Document:

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                                                                     EXHIBIT 4.3

                       SHAREHOLDER RIGHTS PLAN AGREEMENT

THIS AGREEMENT dated as of February 11, 1999 is amended and restated as of March
31, 1999.

BETWEEN:
                               COREL CORPORATION
                              (the "Corporation")

                                                               OF THE FIRST PART
                                    - and -

                       MONTREAL TRUST COMPANY OF CANADA
                             (the "Rights Agent")

                                                              OF THE SECOND PART

WHEREAS:

A.   The Board of Directors has determined that it is advisable to adopt a
     shareholder rights plan (the "Rights Plan") to ensure, to the extent
     possible, that all shareholders of the Corporation are treated fairly in
     connection with any takeover offer for the Corporation or other acquisition
     of control of the Corporation.

B.   In order to implement the Rights Plan, the Board of Directors has:

     (a)  authorized and declared a distribution of one right (a "Right")
          effective at the Close of Business at the Record Time in respect of
          each Common Share outstanding at the Close of Business at the Record
          Time;

     (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 and the Expiration Time; and

     (c)  authorized the issuance of Rights Certificates to holders of Rights
          pursuant to the terms and subject to the conditions set forth herein.

C.   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.

D.   The Corporation desires to appoint the Rights Agent to act on behalf of the
     Corporation, and the Rights Agent is willing to so act, in connection with
     the issuance, transfer, exchange and replacement of Rights Certificates,
     the exercise of Rights and other matters referred to herein.

     NOW THEREFORE in consideration of the premises and respective agreements
set forth herein, the parties hereby agree as follows:
<PAGE>

                                      -2-

                                   ARTICLE 1
                                INTERPRETATION

1.1 Certain Definitions

For the purposes of this agreement (the "Agreement"), including the recitals
hereto, the following terms have the meanings indicated:

(a)  "Acquiring Person" shall mean any Person who is at any time after the date
      ----------------
     hereof the Beneficial Owner of 20% or more of the outstanding Voting Shares
     of the Corporation; provided, however, that the term "Acquiring Person"
     shall not include

     (i)   the Corporation or any corporation controlled by the Corporation;

     (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;
           (B)  a Permitted Bid Acquisition;
           (C)  an Exempt Acquisition; and
           (D)  a Pro Rata Acquisition;

           provided, however, that if a Person shall become the Beneficial Owner
           of 20% or more of the outstanding Voting Shares by reason of one or
           any combination of a Voting Share Reduction, a Permitted Bid
           Acquisition, an Exempt Acquisition or a Pro Rata Acquisition, and
           thereafter becomes the Beneficial Owner of an additional one per cent
           of the Voting Shares then outstanding (otherwise than pursuant to a
           Voting Share Reduction, a Permitted Bid Acquisition, an Exempt
           Acquisition or a Pro Rata Acquisition), then, as of the date that
           such Person becomes a 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 1.1(d)(v) hereof
           where such disqualification results solely because such Person is
           making or has announced a current intention to make a Take-over Bid,
           either alone or by acting jointly or in concert with any other
           Person. For the purposes of this definition, "Disqualification Date"
           means the first date of public announcement that such Person is
           making or has announced a current intention to make a Take-over Bid,
           alone or by acting jointly or in concert with another Person; or

     (iv)  an underwriter that becomes the Beneficial Owner of 20% or more of
           the Voting Shares in connection with a distribution of securities
           pursuant to an underwriting agreement with the Corporation.

(b)  "Affiliate" when used to indicate a relationship with a specified Person,
      ---------
     means a Person that directly or indirectly controls, or is controlled by,
     or is under common control with, such specified Person.

(c)  "Associate" shall mean, when used to indicate a relationship with a
      ---------
     specified Person, a spouse of that Person, any Person of the same or
     opposite sex with whom that Person is living in a conjugal relationship
     outside marriage, a child of that Person or a relative of that Person if
     that relative has
<PAGE>

                                      -3-

     the same residence as that Person.

(d)  A Person shall be deemed the "Beneficial Owner" of, 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 owner at law or in equity;

          (ii)   any securities which the Person or any of such Person's
                 Affiliates or Associates has the right to acquire, within 60
                 days (whether such right is exercisable immediately or after
                 the passage of not more than 60 days thereafter or upon the
                 occurrence of a contingency or the making of a payment)
                 pursuant to any Convertible Security, agreement, arrangement,
                 pledge or understanding, whether or not in writing (other than
                 (x) customary agreements with and between underwriters and/or
                 banking group and/or selling group members with respect to a
                 distribution of securities and (y) pledges of securities in the
                 ordinary course of the pledgee's business); and

          (iii)  any securities that are Beneficially Owned within the meaning
                 of clauses (i) or (ii) of this Subsection 1.1 (d) by any other
                 Person with which 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)   because such security has been, or has been agreed to be,
                 deposited or tendered pursuant to a Lock-Up Agreement, as
                 defined below in this Subsection 1.1(d), or as otherwise
                 deposited or tendered to any Take-over Bid made by such Person
                 or any of such Person's Affiliates or Associates or any other
                 person acting jointly or in concert with such Person until the
                 earlier of such tendered security being (x) accepted
                 unconditionally for payment or exchange and (y) taken up and
                 paid for;

          (v)    because (A) such Person or any of the Affiliates or Associates
                 of such Person or any other Person acting jointly or in concert
                 with such Person, holds such security provided that the
                 ordinary business of any such Person (the "Fund Manager")
                 includes the management of investment funds for others and such
                 security is held by the Fund Manager in the ordinary course of
                 such business in the performance of such Fund Manager's duties
                 for the account of any other Person (a "Client"), (B) such
                 Person (the "Trust Company") is licensed to carry on the
                 business of a trust company under applicable laws and, as such,
                 acts as trustee or administrator or in a similar capacity in
                 relation to the estates of deceased or incompetent Persons
                 (each an "Estate Account") or in relation to other accounts
                 (each an "Other Account") and holds such security in the
                 ordinary course of such duties for such Estate Accounts or for
                 such Other Accounts, (C) such Person (the "Plan Administrator")
                 is the administrator or the trustee of one or more pension
                 funds or plans (a "Plan") registered under the laws of Canada
                 or any province thereof or the laws of the United States of
                 America or any state thereof, (D) such Person (the "Crown
                 Agent") is established by statute for purposes that include,
                 and the ordinary business or activity of such Person includes,
                 the management of investment funds for employee benefit plans,
                 pension plans, insurance plans, or various public bodies, or
                 (E) such Person is a Plan; provided, however, that in any
<PAGE>

                                      -4-

                 of the foregoing cases the Fund Manager, the Trust Company, the
                 Plan Administrator, the Crown Agent or the Plan, as the case
                 may be, is not then making or has not then announced an
                 intention to make a Take-over Bid, alone or by acting jointly
                 or in concert with any other Person, other than an Offer to
                 Acquire Voting Shares or other securities (X) pursuant to a
                 distribution by the Corporation or (Y) by means of a Permitted
                 Bid;

          (vi)   because such Person is a Client of the same Fund Manager as
                 another Person on whose account the Fund Manager holds such
                 security, or because such Person is an Estate Account or an
                 Other Account of the same Trust Company as another Person on
                 whose account the Trust Company holds such security, or because
                 such Person is a Plan with the same Plan Administrator as
                 another Plan on whose account the Plan Administrator holds such
                 securities;

          (vii)  because such Person is a Client of a Fund Manager and such
                 security is owned at law or in equity by the Fund Manager or
                 because such Person is an Estate Account or an Other Account of
                 a Trust Company and such security is owned at law or in equity
                 by the Trust Company or such Person is a Plan and such security
                 is owned at law or in equity by the Plan Administrator; or

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

          For purposes of this Agreement in determining the percentage of the
          outstanding Voting Shares with respect to which a Person is or is
          deemed to be the Beneficial Owner, any unissued Voting Shares as to
          which such Person is deemed the Beneficial Owner pursuant to this
          Subsection 1.1(d) shall be deemed outstanding.

          "Lock-Up Agreement" means an agreement between a Person and one or
          more holders of Voting Shares (each such holder herein referred to as
          a "Locked-up Person") (the terms of which are publicly disclosed and
          reduced to writing and a copy of which is made available to the public
          (including the Corporation) not later than the date of the Lock-up Bid
          (as defined below) or if the Lock-up Bid has been made prior to the
          date of the Lock-up Agreement not later than the date of the Lock-up
          Agreement) pursuant to which each Locked-up Person agrees to deposit
          or tender the Voting Shares held by such holder to a Take-over Bid
          (the "Lock-up Bid") made by the Person or any of such Person's
          Affiliates or Associates or any other Person referred to in Section
          1.1(d)(iii) provided that:

          (i)    the Lock-up Agreement permits the Locked-up Person to withdraw
                 its Voting Shares from the Lock-up Agreement in order to
                 deposit or tender the Voting Shares to another Take-over Bid or
                 to support another transaction prior to the Voting Shares being
                 taken up and paid for under the Lock-up Bid:

                 (A)  at a price or value per Voting Share that exceeds the
                      price or value per Voting Shares offered under the Lock-up
                      Bid; or

                 (B)  for a number of Voting Shares at least 7% greater than the
                      number of Voting Shares than the Offeror has offered to
                      purchase under the Lock-up Bid at a price or value per
                      Voting Shares that is not less than the price or value per
                      Voting Share offered under the Lock-up Bid; or
<PAGE>

                                      -5-

                 (C)  (a) that contains an offering price for each Voting Share
                      that exceeds by as much as or more than a specified amount
                      (the "Specified Amount") the offering price for each
                      Voting Share contained in or proposed to be contained in
                      the Lock-up Bid and (b) does not by itself provide for a
                      Specified Amount that is greater than 7% of the offering
                      price contained in or proposed to be contained in the
                      Lock-up Bid;

          for greater clarity, the agreement may contain a right of first
          refusal or require a period of delay to give the Person who made the
          Lock-up Bid 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 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 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 aggregate the greater of:

                 (A)  2 1/2% of the price or value of the consideration payable
                      under the Lock-up Bid to a Locked-up Person; and

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

          shall be payable by such Locked-up Person if the Locked-up Person
          fails to deposit or tender Voting Shares to the Lock-up Bid, or
          withdraws Voting Shares previously tendered thereto in order to
          deposit or tender such Voting Shares to another Take-over Bid or
          support another transaction.

(e)  "Board of Directors" shall mean the board of directors of the Corporation
      ------------------
     or any duly constituted and empowered committee thereof.

(f)  "Business Day" shall mean any day, other than a Saturday or Sunday or a day
      ------------
     on which banking institutions in the City of Ottawa are authorized or
     obligated by law to close.

(g)  "Canadian Dollar Equivalent" of any amount which is expressed in United
      --------------------------
     States dollars shall mean on any day the Canadian dollar equivalent of such
     amount determined by reference to the U.S. - Canadian Exchange Rate in
     effect on such date.

(h)  "Canada Business Corporations Act " shall mean the Canada Business
      --------------------------------
     Corporations Act, R.S.C. 1985, c.C- 44, as amended and the regulations
     thereunder, as from time to time in effect.

(i)  "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 Business Day) at
     which the principal office of the transfer agent for the Common Shares in
     Toronto, Ontario (or after the Separation Time, the principal office of the
     Rights Agent in Toronto, Ontario) is closed to the public.

(j)  "Closing Price" per security of any securities on any date of determination
      -------------
     shall mean:
<PAGE>

                                      -6-

     (i)   the closing board lot sale price or, if such price is not available,
           the average of the closing bid and asked prices, for such securities
           as reported by the stock exchange or national securities quotation
           system on which such securities are listed or admitted to trading
           (provided that, if at the date of determination such securities are
           listed or admitted to trading on more than one stock exchange or
           national securities quotation system, such price or prices shall be
           determined based on the stock exchange or quotation system on which
           such securities are then listed or admitted to trading on which the
           largest number of such securities were traded during the most
           recently completed calendar year); or

     (ii)  if for any reason none of such prices is available on such day or the
           securities are not listed or admitted to trading on a stock exchange
           or a national securities quotation system, the last sale price, or in
           case no sale takes place on such date, the average of the high bid
           and low asked prices for each of such securities in the over-the-
           counter market;

     provided, however, that (A) if for any reason none of such prices are
     available on such date, the "Closing Price" per security of such securities
     on such date shall mean the fair value per security of the securities on
     such date as determined by a nationally or internationally recognized
     investment dealer or investment banker with respect to the fair value per
     security of such securities, and (B) if the Closing Price so determined is
     expressed in United States dollars, such amount shall be converted to the
     Canadian Dollar Equivalent.

(k)  "Common Shares", when used with reference to the Corporation, shall mean
      -------------
     the Common Shares in the share capital of the Corporation as presently
     constituted, as such shares may be subdivided, consolidated, reclassified
     or otherwise changed from time to time, and "Common Shares" when used with
     reference to any Person other than the Corporation means the class or
     classes of shares (or similar equity interest) with the greatest per share
     voting power entitled to vote generally in the election of all directors of
     such other Person or the equity securities or other equity interest having
     power (whether or not exercised) to control or direct the management of
     such other Person or, if such other Person is a corporation controlled by
     another Person, the Person (other than an individual) which ultimately
     controls such first mentioned other Person.

(l)  "Competing Permitted Bid" means a Take-Over Bid that:
      -----------------------

     (i)   is made after a Permitted Bid has been made and prior to the expiry
           of the Permitted Bid;

     (ii)  satisfies all components of the definition of a Permitted Bid other
           than the requirement in Clause (ii)(A)(x) thereof; and

     (iii) contains, and the take-up and payment for securities tendered or
           deposited is subject to irrevocable and unqualified provisions that
           no Voting Shares shall be taken up or paid for pursuant to the
           Takeover Bid prior to the Close of Business on a date that is no
           earlier than the later of (i) 21 days after the date of the Take-over
           Bid, and (ii) the 45th day after the earliest date on which any other
           Permitted Bid that is then in existence was made.

(m)  "controlled": a body corporate is "controlled" by another Person if and
      ----------
     only 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 for the benefit of the other Person;
           and

     (ii)  the votes carried by such securities are entitled, if exercised, to
           elect a majority of the
<PAGE>

                                      -7-

           board of directors of such body corporate;
           and "controls", "controlling" "under common control with" shall be
                --------    -----------   -------------------------
           interpreted accordingly.

