<PAGE>

                                                                     Exhibit 2.1


                    SHAREHOLDER PROTECTION RIGHTS AGREEMENT




                          Dated as of August 12, 1999



                                    BETWEEN



                            FANTOM TECHNOLOGIES INC.



                                   -  and  -



                           CIBC MELLON TRUST COMPANY

                                as Rights Agent
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
    <S>                                                                                                       <C>
    ARTICLE I - INTERPRETATION
    1.1       Certain Definitions ..........................................................................   1
    1.2       Currency .....................................................................................  14
    1.3       Number and Gender ............................................................................  14
    1.4       Descriptive Headings and References ..........................................................  14
    1.5       Acting Jointly or in Concert .................................................................  14
    1.6       Holder .......................................................................................  14

    ARTICLE 2 - THE RIGHTS
    2.1       Legend on Common Share Certificates...........................................................  15
    2.2       Initial Exercise Price; Exercise of Rights; Detachment of Rights .............................  15
    2.3       Adjustments to Exercise Price; Number of Rights ..............................................  18
    2.4       Date on Which Exercise is Effective ..........................................................  24
    2.5       Execution, Authentication, Delivery and Dating of Rights Certificates ........................  24
    2.6       Registration, Registration of Transfer and Exchange ..........................................  25
    2.7       Mutilated, Destroyed, Lost and Stolen Rights Certificates ....................................  25
    2.8       Persons Deemed Owners ........................................................................  26
    2.9       Delivery and Cancellation of Certificates ....................................................  26
    2.10      Agreement of Rights Holders ..................................................................  26

    ARTICLE 3 - ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF A FLIP-IN EVENT
    3.1       Flip-in Event ................................................................................  27

    ARTICLE 4 - THE RIGHTS AGENT
    4.1       General ......................................................................................  29
    4.2       Merger or Consolidation or Change of Name of Rights Agent ....................................  30
    4.3       Duties of Rights Agent .......................................................................  30
    4.4       Change of Rights Agent .......................................................................  32

    ARTICLE 5 - MISCELLANEOUS
    5.1       Redemption of Rights .........................................................................  32
    5.2       Waiver of Flip-In Events .....................................................................  33
    5.3       Expiration ...................................................................................  34
    5.4       Issuance of New Rights Certificates ..........................................................  34
    5.5       Supplements and Amendments ...................................................................  34
    5.6       Fractional Rights and Fractional Shares ......................................................  36
    5.7       Rights of Action .............................................................................  36
    5.8       Holder of Rights Not Deemed a Shareholder ....................................................  37
    5.9       Notice of Proposed Actions ...................................................................  37
    5.10      Notices ......................................................................................  37
    5.11      Costs of Enforcement..........................................................................  38
    5.12      Successors ...................................................................................  38
    5.13      Benefits of this Agreement ...................................................................  38
    5.14      Governing Law ................................................................................  38
    5.15      Counterparts .................................................................................  39
    5.16      Severability .................................................................................  39
    5.17      Determinations and Actions by the Board of Directors .........................................  39
    5.18      Effective Date ...............................................................................  39
    5.19      Regulatory Approvals .........................................................................  39

    Exhibit A - Form of Rights Certificate
</TABLE>

<PAGE>

                    SHAREHOLDER PROTECTION RIGHTS AGREEMENT


SHAREHOLDER PROTECTION RIGHTS AGREEMENT dated as of August 12, 1999 between
FANTOM TECHNOLOGIES INC., a corporation incorporated under the Business
Corporations Act (Ontario) (the "Corporation") and CIBC MELLON TRUST COMPANY, a
trust company incorporated under the laws of Canada, as rights agent (the
"Rights Agent", which term shall include any successor Rights Agent hereunder).

WHEREAS the Board of Directors has determined that it is advisable and in the
best interests of the Corporation to adopt a shareholder protection rights plan
(the "Rights Plan") to ensure, to the extent possible, that all shareholders of
the Corporation are treated fairly in connection with any take-over offer for
the Corporation;

AND WHEREAS in order to implement the Rights Plan, the Board of Directors has:

(a)  authorized and declared a distribution of one right (a "Right") effective
     the Close of Business (as hereinafter defined) on August 12, 1999 in
     respect of each Common Share (as hereinafter defined) outstanding at the
     Record Time (as hereinafter defined); and

(b)  authorized the issuance of one Right in respect of each Common Share issued
     after the Record Time and prior to the earlier of the Separation Time (as
     hereinafter defined) and the Expiration Time (as hereinafter defined);

AND WHEREAS each Right entitles the holder thereof, after the Separation Time,
to purchase securities of the Corporation pursuant to the terms and subject to
the conditions set forth herein;

AND WHEREAS the Rights Agent has agreed to act on behalf of the Corporation in
connection with the issuance, transfer, exchange and replacement of Rights
Certificates (as hereinafter defined), the exercise of Rights and other matters
referred to herein;

NOW THEREFORE, in consideration of the premises and the respective agreements
set forth herein, the Corporation and the Rights Agent hereby agree as follows:


                           ARTICLE I - INTERPRETATION

1.1  Certain Definitions

     For purposes of this Agreement, the following terms have the meanings
     indicated:

     "Acquiring Person" shall mean any Person who is the Beneficial Owner of 20%
     or more of the outstanding Voting Shares; provided, however, that the term
     "Acquiring Person" shall not include:

     (i) the Corporation or any Subsidiary of the Corporation;
<PAGE>

                                      -2-


     (ii) any Person who becomes the Beneficial Owner of 20% or more of the
          outstanding Voting Shares as a result of one or any combination of:

          (A)  a Voting Share Reduction which, by reducing the number of Voting
               Shares outstanding, increases the percentage of Voting Shares
               Beneficially Owned by such Person to 20% or more of the Voting
               Shares then outstanding,

          (B)  a Pro Rata Acquisition,

           (C)  a Permitted Bid Acquisition,

           (D)  an Exempt Acquisition, or

           (E)  a Convertible Security Acquisition,

           provided further, however, that if a Person shall become the
           Beneficial Owner of 20% or more of the Voting Shares then outstanding
           by reason of one or any combination of a Voting Share Reduction, a
           Pro Rata Acquisition, a Permitted Bid Acquisition, an Exempt
           Acquisition or a Convertible Security Acquisition and thereafter
           becomes the Beneficial Owner of more than an additional 1% of the
           outstanding Voting Shares (other than pursuant to a Voting Share
           Reduction, a Pro Rata Acquisition, a Permitted Bid Acquisition, an
           Exempt Acquisition or a Convertible Security Acquisition), then as of
           the date that such Person becomes the Beneficial Owner of such
           additional Voting Shares, such Person shall become an Acquiring
           Person;

     (iii) for the period of 10 days after the Disqualification Date (as
           hereinafter defined), any Person who becomes the Beneficial Owner of
           20% or more of the outstanding Voting Shares as a result of such
           Person becoming disqualified from relying on Clause (v) of the
           definition of Beneficial Owner solely because such Person makes or
           has announced a current intention to make a Take-over Bid alone or by
           acting jointly or in concert with any other Person (the first date of
           public announcement (which, for purposes of this definition, shall
           include, without limitation, a report filed pursuant to Section 101
           of the Securities Act (Ontario)) by such Person or the Corporation of
           facts indicating that any Person is making or has announced a current
           intention to make a Take-over Bid being herein referred to as the
           "Disqualification Date");

     (iv)  an underwriter or member of a banking or selling group that acquires
           Voting Shares from the Corporation in connection with a distribution
           of securities pursuant to a prospectus or by way of private
           placement; and

     (v)   a Grandfathered Person, provided, however, that if such Person shall
           thereafter become the Beneficial Owner (other than pursuant to a
           Voting Share Reduction, a Pro Rata Acquisition, a Permitted Bid
           Acquisition, an Exempt Acquisition or a Convertible Security
           Acquisition) of additional Voting Shares constituting more than 1% of
           the number of Voting Shares then outstanding, such Person shall
<PAGE>

                                      -3-


           become an Acquiring Person as of the date and time of acquisition of
           such additional Voting Shares.

     "Affiliate", when used to indicate a relationship with a specified Person,
     shall mean a Person that directly, or indirectly through one or more
     intermediaries, controls, or is controlled by, or is under common control
     with, such specified Person.

     "Agreement" shall mean this shareholder protection rights agreement dated
     as of August 12, 1999 between the Corporation and the Rights Agent, as may
     be amended and/or supplemented or restated from time to time.

     "Associate", when used to indicate a relationship with a specified Person,
     shall mean (i) a spouse of such specified Person, (ii) any Person of either
     sex with whom such specified Person is living in a conjugal relationship
     outside marriage, or (iii) any relative of such specified Person or of a
     Person mentioned in Clauses (i) or (ii) of this definition if that relative
     has the same residence as the specified Person.

     "Beneficial Owner": a Person shall be deemed the "Beneficial Owner" and to
     have "Beneficial Ownership" of and to "Beneficially Own":

     (i)   any securities of which such Person or any of such Person's
           Affiliates or Associates is the owner at law or in equity;

     (ii)  any securities as to which such Person or any of such Person's
           Affiliates or Associates has the right to become the owner at law or
           in equity, where such right is exercisable immediately or within 60
           days of the date of the determination of Beneficial Ownership and
           whether or not on condition or the occurrence of any contingency or
           the making of any payment, upon the exercise of any conversion right,
           exchange right or purchase right attaching to Convertible Securities,
           or pursuant to any agreement, arrangement, pledge or understanding,
           written or oral (other than customary agreements with and between
           underwriters and/or banking group and/or selling group members with
           respect to a distribution of securities pursuant to a prospectus or
           by way of private placement and other than pursuant to pledges of
           securities in the ordinary course of business); and

     (iii) any securities which are Beneficially Owned within the meaning of
           Clauses (i) or (ii) of this definition by any other Person with
           which, and in respect of which securities, such Person is acting
           jointly or in concert;

     provided, however, that a Person shall not be deemed the "Beneficial Owner"
     of, or to have "Beneficial Ownership" of, or to "Beneficially Own", any
     security:

     (iv)  by reason of:

           (A) such security having been deposited or tendered pursuant to a
               Take-over Bid made by such Person or any of such Person's
               Affiliates or Associates or any other Person referred to in
               Clause (iii) of this definition, until the earlier of such
               deposited or tendered security being accepted
<PAGE>

                                      -4-


               unconditionally for payment or exchange or being taken up and
               paid for; or

          (B)  the holder of such security having agreed pursuant to a Permitted
               Lock-up Agreement to deposit or tender such security pursuant to
               a Take-over Bid made by any such Person or any of such Person's
               Affiliates or Associates or any other Person referred to in
               Clause (iii) of this definition;

     (v)  by reason of such Person, any of such Person's Affiliates or
          Associates or any other Person referred to in Clause (iii) of this
          definition holding such security, provided, however, that:

          (A)  the ordinary business of the Person (in this definition, a
               "Manager") includes the management of investment funds for others
               and such security is held by the Manager in the ordinary course
               of such business in the performance of such Manager's duties for
               the account of any other Person (in this definition, a "Client");

          (B)  the Person (in this definition, a "Trust Company") is licensed to
               carry on the business of a trust company under applicable law
               and, as such, acts as a trustee or administrator or in a similar
               capacity in relation to the estates of deceased or incompetent
               Persons (each, in this definition, an "Estate Account") or in
               relation to other accounts (each, in this definition, an "Other
               Account") and holds such security and is acting in the ordinary
               course of such duties for the Estate Account or for such Other
               Accounts;

          (C)  such Person is a Crown agent or agency (in this definition, a
               "Crown Agent");

          (D)  the Person is established by statute for purposes that include,
               and the ordinary business or activity of such Person (in this
               definition, a "Statutory Body") includes, the management of
               investment funds for employee benefit plans, pension plans and
               insurance plans of various public bodies and the Statutory Body
               holds such security for the purposes of its activities as such;
               or

          (E)  the Person (in this definition, an "Administrator") is the
               administrator or trustee of one or more pension funds or plans
               (each, in this definition, a "Plan") registered under the laws of
               Canada or any province thereof or the corresponding laws of the
               jurisdiction by which such Plan is governed or is such a Plan and
               the Administrator or Plan holds such security for the purposes of
               its activities as such;

          but only if the Manager, the Trust Company, the Crown Agent, the
          Statutory Body, the Administrator or the Plan, as the case may be, is
          not then making and has not announced a current intention to make a
          Take-over Bid, other than an Offer to Acquire Voting Shares or other
          securities pursuant to a distribution by the Corporation or by means
          of ordinary market transactions (including
<PAGE>

                                      -5-


           prearranged trades entered into in the ordinary course of business of
           such Person) executed through the facilities of a stock exchange or
           an organized over-the-counter market, alone or by acting jointly or
           in concert with any other Person;

     (vi)   because such Person:

            (A)  is a Client of the same Manager as another Person on whose
                 account the Manager holds such security;

            (B)  has an Estate Account or an Other Account with the same Trust
                 Company as another Person on whose account the Trust Company
                 holds such security; or

            (C)  is a Plan with the same Administrator as another Plan on whose
                 account the Administrator holds such security;

     (vii)  because such Person:

            (A)  is a Client of a Manager and such security is owned at law or
                 in equity by the Manager;

            (B)  has an Estate Account or an Other Account with a Trust Company
                 and such security is owned at law or in equity by the Trust
                 Company; or

            (C)  is a Plan and such security is owned at law or in equity by the
                 Administrator of the Plan; or

     (viii) because such Person is the registered holder of such security as a
            result of carrying on the business of, or acting as nominee for, a
            securities depositary.

