Document:

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                                                                     Exhibit 4.2

                        KINGSWAY FINANCIAL SERVICES INC.

                                     - and -

                        MONTREAL TRUST COMPANY OF CANADA

                        SHAREHOLDER RIGHTS PLAN AGREEMENT

                                Fogler, Rubinoff
                             Barristers & Solicitors
                          Suite 4400, Royal Trust Tower
                             Toronto-Dominion Centre
                            Toronto, Ontario M5K 1G8

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                                      INDEX
<TABLE>
<S>                                                                                           <C>
ARTICLE 1.
INTERPRETATION.................................................................................2
   1.1.    Certain Definitions.................................................................2
   1.2.    Currency...........................................................................11
   1.3.    Descriptive Headings...............................................................12
   1.4.    References to Agreement............................................................12
   1.5.    Grandfather Provision..............................................................12
   1.6.    Calculation of Number and Percentage of Beneficial Ownership of Outstanding
              Voting Shares...................................................................12
   1.7.    Acting Jointly or in Concert.......................................................13

ARTICLE 2.
THE RIGHTS....................................................................................13
   2.1.    Legend on Certificates.............................................................13
   2.2.    Execution, Authentication, Delivery and Dating of Rights Certificates..............13
   2.3.    Mutilated, Destroyed, Lost and Stolen Rights Certificates..........................14
   2.4.    Persons Deemed Owners of Rights....................................................15
   2.5.    Delivery and Cancellation of Certificates..........................................15
   2.6.    Agreement of Rights Holders........................................................15
   2.7.    Rights Certificate Holder Not Deemed a Shareholder.................................16

ARTICLE 3.
EXERCISE OF THE RIGHTS........................................................................16
   3.1.    Initial Exercise Price; Exercise of Rights; Detachment of Rights...................16
   3.2.    Adjustments to Exercise Prices; Number of Rights...................................19

ARTICLE 4.
ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS................................24
   4.1.    Flip-in Event......................................................................24

ARTICLE 5.
THE RIGHTS AGENT..............................................................................26
   5.1.    General............................................................................26
   5.2.    Merger or Amalgamation or Change of Name of Rights Agent...........................26
   5.3.    Duties of Rights Agent.............................................................27
   5.4.    Change of Rights Agent.............................................................29

ARTICLE 6.
MISCELLANEOUS.................................................................................29
   6.1.    Redemption and Waiver..............................................................29
   6.2.    Expiration.........................................................................31
   6.3.    Shareholder Review.................................................................31
   6.4.    Issuance of New Rights Certificate.................................................31
   6.5.    Fractional Rights and Fractional Shares............................................32
   6.6.    Supplements and Amendments.........................................................32
</TABLE>

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<TABLE>
<S>                                                                                           <C>
   6.7.    Rights of Action...................................................................33
   6.8.    Notice of Proposed Actions.........................................................34
   6.9.    Notices............................................................................34
   6.10.   Costs of Enforcement...............................................................35
   6.11.   Successors.........................................................................35
   6.12.   Benefits of this Agreement.........................................................35
   6.13.   Governing Law......................................................................36
   6.14.   Language...........................................................................36
   6.15.   Approvals..........................................................................36
   6.16.   Declaration as to Non-Canadian Holders.............................................36
   6.17.   Counterparts.......................................................................36
   6.18.   Severability.......................................................................36
   6.19.   Effective Date.....................................................................37
   6.20.   Successors.........................................................................37
   6.21.   Time of the Essence................................................................37
</TABLE>

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                        SHAREHOLDER RIGHTS PLAN AGREEMENT

MEMORANDUM OF AGREEMENT made as of the 15th day of March, 1999.

BETWEEN:

          KINGSWAY FINANCIAL SERVICES INC., a corporation existing under the
          laws of Ontario,

          (hereinafter called the "Corporation")

                                                               OF THE FIRST PART

          - and -

          MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under
          the laws of Canada, as Rights Agent

          (hereinafter called the "Rights Agent")

                                                              OF THE SECOND PART

     WHEREAS in order to maximize shareholder value and ensure equal treatment
of shareholders in transactions affecting control of the Corporation, the Board
of Directors of the Corporation has determined that it is advisable for the
Corporation to adopt a shareholder rights plan (the "Rights Plan");

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

1. Authorized the issuance of one right (a "Right") in respect of each Common
Share (as hereinafter defined) of the Corporation outstanding at the Close of
Business on March 15, 1999 (the "Record Time"), such distribution to be made to
Shareholders of record at the Record Time; and

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

     AND WHEREAS each Right entitles the holder thereof, after the Separation
Time, to purchase securities of the Corporation (or, in certain cases, of
certain other entities) pursuant to the terms and subject to the conditions set
forth herein;

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

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

                                   ARTICLE 1.
                                 INTERPRETATION

1.1. Certain Definitions

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

     (a) "Acquiring Person" means, subject to section 1.5, any Person who is 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 Subsidiary of the Corporation;

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

               (A)  an acquisition or redemption by the Corporation or a
                    Subsidiary of the Corporation of Voting Shares of the
                    Corporation that, by reducing the number of Voting Shares of
                    the Corporation outstanding, increases the percentage of
                    outstanding Voting Shares of the Corporation Beneficially
                    Owned by such Person to 20% or more;

               (B)  share acquisitions made pursuant to a Permitted Bid or a
                    Competing Permitted Bid ("Permitted Bid Acquisitions");

               (C)  share acquisitions in respect of which the Board of
                    Directors has waived the application of section 4.1 pursuant
                    to the provisions of subsection 6.1(f), (g) or (h) or that
                    were made on or prior to the date of this Agreement ("Exempt
                    Acquisitions"); or

