thereof with
            good and marketable title, free and clear of all Liens, other than
            as set forth therein. Neither the Corporation nor any Subsidiary has
            received in respect of its assets or any of them any notice of
            conflict with the asserted rights of any other party. The
            Corporation and the Subsidiaries own or lease all of the assets
            necessary for or that are used by them in the conduct of the
            Business;

      (kk)  each of the leases pursuant to which the Corporation or any of its
            Subsidiaries occupies any Material Premises is in good standing and
            in full force and effect, and none of the Corporation or any of its
            Subsidiaries (as the case may be) or, to the best of the knowledge,
            information and belief of the Corporation, any other party thereto,
            is in breach of any material covenants, conditions or obligations
            contained therein; and

      (ll)  the Corporation has not incurred any obligation or liability for
            broker's or finder's fees or other payment with respect to the
            transactions contemplated in the Documents.

<PAGE>

                                    Page 20

                                   Article 6
                                   COVENANTS

6.1   AFFIRMATIVE COVENANTS. So long as any Debentures are outstanding or the
Corporation has any obligations hereunder, the Corporation covenants and agrees
that:

      (a)   PUNCTUAL PAYMENT. The Corporation shall pay all principal and
            interest and other amounts payable by it hereunder at the times and
            places and in the manner provided herein;

      (b)   CONDUCT OF BUSINESS. The Corporation shall, and shall cause each
            Subsidiary (other than vertical amalgamations or mergers among
            wholly-owned subsidiaries or between a Subsidiary and the
            Corporation) to, maintain its existence, power and capacity and
            carry on its business in a commercially reasonable manner so as to
            preserve and protect its undertaking and property and the revenues
            to be earned therefrom;

      (c)   MATERIAL AUTHORIZATIONS. The Corporation shall, and shall cause the
            Subsidiaries to, preserve and keep all Material Authorizations in
            full force and effect;

      (d)   COMPLIANCE WITH APPLICABLE LAWS AND MATERIAL OBLIGATIONS. The
            Corporation shall, and shall cause all Subsidiaries to, comply with
            (i) all Applicable Laws, (ii) all Documents and all Opta Documents,
            and (iii) all Material Contracts and other obligations, any of the
            foregoing of which if not complied with would or could reasonably be
            expected to result in a Material Adverse Change;

      (e)   PAYMENT OF TAXES. The Corporation shall, and shall cause the
            Subsidiaries to, pay, withhold and remit all Taxes required by
            Applicable Laws;

      (f)   BOOKS AND RECORDS. The Corporation shall, and shall cause the
            Subsidiaries to, maintain adequate books, accounts and records in
            accordance with GAAP consistently applied;

      (g)   INSURANCE. The Corporation shall, on a consolidated basis, maintain
            with responsible and reputable insurers, insurance in respect of its
            undertaking and property against such casualties and contingencies
            and in such types and in such amounts and with such deductibles and
            other provisions as are customarily maintained or caused to be
            maintained by Persons engaged in the same or similar businesses in
            the same jurisdictions under similar conditions;

      (h)   OPTA DOCUMENTS. Not later than February 15, 2003, the Corporation
            shall cause to be delivered to the Purchaser, the Opta Documents in
            form and content satisfactory to the Purchaser. The Corporation
            shall give notice forthwith of any proposed sale or other
            disposition of the Opta Property; and

<PAGE>

                                    Page 21

      (i)   NOTICE OF DEFAULT. The Corporation shall promptly notify the
            Debentureholders in writing of the occurrence of a "Default" as such
            term is defined in the Subordination and Priority Agreement dated as
            of December 4, 2002 among the Corporation, the Purchaser and the
            Bank, as such agreement may be amended, supplemented or restated
            from time to time, or any other occurrence which could, pursuant to
            such agreement, prevent the Corporation from making, or the
            Debentureholders from accepting and retaining, any payment of
            principal or interest to the Debentureholders as required hereunder.


6.2   NEGATIVE COVENANTS. So long as any Debentures are outstanding or the
Corporation has any obligations hereunder, the Corporation covenants and agrees
that, without the prior written consent of Debentureholders evidenced by
Debentureholders Resolution, it will not:

      (a)   declare or pay any dividends, purchase, redeem, retire or otherwise
            acquire for value any of its capital to its shareholders or make any
            distributions of assets to its shareholders;

      (b)   modify or supplement its articles or by-laws; and

      (c)   make any loans or guarantee the obligations of any other person,
            firm or corporation, other than a Subsidiary.

                                   Article 7
                                EVENTS OF DEFAULT

7.1   The occurrence of any of the following shall be an Event of Default
hereunder:

      (a)   the Corporation shall fail to pay any principal amount of the
            Debentures or interest thereon on the due date;

      (b)   any representations or warranties set forth in Article 5 are
            incorrect in any material respect;

      (c)   the Corporation shall fail to fulfill any of the covenants set forth
            in Article 4 or Article 6 or perform or observe any other terms,
            covenants or agreements contained herein on its part to be performed
            and any such failure shall remain unremedied for twenty-one (21)
            days after written notice shall have been given to the Corporation
            by Debentureholders Resolution;

      (d)   the Corporation and/or any of its Subsidiaries shall fail to pay any
            debt or other interest or premium thereon when due (whether by
            scheduled maturity, required prepayment, acceleration, demand or
            otherwise) and such failure shall continue after the applicable
            grace period, if any, specified in such agreement or instrument
            relating to such debt (other than in the event that the debt does
            not relate to monies borrowed and the Corporation is contesting its
            liability therefore in good faith); or any other default under any
            agreement or instrument relating to any such debt or any other event
            shall occur and shall continue after the applicable