     "Board of Directors" shall mean the board of directors of the Corporation.

     "Business Corporations Act (Ontario)" shall mean the Business Corporations
     Act, R.S.O. 1990, c.B-16, as amended, and the regulations made thereunder
     and any comparable or successor laws or regulations thereto.

     "Business Day" shall mean any day other than a Saturday, a Sunday or a day
     on which banking institutions in Toronto are authorized or obliged by law
     to close.

     "Close of Business" on any given date shall mean the time on such date (or,
     if such date is not a Business Day, the time on the next succeeding
     Business Day) at which the office of the transfer agent for the Common
     Shares in the City of Toronto (or, after the Separation Time, the office of
     the Rights Agent in the City of Toronto) is closed to the public.

     "Common Shares" shall mean the common shares in the capital of the
     Corporation.

     "Competing Permitted Bid" shall mean a Take-over Bid that:
<PAGE>

                                      -6-


     (i)   is made after a Permitted Bid or another Competing Permitted Bid has
           been made and prior to the expiry of that Permitted Bid or Competing
           Permitted Bid (in this definition, the "Prior Bid");

     (ii)  satisfies all the provisions of the definition of a Permitted Bid
           other than the requirements set out in Clauses (ii)(A) and (D) of the
           definition of Permitted Bid; and

     (iii) contains, and the take-up and payment for securities tendered or
           deposited thereunder are subject to, irrevocable and unqualified
           conditions that:

           (A)  no Voting Shares shall be taken up or paid for pursuant to such
                Take-over Bid (x) prior to the Close of Business on a date that
                is not earlier than the later of 21 days after the date of such
                Take-over Bid and the sixtieth day after the earliest date on
                which any Prior Bid in existence was made, and (y) then only if,
                at the time that such Voting Shares are first taken up or paid
                for, more than 50% of the then outstanding Voting Shares held by
                Independent Shareholders have been deposited or tendered
                pursuant to such Take-over Bid and not withdrawn; and

           (B)  in the event that the requirement set forth in Subclause
                (iii)(A)(y) of this definition is satisfied, the Offeror will
                make a public announcement of that fact and the Take-over Bid
                will remain open for deposits and tenders of Common Shares for
                not less than 10 Business Days from the date of such public
                announcement.

     "controlled": a body corporate is "controlled" by another Person or two or
     more Persons acting jointly or in concert if:

     (i)   securities entitled to vote in the election of directors carrying
           more than 50% of the votes for the election of directors are held,
           directly or indirectly, by or on behalf of the other Person or two or
           more Persons acting jointly or in concert; and

     (ii)  the votes carried by such securities are entitled, if exercised, to
           elect a majority of the board of directors of such body corporate;

     and "controls", "controlling" and "under common control with" shall be
     interpreted accordingly.

     "Co-Rights Agent" shall have the meaning attributed thereto in Subsection
     4.1(a).

     "Convertible Securities" shall mean at any time any securities issued by
     the Corporation (including rights, warrants and options but excluding the
     Rights) carrying any purchase, exercise, conversion or exchange right,
     pursuant to which the holder thereof may acquire Voting Shares or other
     securities convertible into or exercisable or exchangeable for Voting
     Shares (in each case, whether such right is exercisable immediately or
     after a specified period and whether or not on condition or the happening
     of any contingency).
<PAGE>

                                      -7-


     "Convertible Security Acquisition" shall mean the acquisition of Voting
     Shares upon the exercise of Convertible Securities acquired by a Person
     pursuant to a Permitted Bid Acquisition, an Exempt Acquisition or a Pro
     Rata Acquisition.

     "Election to Exercise" shall have the meaning attributed thereto in
     Subsection 2.2(d).

     "Exempt Acquisition" shall mean an acquisition of Voting Shares or
     Convertible Securities (i) in respect of which the Board of Directors has
     waived the application of Section 3.1 pursuant to the provisions of Section
     5.2, or (ii) pursuant to a distribution of Voting Shares or Convertible
     Securities made by the Corporation pursuant to a prospectus or a securities
     exchange take-over bid circular or by way of a private placement (provided
     that (x) all necessary stock exchange approvals for such private placement
     have been obtained and such private placement complies with the terms and
     conditions of such approvals, and (y) the purchaser does not become the
     Beneficial Owner of Voting Shares equal in number to more than 25% of the
     Voting Shares outstanding immediately prior to the private placement, and
     in making this determination, the securities to be issued to such purchaser
     on the private placement shall be deemed to be held by such purchaser but
     shall not be included in the aggregate number of outstanding Voting Shares
     immediately prior to the private placement) or pursuant to an amalgamation,
     merger or other statutory procedure requiring shareholder approval.

     "Exercise Price" shall mean, as of any date, the price at which a holder of
     a Right may purchase the securities issuable upon exercise of one whole
     Right.  Until adjustment thereof in accordance with the terms hereof, the
     Exercise Price shall equal $60.00.

     "Expansion Factor" shall have the meaning attributed thereto in Subsection
     2.3(b)(x).

     "Expiration Time" shall mean the earlier of (i) the Termination Time, and
     (ii) the termination of the annual meeting of the shareholders of the
     Corporation in the year 2002.

     "Flip-in Event" shall mean a transaction in which any Person becomes an
     Acquiring Person.

     "Grandfathered Person" shall mean any Person who is the Beneficial Owner of
     20% or more of the outstanding Common Shares of the Corporation at the
     Record Time.

     "Independent Shareholders" shall mean holders of Voting Shares, other than
     (i) any Acquiring Person, (ii) any Offeror, (iii) any Affiliate or
     Associate of any Acquiring Person or Offeror, (iv) any Person acting
     jointly or in concert with any Acquiring Person or Offeror, and (v) any
     employee benefit plan, deferred profit sharing plan, stock participation
     plan or trust for the benefit of employees of the Corporation or a wholly-
     owned Subsidiary of the Corporation, unless the beneficiaries of such plan
     or trust direct the manner in which such Voting Shares are to be voted or
     direct whether the Voting Shares are to be tendered to a Take-over Bid.

     "Market Price" per security of any securities on any date of determination
     shall mean the average of the daily closing prices per security of such
     securities (determined as
<PAGE>

                                      -8-


     described below) on each of the 20 consecutive Trading Days through and
     including the Trading Day immediately preceding such date; provided,
     however, that if an event of a type analogous to any of the events
     described in Section 2.3 shall have caused the closing prices used to
     determine the Market Price on any Trading Day not to be fully comparable
     with the closing price on such date of determination (or, if the date of
     determination is not a Trading Day, on the immediately preceding Trading
     Day), each such closing price so used shall be appropriately adjusted in a
     manner analogous to the applicable adjustment provided for in Section 2.3
     in order to make it fully comparable with the closing price on such date of
     determination (or, if the date of determination is not a Trading Day, on
     the immediately preceding Trading Day). The closing price per security of
     any securities on any date shall be:

     (i)   the closing board lot sale price or, in case no such sale takes place
           on such date, the average of the closing bid and asked prices for
           each of such securities as reported by the principal stock exchange
           in Canada on which such securities are listed or admitted to trading;
           or


     (ii)  if for any reason none of such prices described in (i) above is
           available for such date or the securities are not listed or admitted
           to trading on a Canadian stock exchange, the last sale price or, if
           such price is not available, the average of the closing bid and asked
           prices, for each such security on such date as reported by such other
           securities exchange on which such securities are listed or admitted
           to trading; or

     (iii) if for any reason none of such prices described in (i) and (ii) above
           is available for such date or the securities are not listed or
           admitted to trading on a Canadian stock exchange or other securities
           exchange, the last sale price, or if no sale takes place, the average
           of the high bid and low asked prices for each such security on such
           date in the over-the-counter market, as quoted by any reporting
           system then in use (as determined by the Board of Directors); or

     (iv)  if for such date none of such prices described in (i), (ii) and (iii)
           above is available or the securities are not listed or admitted to
           trading on a Canadian stock exchange or any other securities exchange
           and are not quoted by any such reporting system, the average of the
           closing bid and asked prices for such date as furnished by a
           professional market maker making a market in the securities selected
           in good faith by the Board of Directors;

     provided, however, that if on any such date none of such prices is
     available, the closing price per security of such securities on such date
     shall mean the fair value per security of such securities on such date as
     determined in good faith by a recognized investment banking firm selected
     by the Board of Directors.

     "Offer Date" shall mean the date of a Take-over Bid.

     "Offer to Acquire" shall include:

     (i)   an offer to purchase, or a solicitation of an offer to sell, Voting
           Shares; and
<PAGE>

                                      -9-


     (ii)  an acceptance of an offer to sell Voting Shares, whether or not such
           offer to sell has been solicited;

     or any combination thereof, and the Person accepting an offer to sell shall
     be deemed to be making an Offer to Acquire to the Person that made the
     offer to sell.

     "Offeror" shall mean a Person who has announced an intention to make or who
     has made a Take-over Bid (including a Permitted Bid or Competing Permitted
     Bid but excluding an Offer to Acquire Common Shares or other securities of
     the Corporation made by a Manager, Trust Company, Crown Agent, Statutory
     Body, Administrator or Plan referred to in Clause 1.1 (d)(v) of the
     definition of Beneficial Owner pursuant to a distribution by the
     Corporation or by means of ordinary market transactions (including pre-
     arranged trades entered into in the ordinary course of business of such
     Person) in the circumstances contemplated in said Clause 1.1 (d)(v)) but
     only so long as the Take-over Bid so announced or made has not been
     withdrawn or terminated and has not expired.

     "Offeror's Securities" shall mean the aggregate of the Voting Shares
     Beneficially Owned on the date of an Offer to Acquire by an Offeror.

     "Permitted Bid" shall mean a Take-over Bid which is made by means of a
     take-over bid circular and which also complies with the following
     additional provisions:

     (i)   the Take-over Bid is made to all holders of record of Voting Shares,
           other than the Offeror; and

     (ii)  the Take-over Bid shall contain, and the take-up and payment for
           securities tendered or deposited thereunder shall be subject to,
           irrevocable and unqualified conditions that:

           (A)  no Voting Shares shall be taken up or paid for pursuant to the
                Take-over Bid (x) prior to the Close of Business on a date which
                is not earlier than 60 days following the Offer Date, and (y)
                then only if, at the Close of Business on the date Voting Shares
                are first taken up or paid for under the Take-over Bid, more
                than 50% of the then outstanding Voting Shares held by
                Independent Shareholders have been deposited or tendered
                pursuant to the Take-over Bid and not withdrawn;

           (B)  Voting Shares may be deposited pursuant to such Take-over Bid,
                unless such Take-over Bid is withdrawn, at any time prior to the
                Close of Business on the date Voting Shares are first taken up
                or paid for under the Take-over Bid;

           (C)  any Voting Shares deposited pursuant to the Take-over Bid may be
                withdrawn until taken up and paid for; and

           (D)  in the event that the requirement set forth in Subclause
                (ii)(A)(y) of this definition is satisfied, the Offeror will
                make a public announcement of that fact and the Take-over Bid
                will remain open for deposits and tender of
<PAGE>

                                     -10-


                Voting Shares for not less than 10 Business Days from the date
                of such public announcement;

     provided, however, always that a Permitted Bid will cease to be a Permitted
     Bid at any time when such bid ceases to meet any of the provisions of this
     definition and any acquisition of Voting Shares made pursuant to such
     Permitted Bid will cease to be a Permitted Bid Acquisition.

     "Permitted Bid Acquisition" shall mean an acquisition of Voting Shares or
     Convertible Securities made pursuant to a Permitted Bid or a Competing
     Permitted Bid.