               (D)  share acquisitions pursuant to Pro-Rata Acquisitions;

               provided, however, that if a Person shall become the Beneficial
               Owner of 20% or more of the Voting Shares of the Corporation then
               outstanding by reason of share acquisitions or redemptions by the
               Corporation or a Subsidiary of the Corporation, Permitted Bid
               Acquisitions, Exempt Acquisitions, Pro-Rata Acquisitions or
               Convertible Security Acquisition and, after such share
               acquisitions or redemptions by the Corporation or a Subsidiary of
               the Corporation or Permitted Bid Acquisitions, Exempt
               Acquisitions or Pro-Rata Acquisitions, such Person, while such
               Person is the Beneficial Owner of 20% of more of the Voting
               Shares of the Corporation then outstanding, becomes the
               Beneficial Owner of an additional 1% of outstanding Voting Shares
               of the Corporation other than

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               pursuant to such share acquisitions or redemptions or pursuant to
               Permitted Bid Acquisitions or through Exempt Acquisitions or as a
               result of a Pro-Rata Acquisition, then as of the date such Person
               becomes the Beneficial Owner of such additional outstanding
               Voting Shares, such Person shall be 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 of the
               Corporation as a result of such Person becoming disqualified from
               relying on clause 1.1(d)(iv) hereof where such disqualification
               results solely because such Person has made or proposes to make a
               Take-over Bid in respect of securities of the Corporation alone
               or by acting jointly or in concert with any other Person the
               first date of public announcement (which, for purposes of this
               definition, shall include, without limitation, a report filed
               pursuant to the Securities Act) by such Person or the Corporation
               of the intent of such Person to commence such a Take-over Bid
               being herein referred to as the "Disqualification Date"; and

          (iv) an underwriter or member of a banking or selling group that
               acquires Shares from the Corporation in connection with the
               distribution of securities.

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

     (c) "Associate" means any spouse of such specified Person or any person of
the same or opposite sex to whom such specified Person is married or with whom
such specified Person is living in a conjugal relationship outside marriage, or
any relative of such specified Person, such spouse or other person who has the
same home as such specified Person;

     (d) Subject to section 1.5, a Person shall be deemed the "Beneficial Owner"
of, and to have "Beneficial Ownership" of, and to "Beneficially Own":

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

          (ii) any securities as to which such Person or any of such Person's
               Affiliates or Associates has, directly or indirectly the right to
               acquire (whether such right is exercisable immediately or upon
               the occurrence of a contingency) within 60 days pursuant to any
               agreement, arrangement or understanding (other than customary
               agreements with and between underwriters and banking group or
               selling group members with respect to a distribution of
               securities and other than pledges of securities in the ordinary
               course of business) or upon the exercise of any conversion right,
               exchange right, share purchase right (other than a Right),
               warrant or option ; and

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          (iii) any securities that are Beneficially Owned, directly or
               indirectly, within the meaning of the foregoing provisions 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 (A) the holder of such security has agreed to deposit or
               tender such security to a Take-Over Bid made by such Person or
               any of such Person's Affiliates or Associates or to any other
               Person referred to in clause (iii) of this definition pursuant to
               a Permitted Lock-Up Agreement or (B) such security has been
               deposited or tendered pursuant to any Take-over Bid made by such
               Person or made by any of such Person's Affiliates or Associates
               or any other Person referred to in clause (iii) of this
               definition until such deposited security has been taken up or
               paid for, whichever shall occur first;

          (v)  because such Person holds such security; provided that:

               (A)  the ordinary business of such Person (the "Investment
                    Manager") is the management of investment funds for others
                    and such security is held by the Investment Manager in the
                    ordinary course of such business in the performance of such
                    Investment Managers duties for the managed account of any
                    other Person; or

               (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 or in relation to other accounts and
                    holds such security in the ordinary course of such duties
                    for the estate of any such deceased or incompetent Person
                    (each an "Estate Account") or such other accounts (each an
                    "Other Account"); or

               (C)  such Person is established by statute for purposes that
                    include, and the ordinary business or activity of such
                    Person (the "Statutory Body") includes, the management of
                    investment funds for employee benefit plans, pension plans,
                    insurance plans or various public bodies; or

               (D)  such Person (the "Administrator") is the administrator or
                    trustee of one or more pension funds or plans (a "Plan"), or
                    is 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; or

               (E)  such person is a Crown Agent or agency;

                                        4

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                    provided, in any of the above cases mentioned in clauses A,
                    B, C, D or E above, that the Investment Manager, the Trust
                    Company, the Statutory Body, the Administrator or the Plan,
                    or Crown Agency, as the case may be, is not then making a
                    Take-over Bid or has not then announced a current intention
                    to make a Take-over Bid, other than an Offer to Acquire
                    Voting Shares or other securities (x) by means of a
                    distribution by the Corporation or by means of ordinary
                    market transactions (including prearranged trades) executed
                    through the facilities of a stock exchange or organized
                    over-the-counter market, alone or by acting jointly or in
                    concert with any other Person, (y) pursuant to a
                    distribution by the Corporation or (z) by means of a
                    Permitted Bid;

               (vi) because such Person is a Client of the same Investment
                    Manager as another Person on whose account the Investment
                    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 Administrator as another Plan on whose account the
                    Administrator holds such securities; or

               (vii) because such Person is a Client of an Investment Manager
                    and such security is owned at law or in equity by the
                    Investment 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 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 depository.

               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.