(n)  "Convertible Security" means, with respect to any security, a security
      --------------------
     convertible into or exchangeable for the first-mentioned security.

(o)  "Co-Rights Agents" shall have the meaning ascribed thereto in Subsection
      ----------------
     4.1 (a).

(p)  "Disposition Date" has the meaning ascribed thereto in Subsection 5.1 (b).
      ----------------

(q)  "Disqualification Date" has the meaning ascribed thereto in Clause 1.1
      ---------------------
     (a)(iii).

(r)  "Effective Date" shall mean the Close of Business on the date on which The
      --------------
     Toronto Stock Exchange accepts notice for filing of this Agreement.

(s)  "Election to Exercise" has the meaning ascribed thereto in Subsection
      --------------------
     2.2(d).

(t)  "Exempt Acquisition" means a share acquisition in respect of which the
      ------------------
     Board of Directors has waived the application of Section 3.1 pursuant to
     Subsection 5.1(b), 5.1(d) or 5.1(e) or which was made on or prior to the
     date of this Agreement.

(u)  "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 and, until adjustment thereof in accordance with the terms hereof,
     the Exercise Price shall be $100.00.

(v)  "Expansion Factor" has the meaning ascribed thereto in Subclause
      ----------------
     2.3(b)(iv)(A)(1).

(w)  "Expiration Time" shall mean the earlier of (i) the Termination Time; and
      ---------------
     (ii) the Close of Business on the date on which the first annual meeting of
     shareholders of the Corporation following the third anniversary of the date
     of this Agreement is held; provided, however, that if the resolution
     referred to in Section 5.15 is approved by the Independent Shareholders in
     accordance with Section 5.15 at or prior to such annual meeting,
     "Expiration Time" means the earlier of (i) the Termination Time; and (ii)
     the Close of Business on the sixth anniversary of the date of this
     Agreement.

(x)  "Fiduciary" shall mean a trust company registered under the trust company
      ---------
     legislation of Canada or any province thereof when engaged in a fiduciary
     capacity, a trust company organized under the laws of any state of the
     United States, a portfolio manager registered under the securities
     legislation of one or more provinces of Canada or an investment adviser
     registered under the United States Investment Advisers Act of 1940 or any
     other securities legislation of the United States or any state of the
     United States.

(y)  "Flip-in Event" shall mean a transaction or event in or pursuant to which
      -------------
     any Person becomes an Acquiring Person.

(z)  "holder" shall have the meaning ascribed thereto in Section 2.8.
      ------

(aa) "Independent Shareholders" shall mean holders of outstanding Voting
      ------------------------
     Shares, other than Voting Shares Beneficially Owned by (i) any Acquiring
     Person; (ii) any Offeror other than a Person who at the relevant time is
     deemed not to Beneficially Own such Voting Shares by reason of Clause
     1.1(d)(v) hereof; (iii) any Person acting jointly or in concert with such
     Acquiring Person or Offeror
<PAGE>

                                      -8-

     referred to in (ii); (iv) any Associate or Affiliate of such Acquiring
     Person or Offeror referred to in (ii); and (v) any employee benefit plan,
     deferred profit sharing plan and any similar plan or trust for the benefit
     of employees of the Corporation unless the beneficiaries of the plan or
     trust direct the manner in which the Voting Shares are to be voted or
     withheld from voting or direct whether the Voting Shares are to be tendered
     to a Take-over Bid.

(ab) "Market Price" per security of any securities on any date of determination
      ------------
     shall mean the average of the daily Closing Prices on The Toronto Stock
     Exchange (or if the securities are not then listed on The Toronto Stock
     Exchange, on such other exchange on which such securities are listed or
     quoted as determined by the Board of Directors) per security of such
     securities on each of the 20 consecutive Trading Days through and including
     the Trading Day immediately preceding such date of determination; provided,
     however, that if an event of a type analogous to any of the events
     described in Section 2.3 hereof shall have caused any Closing Price used to
     determine the Market Price on any Trading Day not to be fully comparable
     with the Closing Price on the Trading Day immediately preceding such date
     of determination, each such Closing Price so used shall be appropriately
     adjusted in a manner analogous to the applicable adjustment provided for in
     Section 2.3 hereof in order to make it fully comparable with the Closing
     Price on the Trading Day immediately preceding such date of determination.

(ac) "Nominee" has the meaning ascribed thereto in Subsection 2.2(c).
      -------

(ad) "Offer to Acquire" shall include:
      ----------------

     (i)  an offer to purchase or a solicitation of an offer to sell Voting
          Shares, or a public announcement of an intention to make such an offer
          or solicitation; and

     (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.

(ae) "Offeror" shall mean a Person who has announced a current intention to
      -------
     make, or who is making, a Take-over Bid.

(af) "Offeror's Securities" shall mean the Voting Shares Beneficially Owned on
      --------------------
     the date of a Take-over Bid by an Offeror.

(ag)  "Permitted Bid" means a Take-over Bid made by way of a Take-over Bid
       -------------
     circular which also complies with the following additional provisions:

     (i)   the Take-over Bid is made to all holders of record of Voting Shares
           wherever resident as registered on the books of the Corporation,
           other than the Offeror;

     (ii)  the Take-over Bid contains, and the take-up and payment for
           securities tendered or deposited thereunder is 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 less than 45 days following the date of the Take-over Bid
                and (y) unless, at the Close of Business on that date,
<PAGE>

                                      -9-

                the Voting Shares deposited or tendered pursuant to the Take-
                over Bid and not withdrawn constitute more than 50% of the
                Voting Shares outstanding which are held by Independent
                Shareholders;

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

          (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 (A)(y)
                of this Clause 1.1(ag)(ii) 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 Voting Shares for not
                less than 10 Business Days from the date of such public
                announcement.

     For purposes of this Agreement,  the term "Permitted Bid" shall include a
     Competing Permitted Bid.

(ah) "Permitted Bid Acquisition" means an acquisition of Voting Shares made
      -------------------------
     pursuant to a Permitted Bid or a Competing Permitted Bid.

(ai) "Person" includes any individual, firm, partnership, association, trust,
      ------
     trustee, executor, administrator, legal personal representative,
     government, governmental body or authority, corporation, or other
     incorporated or unincorporated organization, syndicate or other entity.

(aj) "Pro Rata Acquisition" means an acquisition by a Person of Voting Shares
      --------------------
     pursuant to (i) any dividend reinvestment plan or share purchase plan of
     the Corporation made available to all holders of Voting Shares (other than
     holders resident in any jurisdiction where participation in any such plan
     is restricted or impractical as a result of applicable law), (ii) a stock
     dividend, a stock split or other event pursuant to which such Person
     becomes the Beneficial Owner of Voting Shares on the same pro rata basis as
     all other holders of Voting Shares of the same class or series, (iii) the
     acquisition or exercise of rights to purchase Voting Shares distributed to
     all holders of Voting Shares (other than holders resident in any
     jurisdiction where such distribution is restricted or impractical as a
     result of applicable law) by the Corporation pursuant to a rights offering
     (but only if such rights are acquired directly from the Corporation) or
     (iv) a distribution of Voting Shares or Convertible Securities in respect
     thereof offered pursuant to a prospectus or by way of a private placement
     or a conversion or exchange of any such Convertible Security, provided such
     Person does not thereby acquire a greater percentage of Voting Shares or
     Convertible Securities so offered than the Person's percentage of Voting
     Shares Beneficially Owned immediately prior to such acquisition.

(ak) "Record Time" means the Close of Business on the Effective Date.
      -----------

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

(am) "Regular Periodic Cash Dividend" means cash dividends paid on the Common
      -------------------------------
     Shares at regular intervals in any fiscal year of the Corporation to the
     extent that such cash dividends do not exceed in the aggregate in any
     fiscal year, on a per share basis, the greatest of:

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

                                      -10-

           Common Shares outstanding as at the end of such 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 divided by the
           arithmetic mean of the number of Common Shares outstanding as at the
           end of each of such fiscal years; and

     (iii) 100% of the aggregate consolidated net income of the Corporation,
           before extraordinary items, for its immediately preceding fiscal year
           divided by the number of Common Shares outstanding as at the end of
           such fiscal year.

(an) "Right" shall mean the herein described rights to purchase securities
      -----
     pursuant to the terms and subject to the conditions set forth herein.

(ao) "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.

(ap) "Rights Register" and "Rights Registrar" shall have the respective meanings
      ---------------       ----------------
     ascribed thereto in Subsection 2.6(a).

(aq) "Securities Act" shall mean the Securities Act (Ontario), R.S.O. 1990,
      ---------------
     c.S.5, as amended and the regulations and rules made thereunder, as from
     time to time in effect.

(ar) "Separation Time" means the Close of Business on the eighth Business Day
      ----------------
     after the earlier of:

     (i)   the Stock Acquisition Date; and

     (ii)  the date of the commencement of, or first public announcement or
           disclosure of the intent of any Person (other than the Corporation or
           any corporation controlled by the Corporation) to commence, a Take-
           over Bid (other than a Permitted Bid, so long as such Take-over Bid
           continues to satisfy the requirements of a Permitted Bid) or such
           later Business Day as may be determined at any time or from time to
           time by the Board of Directors;

     provided, however, that if any such Take-over Bid expires, is canceled, is
     terminated or is otherwise withdrawn prior to the Separation Time, such
     Take-over Bid shall be deemed, for purposes of this Subsection 1.l(ar)
     never to have been made, and, provided further, that if the Board of
     Directors determines, pursuant to Section 5.1, to waive the application of
     Section 3.1 to a Flip-In Event, the Separation Time in respect of such
     Flip-In Event shall be deemed never to have occurred.

(as) "Stock Acquisition Date" shall mean the first date of public announcement
      ----------------------
     or disclosure by the Corporation or an Acquiring Person of facts indicating
     that a Person has become an Acquiring Person (which, for the purposes of
     this definition, shall include, without limitation, a report filed pursuant
     to Section 101 of the Securities Act or Section 13(d) of the U.S. Exchange
     Act disclosing such information).

(at)  "Take-over Bid" means an Offer to Acquire Voting Shares of any class, or
       -------------
     Convertible Securities with respect thereto, where the Voting Shares
     subject to the Offer to Acquire, together with the Voting Shares into or
     for which the securities subject to the Offer to Acquire are convertible or
     exchangeable 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.
<PAGE>

                                      -11-

(au) "Termination Time" means the time at which the right to exercise Rights
      ----------------
     shall terminate pursuant to Section 5.1 hereof.

(av) "Trading Day" when used with respect to any securities, means the day on
      -----------
     which the principal Canadian or United States securities exchange (as
     determined by the Board of Directors) 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 or United
     States securities exchange, a Business Day.

(aw) "U.S. - Canadian Exchange Rate" on any date shall mean:
      -----------------------------

     (i)  if on such date the Bank of Canada sets an average noon spot rate of
          exchange for the conversion of one United States dollar into Canadian
          dollars, such rate; and

     (ii) in any other case, the rate for such date for the conversion of one
          United States dollar into Canadian dollars which is calculated in the
          manner which shall be determined by the Board of Directors from time
          to time acting in good faith;

(ax) "U.S. Exchange Act" means the United States Securities Exchange Act of
      -----------------
     1934, as amended, and the rules and regulations thereunder as from time to
     time in effect.

(ay) "Voting Share Reduction" means an acquisition or redemption by the
      ----------------------
     Corporation of Voting Shares which, by reducing the number of Voting Shares
     outstanding, increases the percentage of Voting Shares Beneficially Owned
     by any Person to 20% or more of the Voting Shares then outstanding.

(az) "Voting Shares", when used in reference to the Corporation, shall mean the
      -------------
     Common Shares and any other securities the holders of which are entitled to
     vote generally on the election of directors of the Corporation, and "voting
                                                                          ------
     shares", when used with reference to any Person other than the Corporation,
     ------
     means common shares of such other Person and any other securities the
     holders of which are entitled to vote generally in the election of the
     directors of such other Person.

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 will require, terms (including defined 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  Sections and Headings

     The division of this Agreement into Articles, Sections, Subsections,
Clauses and Subclauses and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The terms this "Agreement", "hereunder", "hereof' and similar
                           ---------    ---------    ------
expressions refer to this Agreement as amended or supplemented from time to time
and not to any particular Article, Section or other portion hereof and include
any Agreement or instrument supplemental or ancillary hereto. Unless something
in the subject matter or context is inconsistent therewith, references herein to
Articles, Sections, Subsections, Clauses and Subclauses are to Articles,
Sections, Subsections, Clauses and Subclauses
<PAGE>

                                      -12-

of this Agreement.

1.5  Statutory References

     Unless the context otherwise requires, any reference to a specific Section,
Subsection, Clause or Rule of any statute or regulation shall be deemed to refer
to the same as it may be amended, reenacted or replaced or, if repealed and
there shall be no replacement therefor, to the same as it is in effect on the
date of this Agreement.

1.6  Determination of Percentage Ownership

     The percentage of Voting Shares Beneficially Owned by any Person, shall,
for the purposes of this Agreement, be and be deemed to be the product
determined by the formula:

     100 x  A
            -
            B

     where:

     A=   the aggregate number of votes for the election of all directors
          generally attaching to the Voting Shares Beneficially Owned by such
          Person; and
     B=   the aggregate 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
     pursuant to Subsection 1.1(d), such Voting Shares shall be deemed to be
     outstanding for the purpose of both A and B in the formula above.

1.7  Acting Jointly or in Concert

     For the purposes of this Agreement, a Person is acting jointly or in
concert with every Person who is a party to an agreement, commitment or
understanding, whether formal or informal, with the first Person for the purpose
of acquiring or offering to acquire Voting Shares or Convertible Securities in
respect thereof (other than customary agreements with and between underwriters
and banking group or selling group members with respect to a distribution of
securities or pursuant to a pledge of securities in the ordinary course of the
pledgee's business).

1.8  Generally Accepted Accounting Principles

     Wherever in this Agreement reference is made to generally accepted
accounting principles, such reference shall be deemed to be the recommendations
at the relevant time of the Canadian Institute of Chartered Accountants, or any
successor institute, applicable on a consolidated basis (unless otherwise
specifically provided herein to be applicable on an unconsolidated basis) as at
the date on which a calculation is made or required to be made in accordance
with generally accepted accounting principles. Where the character or amount of
any asset or liability or item of revenue or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made for the purpose of this Agreement or any document, such determination or
calculation shall, to the extent applicable and except as otherwise specified
herein or as otherwise agreed in writing by the parties, be made in accordance
with generally accepted accounting principles applied on a consistent basis.