     "Permitted Lock-Up Agreement" shall mean an agreement between a Person and
     one or more holders of Voting Shares or Convertible Securities (each a
     "Locked-up Person") (the terms of which are publicly disclosed and a copy
     of which is made available to the public (including the Corporation) not
     later than the date the Lock-up Bid (as defined below) is publicly
     announced or, if the Lock-up Bid has been made prior to the date on which
     such agreement is entered into, not later than the date of such agreement),
     pursuant to which each such Locked-up Person agrees to deposit or tender
     Voting Shares or Convertible Securities (or both) to a Take-over Bid (the
     "Lock-up Bid") made or to be made by the Person or any of such Person's
     Affiliates or Associates or any other Person referred to in Clause (iii) of
     the definition of Beneficial Owner, provided, however, that:

     (i)   the agreement:

           (A)  permits any Locked-up Person to terminate its obligation to
                deposit or tender to or not to withdraw Voting Shares or
                Convertible Securities (or both) from the Lock-up Bid in order
                to tender or deposit such securities to another Take-over Bid or
                support another transaction where the price or value per Voting
                Share or Convertible Security offered under such other Take-over
                Bid or transaction is higher than the price or value per Voting
                Share or Convertible Security offered under the Lock-up Bid; or

           (B)  permits any Locked-up Person to terminate its obligation to
                deposit or tender to or not to withdraw Voting Shares or
                Convertible Securities (or both) from the Lock-up Bid in order
                to tender or deposit such securities to another Take-over Bid or
                support another transaction if:

                (a)  the price or value per Voting Share or Convertible Security
                     offered under the other Take-over Bid or transaction
                     exceeds by as much as or more than a specified amount (the
                     "Specified Amount") the price or value per Voting Share or
                     Convertible Security offered under the Lock-up Bid,
                     provided that such Specified Amount is not greater than 7%
                     of the price or value per Voting Share or Convertible
                     Security offered under the Lock-up Bid; or

                (b)  the number of Voting Shares or Convertible Securities to be
                     purchased under the other Take-over Bid or transaction
                     exceeds by as much as or more than a specified number (the
                     "Specified
<PAGE>

                                     -11-

                    Number") the number of Voting Shares or Convertible
                    Securities that the Offeror has offered to purchase under
                    the Lock-up Bid at a price or value per Voting Share or
                    Convertible Security that is not less than the price or
                    value per Voting Share or Convertible Security offered under
                    the Lock-up Bid, provided that the Specified Number is not
                    greater than 7% of the number of Voting Shares or
                    Convertible Securities offered under the Lock-up Bid;

          and, for greater clarity, the agreement may contain a right of first
          refusal or require a period of delay to give such Person an
          opportunity to match a higher price in another Take-over Bid or other
          similar limitation on a Locked-up Person's right to withdraw Voting
          Shares or Convertible Securities (or both) from the agreement, so long
          as the limitation does not preclude the exercise by the Locked-up
          Person of the right to withdraw Voting Shares or Convertible
          Securities (or both) during the period of the other Take-over Bid or
          transaction; and

     (ii) no "break-up" fees, "top-up" fees, penalties, expenses or other
          amounts that exceed in the aggregate the greater of:

          (A)  the cash equivalent of 2.5% of the price or value payable under
               the Lock-up Bid to a Locked-up Person; and

          (B)  50% of the amount by which the price or value payable under
               another Take-over Bid or transaction to a Locked-up Person
               exceeds the price or value of the consideration that such Locked-
               up Person would have received under the Lock-up Bid,

          shall be payable by a Locked-up Person pursuant to the agreement in
          the event a Locked-up Person fails to deposit or tender Voting Shares
          or Convertible Securities (or both) to the Lock-up Bid, withdraws
          Voting Shares or Convertible Securities (or both) previously tendered
          thereto or supports another transaction.

     "Person" shall include any individual, firm, partnership, syndicate,
     association, trust, trustee, executor, administrator, legal personal
     representative, government, governmental body or authority, corporation or
     other incorporated or unincorporated organization.

     "Pro Rata Acquisition" shall mean an acquisition by a Person of Voting
     Shares or Convertible Securities (i) as a result of a stock dividend, a
     stock split or other event pursuant to which such Person receives or
     acquires Voting Shares or Convertible Securities on the same pro rata basis
     as all other holders of Voting Shares or Convertible Securities of the same
     class or series of the Corporation; (ii) pursuant to a regular dividend
     reinvestment or other plan of the Corporation made available by the
     Corporation to the holders of Voting  Shares where such plan permits the
     holder to direct that the dividends paid in respect of such Voting Shares
     be applied to the purchase from the Corporation of further securities of
     the Corporation; or (iii) pursuant to the receipt and/or exercise of rights
     (other than the Rights) issued by the Corporation to all of the holders of
     a series or class of Voting Shares on a pro rata basis to subscribe for or
<PAGE>

                                     -12-

     purchase Voting Shares or Convertible Securities, provided that such rights
     are acquired directly from the Corporation and not from any other Person.

     "Record Time" shall mean the Close of Business on August 12, 1999.

     "Redemption Price" shall have the meaning attributed thereto in Subsection
     5.1(a).

     "Regular Periodic Cash Dividend" shall have the meaning attributed thereto
     in Section 2.3(d).

     "Rights" shall mean the herein described rights to purchase securities
     pursuant to the terms and subject to the conditions set forth herein.

     "Rights Certificate" shall mean the certificates representing the Rights
     after the Separation Time which shall be substantially in the form attached
     hereto as Exhibit A or such other form as the Corporation and the Rights
     Agent may agree.

     "Rights Register" and "Rights Registrar" shall each have the meaning
     attributed thereto in Subsection 2.6(a).

     "Securities Act (Ontario)" shall mean the Securities Act, R.S.O. 1990, c.
     S-5, as amended, and the regulations made thereunder and any comparable or
     successor laws or regulations thereto.

     "Separation Time" shall mean the Close of Business on the tenth Trading Day
     after the earliest of:

     (i)   the Stock Acquisition Date;

     (ii)  the date of the commencement of, or first public announcement of the
           intent of any Person (other than the Corporation or any Subsidiary of
           the Corporation) to commence, a Take-over Bid (other than a Permitted
           Bid or Competing Permitted Bid); and

     (iii) the date upon which a Permitted Bid or Competing Permitted Bid ceases
           to be such;

     or such later date as may be determined by the Board of Directors in good
     faith, provided, however, that if any Take-over Bid referred to in Clause
     (ii) above expires or is cancelled, terminated or otherwise withdrawn prior
     to the Separation Time, such Take-Over Bid shall be deemed, for the
     purposes of this definition, never to have been made.

     "Stock Acquisition Date" shall mean the first date of public announcement
     (which, for purposes of this definition, shall include, without limitation,
     a report filed pursuant to Section 101 of the Securities Act (Ontario)) by
     the Corporation or an Acquiring Person of facts indicating that an
     Acquiring Person has become such.

     "Subsidiary": a body corporate is a Subsidiary of another body corporate
      if:
<PAGE>

                                     -13-

     (i)   it is controlled by (A) that other, or (B) that other and one or more
           bodies corporate, each of which is controlled by that other, or (C)
           two or more bodies corporate, each of which is controlled by that
           other; or

     (ii)  it is a Subsidiary of a body corporate that is that other's
           Subsidiary.

     "Take-over Bid" shall mean an Offer to Acquire Voting Shares or Convertible
     Securities (or both), where the Voting Shares subject to the Offer to
     Acquire together with the Voting Shares which the securities subject to the
     Offer to Acquire are convertible into, exchangeable for or otherwise
     entitled to acquire and the Offeror's Securities, constitute in the
     aggregate 20% or more of the outstanding Voting Shares at the date of the
     Offer to Acquire.

     "Termination Time" shall mean the time at which the right to exercise
     Rights shall terminate pursuant to Section 5.1 or Section 5.18.

     "Trading Day", when used with respect to any securities, shall mean a day
     on which the principal Canadian securities exchange on which such
     securities are listed or admitted to trading is open for the transaction of
     business or, if the securities are not listed or admitted to trading on any
     Canadian securities exchange, a Business Day.

     "Voting Share Reduction" shall mean an acquisition or a redemption by the
     Corporation of Voting Shares.

     "Voting Shares" shall mean collectively the Common Shares of the
     Corporation and any other shares in the capital stock or voting interests
     of the Corporation entitled to vote generally in the election of directors.
     For the purposes of this Agreement, the percentage of Voting Shares
     Beneficially Owned by any Person shall be and be deemed to be the product
     determined by the formula:


                                   100 x  A
                                         ---
                                          B

     where

     A    =    the number of votes for the election of all directors generally
               attaching to the Voting Shares Beneficially Owned by such Person;
               and

     B    =    the number of votes for the election of all directors generally
               attaching to all outstanding Voting Shares.

     Where any Person is deemed to Beneficially Own unissued Voting Shares, such
     Voting Shares shall be deemed to be outstanding for the purposes of both A
     and B above, but no other unissued Voting Shares shall, for the purposes of
     such calculation, be deemed to be outstanding.
<PAGE>

                                     -14-

1.2  Currency

     All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.

1.3  Number and Gender

     Wherever the context so requires, terms used herein importing the singular
number only shall include the plural and vice versa and words importing any one
gender shall include all others.

1.4  Descriptive Headings and References

     Descriptive headings and the Table of Contents appear herein for
convenience of reference only and shall not affect the meaning or construction
of any of the provisions hereof. All references to Articles, Sections,
Subsections, Clauses and Exhibits are to the articles, sections, subsections,
clauses and exhibits forming part of this Agreement unless otherwise indicated.
The words "hereto", "herein", "hereof", "hereunder", "this Agreement" and
similar expressions refer to this Agreement including the Exhibits, as the same
may be amended, modified or supplemented from time to time.

1.5  Acting Jointly or in Concert

     For purposes of this Agreement, a Person is acting jointly or in concert
with every other Person who is a party to any agreement, commitment or
understanding, whether formal or informal and whether or not in writing, with
the first mentioned Person to acquire or offer to acquire Voting Shares (other
than customary agreements with and between underwriters and/or banking group
and/or selling group members with respect to a distribution of securities
pursuant to a prospectus or by way of private placement and other than pursuant
to pledges of securities in the ordinary course of business).

1.6  Holder

     As used in this Agreement, unless the context otherwise requires, the term
"holder" of any Rights shall mean the registered holder of such Rights (or,
prior to the Separation Time, of the associated Common Shares).
<PAGE>

                                     -15-

                            ARTICLE 2 - THE RIGHTS

2.1  Legend on Common Share Certificates

     Common Share certificates issued after the Record Time and prior to the
Close of Business on the earlier of the Separation Time and the Expiration Time
shall evidence one Right for each Common Share represented thereby and shall
have impressed on, printed on, written on or otherwise affixed to them a legend,
substantially in the following form:

     "Until the Separation Time (as such term is defined in the Shareholder
     Protection Rights Agreement referred to below), this certificate also
     evidences and entitles the holder hereof to certain Rights as set forth in
     the Shareholder Protection Rights Agreement dated as of August 12, 1999 as
     amended from time to time (the "Rights Agreement") between Fantom
     Technologies Inc. (the "Corporation") and CIBC Mellon Trust Company, as
     Rights Agent, the terms of which are hereby incorporated herein by
     reference and a copy of which is on file and may be inspected during normal
     business hours at the head office of the Corporation.  In certain
     circumstances, as set forth in the Rights Agreement, such Rights may be
     amended, may be redeemed, may expire, may become void or may be evidenced
     by separate certificates and may no longer be evidenced by this
     certificate.  The Corporation will mail or arrange for the mailing of a
     copy of the Rights Agreement to the holder of this certificate without
     charge promptly after the receipt of a written request therefor."

Certificates representing Common Shares that are issued and outstanding at the
Record Time shall also evidence one Right for each Common Share evidenced
thereby, notwithstanding the absence of the foregoing legend, until the earlier
of the Separation Time and the Expiration Time.

2.2  Initial Exercise Price; Exercise of Rights; Detachment of Rights

     (a)  Subject to adjustment as herein set forth, each Right will entitle the
     holder thereof, from and after the Separation Time and prior to the
     Expiration Time, to purchase one Common Share for the Exercise Price (which
     Exercise Price and number of Common Shares are subject to adjustment as set
     forth below).  Notwithstanding any other provision of this Agreement, any
     Rights held by the Corporation or any of its Subsidiaries shall be void.

     (b)  Until the Separation Time, (i) the Rights shall not be exercisable and
     no Right may be exercised, and (ii) for administrative purposes, each Right
     will be evidenced by the certificate for the associated Common Share
     registered in the name of the holder thereof (which certificate shall be
     deemed to represent a Rights Certificate) and will be transferable only
     together with, and will be transferred by a transfer of, such associated
     Common Share.

     (c)  From and after the Separation Time and prior to the Expiration Time,
     the Rights may be exercised and the registration and transfer of the Rights
     shall be separate from
<PAGE>

                                     -16-

     and independent of Common Shares. Promptly following the Separation Time,
     the Corporation will prepare and the Rights Agent will mail to each holder
     of record of Common Shares as of the Separation Time (other than an
     Acquiring Person, any other Person whose Rights are or become void pursuant
     to the provisions of Subsection 3.1(b) and, in respect of any Rights
     Beneficially Owned by such Acquiring Person which are not held of record by
     such Acquiring Person, the holder of record of such Rights), at such
     holder's address as shown by the records of the Corporation (the
     Corporation hereby agreeing to furnish copies of such records to the Rights
     Agent for this purpose):

          (i)  a Rights Certificate in substantially the form set out in Exhibit
               "A" hereto, appropriately completed, representing the number of
               Rights held by such holder at the Separation Time and having such
               marks of identification or designation and such legends,
               summaries or endorsements printed thereon as the Corporation may
               deem appropriate and as are not inconsistent with the provisions
               of this Agreement, or as may be required to comply with any law
               or with any rule or regulation or judicial or administrative
               order made pursuant thereto or with any rule or regulation of any
               self-regulatory organization, stock exchange or quotation system
               on which the Rights may from time to time be listed or traded, or
               to conform to usage; and

          (ii) a disclosure statement prepared by the Corporation describing the
               Rights;

     provided, however, that a nominee shall be sent the materials provided for
     in Clauses (i) and (ii) above in respect of all Common Shares held of
     record by it which are not Beneficially Owned by an Acquiring Person.  In
     order for the Corporation to determine whether any Person is holding Common
     Shares which are Beneficially Owned by another Person, the Corporation may
     require such first-mentioned Person to furnish such information and
     documentation as the Corporation deems necessary or appropriate to make
     such determination.