     (e) "Board of Directors" means the board of directors of the Corporation,
or if duly constituted and whenever duly empowered, the executive committee of
the board of directors of the Corporation;

     (f) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in Toronto are authorized or obligated by law to
close;

     (g) "Close of Business" on any given date means the time of such date (or,
if such date is not a Business Day, the time on the next succeeding Business
Day) at which the offices of the transfer agent for the Common Shares in Toronto
(or, after the Separation Time, the offices of the Rights Agent in Toronto) are
closed to the public;

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     (h) "Common Shares", when used with reference to the Corporation, shall
mean the Common Shares in the capital of the Corporation;

     (i)  "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) 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 Take-over 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 60th day after the earliest date on
               which any other Permitted Bid that is then in existence was made.

     (j)  "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 board of directors of such body
               corporate;

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

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

     (l) "Convertible Security Acquisition" means the acquisition of Voting
Shares upon the exercise of a Convertible Security received by a Person pursuant
to a Permitted Bid Acquisition, an Exempt Acquisition or a Pro-Rata Acquisition.

     (m) "Exempt Acquisition" shall have the meaning ascribed thereto in
subclause 1.1(a)(ii)(C);

     (n) "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 such
Right. Until adjustment thereof in accordance with the terms hereof, the
Exercise price for each Right shall be $100;

     (o) "Expiration Time" shall mean the earlier of

          (i)  the Termination Time; and

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          (ii) subject to section 6.19, the Close of Business on the 5th
               anniversary of the date hereof;

     (p) "Flip-in Event" shall mean a transaction occurring subsequent to the
date of this Agreement as a result of or pursuant to which any Person shall
become an Acquiring Person, provided that a Flip-in Event shall be deemed to
occur at the Close of Business on the 10th day (or such earlier day as the Board
of Directors may determine) after the Share Acquisition Date;

     (q) "Independent Shareholders" means holders of Voting Shares of the
Corporation other than Voting Shares of the Corporation Beneficially Owned by:

          (i)  any Acquiring Person;

          (ii) any Offeror, other than a person described in subclause 1.1(d)(v)
               hereof;

          (iii) any Associate or Affiliate of any such Acquiring Person or and
               Offeror;

          (iv) any Person acting jointly or in concert with such Acquiring
               Person or Offeror; 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.

     (r) "Market Price" per share of any securities on any date of determination
shall mean the average of the daily closing prices per share of such securities
(determined as described below) on each of the 20 consecutive Trading Days
through and including the Trading Day immediately preceding such date; provided,
however, that if an event of a type analogous to any of the events described in
section 3.2 shall have caused the closing price in respect of any Trading Day
used to determine the Market Price not to be fully comparable with the closing
price on such date of determination or, if the date of determination is not a
Trading Day, on the immediately preceding Trading Day, each such closing price
so used shall be appropriately adjusted in a manner analogous to the applicable
adjustment provided for in section 3.2 in order to make it fully comparable with
the closing price on such date of determination or, if the date of determination
is not a Trading Day, on the immediately preceding Trading Day. The closing
price per share of any securities on any date shall be:

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

          (ii) if the securities are not listed and posted for trading on any
               stock exchange in Canada, the last sale price, regular way, or,
               in case no such sale takes place on such date, the average of the
               closing bid and asked prices, regular way, for each share of such
               securities as reported in the principal

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               consolidated transaction reporting system with respect to
               securities listed or admitted to trading on the principal
               national securities exchange in the United States on which such
               securities are listed or admitted to trading;

          (iii) if for any reason none of such prices is available on such day
               or the securities are not listed and posted for trading on a
               stock exchange in Canada or a national securities exchange in the
               United States, the last quoted price, or if not so quoted, the
               average of the high bid and low asked prices for each share of
               such securities in the over-the-counter market, as reported by
               the Canadian Dealer Network or such other comparable system as is
               then in use; or

          (iv) if on any such date the securities are not quoted by any such
               organization, the average of the closing bid and asked prices as
               furnished by a professional market maker making a market in the
               securities;

provided, however, that if on any such date the securities are not traded on any
exchange or in the over-the-counter market, the closing price per share of such
securities on such date shall mean the fair value per share of such securities
on such date determined by a recognized investment dealer or investment banker
with respect to the fair value per share of such securities.

     (s) "Permitted Bid" means a Take-over Bid that complies with the following
provisions:

          (i)  the Take-over Bid is made by way of a Take-over Bid circular
               delivered to all holders of Voting Shares of the Corporation or
               registered on the books of the Corporation;

          (ii) the Take-over Bid shall contain, and the take up and payment for
               securities tendered or deposited thereunder shall be subject to,
               an irrevocable and unqualified condition that no Shares shall be
               taken up or paid for pursuant to the Take-over Bid prior to the
               Close of Business or a date which is not less than 60 days
               following the date of the Take-over Bid;

          (iii) the Take-over Bid shall contain irrevocable and unqualified
               provisions that all Shares may be deposited pursuant to the
               Take-over Bid at any time prior to the Close of Business on the
               date referred to in clause (ii) hereof and that all Shares
               deposited pursuant to the Take-over Bid may be withdrawn at any
               time prior to the Close of Business on such date;

          (iv) the Take-over Bid shall contain an irrevocable and unqualified
               condition that not less than 50 percent of the then outstanding
               Voting Shares owned by Independent Shareholders must be deposited
               to the Take-over Bid and not withdrawn at the Close of Business
               on the date referred to in clause (iii) hereof;

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          (v)  the Take-over Bid shall contain an irrevocable and unqualified
               provision that, should the condition referred to in clause (iv)
               hereof be met, the Offeror will make a public announcement of
               that fact, the Take-over Bid will be extended on the same terms
               for a period of not less than 10 days from the date of such
               public announcement;

          The term "Permitted Bid" shall include a Competing Permitted Bid.