                                   ARTICLE 2
<PAGE>

                                     -13-

                                  THE RIGHTS

2.1  Legend on Common Share Certificates

     (a)  Certificates representing the Common Shares, including without
          limitation Common Shares issued upon the conversion of Convertible
          Securities, issued after the Record Time but prior to the Close of
          Business on the earlier of the Separation Time and the Expiration
          Time, shall also evidence one Right for each Common Share represented
          thereby and shall have impressed on, printed on, written on or
          otherwise affixed to them the following legend:

          "Until the Separation Time (as defined in the Rights Agreement
          referred to below), this certificate also evidences and entitles the
          holder hereof to certain Rights as set forth in a Shareholder Rights
          Plan Agreement, dated as of February 11, 1999 (the "Rights
          Agreement"), between Corel Corporation (the "Corporation") and
          Montreal Trust Company of Canada  (the "Rights Agent"), the terms of
          which are hereby incorporated herein by reference and a copy of which
          is on file at the registered office of the Corporation. Under certain
          circumstances, as set forth in the Rights Agreement, such Rights may
          be amended or redeemed, may expire, may become void (if, in certain
          cases, they are "Beneficially Owned" by an "Acquiring Person", as such
          terms are defined in the Rights Agreement, or a transferee thereof) 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 as soon as practicable after the
          receipt of a written request therefor."

     (b)  Certificates representing Common Shares that are issued and
          outstanding at the Record Time shall 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, including without
          limitation as set forth in Article 3, 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
          as at the Business Day immediately preceding Separation Time (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 and independent of Common Shares.
          Promptly following the Separation Time, the Corporation will prepare
          or cause to be prepared and the Rights Agent will mail to each holder
          of
<PAGE>

                                      -14-

           record of Common Shares as of the Separation Time and, in respect of
           each Convertible Security converted into Common Shares after the
           Separation Time and prior to the Expiration Time, promptly after such
           conversion, the Corporation will prepare or cause to be prepared and
           the Rights Agent will mail to the holder so converting (other than an
           Acquiring Person 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 (a "Nominee") at such
           holder's address as shown by the records of the Corporation (the
           Corporation hereby agreeing to furnish copies of such record to the
           Rights Agent for this purpose):

           (i)  a Rights Certificate in substantially the form of 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,
                rule or regulation or judicial or administrative order, or with
                any article or regulation of any 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 that a Nominee shall be sent the materials
                provided for in (i) and (ii) only in respect of all Common
                Shares held of record by it which are not Beneficially Owned by
                an Acquiring Person and the Corporation may require any Nominee
                or suspected Nominee to provide such information and
                documentation as the Corporation may reasonably require for such
                purpose.

(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 principal office in Toronto, or any other office of
     the Rights Agent designated for that purpose from time to time by the
     Corporation:

     (i)   the Rights Certificate evidencing such Rights;

     (ii)  an election to exercise (an "Election to Exercise") substantially in
                                        --------------------
           the form attached to the Rights Certificate duly completed, and
           executed in a manner acceptable to the Rights Agent; and

     (iii) payment by certified cheque, banker's draft or money order payable to
           the order of the Rights Agent, 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 any transfer involved in 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 exercised.

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

                                      -15-

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

     (ii)  after receipt of such Common Share certificates, deliver such
           certificates to, or to 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, if any, to be paid in lieu of issuing fractional Common Shares;

     (iv)  when appropriate, after receipt of such cash, deliver such cash 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)  If 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 subject to the Subsection
     5.5(a) will be issued by the Rights Agent to such holder or to such
     holder's duly authorized assigns.

(g)  The Corporation shall:

     (i)   take all such action as may be necessary and within its power to
           ensure that all Common Shares delivered upon the 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 reasonably be considered to be necessary
           and within its power to comply with any applicable requirements of
           the Canada Business Corporations Act or the Securities Act, the U.S.
           Exchange Act, the United States Securities Act of 1933, as amended,
           and comparable legislation of each of the provinces and territories
           of Canada and states of the United States of America, or the rules
           and regulations thereunder or any other applicable law, rule or
           regulation, in connection with the issuance and delivery of the
           Rights, the Rights Certificates and the issuance of any Common Shares
           upon exercise of the Rights;

     (iii) use reasonable efforts to cause all Common Shares issued upon
           exercise of the Rights to be listed on the stock exchanges on which
           the Common Shares are listed at that time;

     (iv)  cause to be reserved and kept available out of its authorized and
           unissued Common Shares, the number of Common Shares that, as provided
           in this Agreement, will from time to time be sufficient to permit the
           exercise in full of all outstanding Rights;

     (v)   pay when due and payable, if applicable, any and all federal,
           provincial, state and municipal taxes (not in the nature of income,
           capital gains 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 issued upon the
           exercise of Rights, provided that the Corporation shall not be
           required to pay any transfer tax or charge which may be payable in
           respect of any transfer of Rights or the issuance or delivery of
           certificates for Common Shares issued upon the exercise of Rights, in
           a name other than that of the holder
<PAGE>

                                      -16-

           of the Rights being transferred or exercised; and

     (vi)  after the Separation Time, except as permitted by Section 5.1 or
           Section 5.4 hereof, not take (or permit any corporation it controls
           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.

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 and
     in Article 3.

(b)  In the event that 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 payable in Voting
           Shares or Convertible Securities in respect thereof other than
           pursuant to any dividend reinvestment plan;

     (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 Voting Shares (or Convertible Securities in respect
           thereof) in respect of, in lieu of or in exchange for existing Common
           Shares, whether in a reclassification, amalgamation, statutory
           arrangement, consolidation or otherwise;

     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 the exercise of Rights) shall be adjusted as
     follows:

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

           1)  the Exercise Price in effect after such adjustment will be equal
               to the Exercise Price in effect immediately prior to such
               adjustment divided by the number of Common Shares (or other
               securities of the Corporation) (the "Expansion Factor") that a
                                                    ----------------
               holder of one Common Share immediately prior to such dividend,
               subdivision, change, combination or issuance would hold
               thereafter as a result thereof; and

           2)  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 allocated among the Common Shares
               with respect to which the original Rights were associated (if
               they remain outstanding) and the securities of the Corporation
               issued in respect of such dividend, subdivision, change,
               consolidation or issuance, so that each such Common Share (or
               other security of the Corporation) will have exactly one Right
               associated with it.

     (B)   If the securities purchasable upon exercise of Rights are to be
           adjusted, the securities
<PAGE>

                                      -17-

           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.

(c)  Adjustments pursuant to Subsection 2.3(b) shall be made successively,
     whenever an event referred to in Subsection 2.3(b) occurs.

(d)  If an event occurs which would require an adjustment under both this
     Section 2.3 and Section 3.1 hereof, 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 hereof.

(e)  In the event 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 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 Common Share.

(f)  In the event the Corporation shall, at any time after the Record Time and
     prior to the Expiration Time, fix a record date for the making of a
     distribution to all holders of Common Shares of rights or warrants
     entitling them (for a period expiring within 45 calendar days after such
     record date) to subscribe for or purchase Common Shares (or Convertible
     Securities in respect of Common Shares) at a price per Common Share (or, in
     the case of such a Convertible Security, having a conversion, exchange or
     exercise price per share (including the price required to be paid to
     purchase such Convertible Security)) less than 90% of the Market Price per
     Common Share on such record date, 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;

     (i)  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 Securities so to be offered
          (including the price required to be paid to purchase such Convertible
          Securities)) would purchase at such Market Price per Common Share; and

     (ii) 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 Securities so to be offered are initially convertible,
          exchangeable or exercisable).

     In case such subscription price is satisfied, in whole or in part, by
     consideration other than cash, the value of such consideration shall be as
     determined in good faith by the Board of Directors. Such adjustment shall
     be made successively whenever such a record date is fixed. To the extent
     that such rights or warrants are not exercised prior to the expiration
     thereof, the Exercise Price shall be readjusted in the manner contemplated
     above based on the number of Common Shares (or securities convertible into
     or exchangeable for Common Shares) actually issued on the exercise of such
     rights or warrants.

     For purposes of this Agreement, the granting of the right to purchase
     Common Shares (whether from treasury or otherwise) pursuant to any dividend
     or interest reinvestment plan or any share purchase plan providing for the
     reinvestment of dividends or interest payable on securities of the
     Corporation or the investment of periodic optional payments or employee
     benefit or similar plans
<PAGE>

                                      -18-

     (so long as such right to purchase is in no case evidenced by the delivery
     of rights or warrants by the Corporation) 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 or share purchase
     plan, the right to purchase Common Shares is at a price per share of not
     less than 90% of the current Market Price per share (determined as provided
     in such plans) of the Common Shares.

(g)  In the event the Corporation shall at any time after the Record Time and
     prior to the Expiration Time fix a record date for the making of a
     distribution to all holders of Common Shares of (i) evidences of
     indebtedness or assets (other than a Regular Periodic Cash Dividend or a
     dividend paid in Common Shares, but including any dividend payable in
     securities other than Common Shares), (ii) rights or warrants entitling
     them to subscribe for or purchase Voting Shares (or Convertible Securities
     in respect of Voting Shares), at a price per Voting Share (or, in the case
     of a Convertible Security in respect of Voting Shares, having a conversion,
     exchange or exercise price per share (including the price required to be
     paid to purchase such Convertible Security)) less than 90% of the Market
     Price per Common Share on such record date (excluding rights or warrants
     referred to in Subsection 2.3(f)) or (iii) other securities of the
     Corporation, the Exercise Price in effect after such record date shall be
     equal to 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 or other securities so to be distributed applicable to each of
     the securities purchasable upon exercise of one Right. Such adjustment
     shall be made successively whenever such a record date is fixed.

(h)  Each adjustment made pursuant to Section 2.3 shall be made as of

     (i)  the payment or effective date for the applicable dividend,
          subdivision, change, combination 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 Subsections 2.3(f) or 2.3(g)
          above, subject to readjustment to reverse the same if such
          distribution shall not be made.

(i)  In the event the Corporation shall at any time after the Record Time and
     prior to the Expiration Time issue any shares (other than Common Shares),
     or rights or warrants to subscribe for or purchase any such shares, or
     Convertible Securities in respect of any such shares, in a transaction
     referred to in any of subclauses 2.3(b)(i) to (iv) above, if the Board of
     Directors acting in good faith determines that the adjustments contemplated
     by Subsections 2.3(b), 2.3(f) and 2.3(g) above in connection with such
     transaction will not appropriately protect the interests of the holders of
     Rights, the Board of Directors may from time to time, but subject to
     obtaining the prior approval of the holders of the Rights obtained as set
     forth in Subsection 5.4(b), determine what other adjustments to the
     Exercise Price, number of Rights or securities purchasable upon exercise of
     Rights would be appropriate and, notwithstanding Subsections 2.3(b), 2.3(f)
     and 2.3(g) above, such adjustments, rather than the adjustments
     contemplated by Subsections 2.3(b), 2.3(f) and 2.3(g) above, shall be made
     upon the Board of Directors providing written certification thereof to the
     Rights Agent pursuant to Subsection 2.3(q).

(j)  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(j))
     are not required to be made shall be carried forward and taken into account
     in any subsequent adjustment. All adjustments to the Exercise Price made
     pursuant to this Section 2.3 shall be
<PAGE>

                                      -19-

     calculated to the nearest cent.

(k)  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.

(l)  Unless the Corporation shall have exercised its election, as provided in
     Subsection 2.3(m), upon each adjustment of an Exercise Price as a result of
     the calculations made in Subsections 2.3(f) and 2.3(g), 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 Exercise Price in
          effect immediately prior to such adjustment; and

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

(m)  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 obtained by dividing the relevant Exercise Price in effect
     immediately prior to adjustment of the 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 calendar 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(m), 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 5.5, 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 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.

(n)  In any case in which this Section 2.3 shall require that an adjustment in
     an 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
<PAGE>

                                      -20-

     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 an 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.

(o)  Notwithstanding anything in this Section 2.3 to the contrary, the
     Corporation shall be entitled to make such adjustments 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 for cash of any
     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, shall not be taxable to such shareholders.

(p)  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 represent the securities so purchasable which were
     represented in the initial Rights Certificates issued hereunder.

(q)  Whenever an adjustment to the Exercise Price is made pursuant to this
     Section 2.3, the Corporation shall

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

     (ii) promptly file with the Rights Agent and with each transfer agent for
          the Common Shares a copy of such certificate and mail a brief summary
          thereof to each holder of Rights who requests a copy.

     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 is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered (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 Person 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
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 Chief Executive Officer, President, and by one of its Chief
          Financial Officer, its Treasurer, its Secretary or its Controller. The
          signature of any of these officers on the Rights Certificates may be
          manual or facsimile. Rights Certificates bearing the manual or
          facsimile signatures
<PAGE>

                                      -21-

          of individuals who were at any time the proper officers 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 following the Separation Time, the Corporation will notify
          the Rights Agent of such Separation Time and will deliver Rights
          Certificates executed by the Corporation to the Rights Agent for
          countersignature and a statement describing the Rights, and the Rights
          Agent shall countersign (manually or by facsimile signature in a
          manner satisfactory to the Corporation) and deliver such Rights
          Certificates and statement to the holders of the Rights pursuant to
          Section 2.2 hereof. 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.

2.6  Registration, Transfer and Exchange

     (a)  After the Separation Time, the Corporation shall 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 and the Rights Agent hereby accepts such
          appointment. 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.

     (b)  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 Subsections 2.6(d) and
          3.1(b) below, the Corporation will execute, and the Rights Agent will
          countersign, deliver and register, in the name of the holder 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.

     (c)  All Rights issued upon any registration of transfer or exchange of
          Rights Certificates shall be 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.

     (d)  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) in connection therewith.