     (d)  Rights may be exercised in whole or in part on any Business Day after
     the Separation Time and prior to the Expiration Time by submitting to the
     Rights Agent at its office in the City of Toronto, Canada or, with the
     approval of the Rights Agent, at any other office of the Rights Agent in
     the cities designated from time to time for that purpose by the
     Corporation:

          (i)  the Rights Certificate evidencing such Rights with an election to
               exercise (an "Election to Exercise") substantially in the form
               attached to the Rights Certificate appropriately completed and
               duly executed by the holder or his executors or administrators or
               other personal representatives or his legal attorney duly
               appointed by an instrument in writing in form and executed in a
               manner satisfactory to the Rights Agent; and

          (ii) payment by certified cheque or money order payable to the order
               of the Corporation, of a sum equal to the Exercise Price
               multiplied by the number of Rights being exercised and a sum
               sufficient to cover any transfer tax or charge which may be
               payable in respect of the transfer or delivery of Rights
               Certificates or the issuance or delivery of certificates
<PAGE>

                                     -17-

               for Common Shares in a name other than that of the holder of the
               Rights being exercised.

     (e)  Upon receipt of a Rights Certificate, with a completed Election to
     Exercise appropriately completed and duly executed which does not indicate
     that such Right is null and void as provided by Subsection 3.1(b),
     accompanied by payment as set forth in Clause 2.2(d)(ii), the Rights Agent
     (unless otherwise instructed in writing by the Corporation) will thereupon
     promptly:

          (i)   requisition from the transfer agent of the Common Shares
                certificates for the number of Common Shares to be purchased
                (the Corporation hereby irrevocably agreeing to authorize its
                transfer agent to comply with all such requisitions);

          (ii)  after receipt of such certificates referred to in Clause
                2.2(e)(i), deliver such certificates to or upon the order of the
                registered holder of such Rights Certificate, registered in such
                name or names as may be designated by such holder;

          (iii) when appropriate, requisition from the Corporation the amount
                of cash to be paid in lieu of issuing fractional Common Shares;

          (iv)  after receipt, deliver such cash referred to in Clause
                2.2(e)(iii) to or to the order of the registered holder of the
                Rights Certificate; and

          (v)   tender to the Corporation all payments received on exercise of
                the Rights.

     (f)  In case the holder of any Rights shall exercise less than all the
     Rights evidenced by such holder's Rights Certificate, a new Rights
     Certificate evidencing the Rights remaining unexercised will be issued by
     the Rights Agent to such holder or to such holder's duly authorized
     assigns.

     (g)  The Corporation covenants and agrees that it will:

          (i)  take all such action as may be necessary and within its power to
               ensure that all Common Shares delivered upon exercise of Rights
               shall, at the time of delivery of the certificates for such
               Common Shares (subject to payment of the Exercise Price), be duly
               and validly authorized, executed, issued and delivered as fully
               paid and non-assessable;

          (ii) take all such action as may be necessary and within its power to
               comply with any applicable requirements of the Business
               Corporations Act (Ontario), the Securities Act (Ontario) and the
               securities statute or comparable legislation of each of the other
               provinces and territories of Canada, and other applicable
               securities laws and the rules and regulations thereunder, and any
               other applicable law, rule or regulation, in connection with the
               issuance and delivery of the Rights Certificates and the issuance
               of any Common Shares upon exercise of Rights;
<PAGE>

                                     -18-

          (iii) use reasonable efforts to cause all Common Shares issued upon
                exercise of Rights to be listed upon issuance on The Toronto
                Stock Exchange and each other stock exchange on which the Common
                Shares are then listed or admitted to trading at that time; and

          (iv)  pay when due and payable any and all Canadian and United States
                federal, provincial and state transfer taxes (not in the nature
                of income or withholding taxes) and charges which may be payable
                in respect of the original issuance or delivery of the Rights
                Certificates or certificates for Common Shares, provided that
                the Corporation shall not be required to pay any transfer tax or
                charge which may be payable in respect of the transfer or
                delivery of Rights Certificates or the issuance or delivery of
                certificates for Common Shares in a name other than that of the
                holder of the Rights being transferred or exercised.

2.3  Adjustments to Exercise Price; Number of Rights

     (a)  The Exercise Price, the number and kind of securities subject to
     purchase upon exercise of each Right and the number of Rights outstanding
     are subject to adjustment from time to time as provided in this Section
     2.3.

     (b)  In the event the Corporation shall at any time after the Record Time
     and prior to the Expiration Time:

          (i)   declare or pay a dividend on the Common Shares of the
                Corporation payable in Common Shares or other capital stock of
                the Corporation (or securities exchangeable for or convertible
                into or giving a right to acquire Common Shares) other than
                pursuant to any optional stock dividend program;

          (ii)  subdivide or change the then outstanding Common Shares into a
                greater number of Common Shares;

          (iii) consolidate or change the then outstanding Common Shares into a
                smaller number of Common Shares; or

          (iv)  issue any Common Shares or other capital stock of the
                Corporation (or securities exchangeable for or convertible into
                or giving a right to acquire Common Shares) in respect of, in
                lieu of, or in exchange for existing Common Shares;

     the Exercise Price and the number of Rights outstanding, or, if the payment
     or effective date therefor shall occur after the Separation Time, the
     securities purchasable upon exercise of Rights, shall be adjusted in the
     manner set forth below.

     If the Exercise Price and number of Rights outstanding are to be adjusted:

          (x)   the Exercise Price in effect after such adjustment will be equal
                to the Exercise Price in effect immediately prior to such
                adjustment divided by
<PAGE>

                                     -19-

               the number of Common Shares (the "Expansion Factor") that a
               holder of one Common Share immediately prior to such dividend,
               subdivision, change, consolidation or issuance would hold
               thereafter as a result thereof (assuming the exercise of all such
               exchange, conversion or acquisition rights, if any); and

          (y)  each Right held prior to such adjustment will become that number
               of Rights equal to the Expansion Factor and the adjusted number
               of Rights will be deemed to be distributed among the Common
               Shares with respect to which the original Rights were associated
               (if they remain outstanding) and the Common Shares issued or
               issuable in respect of such dividend, subdivision, change,
               consolidation or issuance, so that each such Common Share will
               have exactly one Right associated with it.

     For greater certainty, if the securities purchasable upon exercise of
     Rights are to be adjusted, the securities purchasable upon exercise of each
     Right after such adjustment will be the securities that a holder of the
     securities purchasable upon exercise of one Right immediately prior to such
     dividend, subdivision, change, consolidation or issuance would hold
     thereafter as a result thereof.  To the extent that such rights of
     exchange, conversion or acquisition are not exercised prior to the
     expiration thereof, the Exercise Price shall be readjusted to the Exercise
     Price which would then be in effect based on the number of Common Shares
     (or securities convertible into or exchangeable for Common Shares) actually
     issued upon the exercise of such rights.

     If after the Record Time and prior to the Expiration Time the Corporation
     shall issue any shares of capital stock other than Common Shares in a
     transaction of a type described in Clauses 2.3(b)(i) or (iv), shares of
     such capital stock shall be treated herein as nearly equivalent to Common
     Shares as may be practicable and appropriate under the circumstances and
     the Corporation and the Rights Agent shall amend this Agreement in order to
     effect such treatment.

     If an event occurs which would require an adjustment under both this
     Section 2.3 and Section 3.1, the adjustment provided for in this Section
     2.3 shall be in addition to, and shall be made prior to, any adjustment
     required pursuant to Section 3.1.

     If the Corporation shall at any time after the Record Time and prior to the
     Separation Time issue any Common Shares otherwise than in a transaction
     referred to in this Subsection 2.3(b), each such Common Share so issued
     shall automatically have one new Right associated with it, which Right
     shall be evidenced by the certificate representing such associated Common
     Share.

     (c)  In the event the Corporation shall at any time after the Record Time
     and prior to the Separation Time fix a record date for the issuance to all
     holders of Common Shares of rights, options or warrants entitling them (for
     a period expiring within 45 days after such record date) to subscribe for
     or purchase Common Shares (or securities convertible into or exchangeable
     for or carrying a right to acquire Common Shares) at a price per Common
     Share (or, if a security convertible into or exchangeable for or carrying a
     right to acquire Common Shares, having a conversion, exchange or exercise
     price, including
<PAGE>

                                     -20-

     the price required to be paid to purchase such convertible or exchangeable
     security or right, per share) less than the Market Price per Common Share
     on such record date, the Exercise Price shall be adjusted. The Exercise
     Price in effect after such record date will equal the Exercise Price in
     effect immediately prior to such record date multiplied by a fraction, of
     which the numerator shall be the number of Common Shares outstanding on
     such record date plus the number of Common Shares which the aggregate
     offering price of the total number of Common Shares so to be offered
     (and/or the aggregate initial conversion, exchange or exercise price of the
     convertible or exchangeable securities or rights so to be offered
     (including the price required to be paid to purchase such convertible or
     exchangeable securities or rights)) would purchase at such Market Price per
     Common Share and of which the denominator shall be the number of Common
     Shares outstanding on such record date plus the number of additional Common
     Shares to be offered for subscription or purchase (or into which the
     convertible or exchangeable securities or rights so to be offered are
     initially convertible, exchangeable or exercisable). In case such
     subscription price may be paid by delivery of consideration part or all of
     which shall be in a form other than cash, the value of such consideration
     shall be as determined in good faith by the Board of Directors. To the
     extent that such rights of exchange, conversion or acquisition are not
     exercised prior to the expiration thereof, the Exercise Price shall be
     readjusted to the Exercise Price which would then be in effect based on the
     number of Common Shares (or securities convertible into or exchangeable for
     Common Shares) actually issued upon the exercise of such rights.

     For purposes of this Agreement, the granting of the right to purchase
     Common Shares (whether from treasury shares or otherwise) pursuant to any
     dividend or interest reinvestment plan and/or any Common Share purchase
     plan providing for the reinvestment of dividends or interest payable on
     securities of the Corporation and/or the investment of periodic optional
     payments and/or employee benefit or similar plans (so long as such right to
     purchase is in no case evidenced by the delivery of rights or warrants)
     shall not be deemed to constitute an issue of rights or warrants by the
     Corporation; provided, however, that, in the case of any dividend or
     interest reinvestment plan, the right to purchase Common Shares is at a
     price per share of not less than 90 percent of the current market price per
     share (determined as provided in such plans) of the Common Shares.

     (d)  In the event the Corporation shall at any time after the Record Time
     and prior to the Separation Time fix a record date for the making of a
     distribution to all holders of Common Shares of evidences of indebtedness
     or assets (other than a Regular Periodic Cash Dividend (as defined below)
     or a dividend paid in Common Shares) or rights, options or warrants
     (excluding those referred to in Subsection 2.3(c)), the Exercise Price
     shall be adjusted.  The Exercise Price in effect after such record date
     will equal the Exercise Price in effect immediately prior to such record
     date less the fair market value (as determined in good faith by the Board
     of Directors) of the portion of the assets, evidences of indebtedness,
     rights or warrants so to be distributed applicable to the securities
     purchasable upon exercise of one Right.

     For the purpose of this Subsection 2.3(d), "Regular Periodic Cash Dividend"
     shall mean cash dividends paid at regular intervals in any fiscal year of
     the Corporation to the extent that such cash dividends do not exceed, in
     the aggregate, the greatest of:
<PAGE>

                                     -21-

          (i)    200% of the aggregate amount of cash dividends declared payable
                 by the Corporation on its Common Shares in its immediately
                 preceding fiscal year;

          (ii)   300% of the arithmetic mean of the aggregate amounts of cash
                 dividends declared payable by the Corporation on its Common
                 Shares in its three immediately preceding fiscal years; and

          (iii)  100% of the aggregate consolidated net income of the
                 Corporation, before extraordinary items, for its immediately
                 preceding fiscal year.

     (e)  Each adjustment made pursuant to this Section 2.3 shall be made as of:

          (i)    the payment or effective date for the applicable dividend,
                 subdivision, change, consolidation or issuance, in the case of
                 an adjustment made pursuant to Subsection 2.3(b) above; and

          (ii)   the record date for the applicable dividend or distribution, in
                 the case of an adjustment made pursuant to Subsection 2.3(c) or
                 (d) above.