     (t) "Permitted Bid Acquisitions" shall have the meaning ascribed thereto in
subclause 1.1(a)(ii)(B);

     (u) "Permitted Lock-Up Agreement" means an agreement between an Offeror,
any of its Affiliates or Associates or any other Person acting jointly or in
concert with the Offeror and a Person (the "Locked-up Person") who is not an
Affiliate or Associate of the Offeror or a Person acting jointly or in concert
with the Offeror whereby the Locked-up Person agrees to deposit or tender Voting
Shares held by the Locked-up Person to the Offeror's Take-over Bid or to any
Take-over Bid made by any of the Offeror's Affiliates or Associates or made by
any other Person acting jointly or in concert with the Offeror (the "Lock-up
Bid"), provided that:

          (i)  the agreement:

               (A)  permits the Locked-up Person to withdraw the Voting Shares
                    from the agreement in order to tender or deposit the Voting
                    Shares to another Takeover Bid or to support another
                    transaction that contains an offering price for each Voting
                    Share that is higher than the offering price contained in or
                    proposed to be contained in the Lock-up Bid;

               (B)  (a) permits the Locked-up Person to withdraw the Voting
                    Shares from the agreement in order to tender or deposit the
                    Voting Shares to another Takeover Bid or to support another
                    transaction 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 its terms 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; and

          (ii) no "break-up" fees, "top-up" fees, penalties or other amounts
               that exceed in the aggregate one half of the cash equivalent of
               any amount in excess of the amount offered under the Lock-up Bid
               and that the Locked-up Person receives pursuant to another
               Take-over Bid or transaction shall be payable pursuant to the
               agreement in the event that the Locked-up Person fails to tender
               Voting Shares pursuant thereto in order to accept the Take-over
               Bid or support another transaction.

                                        9

<PAGE>

     (v) "Person" shall include any individual, firm, partnership, association,
trust, trustee, executor, administrator, legal personal representative, group,
body corporate, corporation, unincorporated organization, syndicate or other
entity;

     (w) "Pro Rata Acquisition" shall mean an acquisition of Voting Shares of
the Corporation (i) as a result of a stock dividend, a stock split, or other
event pursuant to which such Person receives or acquires Voting Shares of the
Corporation or Convertible Securities on the same pro rata basis as all other
holders of Voting Shares of the same class or series of the Corporation, or (ii)
pursuant to a regular dividend reinvestment or other plan of the Corporation
made available by the Corporation to the holders of Voting Shares of the
Corporation to subscribe for or purchase Voting Shares of the Corporation or
Convertible Securities, provided that such rights are acquired directly from the
Corporation and not from any other Person, or (iv) pursuant to a distribution by
the Corporation of Voting Shares, or securities convertible into or exchangeable
for Voting Shares or Convertible Securities, pursuant to a prospectus or a
securities exchange take-over, bid circular, or to an amalgamation, merger or
other statutory procedure requiring shareholders' approval, or (v) pursuant to a
distribution by the Corporation of Voting Shares or Convertible Securities by
way of a private placement by the Corporation or upon the exercise by an
individual employee of stock options granted under a stock option plan of the
Corporation or rights to purchase securities granted under a share purchase plan
of the Corporation, provided that (1) all necessary stock exchange approvals for
such private placement, stock option plan or share purchase plan have been
obtained and such private placement, stock option plan or share purchase plan
complies with the terms and conditions of such approvals and (2) such Person
does not become the Beneficial Owner of more than 25% of the Voting Shares
outstanding immediately prior to the distribution, and in making this
determination the Voting Shares to be issued to such Person in the distribution
shall be deemed to be held by such Person but shall not be included in the
aggregate number of outstanding Voting Shares immediately prior to the
distribution.

     (x) "Record Time" shall mean 5:00 p.m. (Toronto time) on March 15, 1999;

     (y) "Right" shall have the meaning ascribed thereto in the recitals hereto;

     (z) "Rights Agent" means Montreal Trust Company of Canada, and includes any
successor Rights Agent hereunder;

     (aa) "Rights Certificates" shall mean the certificates representing the
Rights after the Separation Time, which shall be in the form attached hereto as
Exhibit A;

     (bb) "Securities Act" means the Securities Act, R.S.O. 1990, c. S5, as
amended, and the regulations and rules thereunder, and any comparable or
successor laws or regulations thereto:

     (cc) "Separation Time" shall mean, subject to section 6.1, the Close of
Business on the eighth Trading Day after the earlier of:

          (i)  the Share Acquisition Date; and

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          (ii) the date of the commencement of, or first public announcement
               (provided such announcement is made after the Record Time) of the
               intent of any Person (other than the Corporation or any
               Subsidiary of the Corporation) to commence a Takeover Bid (other
               than a Permitted Bid), or such later time as may be determined by
               the Board of Directors;

provided that, if the foregoing results in the Separation Time being prior to
the Record Time, the Separation Time shall be the Record Time and provided
further that, if any Take-over Bid referred to in clause (ii) of this subsection
1.1 (cc) expires, or is canceled, terminated or otherwise withdrawn prior to the
Separation Time, such Take-over Bid shall be deemed, for the purposes of this
subsection 1.1(cc), never to have been made;

     (dd) "Shares" means shares in the capital of the Corporation;

     (ee) "Share Acquisition Date" means the first date of public announcement
(including a report filed pursuant to the Securities Act by the Corporation or
an Acquiring Person) of facts indicating that a Person has become an Acquiring
Person;