2.7  Mutilated, Lost, Stolen and Destroyed 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
<PAGE>

                                      -22-

          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 reasonable
          satisfaction of the destruction, loss or theft of any Rights
          Certificate; and (ii) such security or indemnity as may be reasonably
          required by them to save each of them and any of their agents
          harmless, then, in the absence of notice to the Corporation or the
          Rights Agent that such Rights Certificate has been acquired by a bona
          fide purchaser, the Corporation shall execute and, upon the
          Corporation's 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

     The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the person in whose name a 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 for
all purposes whatsoever. 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, the associated Common Shares).

2.9  Delivery and Cancellation of Certificates

     All Rights Certificates surrendered upon exercise or for redemption, for
registration of transfer or for 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, subject to applicable law, 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:

(a)  to be bound by and subject to the provisions of this Agreement, as amended
     from time to time in
<PAGE>

                                      -23-

     accordance with the terms hereof, in respect of all Rights held;

(b)  that, 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;

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

(d)  that, 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)  that such holder of Rights has waived its right to receive any fractional
     Rights or any fractional Common Shares or other securities upon exercise of
     a Right (except as provided herein);

(f)  that, subject to the provisions of Section 5.4, 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 as provided herein; 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 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 governmental, 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

3.1  Flip-in Event

     (a)  Subject to Sections 3. 1 (b) and 5. 1, in the event that prior to the
          Expiration Time a Flip-in Event occurs, each Right shall thereafter
          constitute the right to purchase from the Corporation, upon exercise
          thereof in accordance with the terms hereof, that number of Common
          Shares of the Corporation as have 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 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).
<PAGE>

                                      -24-

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

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

          (ii) a transferee of Rights, direct or indirect, 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 any associate or Affiliate thereof) where such a
               transferee becomes a transferee concurrently with or subsequent
               to the Acquiring Person becoming such in a transfer that the
               Board of Directors has determined is part of a plan, arrangement
               or scheme of an Acquiring Person (or of any Person acting jointly
               or in concert with an Acquiring Person or any Associate or
               Affiliate of an Acquiring Person), that has the purpose or effect
               of avoiding Clause 3.1(b)(i);

          shall become null and void without any further action and any holder
          of such Rights (including any transferee of, or other successor
          entitled to, such Rights, whether directly or indirectly) shall
          thereafter have no right to exercise such Rights under any provisions
          of this Agreement and further shall thereafter not have any 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 Subsection 3.1 (b) and such Rights shall become null
          and void.

     (c)  Any Rights Certificate that represents Rights Beneficially Owned by a
          Person described in either of Clauses 3.1(b)(i) or 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 or will be deemed to 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 (as such terms are defined in
                  the Rights Agreement) or acting jointly or in concert with any
                  of them. This Rights Certificate and the Rights represented
                  hereby shall be void in the circumstances specified in
                  Subsection 3.1(b) of the Shareholder Rights Plan Agreement."

          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 to do so.

     (d)  After the Separation Time, the Corporation shall do all such acts and
          things necessary and within its power to ensure compliance with the
          provisions of this Section 3.1 including, without limitation, all such
          acts and things as may be required to satisfy the requirements
<PAGE>

                                      -25-

          of the Canada Business Corporations Act, the Securities Act and the
          securities laws or comparable legislation in each of the provinces of
          Canada and in any other jurisdiction where the Corporation is subject
          to such laws and the rules of the stock exchanges or quotation systems
          where the Common Shares are listed or quoted at such time in respect
          of the issue of Common Shares upon the exercise of Rights in
          accordance with this Agreement.

3.2  Fiduciary Duties of the Board of Directors of the Corporation

     For clarification, it is understood that nothing contained in this Article
3 shall be considered to affect the obligations of the Board of Directors to
exercise its fiduciary duties. Without limiting the generality of the foregoing,
nothing contained herein shall be construed to suggest or imply that the Board
of Directors shall not be entitled to recommend that holders of the Voting
Shares reject or accept any Take-over Bid or take any other action including,
without limitation, the commencement, prosecution, defense or settlement of any
litigation and the submission of additional or alternative Take-over Bids or
other proposals to the shareholders of the Corporation with respect to any
Takeover Bid or otherwise that the Board of Directors believes is necessary or
appropriate in the exercise of its fiduciary duties.

                                   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 the 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 such co-rights agents ("Co-
     Rights Agents") as it may deem necessary or desirable subject to the prior
     written 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 written
     approval of the Rights Agent. 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 other disbursements reasonably incurred in the administration
     and execution of this Agreement and the exercise and performance of its
     duties hereunder, including the reasonable fees and disbursements of
     counsel and other experts consulted by the Rights Agent pursuant to
     Subsection 4.3(a). The Corporation also agrees to indemnify the Rights
     Agent, its officers, directors, employees and agents for, and to hold it
     harmless against, any loss, liability, cost, claim, action, damage, suit 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 legal costs and expenses, which right to indemnification will
     survive the termination of this Agreement or the removal or resignation 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
<PAGE>

                                      -26-

     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.

4.2  Merger, Amalgamation, 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 filling of any document
     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 hereof. 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 Rights Certificates so countersigned; and in case at that
     time any of the Rights Certificates shall not have 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
     shall 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) or such other experts that the Rights
     Agent considers necessary to carry out its duties under this Agreement and
     the opinion of such counsel or other expert 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; the Rights
     Agent may also, with the approval of the Corporation (such approval not to
     be unreasonably withheld), consult with such other experts as the Rights
     Agent shall consider necessary or appropriate to properly carry out the
     duties and obligations imposed under this Agreement (at the expense of the
     Corporation) and the Rights Agent shall be entitled to act and rely in good
     faith on the advice of any such expert.

(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
<PAGE>

                                      -27-

     by a certificate signed by a person believed by the Rights Agent to be a
     senior officer of the Corporation and delivered to the Rights Agent; and
     such certificate will be full authorization to the Rights Agent for any
     action taken 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, and 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 thereon) 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) hereof or any
     adjustment required under the provisions of Section 2.3) hereof 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 Section 2.3 describing any such adjustment
     or any written notice from the Corporation or any holder that a Person has
     become an Acquiring Person); 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 any
     Common Shares, when issued, being duly and validly authorized, issued and
     delivered as fully paid and non-assessable.

(f)  The Corporation agrees that it 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 person
     designated in writing by 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 or suffered by it in good faith in
     accordance with instructions of any such individual. It is understood that
     instructions to the Rights Agent shall, except where circumstances make it
     impractical or the Rights Agent otherwise agrees, be given in writing and,
     where not in writing, such instructions shall be confirmed in writing as
     soon as reasonably practicable after the giving of such instructions.

(h)  Subject to applicable law, the Rights Agent and any shareholder or
     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 the Rights Agent under this
     Agreement. Nothing herein shall preclude the Rights Agent from acting in
     any other capacity for the Corporation or for any other legal entity.
<PAGE>

                                      -28-

(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 by giving 60 days' prior written notice (or such lesser notice as is
acceptable to the Corporation) to the Corporation, to each transfer agent of
Common Shares and to the holders of the Rights, all in accordance with Section
5.9 and at the expense of the Corporation. The Corporation may remove the Rights
Agent by giving 30 days' prior written notice to the Rights Agent, to each
transfer agent of the Common Shares and to the holders of the Rights in
accordance with Section 5.9. 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 or
by the holder of any Rights (which holder shall, with such notice, submit such
holder's Rights Certificate for inspection of the Corporation), then the holder
of any Rights or the Rights Agent may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent at the Corporation's
expense. Any successor Rights Agent, whether appointed by the Corporation or by
such a court, must be a corporation incorporated under the laws of Canada or a
province thereof and 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 outstanding fees and expenses then
owing, 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 each transfer agent of the Common
Shares and mail a notice thereof in writing to the holders of the Rights in
accordance with Section 5.9. 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, Waiver and Termination

(a)  Subject to the prior consent of the holders of the Voting Shares obtained
     as set forth in Subsection 5.4(b), the Board of Directors acting in good
     faith may, at any time prior to the later of the Stock Acquisition Date and
     the Separation Time, elect to redeem all but not less than all of the then
     outstanding Rights at a redemption price of $0.0001 per Right appropriately
     adjusted in a manner analogous to the applicable adjustments provided for
     in Section 2.3 in the event that an event of the type 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)  The Board of Directors shall waive the application of Section 3.1 in
     respect of the occurrence of any Flip-in Event if the Board of Directors
     has determined, following the Stock Acquisition Date and prior to the
     Separation Time, that a Person became an Acquiring Person by inadvertence
     and without any intention to become, or knowledge that it would become, an
     Acquiring Person under
<PAGE>

                                      -29-

     this Agreement and, in the event that such a waiver is granted by the Board
     of Directors, such Stock Acquisition Date shall be deemed not to have
     occurred. Any such waiver pursuant to this Subsection 5.1(b) may only be
     given on the condition that such Person, within 10 days after the foregoing
     determination by the Board of Directors or such later date as the Board of
     Directors may determine (the "Disposition Date"), has reduced its
     Beneficial Ownership of Voting Shares such that the Person is no longer an
     Acquiring Person. If the Person remains an Acquiring Person at the Close of
     Business on the Disposition Date, the Disposition Date shall be deemed to
     be the date of occurrence of a further Stock Acquisition Date and Section
     3.1 shall apply thereto.

(c)  In the event that a Person acquires Voting Shares pursuant to a Permitted
     Bid or an Exempt Acquisition referred to in Subsection 5.1(d), then the
     Board of Directors of the Corporation shall, immediately upon the
     consummation of such acquisition and without further formality, be deemed
     to have elected to redeem the Rights at the Redemption Price.

(d)  The Board of Directors acting in good faith may, prior to the occurrence of
     the relevant Flip-in Event, upon prior written notice delivered to the
     Rights Agent, determine to waive the application of Section 3.1 to a Flip-
     in Event that may occur by reason of a Take-over Bid made by means of a
     Take-over Bid circular to all holders of record of Voting Shares provided
     that if the Board of Directors waives the application of Section 3.1 in
     respect of a Take-over Bid pursuant to this Subsection 5.1(d), the Board of
     Directors shall also be deemed to have waived the application of Section
     3.1 in respect of any other Take-over Bid made by means of a 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 5.1 (d).

(e)  The Board of Directors may, prior to the Close of Business on the eighth
     Business Day following a Stock Acquisition Date or such later Business Day
     as they may from time to time determine, upon prior written notice
     delivered to the Rights Agent, waive the application of Section 3.1 to the
     related Flip-in Event, provided that the Acquiring Person has reduced its
     Beneficial Ownership of Voting Shares (or has entered into a contractual
     arrangement with the Corporation, acceptable to the Board of Directors, to
     do so within 10 days of the date on which such contractual arrangement is
     entered into or such later date as the Board of Directors may determine)
     such that at the time the waiver becomes effective pursuant to this
     Subsection 5.1 (e) such Person is no longer an Acquiring Person. In the
     event of such a waiver becoming effective prior to the Separation Time, for
     the purposes of this Agreement, such Flip-in Event shall be deemed not to
     have occurred.

(f)  Where a Take-over Bid that is not a Permitted Bid Acquisition is withdrawn
     or otherwise terminated after the Separation Time has occurred and prior to
     the occurrence of a Flip-in Event, or if the Board of Directors grants a
     waiver under Subsection 5.1 (e) after the Separation Time, the Board of
     Directors may elect to redeem all the outstanding Rights at the Redemption
     Price. Upon the Rights being redeemed pursuant to this Subsection 5.1(f),
     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 Common Shares at the
     Separation Time had not been mailed to each such holder, for all purposes
     of this Agreement the Separation Time shall be deemed not to have occurred
     and the Corporation shall be deemed to have issued replacement Rights to
     the holders of its then outstanding Common Shares.

(g)  If the Board of Directors is deemed under Subsection 5.1(c) to have elected
     or elects under Subsection 5.1(a) to redeem the Rights, 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.
<PAGE>

                                      -30-

(h)  Within 10 days after the Board of Directors is deemed under Subsection
     5.1(c) to have elected or elects under Subsection 5.1(a) or (f) to redeem
     the Rights, 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 registry books of the Rights
     Agent or, prior to the Separation Time, on the registry books of the
     transfer agent for the Voting Shares. Any notice which is mailed in the
     manner herein provided shall be deemed given, whether or not the holder
     receives the notice. Each such notice of redemption will state the method
     by which the payment of the Redemption Price will be made.

5.2  Expiration

     No person will have any rights pursuant to this Agreement or in respect of
any Right after the Expiration Time, except in respect of any right to receive
cash, securities or other property which has accrued at the Expiration Time and
except as specified in Subsections 4.1(a) and 4.1(b) hereof.

5.3  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 its 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.

5.4  Supplements and Amendments

(a)  Subject to Subsections 5.4(b) and (c) and this Subsection 5.4(a), the
     Corporation may from time to time amend, vary or delete any of the
     provisions of this Agreement and the Rights provided that no amendment,
     variation or deletion made on or after the date of the meeting of
     Shareholders at which the resolution referred to in Section 5.21 is to be
     considered shall be made without the prior consent of the holders of the
     Rights, given as provided in Subsection 5.4(b) below, except that
     amendments, variations or deletions made for any of the following purposes
     shall not require such prior approval but shall be subject to subsequent
     ratification in accordance with Subsection 5.4(b):

     (i)  in order to make such changes as are necessary in order to maintain
          the validity of this Agreement and the Rights as a result of any
          change in any applicable legislation, regulations or rules; or

     (ii) in order to make such changes as are necessary in order to cure any
          clerical or typographical slip.

(b)  Any amendment, variation or deletion made by the Board of Directors
     pursuant to Subsection 5.4(a) shall:

     (i)  if made prior to the Separation Time, be submitted to the shareholders
          of the Corporation at the next meeting of shareholders and the
          shareholders may, by resolution passed by a majority of the votes cast
          by Independent Shareholders who vote in respect of such amendment,
          variation or deletion, confirm or reject such amendment or supplement;
          or

     (ii) if made after the Separation Time, be submitted to the holders of
          Rights at a meeting to be held on a date not later than the date of
          the next meeting of shareholders of the Corporation and the holders of
          Rights may, by resolution passed by a majority of the votes cast by
          the holders of Rights which have not become void pursuant to
          Subsection 3.1(b) who vote in
<PAGE>

                                      -31-

          respect of such amendment, variation or deletion, confirm or reject
          such amendment or supplement.