<PAGE>

                                    Page 22

            grace period, if any, specified in such agreement or instrument, if
            the effect of such default or event is to accelerate or to permit
            the acceleration of the maturity of such debt; or any such debt
            shall be deemed to be due and payable or required to be prepaid
            prior to the statutory maturity thereof;

      (e)   either the Corporation or any of the Subsidiaries is in violation of
            or in default with respect to, and any event has occurred which,
            with the lapse of time or action by a third party, would result in
            the violation of or a default with respect to any Material Contract;

      (f)   the Corporation and/or any of the Subsidiaries shall generally not
            pay its debts as such debts become due, or shall admit in writing
            its inability to pay its debts generally, or shall make a general
            assignment for the benefit of creditors; or any proceeding shall be
            instituted by or against the Corporation or any of the Subsidiaries
            seeking to adjudicate it a bankrupt or insolvent, or seeking
            liquidation, winding up, reorganization, arrangement, adjustment,
            protection, relief or composition of it or its debts under any law
            relating to bankruptcy, insolvency or reorganization or relief of
            debtors, or seeking the entry of an order for relief or the
            appointment of a receiver, trustee or other similar official for it
            or for any substantial part of its property which shall not be
            discharged within sixty (60) days of appointment; or the Corporation
            or any of the Subsidiaries shall take any corporate action to
            authorize any of the actions set forth above in this subsection (f);
            and

      (g)   any judgment or order for the payment of money shall be rendered
            against the Corporation and/or any of the Subsidiaries and either
            enforcement proceedings shall have been commenced by any creditor
            upon such judgment or order; or there shall be any period of
            twenty-one (21) consecutive days during which a stay of enforcement
            of such judgment or order, by reason of a pending appeal or
            otherwise, shall not be in effect.

7.2   The Corporation shall send a written notice to the Debentureholders
advising them of an Event of Default not later than the second (2nd) Business
Day next following the occurrence thereof. If any Event of Default shall have
occurred and be continuing and in the event that such default is not remedied
within the five (5) following days, the Debentureholders may, by a
Debentureholders Resolution delivered to the Corporation, declare the principal
and interest of all Debentures then outstanding to be due and payable; in which
event, anything herein to the contrary notwithstanding, the principal amount and
accrued interest shall forthwith become immediately due and payable to the
Debentureholders without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Corporation.

7.3   In the event that the principal and interest of all Debentures then
outstanding becomes due and payable pursuant to section 7.2 but all or any
portion of such amount is not paid or permitted to be paid for any reason or
cause whatsoever, including as a result of the terms of the Subordination and
Priority Agreement dated as of December 4, 2002 among the Corporation, the
Purchaser and the Bank, as such agreement may be amended, supplemented or
restated from time to time, the Debentureholders may, in addition to their other
rights and recourses hereunder and at law, elect to convert all or any portion
of the Debentures then outstanding into fully paid

<PAGE>

                                     Page 23

and non-assessable Shares at the Conversion Price and the provisions of Article
4 hereof shall apply.

                                   Article 8
                                  MISCELLANEOUS

8.1   Any notice, demand, request or other instrument which may be or is
required to be given under this agreement shall be delivered in person or sent
by registered mail, postage prepaid, and shall be addressed:

      (a)   if to the Corporation, at:

            2838 Highway 7
            Norval, Ontario
            L0P  1K0

            Attention: the Chief Financial Officer

            with a copy to:

            Dunnington, Bartholow & Miller
            666 Third Avenue
            New York, N.Y.
            U.S.A. 10017

            Attention: Mr. Robert T. Lincoln

      (b)   if to the Purchaser, at:

            c/o Mr. Steve Levin
            Davies Ward Phillips & Vineberg
            625 Madison Avenue
            12th Floor
            New York, N.Y.
            U.S.A. 10022

            with a copy to:

            Davies Ward Phillips & Vineberg
            1501 McGill College Avenue
            26th Floor
            Montreal, Quebec
            H3A 3N9

            Attention: Mr. Michael Vineberg

Any such notice, demand, request or consent shall be deemed to have been given
or made on the day upon which such notice, demand, request or consent is
received and any party may at any time give notice in writing in the manner
aforesaid to the others of any change of address of the party giving such notice
and from and after the giving of such notice the address therein specified

<PAGE>

                                    Page 24

shall be deemed to be the address of such party for the giving of notices and
other communications hereunder.

8.2   The Corporation shall reimburse to the Purchaser all of its costs and
expenses with respect to the preparation and negotiation of the Documents
including, without limitation, its professional fees.

8.3   The present agreement may be executed by the parties hereto in separate
counterparts, each of which, when so executed, shall be an original, but all
such counterparts together shall constitute the present agreement.

8.4   All previous communications between the parties hereto, either verbal or
written, relative to the subject matter of this agreement, are superseded
hereby. No modification of this agreement shall be binding upon any party unless
made in writing.

8.5   This agreement shall be construed and interpreted in accordance with the
laws of the Province of Ontario.

8.6   This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
assigns.

                            [signatures on next page]

<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have executed the
present Debenture Purchase Agreement at the place hereinabove mentioned.

                                      STAKE TECHNOLOGY LTD.



                                      Per:_____________________________________


                                      CLARIDGE ISRAEL LLC



                                      Per:_____________________________________


                                      Per:_____________________________________