     (ff) "Subsidiary" of a Person shall have the meaning ascribed thereto in
the Securities Act;

     (gg) "Take-over Bid" means an Offer to Acquire Voting Shares of the
Corporation or other securities of the Corporation if, assuming that the Voting
Shares of the Corporation subject to the Offer to Acquire are acquired at the
date of such Offer to Acquire by the Person making such offer to Acquire, the
Voting Shares Beneficially Owned by the Person making the offer to Acquire would
constitute in the aggregate 20 % or more of the Voting Shares of the Corporation
then outstanding;

     (hh) "Termination Time" means the time at which the right to exercise
Rights shall terminate pursuant to sections 6.1, 6.3, 6.6 or 6.19;

     (ii) "Trading Day", when used with respect to any securities, means a day
on which the principal Canadian securities exchange on which such securities are
listed or admitted to trading is open for the transaction of business or, if the
securities are not listed or admitted to trading on any Canadian securities
exchange, a Business Day; and

     (jj) "Voting Share", when used with reference to the Corporation, means any
share in the capital of the Corporation to which is attached a right to vote for
the election of all directors, generally, and when used with reference to any
Person other than the Corporation, shall mean a Common Share of such Person and
any other share of capital stock or voting interests of such Person entitled to
vote generally in the election of all directors.

1.2. Currency

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

                                       11

<PAGE>

1.3. Descriptive Headings

     Descriptive headings appear herein for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

1.4. References to Agreement

     References to "this Agreement", "hereto", "herein", "hereby", "hereunder,
"hereof" and similar expressions refer to this Agreement and not to any
particular Article, section, subsection, clause, subclause, subdivision or other
portion hereof and include any and every instrument supplemental or ancillary
hereto.

1.5. Grandfather Provision

     For the purposes of determining whether a Person is an Acquiring Person and
interpreting the definition of Acquiring Person, a Person shall not be and shall
not be deemed to be an Acquiring Person if such Person (a "Grandfathered
Person") is the Beneficial Owner of 20% or more of the outstanding Voting Shares
of the Corporation determined as at the Record Time; provided, however, that
this exception shall not be, and shall cease to be, applicable to a
Grandfathered Person in the event that a Grandfathered Person shall, after the
Record Time, become the Beneficial Owner of an additional 1% of the outstanding
Voting Shares of the Corporation other than pursuant to share acquisitions or
redemptions by the Corporation or a Subsidiary of the Corporation, Permitted Bid
Acquisitions, Exempt Acquisitions, Pro-Rata Acquisitions or Convertible Security
Acquisition; provided further that, in the event that this exception shall cease
to be applicable to a Grandfathered Person as aforesaid, such a Grandfathered
Person shall be and shall be deemed to be an Acquiring Person as at and from the
time that this exception shall not be so applicable.

1.6. Calculation of Number and Percentage of Beneficial Ownership of Outstanding
Voting Shares

     For the purposes of this Agreement, in determining the percentage of the
outstanding Voting Shares of the Corporation with respect to which a Person is
or is deemed to be the Beneficial owner, all Voting Shares of the Corporation as
to which such Person is deemed the Beneficial Owner shall be deemed to be
outstanding.

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

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

                                       12

<PAGE>

     The percentage of outstanding Voting Shares represented by any particular
group of Shares acquired or held by any Person shall be determined in like
manner mutatis mutandis.

1.7. Acting Jointly or in Concert

     For purposes of this Agreement, a Person is acting jointly or in concert
with every other Person who is a party to any agreement, commitment or
understanding, whether formal or informal, with the first mentioned Person, for
the purpose of acquiring or offering to acquire Voting Shares (other than
customary agreements

with and between underwriters and banking group or selling group members with
respect to a distribution of securities by way of prospectus or private
placement or pursuant to a pledge of securities in the ordinary course of
business).

                                   ARTICLE 2.
                                   THE RIGHTS

2.1. Legend on Certificates

     Certificates for Common Shares issued after the Record Time but prior to
the Close of Business on the earlier of the Separation Time and the Expiration
Time shall evidence, in addition to the Common Shares, one Right for each Common
Share evidenced 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 the 15th day of March, 1999 (the "Rights Agreement"), between
     Kingsway Financial Services Inc. (the "Corporation") and Montreal Trust
     Company of Canada, as rights agent, the terms of which are hereby
     incorporated herein by reference and a copy of which may be inspected
     during normal business hours at the principal executive offices of the
     Corporation. Under certain circumstances, as set forth in the Rights
     Agreement, such Rights may be terminated, 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, whether currently held
     by or on behalf of such Person or any subsequent holder) 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 is practicable after the receipt of a written request therefor.

     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. Execution, Authentication, Delivery and Dating of Rights Certificates

     (a) The Rights Certificates shall be executed on behalf of the Corporation
by any of the Chairman of the Board, the President or any Vice-President
(including any Senior Vice-

                                       13

<PAGE>

President), together with any other of such persons or together with any one of
the Secretary, the Treasurer, any Assistant Secretary or any Assistant
Treasurer, under the corporate seal of the Corporation, which shall be
reproduced thereon. The signature of any of the officers of the Corporation on
the Rights Certificates may be manual or facsimile. Rights Certificates bearing
the manual or facsimile signatures 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) 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.

     (c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Corporation or the Rights Agent, as the
case may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this section 2.3, 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 or in relation thereto.