     Any amendment, variation or deletion pursuant to Subsection 5.4(a) shall be
     effective only when so consented to by the holders of Voting Shares or
     Rights, as applicable (except in the case of an amendment, variation or
     deletion referred to in any of Clauses 5.4(a)(i) or (ii), which shall be
     effective from the date of the resolution of the Board of Directors
     adopting such amendment, variation or deletion and shall continue in effect
     until it ceases to be effective (as in this paragraph described) and, where
     such amendment, variation or deletion is confirmed, it shall continue in
     effect in the form so confirmed). If an amendment, variation or deletion
     pursuant to Clause 5.4(a)(i) or (ii) is rejected by the shareholders or the
     holders of Rights or is not submitted to the shareholders or holders of
     Rights as required, then such amendment, variation or deletion 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 from
     and after the date of the meeting of holders of Rights that should have
     been but was not held, and no subsequent resolution of the Board of
     Directors to amend, vary or delete any provision of this Agreement to
     substantially the same effect shall be effective until confirmed by the
     shareholders or holders of Rights, as the case may be.

     (c)  For greater certainty, (i) no amendment, variation or deletion to the
          provisions of Article 4 shall be made except with the concurrence of
          the Rights Agent thereto, and (ii) neither the exercise by the Board
          of Directors of any power or discretion conferred on it hereunder nor
          the making by the Board of Directors of any determination or the
          granting of any waiver it is permitted to make or give hereunder shall
          constitute an amendment, variation or deletion of the provisions of
          this Agreement or the Rights, for purposes of this Section 5.4 or
          otherwise.

     (d)  The approval, confirmation or consent of the holders of Rights with
          respect to any matter arising hereunder shall be deemed to have been
          given if the action requiring such approval, confirmation or consent
          is authorized by the affirmative votes of the holders of Rights
          present or represented at and entitled to be voted at a meeting of the
          holders of Rights and representing a majority of the votes cast in
          respect thereof. For the purposes hereof, each outstanding Right
          (other than Rights which are void pursuant to the provisions hereof or
          which, prior to the Separation Time, are held otherwise than by
          Independent Shareholders) shall be entitled to one vote, and the
          procedures for the calling, holding and conduct of the meeting shall
          be those, as nearly as may be, which are provided in the Corporation's
          Bylaws and the Canada Business Corporations Act with respect to
          meetings of shareholders of the Corporation.

     (e)  The Corporation shall be required to provide the Rights Agent with
          notice in writing of any such amendment, variation or deletion to this
          Agreement as referred to in this Section 5.4 within 5 days of
          effecting such amendment, variation or deletion.

     (f)  Any supplement of amendment to this Agreement pursuant to Subsections
          5.4 (b) through (e) shall be subject to the receipt of any requisite
          approval or consent from any governmental or regulatory authority
          having jurisdiction over the Corporation, including without limitation
          any requisite approval of stock exchanges on which the Common Shares
          are listed.

5.5  Fractional Rights and Fractional Shares

(a)  The Corporation will not be required to issue fractions of Rights or to
     distribute Rights Certificates
<PAGE>

                                      -32-

     which evidence fractional Rights. After the Separation Time there shall be
     paid, in lieu of such fractional Rights, 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 of a whole Right. The Rights Agent shall have no obligation to make
     any payments in lieu of fractional Rights unless the Corporation shall have
     provided the Rights Agent with the necessary funds to pay in full all
     amounts payable in accordance with Section 2.2(e).

(b)  The Corporation shall not be required to issue fractional Common Shares
     upon exercise of the Rights or to distribute certificates that 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 of one Common Share at the
     date of such exercise.  The Rights Agent shall have no obligation to make
     any payments in lieu of fractional Common Shares unless the Corporation
     shall have provided the Rights Agent with the necessary funds to pay in
     full all amounts payable in accordance with Section 2.2(e).

5.6  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 this Agreement and in such holder's Rights Certificate.
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.

5.7  Holder of Rights Not Deemed a Shareholder

     No holder, as such, of any Rights or Rights Certificate 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 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
5.8 hereof) or to receive dividends or subscription rights or otherwise, until
such Rights shall have been exercised in accordance with the provisions hereof.

5.8  Notice of Proposed Actions

     In case the Corporation proposes after the Separation Time and prior to the
Expiration Time 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 5.9 hereof, a notice of such proposed action, which
shall specify the date on which such liquidation, dissolution, or winding up is
to take place, and such notice shall be so given at least 20 Business Days prior
to the date of the taking of such proposed action by the Corporation.
<PAGE>

                                      -33-

5.9  Notices

     Notices or demands authorized or required by this Agreement to be given or
made to or by the Rights Agent, the holder of any Rights or the Corporation will
be sufficiently given or made and shall be deemed to be received if delivered or
sent by first-class mail, postage prepaid, or by fax machine or other means of
printed telecommunication, charges prepaid and confirmed in writing by mail or
delivery, addressed (until another address is filed in writing with the Rights
Agent or the Corporation, as applicable), as follows:

     (a)  if to the Corporation:

          Corel Corporation
          1600 Carling Avenue
          Ottawa, Ontario
          K1Z 8R7
          Attention: Corporate Secretary
          Facsimile No. (613) 725-2691

     (b)  if to the Rights Agent:

          Montreal Trust Company of Canada
          151 Front Street West
          8/th/ Floor
          Toronto, Ontario M5J 2N1
          Attention: Senior Manager, Client Services
          Facsimile No. (416) 981-9800

     (c)  if to the holder of any Rights, to the address of such holder as it
          appears on the registry books of the Rights Agent or, prior to the
          Separation Time, on the registry books of the Corporation for the
          Common Shares.

5.10 Costs of Enforcement

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

5.11 Regulatory Approvals

     Any obligation of the Corporation or action or event contemplated by this
Agreement, shall be subject to applicable law and to the receipt of any
requisite approval or consent from any governmental or regulatory authority.
Without limiting the generality of the foregoing, any issuance or delivery of
debt or equity securities (other than non- convertible debt securities) of the
Corporation upon the exercise of Rights and any amendment to this Agreement
shall be subject to any required prior consent of the stock exchange(s) on which
the Corporation is from time to time listed or has been listed during the six
months prior to such amendment.
<PAGE>

                                      -34-

5.12 Declaration as to Non-Canadian and Non-U.S. Holders

     If in the opinion of the Board of Directors (who may rely upon the advice
of counsel), any action or event contemplated by this Agreement would require
compliance with the securities laws or comparable legislation of a jurisdiction
outside Canada and the United States of America, its territories and
possessions, the Board of Directors acting in good faith may take such actions
as it may deem appropriate to ensure that such compliance is not required,
including without limitation establishing procedures for the issuance to a
Canadian resident Fiduciary of Rights or securities issuable on exercise of
Rights, the holding thereof in trust for the Persons entitled thereto (but
reserving to the Fiduciary or to the judiciary and the Corporation, as the
Corporation may determine, absolute discretion with respect thereto) and the
sale thereof and remittance of the proceeds of such sale, if any, to the Persons
entitled thereto. In no event shall the Corporation or the Rights Agent be
required to issue or deliver Rights or securities issuable on exercise of Rights
to Persons who are citizens, residents or nationals of any jurisdiction other
than Canada and a province or territory thereof and the United States of America
and any state thereof in which such issue or delivery would be unlawful without
registration of the relevant Persons or securities for such purposes.

5.13 Successors

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

5.14 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.

5.15 Shareholder Review

     At or prior to the first annual meeting of shareholders of the Corporation
following the third anniversary of the date of this Agreement, provided that a
Flip-in Event has not occurred prior to such time, the Board of Directors shall
submit a resolution ratifying the continued existence of this Agreement to the
Independent Shareholders for their consideration and, if thought advisable,
approval. Unless a majority of the votes cast by Independent Shareholders who
vote in respect of such resolution are voted in favour of the continued
existence of this Agreement, the Board of Directors shall, immediately upon the
confirmation by the chairman of such shareholders' meeting of the result of the
vote on such resolution and without further formality, be deemed to have elected
to redeem the Rights at the Redemption Price.

5.16 Determination and Actions by the Board of Directors

     All actions, calculations, interpretations and determinations (including
all omissions with respect to the foregoing) which are done or made by the Board
of Directors, in good faith, (x) may be relied on by the Rights Agent, and (y)
shall not subject the Board of Directors to any liability to the holders of the
Rights or to any other parties.

5.17 Governing Law

     This Agreement and the Rights issued hereunder shall be deemed to be a
contract made under the laws of the Province of Ontario and for all purposes
will be governed by and construed in accordance with
<PAGE>

                                      -35-

the laws of such province applicable to contracts to be made and performed
entirely within such province.

5.18 Language

     Les parties aux presentes ont exige que la presente convention ainsi que
tous les documents et avis qui s'y rattachent et ou qui en coulent soient
rediges en langue anglaise. The parties hereto have required that this Agreement
and all documents and notices related thereto and or resulting therefrom be
drawn up in English.

5.19 Counterparts

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

5.20 Severability

     If any term or provision hereof or the application thereof to any
circumstance is, in any jurisdiction and to any extent, invalid or
unenforceable, such term or provision will be ineffective only 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.

5.21 Effective Date

     This Agreement is effective as of the Effective Date. If the Rights Plan is
not confirmed by resolution passed by a majority of the votes cast by
Independent Shareholders who vote in respect of such Rights Plan at a meeting to
be held not later than August 11, 1999 then this Agreement and any outstanding
Rights shall be of no further force and effect from the earlier of (a) the date
of the meeting, and (b) August 11, 1999.
<PAGE>

                                      -36-

5.22 Time of the Essence

     Time shall be of the essence hereof.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
     duly amended and restated effective March 31, 1999.

                         COREL CORPORATION

                         By: /s/ Michael C.J. Cowpland
                            ---------------------------------------

                         By: /s/ Michael O'Reilly
                            ---------------------------------------

                         MONTREAL TRUST COMPANY OF CANADA

                         By: /s/ Dan Dishy
                            ---------------------------------------

                         By: /s/ Christine Lawton
                            ---------------------------------------
<PAGE>

                                      -37-

                                   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 RIGHTS PLAN AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3. I (b) OF SUCH AGREEMENT), RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON, CERTAIN RELATED PARTIES OF AN
ACQUIRING PERSON OR A TRANSFEREE OF AN ACQUIRING PERSON OR ANY SUCH RELATED
PARTIES WILL BECOME VOID WITHOUT FURTHER ACTION.

Rights Certificate

This certifies that _______________________ 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
Rights Plan Agreement made as of February 11, 1999 (the "Rights Agreement")
between Corel Corporation, a corporation existing under the laws of Ontario (the
"Corporation") and Montreal Trust Company of Canada, 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, together with the Form of Election to Exercise appropriately
completed and duly executed, to the Rights Agent at its principal office in
Toronto. Until adjustment thereof in certain events as provided in the Rights
Agreement, the Exercise Price shall be $100.00 per Right (payable by certified
cheque, bankers draft or money order payable to the order of the Rights Agent).
The number of Common Shares which may be purchased for the Exercise Price is
subject to adjustment as set forth 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 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 holder of the Rights Certificates. Copies
of the Rights Agreement are on file at the registered office of the Corporation
and are available upon written request.

This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office of the Rights Agent in Toronto, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
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 redeemed by the Corporation at a redemption price of $0.0001
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.
<PAGE>

                                      -38-

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 any 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 for any purpose until it shall have
been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Corporation.

Date: ____________________

                         COREL CORPORATION

                         Per: ________________________________

                         Per: _________________________________

                         Countersigned:

                         MONTREAL TRUST COMPANY OF CANADA,
                         in the City of Toronto

                         Per: _________________________________
<PAGE>

                                      -39-

                         FORM OF ELECTION TO EXERCISE

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

__________________________________
Name

__________________________________
Address

__________________________________
City and Province

__________________________________
Social Insurance No. or other taxpayer identification number

If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:

_________________________________
Name

_________________________________
Address

_________________________________
City and Province

_________________________________
Social Insurance No. or other taxpayer identification number

Date:___________________    _______________________________
                            Signature
Signature Guaranteed
                            (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 must be guaranteed by a Canadian chartered bank or trust company, a
member of a recognized stock exchange in Canada or a member of the Securities
Transfer Association Medallion (Stamp) Program.

                    (To be completed by the holder if true)

The undersigned hereby represents, for the benefit of the Corporation and 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 by an Affiliate or Associate of an
Acquiring Person, any other Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate
<PAGE>

                                      -40-

of any such other Person (as such terms are defined in the Rights Agreement).

                                        _____________________________
                                        Signature

                                    NOTICE

In the event that the certifications set forth above in the Form of Election to
Exercise are not completed, the Corporation shall deem the Beneficial Owner of
the Rights represented by this Rights Certificate to be an Acquiring Person (as
defined in the Rights Agreement) and, accordingly, such Rights shall be null and
void.
<PAGE>

                                      -41-

                              FORM OF ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

_______________________________________________________________________
(Please print name and address of transferee)
the Rights represented by this Rights Certificate, together with all right,
title and interest therein.

Date: ______________________   ____________________________________
                               Signature

____________________________

(Signature Guaranteed)         (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 must be guaranteed by a Canadian chartered bank or trust company, a
member of a recognized stock exchange in Canada or a member of the Securities
Transfer Association Medallion (Stamp) Program.

                   (To be completed by the assignor if true)

The undersigned hereby represents, for the benefit of the Corporation and 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 by an Affiliate or Associate of an
Acquiring Person, any other Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of any such other Person (as such
terms are deemed in the Rights Agreement).

                                             ___________________________________
                                             Signature

                                             ___________________________________
                                             (Please print name below signature)

                                    NOTICE

In the event that the certifications set forth above in the Form of Assignment
are not completed, the Corporation shall deem the Beneficial Owner of the Rights
represented by this Rights Certificate to be an Acquiring Person (as defined in
the Rights Agreement) and, accordingly, such Rights shall to be null and void.<PAGE>

                                                                  EXHIBIT 10.2

                                   TVIA, INC.