     (f)  In the event the Corporation shall at any time after the Record Time
     and prior to the Separation Time issue any shares of capital stock (other
     than Common Shares), or rights, options or warrants to subscribe for or
     purchase any such capital stock, or securities convertible into or
     exchangeable for any such capital stock in a transaction referred to in
     Clauses 2.3(b)(i) or (iv), if the Board of Directors acting in good faith
     determines that the adjustments contemplated by Subsections 2.3(b), (c) and
     (d) above in connection with such transaction will not appropriately
     protect the interests of the holders of Rights, the Board of Directors may
     determine what other adjustments to the Exercise Price, number of Rights
     and/or securities purchasable upon exercise of Rights would be appropriate
     and, notwithstanding Subsections 2.3(b), (c) and (d) above, but subject to
     the prior consent of the holders of Common Shares or Rights obtained as set
     forth in Subsection 5.5(b) or 5.5(c) as applicable, such adjustments,
     rather than the adjustments contemplated by Subsections 2.3(b), (c) and (d)
     above, shall be made.  The Corporation and the Rights Agent shall amend
     this Agreement as appropriate to provide for such adjustments.

     (g)  Notwithstanding anything herein to the contrary, no adjustment of the
     Exercise Price shall be required unless such adjustment would require an
     increase or decrease of at least 1% in such Exercise Price; provided,
     however, that any adjustments which by reason of this Subsection 2.3(g) are
     not required to be made shall be carried forward and taken into account in
     any subsequent adjustment.  All adjustments made pursuant to this Section
     2.3 shall be made to the nearest cent or to the nearest ten-thousandth of a
     Common Share, as the case may be.

     (h)  If as a result of an adjustment made pursuant to Section 3.1, the
     holder of any Right thereafter exercised shall become entitled to receive
     any securities other than Common Shares, thereafter the number of such
     other shares so receivable upon exercise of any Right and the applicable
     Exercise Price thereof shall be subject to adjustment from
<PAGE>

                                     -22-

     time to time in a manner and on terms as nearly equivalent as practicable
     to the provisions with respect to the Common Shares contained in the
     provisions of this Section 2.3 and the provisions of this Agreement with
     respect to the Common Shares shall apply on like terms to any such other
     securities.

     (i)  All Rights originally issued by the Corporation subsequent to any
     adjustment made to an Exercise Price hereunder shall evidence the right to
     purchase, at the adjusted Exercise Price, the number of Common Shares
     purchasable from time to time hereunder upon exercise of the Rights, all
     subject to further adjustment as provided herein.

     (j)  Unless the Corporation shall have exercised its election, as provided
     in Subsection 2.3(k), upon each adjustment of the Exercise Price as a
     result of the calculations made in Subsections 2.3(c) and (d), each Right
     outstanding immediately prior to the making of such adjustment shall
     thereafter evidence the right to purchase, at the adjusted Exercise Price,
     that number of Common Shares obtained by:

          (i)  multiplying (A) the number of Common Shares covered by a Right
               immediately prior to such adjustment, by (B) the relevant
               Exercise Price in effect immediately prior to such adjustment of
               the relevant Exercise Price; and

          (ii) dividing the product so obtained by the relevant Exercise Price
               in effect immediately after such adjustment of the relevant
               Exercise Price.

     (k)  The Corporation may elect on or after the date of any adjustment of an
     Exercise Price to adjust the number of Rights, in lieu of any adjustment in
     the number of Common Shares purchasable upon the exercise of a Right.  Each
     of the Rights outstanding after the adjustment in the number of Rights
     shall be exercisable for the number of Common Shares for which a Right was
     exercisable immediately prior to such adjustment.  Each Right held of
     record prior to such adjustment of the number of Rights shall become the
     number of Rights (calculated to the nearest one ten-thousandth) obtained by
     dividing the relevant Exercise Price in effect immediately prior to
     adjustment of relevant Exercise Price by the relevant Exercise Price in
     effect immediately after adjustment of the relevant Exercise Price.  The
     Corporation shall make a public announcement of its election to adjust the
     number of Rights, indicating the record date for the adjustment, and, if
     known at the time, the amount of the adjustment to be made.  This record
     date may be the date on which the relevant Exercise Price is adjusted or
     any day thereafter, but, if the Rights Certificates have been issued, shall
     be at least 10 days later than the date of the public announcement.  If
     Rights Certificates have been issued, upon each adjustment of the number of
     Rights pursuant to this Subsection 2.3(k), the Corporation shall, as
     promptly as practicable, cause to be distributed to holders of record of
     Rights Certificates on such record date, Rights Certificates evidencing,
     subject to Section 5.6, the additional Rights to which such holders shall
     be entitled as a result of such adjustment, or, at the option of the
     Corporation, shall cause to be distributed to such holders of record in
     substitution and replacement for the Rights Certificates held by such
     holders prior to the date of adjustment, and upon surrender thereof if
     required by the Corporation, new Rights Certificates evidencing all the
     Rights to which such holders shall be entitled after such adjustment.
     Rights Certificates so to be distributed shall be issued, executed and
<PAGE>

                                     -23-

     countersigned in the manner provided for herein and may bear, at the option
     of the Corporation, the relevant adjusted Exercise Price and shall be
     registered in the names of holders of record of Rights Certificates on the
     record date specified in the public announcement.

     (l)  Irrespective of any adjustment or change in the securities purchasable
     upon exercise of the Rights, the Rights Certificates theretofore and
     thereafter issued may continue to express the securities so purchasable
     which were expressed in the initial Rights Certificates issued hereunder.

     (m)  In any case in which this Section 2.3 shall require that an adjustment
     in the Exercise Price be made effective as of a record date for a specified
     event, the Corporation may elect to defer until the occurrence of such
     event the issuance to the holder of any Right exercised after such record
     date of the number of Common Shares and other securities of the
     Corporation, if any, issuable upon such exercise over and above the number
     of Common Shares and other securities of the Corporation, if any, issuable
     upon such exercise on the basis of the relevant Exercise Price in effect
     prior to such adjustment; provided, however, that the Corporation shall
     deliver to such holder a due bill or other appropriate instrument
     evidencing such holder's right to receive such additional Common Shares
     (fractional or otherwise) or other securities upon the occurrence of the
     event requiring such adjustment.

     (n)  Notwithstanding anything in this Section 2.3 to the contrary, the
     Corporation shall be entitled to make such reductions in the Exercise
     Price, in addition to those adjustments expressly required by this Section
     2.3, as and to the extent that in its good faith judgment the Board of
     Directors shall determine to be advisable in order that any (i) subdivision
     or consolidation of the Common Shares, (ii) issuance (wholly or in part for
     cash) of Common Shares at less than the applicable Market Price, (iii)
     issuance (wholly for cash) of any Common Shares or securities that by their
     terms are exchangeable for or convertible into or give a right to acquire
     Common Shares, (iv) stock dividends, or (v) issuance of rights, options or
     warrants referred to in this Section 2.3, hereafter made by the Corporation
     to holders of its Common Shares, subject to applicable taxation laws, shall
     not be taxable to such shareholders.

     (o)  After the Separation Time, the Corporation will not, except as
     permitted by the provisions hereof, take (or permit any Subsidiary of the
     Corporation to take) any action if at the time such action is taken it is
     reasonably foreseeable that such action will diminish substantially or
     otherwise eliminate the benefits intended to be afforded by the Rights.

     (p)  Whenever an adjustment to the Exercise Price or a change in the
     securities purchasable upon the exercise of Rights is made pursuant to this
     Section 2.3, the Corporation shall promptly:

          (i)  prepare a certificate setting forth such adjustment and a brief
               statement of the facts accounting for such adjustment;

          (ii) file with the Rights Agent and with each transfer agent for the
               Common Shares, a copy of such certificate; and
<PAGE>

                                     -24-

          (iii)  cause notice of the particulars of such adjustment or change
                 to be given to the holders of the Rights.

     Failure to file such certificate or to cause such notice to be given as
     aforesaid, or any defect therein, shall not affect the validity of any such
     adjustment or change.

2.4  Date on Which Exercise is Effective

     Each Person in whose name any certificate for Common Shares or other
securities, if applicable, is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the Common Shares or
other securities, if applicable, represented thereby, and such certificate shall
be dated the date upon which the Rights Certificate evidencing such Rights was
duly surrendered in accordance with Subsection 2.2(e) (together with a duly
completed Election to Exercise) and payment of the Exercise Price for such
Rights (and any applicable transfer taxes and other governmental charges payable
by the exercising holder hereunder) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Common Share
transfer books of the Corporation are closed, such Person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Common Share transfer books
of the Corporation are open.

2.5  Execution, Authentication, Delivery and Dating of Rights Certificates

     (a)  The Rights Certificates shall be executed on behalf of the Corporation
     by its President and its Chief Financial Officer, under its corporate seal
     reproduced thereon attested by its Secretary.  The signature of any of
     these officers on the Rights Certificates may be manual or facsimile.
     Rights Certificates bearing the manual or facsimile signatures of
     individuals holding the above offices of the Corporation shall bind the
     Corporation, notwithstanding that such individuals or any of them have
     ceased to hold such offices prior to the countersignature and delivery of
     such Rights Certificates.

     (b)  Promptly after the Corporation learns of the Separation Time, the
     Corporation will notify the Rights Agent in writing of such Separation Time
     and will deliver Rights Certificates executed by the Corporation to the
     Rights Agent for countersignature, and the Rights Agent shall countersign
     (manually or by facsimile signature in a manner satisfactory to the
     Corporation) and deliver such Rights Certificates to the holders of the
     Rights pursuant to Subsection 2.2(c).  No Rights Certificate shall be valid
     for any purpose until countersigned by the Rights Agent as aforesaid.

     (c)  Each Rights Certificate shall be dated the date of countersignature
     thereof.
<PAGE>

                                     -25-

2.6  Registration, Registration of Transfer and Exchange

     (a)  From and after the Separation Time, the Corporation will cause to be
     kept a register (the "Rights Register") in which, subject to such
     reasonable regulations as it may prescribe, the Corporation will provide
     for the registration and transfer of Rights.  The Rights Agent is hereby
     appointed "Rights Registrar" for the purpose of maintaining the Rights
     Register for the Corporation and registering Rights and transfers of Rights
     as herein provided.  In the event that the Rights Agent shall cease to be
     the Rights Registrar, the Rights Agent will have the right to examine the
     Rights Register at all reasonable times.

     After the Separation Time and prior to the Expiration Time, upon surrender
     for registration of transfer or exchange of any Rights Certificate, and
     subject to the provisions of Subsection 2.6(c), the Corporation will
     execute, and the Rights Agent will countersign and deliver, in the name of
     the holder thereof or the designated transferee or transferees, as required
     pursuant to the holder's instructions, one or more new Rights Certificates
     evidencing the same aggregate number of Rights as did the Rights
     Certificates so surrendered.

     (b)  All Rights issued upon any registration of transfer or exchange of
     Rights Certificates shall be the valid obligations of the Corporation, and
     such Rights shall be entitled to the same benefits under this Agreement as
     the Rights surrendered upon such registration of transfer or exchange.

     (c)  Every Rights Certificate surrendered for registration of transfer or
     exchange shall be duly endorsed, or be accompanied by a written instrument
     of transfer in form satisfactory to the Corporation or the Rights Agent, as
     the case may be, duly executed, by the holder thereof or such holder's
     attorney duly authorized in writing.  As a condition to the issuance of any
     new Rights Certificate under this Section 2.6, the Corporation may require
     the payment of a sum sufficient to cover any tax or other governmental
     charge that may be imposed in relation thereto and any other expenses
     (including the fees and expenses of the Rights Agent) connected therewith.

     (d)  The Corporation shall not be required to register the transfer or
     exchange of any Rights after the Rights have been terminated pursuant to
     the provisions of this Agreement.

2.7  Mutilated, Destroyed, Lost and Stolen Rights Certificates

     (a)  If any mutilated Rights Certificate is surrendered to the Rights Agent
     prior to the Expiration Time, the Corporation shall execute and the Rights
     Agent shall countersign and deliver in exchange therefor a new Rights
     Certificate evidencing the same number of Rights as did the Rights
     Certificate so surrendered.

     (b)  If there shall be delivered to the Corporation and the Rights Agent
     prior to the Expiration Time (i) evidence to their satisfaction of the
     destruction, loss or theft of any Rights Certificate, and (ii) such
     security or indemnity as may be required by them to save each of them and
     any of their agents harmless, then, in the absence of notice to the
<PAGE>

                                     -26-

     Corporation or the Rights Agent that such Rights Certificate has been
     acquired by a bona fide purchaser, the Corporation shall execute and upon
     its request the Rights Agent shall countersign and deliver, in lieu of any
     such destroyed, lost or stolen Rights Certificate, a new Rights Certificate
     evidencing the same number of Rights as did the Rights Certificate so
     destroyed, lost or stolen.

     (c)  As a condition to the issuance of any new Rights Certificate under
     this Section 2.7, the Corporation may require the payment of a sum
     sufficient to cover any tax or other governmental charge that may be
     imposed in relation thereto and any other expenses (including the fees and
     expenses of the Rights Agent) connected therewith.