2.3. Mutilated, Destroyed, Lost and Stolen Rights Certificates

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

     (b) If there shall be delivered to the Corporation and the Rights Agent
prior to the Expiration Time:

          (i)  evidence to their satisfaction of the destruction, loss or theft
               of any Rights Certificate; and

          (ii) such security or indemnity as may be required by them in their
               sole discretion 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
               its request the Rights Agent shall countersign and deliver, in
               lieu of any such destroyed, lost or stolen Rights Certificate, a
               new Rights Certificate evidencing the same number of Rights as
               did the Rights Certificate so destroyed, lost or stolen.

     (c) As a condition to the issuance of any new Rights Certificate under this
section 2.4, the Corporation may require the payment of a sum sufficient to
cover any tax or other

                                       14

<PAGE>

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.

     (d) Every new Rights Certificate issued pursuant to this section 2.4 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence the
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 by the Corporation hereunder.

2.4. Persons Deemed Owners of Rights

     The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name such Rights Certificate
(or, prior to the Separation Time, the associated 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 Shares).

2.5. Delivery and Cancellation of Certificates

     All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly canceled 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 that the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly canceled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates canceled as
provided in this section 2.6, except as expressly permitted by this Agreement.
The Rights Agent shall destroy all canceled Rights Certificates and upon written
request by the Corporation, deliver a certificate of destruction to the
Corporation.

2.6. Agreement of Rights Holders

     Every holder of Rights, by accepting the same, consents and agrees with
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 accordance with the terms hereof, in respect of the
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 Share representing
such Right;

     (c) that after the Separation Time, the Rights Certificates will be
transferable only upon registration of the transfer 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 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

                                       15

<PAGE>

whose name the Rights Certificate (or, prior to the Separation Time, the
associated 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 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 his right to receive any
fractional Rights or any fractional Shares upon exercise of a Right (except as
provided herein);

     (f) that without the approval of any holder of Rights 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 pursuant to and as provided herein;
and

     (g) that 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 a governmental authority, prohibiting or otherwise restraining
performance of such obligations.

2.7. Rights Certificate Holder Not Deemed a Shareholder

     No holder, as such, of any Right or Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose whatsoever the holder of
any Share that may at any time be issuable on the exercise of such Rights, nor
shall anything contained herein or in any Rights Certificate be construed or
deemed to confer upon the holder of any Right or Rights Certificate, as such,
any of the rights, titles, benefits or privileges of a shareholder of the
Corporation or any right to vote at any meeting of shareholders of the
Corporation whether for the election of directors or otherwise or upon any
matter submitted to holders of any Shares at any meeting thereof, or to give or
withhold consent to any action of the Corporation, or to receive notice of any
meeting or other action affecting any shareholder of the Corporation except as
expressly provided herein, or to receive dividends, distributions or
subscription rights, or otherwise, until the Right or Rights evidenced by any
Rights Certificate shall have been duly exercised in accordance with the terms
and provisions hereof.

                                   ARTICLE 3.
                             EXERCISE OF THE RIGHTS

3.1. Initial Exercise Price; Exercise of Rights; Detachment of Rights

     (a) Subject to adjustment as herein set forth, from and after the
Separation Time and prior to the Expiration Time, each Right will entitle the
holder thereof to purchase one Common Share for the Exercise Price (which
Exercise Price and number of Shares are subject to adjustment as set forth
below).

     (b) Until the Separation Time:

                                       16

<PAGE>

          (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 Share registered in the name of
               the holder thereof (which certificates shall also be deemed to be
               Rights Certificates) and will be transferable only together with,
               and will be transferred by a transfer of, such associated Share.

     (c) From and after the Separation Time and prior to the Expiration Time:

          (i)  the Rights shall be exercisable; and

          (ii) the registration and transfer of the Rights shall be separate
               from and independent of Shares.

Promptly following the Separation Time, the Rights Agent will mail to each
holder of record of Common Shares as of the Separation Time (other than an
Acquiring Person and other than, in respect of any Rights Beneficially Owned by
such Acquiring Person that 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 (and the Corporation hereby agrees to
furnish copies of such records to the Rights Agent for this purpose):

               (A)  Rights Certificates representing the number of Rights held
                    by such holder at the Separation Time in substantially the
                    form of Exhibit A hereto, appropriately completed 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, regulation or judicial or
                    administrative order or with any rule or regulation made
                    pursuant thereto or with any rule 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

               (B)  a disclosure statement describing the Rights;

provided that a Nominee shall be sent the materials provided for in subclauses
(A) and (B) only in respect of all Common Shares held of record by it that are
not Beneficially Owned by an Acquiring Person.

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

          (i)  an election to exercise such Rights (an "Election to Exercise")
               substantially in the form attached to the Rights Certificate duly
               completed

                                       17

<PAGE>

               and executed by the holder or his executors or administrators or
               other personal representatives or his or their legal attorney
               duly appointed by an instrument in writing in form and executed
               in a manner satisfactory to the Rights Agent;

          (ii) payment by certified cheque, bankers draft or money order payable
               to the order of the Corporation, of a sum equal to the applicable
               Exercise Price multiplied by the number of Rights being exercised
               and a sum sufficient to cover any transfer tax or charge that 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 the relevant Shares in a name other than that of
               the holder of the Rights being exercised.

     (e) Upon receipt of the Rights Certificate that is accompanied by:

          (i)  a completed Election to Exercise that does not indicate that such
               Right is null and void as provided by subsection 4.1(b); and

          (ii) payment as set forth in subsection 3.1(d),

the Rights Agent will thereupon promptly:

          (iii) requisition from a transfer agent for the relevant Shares,
               certificates representing the number of such Shares to be
               purchased (the Corporation hereby irrevocably authorizing its
               transfer agents to comply with all such requisitions);

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

          (v)  after receipt of such certificate, deliver the same 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; and

          (vi) when appropriate, after receipt, deliver such cash to or to the
               order of the registered holder of the Rights Certificate.