                              Amended and Restated

                           2000 STOCK INCENTIVE PLAN

                    (Adopted by the Board on March 20, 2000)
<PAGE>

                               TABLE OF CONTENTS
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<S>            <C>                                                          <C>
SECTION 1.     ESTABLISHMENT AND PURPOSE..................................   1

SECTION 2.     DEFINITIONS................................................   1
 (a)           "Affiliate"................................................   1
 (b)           "Award"....................................................   1
 (c)           "Board of Directors".......................................   1
 (d)           "Change in Control"........................................   1
 (e)           "Code".....................................................   2
 (f)           "Committee"................................................   2
 (g)           "Company"..................................................   2
 (h)           "Consultant"...............................................   2
 (i)           "Employee".................................................   3
 (j)           "Exchange Act".............................................   3
 (k)           "Exercise Price"...........................................   3
 (l)           "Fair Market Value"........................................   3
 (m)           "ISO"......................................................   3
 (n)           "Nonstatutory Option" or "NSO".............................   3
 (o)           "Offeree"..................................................   3
 (p)           "Option"...................................................   3
 (q)           "Optionee".................................................   4
 (r)           "Outside Director".........................................   4
 (s)           "Parent"...................................................   4
 (t)           "Participant"..............................................   4
 (u)           "Plan".....................................................   4
 (v)           "Purchase Price"...........................................   4
 (w)           "Restricted Share".........................................   4
 (x)           "Restricted Share Agreement "..............................   4
 (y)           "SAR"......................................................   4
 (z)           "SAR Agreement"............................................   4
 (aa)          "Service"..................................................   4
 (bb)          "Share"....................................................   4
 (cc)          "Stock"....................................................   4
 (dd)          "Stock Option Agreement"...................................   4
 (ee)          "Stock Purchase Agreement".................................   4
 (ff)          "Stock Unit"...............................................   4
 (gg)          "Stock Unit Agreement".....................................   5
 (hh)          "Subsidiary"...............................................   5
 (ii)          "Total and Permanent Disability"...........................   5

SECTION 3.     ADMINISTRATION.............................................   5
 (a)           Committee Composition......................................   5
 (b)           Committee Procedures.......................................   5

                                     - i -
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 (c)           Committee Responsibilities.................................   5

SECTION 4.     ELIGIBILITY................................................   7
 (a)           General Rule...............................................   7
 (b)           Outside Directors..........................................   7
 (c)           Limitation On Grants.......................................   9
 (d)           Ten-Percent Stockholders...................................   9
 (e)           Attribution Rules..........................................   9
 (f)           Outstanding Stock..........................................   9

SECTION 5.     STOCK SUBJECT TO PLAN......................................   9
 (a)           Basic Limitation...........................................   9
 (b)           Annual Increase in Shares..................................   9
 (c)           Additional Shares..........................................  10
 (d)           Dividend Equivalents.......................................  10

SECTION 6.     RESTRICTED SHARES..........................................  10
 (a)           Restricted Stock Agreement.................................  10
 (b)           Payment for Awards.........................................  10
 (c)           Vesting....................................................  10
 (d)           Voting and Dividend Rights.................................  11

SECTION 7.     OTHER TERMS AND CONDITIONS OF AWARDS OR SALES..............  11
 (a)           Duration of Offers and Nontransferability of Rights........  11
 (b)           Purchase Price.............................................  11
 (c)           Withholding Taxes..........................................  11
 (d)           Restrictions on Transfer of Shares.........................  11

SECTION 8.     TERMS AND CONDITIONS OF OPTIONS............................  11
 (a)           Stock Option Agreement.....................................  11
 (b)           Number of Shares...........................................  11
 (c)           Exercise Price.............................................  12
 (d)           Withholding Taxes..........................................  12
 (e)           Exercisability and Term....................................  12
 (f)           Nontransferability.........................................  12
 (g)           Exercise of Options Upon Termination of Service............  12
 (h)           Effect of Change in Control................................  12
 (i)           Leaves of Absence..........................................  13
 (j)           No Rights as a Stockholder.................................  13
 (k)           Modification, Extension and Renewal of Options.............  13
 (l)           Restrictions on Transfer of Shares.........................  13
 (m)           Buyout Provisions..........................................  13

SECTION 9.     PAYMENT FOR SHARES.........................................  14
 (a)           General Rule...............................................  14
 (b)           Surrender of Stock.........................................  14
 (c)           Services Rendered..........................................  14

                                     - ii -
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 (d)           Cashless Exercise..........................................  14
 (e)           Exercise/Pledge............................................  14
 (f)           Promissory Note............................................  14
 (g)           Other Forms of Payment.....................................  14

SECTION 10.    STOCK APPRECIATION RIGHTS..................................  14
 (a)           SAR Agreement..............................................  14
 (b)           Number of Shares...........................................  15
 (c)           Exercise Price.............................................  15
 (d)           Exercisability and Term....................................  15
 (e)           Effect of Change in Control................................  15
 (f)           Exercise of SARs...........................................  15
 (g)           Special Holding Period.....................................  15
 (h)           Special Exercise Window....................................  16
 (i)           Modification or Assumption of SARs.........................  16

SECTION 11.    STOCK UNITS................................................  16
 (a)           Stock Unit Agreement.......................................  16
 (b)           Payment for Awards.........................................  16
 (c)           Vesting Conditions.........................................  16
 (d)           Voting and Dividend Rights.................................  16
 (e)           Form and Time of Settlement of Stock Units.................  17
 (f)           Death of Recipient.........................................  17
 (g)           Creditors' Rights..........................................  17

SECTION 12.    ADJUSTMENT OF SHARES.......................................  17
 (a)           Adjustments................................................  17
 (b)           Dissolution or Liquidation.................................  18
 (c)           Reorganizations............................................  18
 (d)           Reservation of Rights......................................  18

SECTION 13.    DEFERRAL OF AWARDS.........................................  18

SECTION 14.    AWARDS UNDER OTHER PLANS...................................  19

SECTION 15.    PAYMENT OF DIRECTOR'S FEES IN SECURITIES...................  19
 (a)           Effective Date.............................................  19
 (b)           Elections to Receive NSOs, Restricted Shares or Stock Units  19
 (c)           Number and Terms of NSOs, Restricted Shares or Stock Units.  19

SECTION 16.    LEGAL AND REGULATORY REQUIREMENTS..........................  20

SECTION 17.    WITHHOLDING TAXES..........................................  20
 (a)           General....................................................  20
 (b)           Share Withholding..........................................  20

SECTION 18.    LIMITATION ON PARACHUTE PAYMENTS...........................  20
 (a)           Scope of Limitation........................................  20

                                    - iii -
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 (b)           Basic Rule.................................................  20
 (c)           Reduction of Payments......................................  20
 (d)           Overpayments and Underpayments.............................  21
 (e)           Related Corporations.......................................  21

SECTION 19.    NO EMPLOYMENT RIGHTS.......................................  21

SECTION 20.    DURATION AND AMENDMENTS....................................  22
 (a)           Term of the Plan...........................................  22
 (b)           Right to Amend or Terminate the Plan.......................  22
 (c)           Effect of Amendment or Termination.........................  22

SECTION 21.    EXECUTION..................................................  22
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                                     - iv -
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                                   TVIA, INC.

                              AMENDED AND RESTATED

                           2000 STOCK INCENTIVE PLAN

SECTION 1.  ESTABLISHMENT AND PURPOSE.

     The Plan was adopted by the Board of Directors effective March 20, 2000 and
most recently amended on July 11, 2000.  The purpose of the Plan is to promote
the long-term success of the Company and the creation of stockholder value by
(a) encouraging Employees, Outside Directors and Consultants to focus on
critical long-range objectives, (b) encouraging the attraction and retention of
Employees, Outside Directors and Consultants with exceptional qualifications and
(c) linking Employees, Outside Directors and Consultants directly to stockholder
interests through increased stock ownership.  The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Stock Units,
Options (which may constitute incentive stock options or nonstatutory stock
options) or stock appreciation rights.

SECTION 2.  DEFINITIONS.

     (a) "Affiliate" shall mean any entity other than a Subsidiary, if the
Company and/or one of more Subsidiaries own not less than 50% of such entity.

     (b) "Award" shall mean any award of an Option, a SAR, a Restricted Share
or a Stock Unit under the Plan.

     (c) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.

     (d) "Change in Control" shall mean the occurrence of any of the following
events:

         (i) A change in the composition of the Board of Directors occurs, as
     a result of which fewer than two-thirds of the incumbent directors are
     directors who either:

             (A) Had been directors of the Company on the "look-back date" (as
         defined below) (the "original directors"); or

             (B) Were elected, or nominated for election, to the Board of
         Directors with the affirmative votes of at least a majority of the
         aggregate of the original directors who were still in office at the
         time of the election or nomination and the directors whose election
         or nomination was previously so approved (the "continuing
         directors"); or

         (ii) Any "person" (as defined below) who by the acquisition or
     aggregation of securities, is or becomes the "beneficial owner" (as
     defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
     securities of the Company representing 50% or

                                     - 1 -
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     more of the combined voting power of the Company's then outstanding
     securities ordinarily (and apart from rights accruing under special
     circumstances) having the right to vote at elections of directors (the
     "Base Capital Stock"); except that any change in the relative beneficial
     ownership of the Company's securities by any person resulting solely from
     a reduction in the aggregate number of outstanding shares of Base Capital
     Stock, and any decrease thereafter in such person's ownership of
     securities, shall be disregarded until such person increases in any
     manner, directly or indirectly, such person's beneficial ownership of any
     securities of the Company;

         (iii) The consummation of a merger or consolidation of the
     Corporation with or into another entity or any other corporate
     reorganization, if persons who were not stockholders of the Company
     immediately prior to such merger, consolidation or other reorganization
     own immediately after such merger, consolidation or other reorganization
     50% or more of the voting power of the outstanding securities of each of
     (A) the continuing or surviving entity and (B) any direct or indirect
     parent corporation of such continuing or surviving entity; or

         (iv) The sale, transfer or other disposition of all or substantially
     all of the Company's assets.

     For purposes of subsection (d)(i) above, the term "look-back" date shall
mean the later of (1) March 20, 2000 or (2) the date 24 months prior to the
date of the event that may constitute a Change in Control.

     For purposes of subsections (d)(ii) above, the term "person" shall have the
same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but
shall exclude (1) a trustee or other fiduciary holding securities under an
employee benefit plan maintained by the Company or a Parent or Subsidiary and
(2) a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of the Stock.

     Any other provision of this Section 2(d) notwithstanding, a transaction
shall not constitute a Change in Control if its sole purpose is to change the
state of the Company's incorporation or to create a holding company that will
be owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction.

     (e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

     (f) "Committee" shall mean the committee designated by the Board of
Directors, which is authorized to administer the Plan, as described in Section
3 hereof.

     (g) "Company" shall mean Tvia, Inc., a Delaware corporation.

     (h) "Consultant" shall mean a consultant or advisor who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor or a member of the board of directors of a Parent or a
Subsidiary who is not an Employee. Service as a Consultant shall be considered
Service for all purposes of the Plan.

                                     - 2 -
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     (i) "Employee" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.

     (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

     (k) "Exercise Price" shall mean, in the case of an Option, the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of a SAR, shall mean an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one Common Share
in determining the amount payable upon exercise of such SAR.

     (l) "Fair Market Value" with respect to a Share, shall mean the market
price of one Share of Stock, determined by the Committee as follows:

         (i) If the Stock was traded over-the-counter on the date in question
     but was not traded on The Nasdaq Stock Market, then the Fair Market Value
     shall be equal to the last transaction price quoted for such date by the
     OTC Bulletin Board or, if not so quoted, shall be equal to the mean
     between the last reported representative bid and asked prices quoted for
     such date by the principal automated inter-dealer quotation system on
     which the Stock is quoted or, if the Stock is not quoted on any such
     system, by the "Pink Sheets" published by the National Quotation Bureau,
     Inc.;

         (ii) If the Stock was traded on The Nasdaq Stock Market, then the
     Fair Market Value shall be equal to the last reported sale price quoted
     for such date by The Nasdaq Stock Market;

         (iii) If the Stock was traded on a United States stock exchange on
     the date in question, then the Fair Market Value shall be equal to the
     closing price reported for such date by the applicable composite-
     transactions report; and

         (iv) If none of the foregoing provisions is applicable, then the Fair
     Market Value shall be determined by the Committee in good faith on such
     basis as it deems appropriate.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

     (m) "ISO" shall mean an employee incentive stock option described in
Section 422 of the Code.

     (n) "Nonstatutory Option" or "NSO" shall mean an employee stock option
that is not an ISO.

     (o) "Offeree" shall mean an individual to whom the Committee has offered
the right to acquire Shares under the Plan (other than upon exercise of an
Option).

     (p) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.

                                     - 3 -
<PAGE>

     (q) "Optionee" shall mean an individual or estate who holds an Option or
SAR.

     (r) "Outside Director" shall mean a member of the Board of Directors who
is not a common-law employee of the Company, a Parent or a Subsidiary. Service
as an Outside Director shall be considered Service for all purposes of the
Plan, except as provided in the second sentence of Section 4(a).

     (s) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be a Parent commencing as of
such date.

     (t) "Participant" shall mean an individual or estate who holds an Award.

     (u) "Plan" shall mean this 2000 Stock Incentive Plan of Tvia, Inc., as
amended from time to time.

     (v) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as
specified by the Committee.

     (w) "Restricted Share" shall mean a Share awarded under the Plan.

     (x) "Restricted Share Agreement " shall mean the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Shares.

     (y) "SAR" shall mean a stock appreciation right granted under the Plan.

     (z) "SAR Agreement" shall mean the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.

     (aa) "Service" shall mean service as an Employee, Consultant or Outside
Director.

     (bb) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 9 (if applicable).

     (cc) "Stock" shall mean the Common Stock of the Company.

     (dd) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his Option.

     (ee) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such
Shares.

     (ff) "Stock Unit" shall mean a bookkeeping entry representing the
equivalent of one Share, as awarded under the Plan.

                                     - 4 -
<PAGE>

     (gg) "Stock Unit Agreement" shall mean the agreement between the Company
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock
Unit.

     (hh) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation. A corporation
that attains the status of a Subsidiary on a date after the adoption of the
Plan shall be considered a Subsidiary commencing as of such date.

     (ii) "Total and Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted, or can be expected to last, for a
continuous period of not less than 12 months.

SECTION 3.  ADMINISTRATION.

     (a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist of two or more directors of the
Company, who shall be appointed by the Board. In addition, the composition of
the Committee shall satisfy

         (i) such requirements as the Securities and Exchange Commission may
     establish for administrators acting under plans intended to qualify for
     exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

         (ii) such requirements as the Internal Revenue Service may establish
     for outside directors acting under plans intended to qualify for
     exemption under Section 162(m)(4)(C) of the Code.