     (d)  Every new Rights Certificate issued pursuant to this Section 2.7 in
     lieu of any destroyed, lost or stolen Rights Certificate shall evidence a
     contractual obligation of the Corporation, whether or not the destroyed,
     lost or stolen Rights Certificate shall be at any time enforceable by
     anyone, and shall be entitled to all the benefits of this Agreement equally
     and proportionately with any and all other Rights duly issued hereunder.

2.8  Persons Deemed Owners

     Prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Share certificate) for registration of
transfer, the Corporation, the Rights Agent and any agent of the Corporation or
the Rights Agent may deem and treat the Person in whose name such Rights
Certificate (or, prior to the Separation Time, such Common Share certificate) is
registered. as the absolute owner thereof and of the Rights evidenced thereby
for all purposes whatsoever.

2.9  Delivery and Cancellation of Certificates

     All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent.  The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent.  No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided in this Section 2.9, except as expressly permitted by this Agreement.
The Rights Agent shall destroy all cancelled Rights Certificates and deliver a
certificate of destruction to the Corporation.

2.10 Agreement of Rights Holders

     Every holder of Rights, by accepting such Rights, consents and agrees
with the Corporation and the Rights Agent and with every other holder of Rights
that:

     (a)  such holder shall be bound by and subject to the provisions of this
     Agreement, as amended from time to time in accordance with the terms
     hereof, in respect of all Rights held;
<PAGE>

                                     -27-

     (b)  prior to the Separation Time, each Right will be transferable only
     together with, and will be transferred by a transfer of, the associated
     Common Share certificate representing such Right;

     (c)  after the Separation Time, the Rights will be transferable only on the
     Rights Register as provided herein;

     (d)  prior to due presentment of a Rights Certificate (or, prior to the
     Separation Time, the associated Common Share certificate) for registration
     of transfer, the Corporation, the Rights Agent and any agent of the
     Corporation or the Rights Agent may deem and treat the Person in whose name
     the Rights Certificate (or, prior to the Separation Time, the associated
     Common Share certificate) is registered as the absolute owner thereof and
     of the Rights evidenced thereby (notwithstanding any notations of ownership
     or writing on such Rights Certificate or the associated Common Share
     certificate made by anyone other than the Corporation or the Rights Agent)
     for all purposes whatsoever, and neither the Corporation nor the Rights
     Agent shall be affected by any notice to the contrary;

     (e)  such holder of Rights is not entitled to receive any fractional Rights
     or fractional Common Shares or other securities upon the exercise of
     Rights;

     (f)  without the approval of any holder of Rights or Voting Shares and upon
     the sole authority of the Board of Directors acting in good faith, this
     Agreement may be supplemented or amended from time to time in accordance
     with the provisions of Section 5.5 and the third last paragraph of
     Subsection 2.3(b); and

     (g)  notwithstanding anything in this Agreement to the contrary, neither
     the Corporation nor the Rights Agent shall have any liability to any holder
     of a Right or to any other Person as a result of its inability to perform
     any of its obligations under this Agreement by reason of any preliminary or
     permanent injunction or other order, decree or ruling issued by a court of
     competent jurisdiction or by a government, regulatory or administrative
     agency or commission, or any statute, rule, regulation or executive order
     promulgated or enacted by any governmental authority, prohibiting or
     otherwise restraining performance of such obligation.


                   ARTICLE 3 -  ADJUSTMENTS TO THE RIGHTS IN
                         THE EVENT OF A FLIP-IN EVENT

3.1  Flip-in Event

     (a)  Subject to Subsection 3.1(b), Section 5.1 and Section 5.2, in the
     event that prior to the Expiration Time a Flip-in Event shall occur, each
     Right shall constitute, effective from and after the Close of Business on
     the tenth Trading Day following the Stock Acquisition Date, the right to
     purchase from the Corporation, upon exercise thereof in accordance with the
     terms hereof, that number of Common Shares of the Corporation having an
     aggregate Market Price on the date of consummation or occurrence of such
     Flip-in Event equal to twice the Exercise Price for an amount in cash equal
     to the Exercise Price (such right to be appropriately adjusted in a manner
     analogous to the applicable adjustment provided for in Section 2.3 in the
     event that after such date of
<PAGE>
                                     -28-

     consummation or occurrence an event of a type analogous to any of the
     events described in Section 2.3 shall have occurred with respect to such
     Common Shares).

     (b)  Notwithstanding anything in this Agreement to the contrary, upon the
     occurrence of a Flip-in Event, any Rights that are or were Beneficially
     Owned on or after the earlier of the Separation Time or the Stock
     Acquisition Date by:

          (i)  an Acquiring Person (or any Affiliate or Associate of an
               Acquiring Person, or any Person acting jointly or in concert with
               an Acquiring Person or with any Associate or Affiliate of an
               Acquiring Person); or

          (ii) a transferee or other successor-in-title, directly or indirectly,
               from an Acquiring Person (or from any Affiliate or Associate of
               an Acquiring Person, or any Person acting jointly or in concert
               with an Acquiring Person or with any Associate or Affiliate of an
               Acquiring Person) in a transfer of Rights, whether or not for
               consideration, that the Board of Directors has determined is part
               of a plan, understanding or scheme of an Acquiring Person (or of
               any Affiliate or Associate of an Acquiring Person or any Person
               acting jointly or in concert with an Acquiring Person or any
               Affiliate or Associate of an Acquiring Person) that has the
               purpose or effect of avoiding the provisions of Clause 3.1(b)(i);

     shall become null and void without any further action and any holder of
     such Rights (including transferees or other successors-in-title) shall
     thereafter have no right to exercise or transfer such Rights under any
     provision of this Agreement and shall have no other rights whatsoever with
     respect to such Rights, whether under any provision of this Agreement or
     otherwise.  The holder of any Rights represented by a Rights Certificate
     which is submitted to the Rights Agent upon exercise or for registration of
     transfer or exchange which does not contain the necessary certifications
     set forth in the Rights Certificate establishing that such Rights are not
     void under this Subsection 3.1(b) shall be deemed to be an Acquiring Person
     for the purposes of this Section 3.1 and such Rights shall become null and
     void.

     (c)  Any Rights Certificate that represents Rights Beneficially Owned by a
     Person described in either Clause 3.1(b)(i) or Clause 3.1(b)(ii) or
     transferred to any nominee of any such Person, and any Rights Certificate
     issued upon transfer, exchange, replacement or adjustment of any other
     Rights Certificate referred to in this sentence, shall contain the
     following legend:

          "The Rights represented by this Rights Certificate were
          issued to a Person who was an Acquiring Person, or an
          Affiliate or an Associate of an Acquiring Person, or a
          Person acting jointly or in concert with any of them (as
          such terms are defined in the Shareholder Protection Rights
          Agreement). This Rights Certificate and the Rights
          represented hereby shall become void in the circumstances
          specified in Subsection 3.1(b) of the Shareholder Protection
          Rights Agreement."
<PAGE>

                                     -29-

     provided, however, that the Rights Agent shall not be under any
     responsibility to ascertain the existence of facts that would require the
     imposition of such legend but shall be required to impose such legend only
     if instructed to do so in writing by the Corporation or if a holder fails
     to certify upon transfer or exchange in the space provided on the Rights
     Certificate that such holder is not a Person described in such legend.  The
     issuance of a Rights Certificate without the legend referred to in this
     Subsection 3.1(c) shall be of no effect on the provisions of Subsection
     3.1(b).


                         ARTICLE 4 - THE RIGHTS AGENT

4.1  General

     (a)  The Corporation hereby appoints the Rights Agent to act as agent for
     the Corporation and the holders of Rights in accordance with the terms and
     conditions hereof, and the Rights Agent hereby accepts such appointment.
     The Corporation may from time to time appoint one or more co-rights agents
     (each a "Co-Rights Agent") as it may deem necessary or desirable, subject
     to the approval of the Rights Agent.  In the event the Corporation appoints
     one or more Co-Rights Agents, the respective duties of the Rights Agent and
     Co-Rights Agents shall be as the Corporation may determine with the
     approval of the Rights Agent and the Co-Rights Agents.  The Corporation
     agrees to pay to the Rights Agent reasonable compensation for all services
     rendered by it hereunder and, from time to time, on demand of the Rights
     Agent, its reasonable expenses and counsel fees and other disbursements
     incurred in the administration and execution of this Agreement and the
     exercise and performance of its duties hereunder.  The Corporation also
     agrees to indemnify the Rights Agent and its directors, officers, employees
     and agents for, and to hold it harmless against, any loss, liability or
     expense, incurred without negligence, bad faith or wilful misconduct on the
     part of the Rights Agent, for anything done or omitted by the Rights Agent
     in connection with the acceptance and administration of this Agreement,
     including the costs and expenses of defending against any claim of
     liability, which right to indemnification will survive the termination of
     this Agreement and the resignation or removal of the Rights Agent.

     (b)  The Rights Agent shall be protected and shall incur no liability for
     or in respect of any action taken, suffered or omitted by it in connection
     with its administration of this Agreement in reliance upon any certificate
     for Common Shares, Rights Certificate, certificate for other securities of
     the Corporation, instrument of assignment or transfer, power of attorney,
     endorsement, affidavit, letter, notice, direction, consent, certificate,
     statement or other paper or document believed by it to be genuine and to be
     signed, executed and, where necessary, verified or acknowledged, by the
     proper Person or Persons.

     (c)  The Corporation shall inform the Rights Agent in a reasonably timely
     manner of events which may materially affect the administration of this
     Agreement by the Rights Agent and, at any time upon request, shall provide
     to the Rights Agent an incumbency certificate certifying the then current
     officers of the Corporation.
<PAGE>

                                     -30-

4.2  Merger or Consolidation or Change of Name of Rights Agent

     (a)  Any corporation into which the Rights Agent or any successor Rights
     Agent may be merged or amalgamated or with which it may be consolidated, or
     any corporation resulting from any merger, amalgamation or consolidation to
     which the Rights Agent or any successor Rights Agent is a party, or any
     corporation succeeding to the shareholder services business of the Rights
     Agent or any successor Rights Agent, will be the successor to the Rights
     Agent under this Agreement without the execution or filing of any paper or
     any further act on the part of any of the parties hereto, provided that
     such corporation would be eligible for appointment as a successor Rights
     Agent under the provisions of Section 4.4.  In case at the time such
     successor Rights Agent succeeds to the agency created by this Agreement any
     of the Rights Certificates have been countersigned but not delivered, any
     such successor Rights Agent may adopt the countersignature of the
     predecessor Rights Agent and deliver such Rights Certificates so
     countersigned; and in case at that time any of the Rights Certificates have
     not been countersigned, any successor Rights Agent may countersign such
     Rights Certificates either in the name of the predecessor Rights Agent or
     in the name of the successor Rights Agent; and in all such cases such
     Rights Certificates will have the full force provided in the Rights
     Certificates and in this Agreement.

     (b)  In case at any time the name of the Rights Agent is changed and at
     such time any of the Rights Certificates shall have been countersigned but
     not delivered, the Rights Agent may adopt the countersignature under its
     prior name and deliver such Rights Certificates so countersigned; and in
     case at that time any of the Rights Certificates have not been
     countersigned, the Rights Agent may countersign such Rights Certificates
     either in its prior name or in its changed name; and in all such cases such
     Rights Certificates will have the full force provided in the Rights
     Certificates and in this Agreement.

4.3  Duties of Rights Agent

     The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:

     (a)  The Rights Agent may retain and consult with legal counsel (who may be
     legal counsel for the Corporation), and the opinion of such counsel will be
     full and complete authorization and protection to the Rights Agent as to
     any action taken or omitted by it in good faith and in accordance with such
     opinion and the Rights Agent may also retain and consult with such other
     experts or advisors as the Rights Agent shall consider necessary or
     appropriate to properly carry out the duties and obligations imposed under
     this Agreement (at the Corporation's expense) and the Rights Agent shall be
     entitled to act and rely in good faith on the advice of such experts or
     advisors.

     (b)  Whenever in the performance of its duties under this Agreement, the
     Rights Agent deems it necessary or desirable that any fact or matter be
     proved or established by the Corporation prior to taking or suffering any
     action hereunder, such fact or matter (unless other evidence in respect
     thereof be herein specifically prescribed) may be deemed to be conclusively
     proved and established by a certificate signed by an individual
<PAGE>

                                     -31-

     believed by the Rights Agent to be the President, the Chief Financial
     Officer or the Secretary of the Corporation and delivered to the Rights
     Agent; and such certificate will be full authorization to the Rights Agent
     for any action taken, omitted or suffered in good faith by it under the
     provisions of this Agreement in reliance upon such certificate.

     (c) The Rights Agent will be liable hereunder only for its own negligence,
     bad faith or wilful misconduct.

     (d) The Rights Agent will not be liable for or by reason of any of the
     statements of fact or recitals contained in this Agreement or in the
     certificates for Common Shares or the Rights Certificates (except its
     countersignature thereof) or be required to verify the same, but all such
     statements and recitals are and will be deemed to have been made by the
     Corporation only.