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

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

          (i)  take all such action as may be necessary and within its power to
               ensure that all Shares delivered upon exercise of Rights shall,
               at the time of delivery of the certificates representing such
               Shares (subject to payment of

                                       18

<PAGE>

               the Exercise Price), be duly and validly authorized, issued and
               delivered as fully paid and non-assessable,

          (ii) take all such action as may be necessary and within its power to
               comply with any applicable requirements of the Securities Act and
               any other applicable law, rule or regulation, in connection with
               the issuance and delivery of the Rights Certificates and the
               issuance of any Shares upon exercise of Rights;

          (iii) use reasonable efforts to cause all Shares issued upon exercise
               of Rights to be listed on the principal exchanges on which the
               Shares of such class or series were traded prior to the Share
               Acquisition Date;

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

          (v)  pay when due and payable, any and all federal and provincial
               transfer taxes (for greater certainty, not including any income
               taxes of the holder or exercising holder or any liability of the
               Corporation to withhold tax) and charges that may be payable in
               respect of the original issuance or delivery of the Rights
               Certificates, provided that the Corporation shall not be required
               to pay any transfer tax or charge that 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
               Shares in a name other than that of the holder of the Rights
               being transferred or exercised.

3.2. Adjustments to Exercise Prices; Number of Rights

     The Exercise Price, the number and kind of Shares subject to purchase upon
the exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this section 3.2.

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

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

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

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

                                       19

<PAGE>

          (iv) issue any Common Shares (or other securities exchangeable for or
               convertible into or giving a right to acquire Common Shares in
               respect of, in lieu of or in exchange for existing Common Shares
               in a reclassification, amalgamation, merger, arrangement or
               consolidation, except as otherwise provided in this section 3.2,

the Exercise Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or other change, and the
number and kind of Shares or other securities, as the case may be, issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
applicable Exercise Price then in effect, the aggregate number and kind of
Shares or other securities, as the case may be, that, if such Right had been
exercised immediately prior to such date and at a time when the Share transfer
books of the Corporation were open, he would have been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification,
amalgamation, merger, arrangement or consolidation. If an event occurs that
would require an adjustment under both this section 3.2 and section 4.1, the
adjustment provided for in this section 3.2 shall be in addition to, and shall
be made prior to, any adjustment required pursuant to section 4.1.

     (b) In case the Corporation shall at any time after the Record Time and
prior to the Expiration Time fix a record date for the issuance of rights,
options or warrants to all holders of Common Shares entitling them to subscribe
for or purchase (for a period expiring within 45 calendar days after such record
date) Common Shares (or shares having the same rights, privileges and
preferences as Common Shares ("equivalent common shares")) or securities
convertible into Common Shares or equivalent common shares at a price per Common
Share or per equivalent common share (or having a conversion price per share, if
a security convertible into Common Shares or equivalent common shares) less than
the Market Price per Common Share on such record date, the Exercise Price in
respect of the Rights to be in effect after such record date shall be determined
by multiplying the Exercise Price in respect of the Rights in effect immediately
prior to such record date by a fraction:

          (i)  the numerator of which shall be the number of Common Shares
               outstanding on such record date, plus the number of Common Shares
               that the aggregate offering price of the total number of Common
               Shares and/or equivalent common shares so to be offered (and/or
               the aggregate initial conversion price of the convertible
               securities so to be offered) would purchase at such Market Price
               per Common Share; and

          (ii) the denominator of which shall be the number of Common Shares
               outstanding on such record date, plus the number of additional
               Common Shares and/or equivalent common shares to be offered for
               subscription or purchase (or into which the convertible
               securities so to be offered are initially convertible).

In case such subscription price may be paid by delivery of consideration, part
or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors,
whose determination shall be described in a statement filed with

                                       20

<PAGE>

the Rights Agent and shall be binding on the Rights Agent and the holders of the
Rights. Such adjustment shall be made successively whenever such a record date
is fixed and, in the event that such rights or warrants are not so issued, the
Exercise Price in respect of the Rights shall be adjusted to be the Exercise
Price that would then be in effect if such record date had not been fixed. The
granting of the right to purchase Common Shares or equivalent Common Shares
(whether from treasury or otherwise) pursuant to any distribution or interest
reinvestment plan and/or any share purchase plan providing for the reinvestment
of dividends payable on securities of the Corporation and/or the investment of
periodic optional payments and/or employee benefit or similar plans (so long as
such right to purchase is in no case evidenced by the delivery of rights or
warrants) shall not be deemed to constitute an issue of rights or warrants by
the Corporation; provided, however, that in the case of any dividend
reinvestment 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.

     (c) In case the Corporation shall at any time after the Record Time and
prior to the Expiration Time fix a record date for a distribution to all holders
of Common Shares (including any such distribution made in connection with a
merger in which the Corporation is the continuing corporation) of evidences of
indebtedness, cash (other than a dividend paid in the ordinary course or
dividends paid in Common Shares, but including any dividend payable in
securities other than Common Shares), assets or subscription rights or warrants
(excluding those referred to in subsection 3.2(b)), the Exercise Price in
respect of the Rights to be in effect after such record date shall be determined
by multiplying the Exercise Price in respect of the Rights in effect immediately
prior to such record date by a fraction:

          (i)  the numerator of which shall be the Market Price per Common Share
               on such record date, less the fair market value (as determined in
               good faith by the Board of Directors, whose determination shall
               be described in a statement filed with the Rights Agent and shall
               be binding on the Rights Agent and the holders of the Rights) of
               the portion of the cash, assets or evidences of indebtedness so
               to be distributed or of such subscription rights or warrants
               applicable to a Common Share; and

          (ii) the denominator of which shall be such Market Price per Common
               Share.