     (b) Committee for Non-Officer Grants. The Board may also appoint one or
more separate committees of the Board, each composed of one or more directors
of the Company who need not satisfy the requirements of Section 3(a), who may
administer the Plan with respect to Employees who are not considered officers
or directors of the Company under Section 16 of the Exchange Act, may grant
Awards under the Plan to such Employees and may determine all terms of such
grants. Within the limitations of the preceding sentence, any reference in the
Plan to the Committee shall include such committee or committees appointed
pursuant to the preceding sentence.

     (c) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Committee members, shall be valid
acts of the Committee.

     (d) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:

         (i)  To interpret the Plan and to apply its provisions;

                                     - 5 -
<PAGE>

         (ii) To adopt, amend or rescind rules, procedures and forms relating
     to the Plan;

         (iii) To authorize any person to execute, on behalf of the Company,
     any instrument required to carry out the purposes of the Plan;

         (iv) To determine when Shares are to be awarded or offered for sale
     and when Options are to be granted under the Plan;

         (v) To select the Offerees and Optionees;

         (vi) To determine the number of Shares to be offered to each Offeree
     or to be made subject to each Option;

         (vii) To prescribe the terms and conditions of each award or sale of
     Shares, including (without limitation) the Purchase Price, the vesting of
     the award (including accelerating the vesting of awards) and to specify
     the provisions of the Stock Purchase Agreement relating to such award or
     sale;

         (viii) To prescribe the terms and conditions of each Option,
     including (without limitation) the Exercise Price, the vesting or
     duration of the Option (including accelerating the vesting of the
     Option), to determine whether such Option is to be classified as an ISO
     or as a Nonstatutory Option, and to specify the provisions of the Stock
     Option Agreement relating to such Option;

         (ix) To amend any outstanding Stock Purchase Agreement or Stock
     Option Agreement, subject to applicable legal restrictions and to the
     consent of the Offeree or Optionee who entered into such agreement;

         (x) To prescribe the consideration for the grant of each Option or
     other right under the Plan and to determine the sufficiency of such
     consideration;

         (xi) To determine the disposition of each Option or other right under
     the Plan in the event of an Optionee's or Offeree's divorce or
     dissolution of marriage;

         (xii) To determine whether Options or other rights under the Plan
     will be granted in replacement of other grants under an incentive or
     other compensation plan of an acquired business;

         (xiii) To correct any defect, supply any omission, or reconcile any
     inconsistency in the Plan, any Stock Option Agreement or any Stock
     Purchase Agreement; and

         (xiv) To take any other actions deemed necessary or advisable for the
     administration of the Plan.

Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its

                                     - 6 -
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authority with regard to the selection for participation of or the granting of
Options or other rights under the Plan to persons subject to Section 16 of the
Exchange Act. All decisions, interpretations and other actions of the
Committee shall be final and binding on all Offerees, all Optionees, and all
persons deriving their rights from an Offeree or Optionee. No member of the
Committee shall be liable for any action that he has taken or has failed to
take in good faith with respect to the Plan, any Option, or any right to
acquire Shares under the Plan.

SECTION 4.  ELIGIBILITY.

     (a) General Rule. Only Employees shall be eligible for the grant of ISOs.
Only Employees, Consultants and Outside Directors shall be eligible for the
grant of Restricted Shares, Stock Units, NSOs or SARs, and grants to Outside
Directors shall comply with the provisions of Section 4(b).

     (b) Outside Directors. Any other provision of the Plan notwithstanding,
the participation of Outside Directors in the Plan shall be subject to the
following restrictions:

         (i) Outside Directors shall only be eligible for the grant of
     Restricted Shares, Stock Units, Nonstatutory Options and SARs.

         (ii) Each Outside Director who first joins the Board of Directors
     after the date of adoption of the Plan shall receive a Nonstatutory
     Option, subject to approval of the Plan by the Company's stockholders, to
     purchase 25,000 Shares (subject to adjustment under Section 12) on the
     first business day after his or her election to the Board of Directors.

         (iii) On the first business day following the conclusion of each
     regular annual meeting of the Company's stockholders after such Outside
     Director's appointment or election to the Board of Directors, commencing
     with the annual meeting occurring after the adoption of the Plan, each
     Outside Director who will continue serving as a member of the Board of
     Directors thereafter shall receive an Option to purchase 7,500 Shares,
     subject to adjustment under Section 12. Each Outside Director who is not
     initially elected at a regular annual meeting of the Company's
     stockholders shall receive an Option to purchase a pro rata portion of
     25,000 Shares within ten business days of his or her election based on
     the number of full months remaining from date of election until the next
     regular annual meeting of the Company's stockholders divided by 12. Any
     fractional shares resulting from such calculation shall be rounded up to
     the nearest whole number.

         (iv) The Exercise Price of all Nonstatutory Options granted to an
     Outside Director under this Section 4(b) shall be equal to 100% of the
     Fair Market Value of a Share on the date of grant, payable in one of the
     forms described in Section 9(a), (b) and (d).

         (v) Each Option granted under Section 4(b)(ii) shall become
     exercisable in full on the first anniversary of the grant date. Except as
     set forth in the next succeeding sentence, each Option granted under
     Section 4(b)(iii) above shall become exercisable as to one-quarter of the
     Options on the first anniversary of the grant date and the remaining

                                     - 7 -
<PAGE>

     Options shall vest ratably over the next 48 months. Each Option granted
     to Outside Directors who were not initially elected at a regular annual
     meeting of the Company's stockholders shall become exercisable in full at
     the next regular annual meeting of the Company's stockholders following
     the date of grant. Notwithstanding the foregoing, each Option that has
     been outstanding for not less than six months shall become exercisable in
     full in the event that a Change in Control occurs with respect to the
     Company.

         (vi) Subject to Sections 4(b)(vii) and (viii), all Nonstatutory
     Options granted to an Outside Director under this Section 4(b) shall
     terminate on the tenth anniversary of the date of grant of such Options.

         (vii) If an Optionee's Service terminates for any reason other than
     death, then his or her Options shall expire on the earliest of the
     following occasions:

               (A)  The expiration date determined pursuant to Section 4(b)(vi)
         above;

               (B) The date 24 months after the termination of the Optionee's
         Service, if the termination occurs because of his or her Total and
         Permanent Disability; or

               (C) The date six months after the termination of the Optionee's
     Service for any reason other than Total and Permanent Disability.

The Optionee may exercise all or part of his or her Options at any time before
the expiration of such Options under the preceding sentence, but only to the
extent that such Options had become exercisable before his or her Service
terminated. The balance of such Options shall lapse when the Optionee's
Service terminates. In the event that the Optionee dies after the termination
of his or her Service but before the expiration of his or her Options, all or
part of such Options may be exercised at any time prior to their expiration by
the executors or administrators of the Optionee's estate or by any person who
has acquired such Options directly from him or her by bequest, inheritance or
beneficiary designation under the Plan, but only to the extent that such
Options had become exercisable before his or her Service terminated.

         (viii) If an Optionee dies while he or she is in Service, then his or
     her Options shall expire on the earlier of the following dates:

                (A)  The expiration date determined pursuant to Section
         4(b)(vi) above; or

                (B)  The date 24 months after his or her death.

All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of his or her estate or by any person who has acquired such
Options directly from him or her by bequest, inheritance or beneficiary
designation under the Plan.

                                     - 8 -
<PAGE>

         (ix) Except as otherwise provided by the Committee, no Option shall
     be transferable by the Optionee other than by will, by written
     beneficiary designation or by the laws of descent and distribution. An
     Option may be exercised during the lifetime of the Optionee only by the
     Optionee or by the Optionee's guardian or legal representative. No Option
     or interest therein may be transferred, assigned, pledged or hypothecated
     by the Optionee during his or her lifetime, whether by operation of law
     or otherwise, or be made subject to execution, attachment or similar
     process.

     (c) Limitation On Grants. No Employee or Consultant shall be granted
Options to purchase more than 333,333 Shares in any fiscal year of the
Company, except that Options granted to a new Employee or Consultant in the
fiscal year of the Company in which his or her Service first commences shall
not cover more than 416,666 Shares (in each case subject to adjustment in
accordance with Section 12).

     (d) Ten-Percent Stockholders. An Employee who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the
Company, a Parent or Subsidiary shall not be eligible for the grant of an ISO
unless such grant satisfies the requirements of Section 422(c)(6) of the Code.

     (e) Attribution Rules. For purposes of Section 4(d) above, in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly
or indirectly, by or for such Employee's brothers, sisters, spouse, ancestors
and lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries.

     (f) Outstanding Stock. For purposes of Section 4(d) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant. "Outstanding stock" shall not include shares authorized for
issuance under outstanding options held by the Employee or by any other
person.

SECTION 5.  STOCK SUBJECT TO PLAN.

     (a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares or treasury Shares. The maximum aggregate number of
Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed 2,333,333 Shares, plus the additional Shares described in Sections
(b) and (c), and any Shares available for future awards under the TVIA, Inc.
Amended and Restated 1999 Stock Incentive Plan (the "Prior Plan") as of the
effective date of this Plan and any Shares that are represented by awards
granted under the Prior Plan which are forfeited, expire or are canceled
without delivery of Shares or which result in the forfeiture of Shares back to
the Company, but in no event more than 10,000,000 Shares. The limitation of
this Section 5(a) shall be subject to adjustment pursuant to Section 12.

     (b) Annual Increase in Shares. As of January 1 of each year, commencing
with the year 2001, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (i) 73,000 shares, (ii) 3% of the
fully diluted outstanding shares of Stock of the Company on such date or (iii)
a lesser amount determined by the Board. The aggregate number of Shares that

                                     - 9 -
<PAGE>

may be issued under the Plan shall at all times be subject to adjustment
pursuant to Section 12. The number of Shares that are subject to Options or
other rights outstanding at any time under the Plan shall not exceed the
number of Shares which then remain available for issuance under the Plan. The
Company, during the term of the Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of the Plan.

     (c) Additional Shares. If Restricted Shares or Shares issued upon the
exercise of Options are forfeited, then such Shares shall again become
available for Awards under the Plan. If Stock Units, Options or SARs are
forfeited or terminate for any other reason before being exercised, then the
corresponding Shares shall again become available for Awards under the Plan.
If Stock Units are settled, then only the number of Shares (if any) actually
issued in settlement of such Stock Units shall reduce the number available
under Section 5(a) and the balance shall again become available for Awards
under the Plan. If SARs are exercised, then only the number of Shares (if any)
actually issued in settlement of such SARs shall reduce the number available
in Section 5(a) and the balance shall again become available for Awards under
the Plan. The foregoing notwithstanding, the aggregate number of Shares that
may be issued under the Plan upon the exercise of ISOs shall not be increased
when Restricted Shares or other Shares are forfeited.

     (d) Dividend Equivalents . Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.

SECTION 6.  RESTRICTED SHARES

     (a) Restricted Stock Agreement. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.

     (b) Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past services and future
services. To the extent that an Award consists of newly issued Restricted
Shares, the Award recipient shall furnish consideration with a value not less
than the par value of such Restricted Shares in the form of cash, cash
equivalents, or past services rendered to the Company (or a Parent or
Subsidiary), as the Committee may determine.

     (c) Vesting. Each Award of Restricted Shares may or may not be subject to
vesting. Vesting shall occur, in full or in installments, upon satisfaction of
the conditions specified in the Restricted Stock Agreement. A Restricted Stock
Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee
may determine, at the time of granting Restricted Shares of thereafter, that
all or part of such Restricted Shares shall become vested in the event that a
Change in Control occurs with respect to the Company.

                                     - 10 -
<PAGE>

     (d) Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted Shares
shall be subject to the same conditions and restrictions as the Award with
respect to which the dividends were paid.

SECTION 7.  OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.

     (a) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Offeree 30 days after the grant of such right
was communicated to him by the Committee. Such right shall not be transferable
and shall be exercisable only by the Offeree to whom such right was granted.

     (b) Purchase Price. The Purchase Price shall be determined by the
Committee at its sole discretion. The Purchase Price shall be payable in one
of the forms described in Sections 6(b).

     (c) Withholding Taxes. As a condition to the purchase of Shares, the
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that
may arise in connection with such purchase.

     (d) Restrictions on Transfer of Shares. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.

SECTION 8.  TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the
Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The Stock Option Agreement shall
specify whether the Option is an ISO or an NSO. The provisions of the various
Stock Option Agreements entered into under the Plan need not be identical.
Options may be granted in consideration of a reduction in the Optionee's other
compensation. A Stock Option Agreement may provide that a new Option will be
granted automatically to the Optionee when he or she exercises a prior Option
and pays the Exercise Price in a form described in Section 9(b).

     (b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 12. Options granted to an
Optionee in a single fiscal year of the Company shall not cover more than
333,333 Shares, except that Options granted to a new Employee or Consultant in
the fiscal year of the Company in which his or her Service first commences
shall not pertain to more than 416,666 Shares.

                                     - 11 -
<PAGE>

     (c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, except as otherwise
provided in Section 4(d) and the Exercise Price of an NSO shall not be less
than the par value of the Shares subject to such NSO. Subject to the foregoing
in this Section 8(c), the Exercise Price under any Option shall be determined
by the Committee at its sole discretion. The Exercise Price shall be payable
in one of the forms described in Section 9.

     (d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that
may arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with
the disposition of Shares acquired by exercising an Option.

     (e) Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option; provided
that the term of an ISO shall in no event exceed 10 years from the date of
grant (five years for Employees described in Section 4(d)). A Stock Option
Agreement may provide for accelerated exercisability in the event of the
Optionee's death, disability, or retirement or other events and may provide
for expiration prior to the end of its term in the event of the termination of
the Optionee's service. Options may be awarded in combination with SARs, and
such an Award may provide that the Options will not be exercisable unless the
related SARs are forfeited. Subject to the foregoing in this Section 8(e), the
Committee at its sole discretion shall determine when all or any installment
of an Option is to become exercisable and when an Option is to expire.

     (f) Nontransferability. Except as otherwise provided by the Committee,
during an Optionee's lifetime, his or her Option(s) shall be exercisable only
by the Optionee and shall not be transferable. In the event of an Optionee's
death, his or her Option(s) shall not be transferable other than by will or by
the laws of descent and distribution.