     (e) The Rights Agent will not be under any responsibility in respect of the
     validity of this Agreement or the execution and delivery hereof (except the
     due authorization, execution and delivery hereof by the Rights Agent) or in
     respect of the validity or execution of any Common Share certificate or
     Rights Certificate (except its countersignature thereof); nor will it be
     responsible for any breach by the Corporation of any covenant or condition
     contained in this Agreement or in any Rights Certificate; nor will it be
     responsible for any change in the exercisability of the Rights (including
     the Rights becoming void pursuant to Subsection 3.1(b)) or any adjustment
     required under the provisions of Section 2.3 or responsible for the manner,
     method or amount of any such adjustment or the ascertaining of the
     existence of facts that would require any such adjustment (except with
     respect to the exercise of Rights after receipt of the certificate
     contemplated by Subsection 2.3(p) describing any such adjustment); nor will
     it by any act hereunder be deemed to make any representation or warranty as
     to the authorization of any Common Shares to be issued pursuant to this
     Agreement or any Rights or as to whether any Common Shares will, when
     issued, be duly and validly authorized, executed, issued and delivered and
     fully paid and non-assessable.

     (f) The Corporation will perform, execute, acknowledge and deliver or cause
     to be performed, executed, acknowledged and delivered all such further and
     other acts, instruments and assurances as may reasonably be required by the
     Rights Agent for the carrying out or performing by the Rights Agent of the
     provisions of this Agreement.

     (g) The Rights Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     any individual believed by the Rights Agent to be the President, the Chief
     Financial Officer or the Secretary of the Corporation, and to apply to such
     individuals for advice or instructions in connection with its duties, and
     it shall not be liable for any action taken, omitted or suffered by it in
     good faith in accordance with instructions of any such individual.

     (h) The Rights Agent and any shareholder, director, officer or employee of
     the Rights Agent may buy, sell or deal in Common Shares, Rights or other
     securities of the Corporation or become pecuniarily interested in any
     transaction in which the Corporation may be interested, or contract with or
     lend money to the Corporation or otherwise act as fully and freely as
     though it were not Rights Agent under this Agreement.  Nothing
<PAGE>

                                     -32-

     herein shall preclude the Rights Agent from acting in any other capacity
     for the Corporation or for any other legal entity.

     (i) The Rights Agent may execute and exercise any of the rights or powers
     hereby vested in it or perform any duty hereunder either itself or by or
     through its attorneys or agents, and the Rights Agent will not be
     answerable or accountable for any act, default, neglect or misconduct of
     any such attorneys or agents or for any loss to the Corporation resulting
     from any such act, default, neglect or misconduct, provided reasonable care
     was exercised in the selection and continued employment thereof.

4.4  Change of Rights Agent

     The Rights Agent may resign and be discharged from its duties under this
Agreement upon 60 days' notice (or such lesser notice as is acceptable to the
Corporation) in writing mailed to the Corporation and to the transfer agent of
Common Shares by registered or certified mail. The Corporation may remove the
Rights Agent upon 60 days' notice in writing, mailed to the Rights Agent and to
the transfer agent of the Common Shares by registered or certified mail, and to
the holders of the Rights in accordance with Section 5.10. If the Rights Agent
should resign or be removed or otherwise become incapable of acting, the
Corporation will appoint a successor to the Rights Agent. If the Corporation
fails to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent (at the Corporation's expense) or by the
holder of any Rights (which holder shall, with such notice if given after the
Separation Time, submit such holder's Rights Certificate for inspection by the
Corporation), then the holder of any Rights may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be a
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
Ontario. After appointment, the successor Rights Agent will be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent, upon receipt of any and all outstanding amounts owing to it pursuant to
this Agreement, shall deliver and transfer to the successor Rights Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Corporation will file notice thereof
in writing with the predecessor Rights Agent and the transfer agent of the
Common Shares, and mail a notice thereof in writing to the holders of the
Rights. Failure to give any notice provided for in this Section 4.4, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.


                           ARTICLE 5 - MISCELLANEOUS

5.1  Redemption of Rights

     (a) With the prior consent of the holders of Voting Shares or Rights
     obtained in accordance with Subsection 5.5(b) or (c), as applicable, the
     Board of Directors, at any time prior to the occurrence of a Flip-in Event
     as to which the application of Section 3.1
<PAGE>

                                     -33-

     has not been waived pursuant to Section 5.2, may elect to redeem all but
     not less than all of the then outstanding Rights at a redemption price of
     $0.001 per Right, appropriately adjusted in a manner analogous to the
     applicable adjustment to the Exercise Price provided for in Section 2.3 if
     an event analogous to any of the events described in Section 2.3 shall have
     occurred (such redemption price being herein referred to as the "Redemption
     Price").

     (b) If a Person acquires, pursuant to a Permitted Bid or a Competing
     Permitted Bid or pursuant to an Exempt Acquisition occurring under
     Subsection 5.2(b), outstanding Voting Shares, other than Voting Shares
     Beneficially Owned at the date of such Permitted Bid, Competing Permitted
     Bid or Exempt Acquisition by such Person, the Board of Directors of the
     Corporation shall, notwithstanding the provisions of Subsection 5.1(a),
     immediately upon such acquisition and without further formality be deemed
     to have elected to redeem the Rights at the Redemption Price.

     (c) Where a Take-over Bid that is not a Permitted Bid or Competing
     Permitted Bid expires, is withdrawn or is otherwise terminated after the
     Separation Time has occurred and prior to the occurrence of a Flip-in
     Event, the Board of Directors may elect to redeem all of the outstanding
     Rights at the Redemption Price.

     (d) If the Board of Directors elects to or is deemed to have elected to
     redeem the Rights and, in circumstances where Subsection 5.1(a) is
     applicable, the requisite consent is given by the holders of Voting Shares
     or Rights, as applicable, (i) the right to exercise the Rights will
     thereupon, without further action and without notice, terminate and the
     only right thereafter of the holders of Rights shall be to receive the
     Redemption Price, and (ii) subject to Subsection 5.1(f), no further Rights
     shall thereafter be issued.

     (e) Within 10 Business Days of the Board of Directors electing or having
     been deemed to have elected to redeem the Rights or, if Subsection 5.1(a)
     is applicable, within 10 Business Days after the requisite consent is given
     by the holders of Voting Shares or Rights, as applicable, the Corporation
     shall give notice of redemption to the holders of the then outstanding
     Rights by mailing such notice to each such holder at his last address as it
     appears upon the Rights Register or, prior to the Separation Time, on the
     register of Voting Shares maintained by the Corporation's transfer agent or
     transfer agents.  Each such notice of redemption shall state the method by
     which the payment of the Redemption Price shall be made.

     (f) Upon the Rights being redeemed pursuant to Subsection 5.1(c), all the
     provisions of this Agreement shall continue to apply as if the Separation
     Time had not occurred and Rights Certificates representing the number of
     Rights held by each holder of record of Voting Shares as of the Separation
     Time had not been mailed to each such holder and, for all purposes of this
     Agreement, the Separation Time shall be deemed not to have occurred.

5.2   Waiver of Flip-In Events

     (a) With the prior consent of the holders of Voting Shares obtained in
     accordance with Subsection 5.5(b), the Board of Directors may, at any time
     prior to the occurrence of


<PAGE>

                                     -34-

     a Flip-in Event that would occur by reason of an acquisition of Voting
     Shares otherwise than pursuant to a Take-over Bid made by means of a take-
     over bid circular to all holders of record of Voting Shares or otherwise
     than in the circumstances set forth in Subsection 5.2(c), waive the
     application of Section 3.1 to such Flip-in Event by written notice
     delivered to the Rights Agent. In the event it proposes to grant such a
     waiver, the Board of Directors shall extend the Separation Time to a date
     at least 10 Business Days subsequent to the meeting of shareholders called
     to approve such waiver.

     (b) The Board of Directors may, at any time prior to the occurrence of a
     Flip-in Event that would occur as a result of a Take-over Bid made by way
     of a take-over bid circular sent to all holders of record of Voting Shares
     (which, for greater certainty, shall not include the circumstances
     described in Subsection 5.2(c)), waive the application of Section 3.1 to
     such Flip-in Event by written notice delivered to the Rights Agent,
     provided, however, that if the Board of Directors waives the application of
     Section 3.1 to such a Flip-in Event, the Board of Directors shall be deemed
     to have waived the application of Section 3.1 to any other Flip-in Event
     occurring by reason of any Take-over Bid which is made by means of a take-
     over bid circular to all holders of record of Voting Shares prior to the
     expiry of any Take-over Bid in respect of which a waiver is, or is deemed
     to have been, granted under this Subsection 5.2(b).

     (c) The Board of Directors may waive the application of Section 3.1 to a
     Flip-in Event provided that the following conditions are satisfied:

         (i)   the Board of Directors has determined that the Acquiring Person
               became an Acquiring Person by inadvertence and without any
               intention to become, or knowledge that it would become, an
               Acquiring Person; and

         (ii)  such Acquiring Person has reduced its Beneficial Ownership of
               Voting Shares such that, at the time of the waiver pursuant to
               this Subsection 5.2(c), it is no longer an Acquiring Person.

5.3  Expiration

     No Person shall have any rights pursuant to this Agreement or in respect of
any Right after the Expiration Time, except the Rights Agent as specified in
Subsection 4.1(a).

5.4  Issuance of New Rights Certificates

     Notwithstanding any of the provisions of this Agreement or of the Rights to
the contrary, the Corporation may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the number or kind or class of shares
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement.

5.5  Supplements and Amendments

     (a) The Corporation may from time to time prior to or after the Separation
     Time supplement or amend this Agreement without the approval of any holders
     of Rights or Voting Shares in order to correct any clerical or
     typographical error or to maintain the
<PAGE>

                                     -35-

     validity and effectiveness of this Agreement as a result of any change in
     applicable laws, rules or regulatory requirements. The Corporation may,
     prior to the date of the annual meeting of the shareholders of the
     Corporation in the year 1999 referred to in Section 5.18, supplement and
     amend this Agreement without the approval of the holders of Rights or
     Voting Shares in order to make any changes which the Board of Directors
     acting in good faith may deem necessary or desirable. Notwithstanding
     anything in this Section 5.5 to the contrary, no such supplement or
     amendment shall be made to the provisions of Article 4 except with the
     written concurrence of the Rights Agent to such supplement or amendment.

     (b) Subject to Subsection 5.5(a), the Corporation may, with the prior
     consent of the holders of Rights and Voting Shares obtained as set forth
     below, at any time prior to the Separation Time, amend, vary or rescind any
     of the provisions of this Agreement and the Rights (whether or not such
     action would materially adversely affect the interests of the holders of
     Rights generally).  Such consent shall be deemed to have been given if the
     action requiring such approval is authorized by the affirmative vote of a
     majority of the votes cast by Independent Shareholders present or
     represented at and entitled to vote at a meeting of the holders of Voting
     Shares duly called and held in compliance with applicable laws and the
     articles and by-laws of the Corporation.

     (c) Subject to Subsection 5.5(a), the Corporation may, with the prior
     consent of the holders of Rights obtained as set forth below, at any time
     after the Separation Time, amend, vary or rescind any of the provisions of
     this Agreement and the Rights (whether or not such action would materially
     adversely affect the interests of the holders of Rights generally).  Such
     consent shall be deemed to have been given if the action requiring such
     approval is authorized by the affirmative vote of a majority of the votes
     cast by the holders of Rights (other than any holder of Rights whose Rights
     have become null and void pursuant to the provisions hereof) present or
     represented at and entitled to vote at a meeting of the holders of Rights.
     For the purposes hereof, the procedures for the calling, holding and
     conduct of a meeting of the holders of Rights shall be those, as nearly as
     may be, which are provided in the Corporation's by-laws with respect to
     meetings of its shareholders and each Right shall be entitled to one vote
     at any such meeting.

     (d) Any amendments made by the Corporation to this Agreement pursuant to
     Subsection 5.5(a) which are required to maintain the validity and
     effectiveness of this Agreement as a result of any change in any applicable
     laws, rules or regulatory requirements shall:

         (i)   if made before the Separation Time, be submitted to the holders
               of Voting Shares at the next meeting of holders of Voting Shares
               and the holders of Voting Shares may, by the majority referred to
               in Subsection 5.5(b), confirm or reject such amendment; and

         (ii)  if made after the Separation Time, be submitted to the holders of
               Rights at a meeting to be called and held in accordance with the
               provisions of Subsection 5.5(c) and the holders of Rights may, by
               a majority referred to in Subsection 5.5(c), confirm or reject
               such amendment.
<PAGE>

                                     -36-

     Any such amendment shall, unless the Board of Directors otherwise
     stipulates, be effective from the date of the resolution of the Board of
     Directors adopting such amendment, until it is confirmed or rejected or
     until it ceases to be effective (as described in the next sentence) and,
     where such amendment is confirmed, it shall continue in effect in the form
     so confirmed. If such amendment is rejected by the holders of Voting Shares
     or the holders of Rights or is not submitted to the holders of Voting
     Shares or holders of Rights as required, then such amendment shall cease to
     be effective from and after the termination of the meeting at which it was
     rejected or to which it should have been but was not submitted or if such a
     meeting of the holders of Rights is not called within 90 days after the
     date of the resolution of the Board of Directors adopting such amendment,
     at the end of such period, and no subsequent resolution of the Board of
     Directors to amend this Agreement to substantially the same effect shall be
     effective until confirmed by the holders of Voting Shares or holders of
     Rights as the case may be.