     (g) Exercise of Options Upon Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the
right to exercise the Option following termination of the Optionee's Service
with the Company and its Subsidiaries, and the right to exercise the Option of
any executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Such provisions shall be determined in the sole discretion of the Committee,
need not be uniform among all Options issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of Service.

     (h) Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company, subject to the
following limitations:

                                     - 12 -
<PAGE>

         (i) In the case of an ISO, the acceleration of exercisability shall
     not occur without the Optionee's written consent.

         (ii) If the Company and the other party to the transaction
     constituting a Change in Control agree that such transaction is to be
     treated as a "pooling of interests" for financial reporting purposes, and
     if such transaction in fact is so treated, then the acceleration of
     exercisability shall not occur to the extent that either the Company's
     independent accountants or such other party's independent accountants
     determine in good faith that such acceleration would preclude the use of
     "pooling of interests" accounting.

     (i) Leaves of Absence. An Employee's Service shall cease when such
Employee ceases to be actively employed by, or a consultant or adviser to, the
Company (or any subsidiary) as determined in the sole discretion of the Board
of Directors. For purposes of Options, Service does not terminate when an
Employee goes on a bona fide leave of absence, that was approved by the
Company in writing, if the terms of the leave provide for continued service
crediting, or when continued service crediting is required by applicable law.
However, for purposes of determining whether an Option is entitled to ISO
status, an Employee's Service will be treated as terminating 90 days after
such Employee went on leave, unless such Employee's right to return to active
work is guaranteed by law or by a contract. Service terminates in any event
when the approved leave ends, unless such Employee immediately returns to
active work. The Company determines which leaves count toward Service, and
when Service terminates for all purposes under the Plan.

     (j) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate
for such Shares. No adjustments shall be made, except as provided in Section
12.

     (k) Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
options or may accept the cancellation of outstanding options (to the extent
not previously exercised), whether or not granted hereunder, in return for the
grant of new Options for the same or a different number of Shares and at the
same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such Option.

     (l) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.

     (m) Buyout Provisions. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted,
in either case at such time and based upon such terms and conditions as the
Committee shall establish.

                                     - 13 -
<PAGE>

SECTION 9.  PAYMENT FOR SHARES.

     (a) General Rule. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Sections 9(b)
through 9(g) below.

     (b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by surrendering, or attesting to
the ownership of, Shares which have already been owned by the Optionee or his
representative for more than 12 months. Such Shares shall be valued at their
Fair Market Value on the date when the new Shares are purchased under the
Plan. The Optionee shall not surrender, or attest to the ownership of, Shares
in payment of the Exercise Price if such action would cause the Company to
recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.

     (c) Services Rendered. At the discretion of the Committee, Shares may be
awarded under the Plan in consideration of services rendered to the Company or
a Subsidiary prior to the award. If Shares are awarded without the payment of
a Purchase Price in cash, the Committee shall make a determination (at the
time of the award) of the value of the services rendered by the Offeree and
the sufficiency of the consideration to meet the requirements of Section 6(c).

     (d) Cashless Exercise. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in
payment of the aggregate Exercise Price.

     (e) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker or lender
to pledge Shares, as security for a loan, and to deliver all or part of the
loan proceeds to the Company in payment of the aggregate Exercise Price.

     (f) Promissory Note. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivering (on a form
prescribed by the Company) a full-recourse promissory note. However, the par
value of the Common Shares being purchased under the Plan, if newly issued,
shall be paid in cash or cash equivalents.

     (g) Other Forms of Payment. To the extent that a Stock Option Agreement
so provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.

SECTION 10.  STOCK APPRECIATION RIGHTS.

     (a) SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
by a SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.

                                     - 14 -
<PAGE>

     (b) Number of Shares. Each SAR Agreement shall specify the number of
Shares to which the SAR pertains and shall provide for the adjustment of such
number in accordance with Section 12. SARs granted to any Optionee in a single
calendar year shall in no event pertain to more than 333,333 Shares, except
that SARs granted to a new Employee or Consultant in the fiscal year of the
Company in which his or her Service first commences shall not pertain to more
than 416,666 Shares. The limitations set forth in the preceding sentence shall
be subject to adjustment in accordance with Section 12.

     (c) Exercise Price. Each SAR Agreement shall specify the Exercise Price.
A SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.

     (d) Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee's
service. SARs may be awarded in combination with Options, and such an Award
may provide that the SARs will not be exercisable unless the related Options
are forfeited. A SAR may be included in an ISO only at the time of grant but
may be included in an NSO at the time of grant or thereafter. A SAR granted
under the Plan may provide that it will be exercisable only in the event of a
Change in Control.

     (e) Effect of Change in Control. The Committee may determine, at the time
of granting a SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that a Change in
Control occurs with respect to the Company, subject to the following sentence.
If the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact
is so treated, then the acceleration of exercisability shall not occur to the
extent that either the Company's independent accountants or such other party's
independent accountants determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.

     (f) Exercise of SARs. If, on the date when a SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but any
portion of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of a SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a)
Shares, (b) cash or (c) a combination of Shares and cash, as the Committee
shall determine. The amount of cash and/or the Fair Market Value of Shares
received upon exercise of SARs shall, in the aggregate, be equal to the amount
by which the Fair Market Value (on the date of surrender) of the Shares
subject to the SARs exceeds the Exercise Price.

     (g) Special Holding Period. To the extent required by Section 16 of the
Exchange Act or any rule thereunder, an SAR shall not be exercised for cash
unless both it and the related Option have been outstanding for more than six
months.

                                     - 15 -
<PAGE>

     (h) Special Exercise Window. To the extent required by Section 16 of the
Exchange Act or any rule thereunder, an SAR may only be exercised for cash
during a period which (a) begins on the third business day following a date
when the Company's quarterly summary statement of sales and earnings is
released to the public and (b) ends on the second business day following such
date. This Section 10(h) shall not apply if the exercise occurs automatically
on the date when the related Option expires, and the Committee may determine
that it shall not apply to limited SARs that are exercisable only in the event
of a Change in Control.

     (i) Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of a SAR shall, without the consent
of the Optionee, may alter or impair his or her rights or obligations under
such SAR.

SECTION 11.  STOCK UNITS.

     (a) Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may
be subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.

     (b) Payment for Awards. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.

     (c) Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee
may determine, at the time of granting Stock Units or thereafter, that all or
part of such Stock Units shall become vested in the event that a Change in
Control occurs with respect to the Company, except as provided in the next
following sentence. If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated
as a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting shall not
occur to the extent that either the Company's independent accountants or such
other party's independent accountants determine in good faith that such
acceleration would preclude the use of "pooling of interests" accounting.

     (d) Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount
equal to all cash dividends paid on one Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be

                                     - 16 -
<PAGE>

subject to the same conditions and restrictions (including without limitation,
any forfeiture conditions) as the Stock Units to which they attach.

     (e) Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Shares or (c) any
combination of both, as determined by the Committee. The actual number of
Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed,
or it may be deferred to any later date. The amount of a deferred distribution
may be increased by an interest factor or by dividend equivalents. Until an
Award of Stock Units is settled, the number of such Stock Units shall be
subject to adjustment pursuant to Section 12.

     (f) Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's
death. If no beneficiary was designated or if no designated beneficiary
survives the Award recipient, then any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's estate.

     (g) Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.

SECTION 12.  ADJUSTMENT OF SHARES.

     (a) Adjustments. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares, a declaration of a dividend
payable in a form other than Shares in an amount that has a material effect on
the price of Shares, a combination or consolidation of the outstanding Stock
(by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or
more of:

         (i) The number of Options, SARs, Restricted Shares and Stock Units
     available for future Awards under Section 5;

         (ii) The limitations set forth in Sections 4(c), 8(b) and 10(b);

         (iii)  The number of NSOs to be granted to Outside Directors under
     Section 4(b);

         (iv) The number of Shares covered by each outstanding Option and SAR;

         (v)  The Exercise Price under each outstanding Option and SAR; or

                                     - 17 -
<PAGE>

         (vi) The number of Stock Units included in any prior Award which has
     not yet been settled.

Except as provided in this Section 12, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

     (b) Dissolution or Liquidation. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Company.

     (c) Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Awards shall be subject to the agreement
of merger or reorganization. Such agreement shall provide for:

         (i) The continuation of the outstanding Awards by the Company, if the
     Company is a surviving corporation;

         (ii) The assumption of the outstanding Awards by the surviving
     corporation or its parent or subsidiary;

         (iii) The substitution by the surviving corporation or its parent or
     subsidiary of its own awards for the outstanding Awards;

         (iv) Full exercisability or vesting and accelerated expiration of the
     outstanding Awards; or

         (v) Settlement of the full value of the outstanding Awards in cash or
     cash equivalents followed by cancellation of such Awards.

     (d) Reservation of Rights. Except as provided in this Section 12, an
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.

SECTION 13.  DEFERRAL OF AWARDS.

     The Committee (in its sole discretion) may permit or require a Participant
to:

                                     - 18 -
<PAGE>

     a) Have cash that otherwise would be paid to such Participant as a result
         of the exercise of a SAR or the settlement of Stock Units credited to
         a deferred compensation account established for such Participant by
         the Committee as an entry on the Company's books;

     b)  Have Shares that otherwise would be delivered to such Participant as
         a result of the exercise of an Option or SAR converted into an equal
         number of Stock Units; or

     c)  Have Shares that otherwise would be delivered to such Participant as a
         result of the exercise of an Option or SAR or the settlement of Stock
         Units converted into amounts credited to a deferred compensation
         account established for such Participant by the Committee as an entry
         on the Company's books. Such amounts shall be determined by reference
         to the Fair Market Value of such Shares as of the date when they
         otherwise would have been delivered to such Participant.

A deferred compensation account established under this Section 13 may be
credited with interest or other forms of investment return, as determined by the
Committee.  A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company.  Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company.  If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Section 13.

SECTION 14.  AWARDS UNDER OTHER PLANS.

     The Company may grant awards under other plans or programs.  Such awards
may be settled in the form of Shares issued under this Plan.  Such Shares shall
be treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Section 5.

SECTION 15.  PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

     (a) Effective Date. No provision of this Section 15 shall be effective
unless and until the Board has determined to implement such provision.

     (b) Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments
and/or meeting fees from the Company in the form of cash, NSOs, Restricted
Shares or Stock Units, or a combination thereof, as determined by the Board.
Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan.
An election under this Section 15 shall be filed with the Company on the
prescribed form.

     (c) Number and Terms of NSOs, Restricted Shares or Stock Units. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner

                                     - 19 -
<PAGE>

determined by the Board. The terms of such NSOs, Restricted Shares or Stock
Units shall also be determined by the Board.

SECTION 16.  LEGAL AND REGULATORY REQUIREMENTS.

     Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.

SECTION 17.  WITHHOLDING TAXES.

     (a) General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until
such obligations are satisfied.

     (b) Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued at their Fair Market Value on
the date when taxes otherwise would be withheld in cash.

SECTION 18.  LIMITATION ON PARACHUTE PAYMENTS.

     (a) Scope of Limitation. This Section 18 shall apply to an Award unless
the Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall not be subject to this
Section 18. If this Section 18 applies to an Award, it shall supersede any
contrary provision of the Plan or of any Award granted under the Plan.

     (b) Basic Rule. In the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer
by the Company under the Plan to or for the benefit of a Participant (a
"Payment") would be nondeductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
Section 280G of the Code, then the aggregate present value of all Payments
shall be reduced (but not below zero) to the Reduced Amount. For purposes of
this Section 18, the "Reduced Amount" shall be the amount, expressed as a
present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
Section 280G of the Code.

     (c) Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of Section 280G of the Code,
then the Company shall promptly give the Participant notice to that effect and
a copy of the detailed calculation thereof

                                     - 20 -
<PAGE>

and of the Reduced Amount, and the Participant may then elect, in his or her
sole discretion, which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall advise the Company in writing of
his or her election within 10 days of receipt of notice. If no such election
is made by the Participant within such 10-day period, then the Company may
elect which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments equals
the Reduced Amount) and shall notify the Participant promptly of such
election. For purposes of this Section 18, present value shall be determined
in accordance with Section 280G(d)(4) of the Code. All determinations made by
the Auditors under this Section 18 shall be binding upon the Company and the
Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or transfer
to or for the benefit of the Participant such amounts as are then due to him
or her under the Plan and shall promptly pay or transfer to or for the benefit
of the Participant in the future such amounts as become due to him or her
under the Plan.

     (d) Overpayments and Underpayments. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will
have been made by the Company that should not have been made (an
"Overpayment") or that additional Payments that will not have been made by the
Company could have been made (an "Underpayment"), consistent in each case with
the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or the Participant that the Auditors believe has a
high probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Participant
which he or she shall repay to the Company, together with interest at the
applicable federal rate provided in Section 7872(f)(2) of the Code; provided,
however, that no amount shall be payable by the Participant to the Company if
and to the extent that such payment would not reduce the amount subject to
taxation under Section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly
be paid or transferred by the Company to or for the benefit of the
Participant, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code.

     (e) Related Corporations. For purposes of this Section 18, the term
"Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d)(5) of the Code.

SECTION 19.  NO EMPLOYMENT RIGHTS.

     No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee.  The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason, with or without
notice.

                                     - 21 -
<PAGE>

SECTION 20.  DURATION AND AMENDMENTS.

     (a) Term of the Plan. The amended and restated Plan, as set forth herein,
shall terminate automatically on March 20, 2010 and may be terminated on any
earlier date pursuant to Subsection (b) below.

     (b) Right to Amend or Terminate the Plan. The Board of Directors may
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted before amendment of the Plan shall not be materially
impaired by such amendment, except with consent of the person to whom the
Option was granted. An amendment of the Plan shall be subject to the approval
of the Company's stockholders only to the extent required by applicable laws,
regulations or rules.

     (c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.

SECTION 21.  EXECUTION.

     To record the adoption of the amended and restated Plan by the Board of
Directors effective as of July 11, 2000, the Company has caused its authorized
officer to execute the same.

                                    TVIA, INC.

                                    By
                                      ---------------------------------------
                                                   Michael Hoberg
                                                   Secretary

                                     - 22 -

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