5.6  Fractional Rights and Fractional Shares

     (a) The Corporation shall not be required to issue fractions of Rights or
     to distribute Rights Certificates which evidence fractional Rights.
     Subject to Section 5.3, after the Separation Time there shall be paid to
     the registered holders of the Rights Certificates with regard to which
     fractional Rights would otherwise be issuable, an amount in cash equal to
     the same fraction of the Market Price at the Separation Time of a whole
     Right in lieu of such fractional Rights.

     (b) The Corporation shall not be required to issue fractional Common Shares
     upon exercise of the Rights or to distribute certificates which evidence
     fractional Common Shares.  In lieu of issuing fractional Common Shares, the
     Corporation shall pay to the registered holder of Rights Certificates at
     the time such Rights are exercised as herein provided, an amount in cash
     equal to the same fraction of the Market Price at the date of such exercise
     of one Common Share.

5.7  Rights of Action

     Subject to the terms of this Agreement, rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights; and any holder of any Rights,
without the consent of the Rights Agent or of the holder of any other Rights,
may, on such holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, enforce, and may institute and maintain any
suit, action or proceeding against the Corporation to enforce, or otherwise act
in respect of, such holder's right to exercise such holder's Rights in the
manner provided in such holder's Rights Certificate and in this Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
<PAGE>

                                     -37-


5.8   Holder of Rights Not Deemed a Shareholder

      No holder, as such, of any Rights shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Common Shares or any other
securities which may at any time be issuable on the exercise of such Rights, nor
shall anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in Section
5.9), or to receive dividends or subscription rights or otherwise, until such
Rights shall have been exercised in accordance with the provisions hereof.

5.9   Notice of Proposed Actions

      If after the Separation Time and prior to the Expiration Time:

      (i)  there shall occur an adjustment in the rights attaching to the Rights
           pursuant to Section 3.1 as a result of the occurrence of a Flip-in
           Event; or

      (ii) the Corporation proposes to effect the liquidation, dissolution or
           winding up of the Corporation or the sale of all or substantially all
           of the Corporation's assets;

then, in each such case, the Corporation shall give to each holder of a Right,
in accordance with Section 5.10, a notice of such event or proposed action,
which shall specify the date on which such adjustment to the Rights occurred or
liquidation, dissolution or winding up is to take place, and such notice shall
be so given within 10 Business Days after the occurrence of an adjustment to the
Rights and not less than 20 Business Days prior to the date of taking such
proposed action by the Corporation.

5.10  Notices

      Notices or demands authorized or required by this Agreement to be given or
made by the Rights Agent or by the holder of any Rights to or on the Corporation
shall be sufficiently given or made if delivered or sent by first class mail,
postage prepaid or sent by fax, addressed (until another address is filed in
writing with the Rights Agent) as follows:


      Fantom Technologies Inc.
      1110 Hansler Road
      Welland, Ontario
      L3B 5S1
      Attention:   President
      Fax No.:    (905) 734-7085

Any notice or demand authorized or required by this Agreement to be given or
made by the Corporation or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid or sent by fax, addressed (until another address is filed in
writing with the Corporation) as follows:
<PAGE>

                                     -38-

      CIBC Mellon Trust Company
      320 Bay Street
      P.O. Box 1
      Toronto, Ontario
      M5H 4A6
      Attention:    Assistant Vice-President
                    Client Services
      Fax No.:      (416) 643-5570

Notices or demands authorized or required by this Agreement to be given or made
by the Corporation or the Rights Agent to or on the holder of any Rights shall
be sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the Rights Register or, prior to the Separation Time, on the registry books
of the Corporation for the Common Shares.  Any notice which is mailed to a
holder of Rights in the manner herein provided shall be deemed given, whether or
not such holder receives the notice.

5.11  Costs of Enforcement

      The Corporation agrees that, if the Corporation fails to fulfil any of its
obligations pursuant to this Agreement, then the Corporation will reimburse the
holder of any Rights for the costs and expenses (including legal fees)
reasonably incurred by such holder in actions to enforce his rights pursuant to
any Rights or this Agreement.

5.12  Successors

      All the covenants and provisions of this Agreement by or for the benefit
of the Corporation or the Rights Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.

5.13  Benefits of this Agreement

      Nothing in this Agreement shall be construed to give to any Person other
than the Corporation, the Rights Agent and the holders of the Rights any legal
or equitable right, remedy or claim under this Agreement; this Agreement shall
be for the sole and exclusive benefit of the Corporation, the Rights Agent and
the holders of the Rights.

5.14  Governing Law

      This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of Ontario and for all purposes
shall be governed by and construed in accordance with the laws of such province
applicable to contracts to be made and performed entirely within such province.
<PAGE>

                                     -39-

5.15  Counterparts

      This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.

5.16  Severability

      If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.

5.17  Determinations and Actions by the Board of Directors

      All actions, calculations and determinations (including all omissions with
respect to the foregoing) which are done or made by the Board of Directors in
good faith, shall not subject the Board of Directors to any liability to the
holders of the Rights.

5.18  Effective Date

      This Agreement is effective from the date hereof. If this Agreement is not
confirmed by resolutions passed by a majority of the votes cast by Independent
Shareholders who vote in respect of confirmation of this Agreement at a meeting
of shareholders to be held not later than February 11, 2000, then this Agreement
and all outstanding Rights shall terminate and be void and of no further force
and effect on and from that the date which is the earlier of (a) the date of
termination of the meeting of shareholders to be held not later than February
11, 2000 under this Section 5.18, and (b) February 11, 2000.

5.19  Regulatory Approvals

      Any obligation of the Corporation or action or event contemplated by this
Agreement, or any amendment or supplement to this Agreement, shall be subject to
receipt of any requisite approval or consent from any governmental or regulatory
authority having jurisdiction including, while any securities of the Corporation
are listed and admitted to trading thereon, The Toronto Stock Exchange.
<PAGE>

                                     -40-

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.


                                    FANTOM TECHNOLOGIES INC.


                                    Per:  (signed)
                                        -----------------------------------


                                    Per:  (signed)
                                        -----------------------------------

                                    CIBC MELLON TRUST COMPANY


                                    Per:  (signed)
                                         ----------------------------------


                                    Per:  (signed)
                                         ----------------------------------
<PAGE>

                                   EXHIBIT A
                         (Form of Rights Certificate)

Certificate No.                                                           Rights

THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE
TERMS SET FORTH IN THE SHAREHOLDER PROTECTION RIGHTS AGREEMENT.  UNDER CERTAIN
CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF THE SHAREHOLDER PROTECTION
RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ITS
AFFILIATES OR ASSOCIATES OR ANY PERSON ACTING JOINTLY OR IN CONCERT WITH ANY OF
THEM (AS SUCH TERMS ARE DEFINED IN THE SHAREHOLDER PROTECTION RIGHTS AGREEMENT)
OR TRANSFEREES OF ANY OF THE FOREGOING WILL BECOME VOID WITHOUT FURTHER ACTION.

                               Rights Certificate

This certifies that__________________, or registered assigns, is the registered

holder of the number of Rights set forth above, each of which entitles the
registered holder thereof, subject to the terms, provisions and conditions of
the Shareholder Protection Rights Agreement dated as of August 12, 1999 as
amended from time to time (the "Rights Agreement") between Fantom Technologies
Inc., a corporation incorporated under the laws of Ontario (the "Corporation")
and CIBC Mellon Trust Company, a trust company incorporated under the laws of
Canada, as Rights Agent (the "Rights Agent", which term shall include any
successor Rights Agent under the Rights Agreement), to purchase from the
Corporation at any time after the Separation Time and prior to the Expiration
Time (as such terms are defined in the Rights Agreement), one fully paid common
share of the Corporation (a "Common Share") at the Exercise Price referred to
below, upon presentation and surrender of this Rights Certificate with the Form
of Election to Exercise duly executed and submitted to the Rights Agent at its
principal office in any of the cities of Montreal, Toronto, Calgary and
Vancouver. Until adjustment thereof in certain events as provided in the Rights
Agreement, the Exercise Price shall be $60.00 (Canadian) per Right.

In certain circumstances described in the Rights Agreement, each Right evidenced
hereby may entitle the registered holder thereof to purchase more or less than
one Common Share, all as provided in the Rights Agreement.

This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights.  Copies of the
Rights Agreement are on file at the head office of the Corporation and are
available upon written request.

This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights
<PAGE>

                                     -2-


Certificate or Rights Certificates of like tenor and date evidencing an
aggregate number of Rights equal to the aggregate number of Rights evidenced by
the Rights Certificate or Rights Certificates surrendered. If this Rights
Certificate shall be exercised in part, the registered holder shall be entitled
to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may be, and under certain circumstances are required to be, redeemed
by the Corporation at a redemption price of $0.001 (Canadian) per Right, subject
to adjustment in certain events.

No fractional Common Shares will be issued upon the exercise of any Right or
Rights evidenced hereby, but in lieu thereof, a cash payment will be made, as
provided in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Shares or
any other securities which may at any time be issuable upon the exercise hereof,
nor shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a shareholder of
the Corporation or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meeting or other
actions affecting shareholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Corporation and
its corporate seal.

Date:

FANTOM TECHNOLOGIES INC.

--------------------------
Authorized Signature

--------------------------
Authorized Signature


Countersigned:

CIBC MELLON TRUST COMPANY



--------------------------
<PAGE>

                                      -3-


Authorized Signature
<PAGE>

                  (To be attached to each Rights Certificate)
                          FORM OF ELECTION TO EXERCISE

TO:

The undersigned hereby irrevocably elects to exercise
                                                      --------------------------
whole Rights represented by the attached Rights Certificate to purchase the
Common Shares issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:


                  ---------------------------------
                  Name

                  ---------------------------------
                  Address

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


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

Social Insurance, Social Security or
Other Taxpayer Identification Number
                                    -----------------------------------------

DATED:                                   ------------------------------------
                                         Signature
                                         (Signature must correspond to name as
                                         written upon the face of this Rights
                                         Certificate in every particular,
                                         without alteration or enlargement or
                                         any change whatsoever)


------------------------------
Signature Guaranteed

Signature must be guaranteed by a Canadian chartered bank, a Canadian trust
company or by a medallion guarantee by a member firm of the Securities Transfer
Agents Medallion Programme.

 ...............................................................................
                           (To be completed if true)

The undersigned hereby represents, for the benefit of all holders of Rights and
Common Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge of the undersigned, have never been, Beneficially Owned by
an Acquiring Person or an Affiliate or
<PAGE>

                                      -2-


Associate thereof or by any Person acting jointly or in concert with any of the
foregoing (all as defined in the Rights Agreement).


                                         ------------------------------------
                                         Signature



 ................................................................................

                                    NOTICE

In the event the certification set forth above is not completed, the Corporation
will deem the Beneficial Owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person (as defined in the Rights Agreement) and,
accordingly, such Rights shall be null and void and not transferrable or
exercisable.
<PAGE>

(To be executed by the registered holder if such holder desires to transfer the
                 Rights evidenced by this Rights Certificate.)
                               FORM OF ASSIGNMENT

FOR VALUE RECEIVED                                            hereby sells,
                   ------------------------------------------
assigns and transfers unto
                           -----------------------------------------------------

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

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

--------------------------------------------------------------------------------
(please print name and address of transferee)

the Rights evidenced by this Rights Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
                                                                         -------
attorney, to transfer the within Rights on the books of the within-named
Corporation, with full power of substitution.


DATED:
                                         --------------------------------------
                                         Signature
                                         (Signature must correspond to name as
                                         written upon the face of this Rights
                                         Certificate in every particular,
                                         without alteration or enlargement or
                                         any change whatsoever)


------------------------------
Signature Guaranteed

Signature must be guaranteed by a Canadian chartered bank, a Canadian trust
company or by a medallion guarantee by a member firm of the Securities Transfer
Agents Medallion Programme.


 ................................................................................
                           (To be completed if true)

The undersigned hereby represents, for the benefit of all holders of Rights and
Common Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge of the undersigned, have never been, Beneficially Owned by
an Acquiring Person or an Affiliate or Associate thereof or by any Person acting
jointly or in concert with any of the foregoing (as defined in the Rights
Agreement).



                                         ---------------------------------------
                                         Signature

 ................................................................................
<PAGE>

                                      -2-


                                     NOTICE

In the event the certification set forth above is not completed, the Corporation
will deem the Beneficial Owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person (as defined in the Rights Agreement) and,
accordingly, such Rights shall be null and void and not transferrable or
exercisable.