Such adjustments shall be made successively whenever such a record date is fixed
and, in the event that such distribution is not so made, the Exercise Price in
respect of the Rights shall be adjusted to be the Exercise Price in respect of
the Rights that would have been in effect if such record date had not been
fixed.

For the purposes hereof, "dividends paid in the ordinary course" means cash
dividends paid at regular intervals in any fiscal year of the Corporation to the
extent that such cash dividends do not exceed, in the aggregate, the greatest
of,

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

                                       21

<PAGE>

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

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

     (d) Notwithstanding anything herein to the contrary, no adjustment in an
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 that by reason of this subsection 3.2 (d) are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this section 3.2 shall be made to the nearest
cent or to the nearest ten-thousandth of a Common Share, or other Share, as the
case may be. Notwithstanding the first sentence of this subsection 3.2 (d), any
adjustment required by this section 3.2 shall be made no later than the earlier
of:

          (i)  three years from the date of the transaction that mandates such
               adjustment; and

          (ii) the Termination Date.

     (e) If, as a result of an adjustment made pursuant to section 4.1, the
holder of any Right thereafter exercised shall become entitled to receive any
shares other than Common Shares, thereafter the number of such other shares so
receivable upon exercise of any Right and the applicable Exercise Price thereof
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as is practicable to the provisions with respect to the Common
Shares contained in subsections 3.2 (a), (b), (c), (d), (f), (g), (h), (i), 0)
and (k) and the provisions of this Agreement with respect to the Common Shares
shall apply on like terms to any such other shares.

     (f) 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 respective number of Common
Shares, purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.

     (g) Unless the Corporation shall have exercised its election as provided in
subsection 3.2 (h), upon each adjustment of an Exercise Price as a result of the
calculations made in subsections 3.2(b) and (c), 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,
(calculated to the nearest one ten-thousandth), obtained by:

          (i)  multiplying:

               (A)  the number of such Shares covered by a Right immediately
                    prior to this adjustment; by

               (B)  the relevant Exercise Price in effect immediately prior to
                    such adjustment of the relevant Exercise Price; and

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<PAGE>

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

     (h) 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 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 and kind of Shares for which such 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 that number of Rights
(calculated to the nearest one ten-thousandth) 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 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 3.2 (h), the
Corporation shall, as promptly as is practicable, cause to be distributed to
holders of record of Rights Certificates on such record date, Rights
Certificates evidencing, subject to section 6.4, 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 to be so
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.

     (i) Irrespective of any adjustment or change in an Exercise Price or the
number of Shares issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the
relevant Exercise Price per Share and the number of Shares that were expressed
in the initial Rights Certificates issued hereunder.

     (j) In any case in which this section 3.2 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 Shares and other securities of the Corporation, if any, issuable upon
such exercise over and above the number of Shares and other securities of the
Corporation, if any, issuable upon such exercise on the basis of the relevant
Exercise Price in effect prior to such adjustment; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional Shares
(fractional or otherwise) or other securities upon the occurrence of the event
requiring such adjustment.

     (k) Notwithstanding anything in this section 3.2 to the contrary, the
Corporation shall be entitled to make such reductions in each Exercise Price, in
addition to those adjustments

                                       23

<PAGE>

expressly required by this section 3.2, as and to the extent that in their good
faith judgment the Board of Directors shall determine to be advisable in order
that any:

          (i)  consolidation or subdivision of Shares;

          (ii) issuance wholly for cash of any Shares at less than the
               applicable Market Price;

          (iii) issuance wholly for cash of any Common Shares or securities that
               by their terms are convertible into or exchangeable for Shares;

          (iv) stock dividends; or

          (v)  issuance of rights, options or warrants referred to in this
               section 3.2. hereafter made by the Corporation to holders of its
               Shares,

shall not be taxable to such shareholders.

     (l) Whenever an adjustment to the Exercise Price or a change in the
securities purchasable upon exercise of the Rights is made pursuant to this
section 3.2, the Corporation shall promptly:

          (i)  file with the Rights Agent and with the transfer agent for the
               Common Shares a certificate specifying the particulars of such
               adjustment or change; and

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

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

                                   ARTICLE 4.
                            ADJUSTMENTS TO THE RIGHTS
                      IN THE EVENT OF CERTAIN TRANSACTIONS

4.1. Flip-in Event

     (a) Subject to subsection 4.1 (b) and section 6.1, in the event that prior
to the Expiration Time a Flip-in Event shall occur, each Right shall constitute,
effective on and after the Share Acquisition Date, the right to purchase from
the Corporation, upon payment of the relevant Exercise Price and otherwise
exercising such Right in accordance with the terms hereof, that number of Common
Shares having an aggregate Market Price on the date of consummation or
occurrence of such Flip-in Event equal to twice the relevant Exercise Price for
an amount in cash equal to the relevant Exercise Price (such right to be
appropriately adjusted in a manner analogous to the applicable adjustments
provided for in section 3.2 upon each occurrence after the Share Acquisition
Date of any event analogous to any of the events described in section 3.2).

                                       24

<PAGE>

     (b) Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of any Flip-in Event, any Rights that are Beneficially Owned by:

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

          (ii) a transferee or other successor in title directly or indirectly
               (a "Transferee") of Rights held by an Acquiring Person (or any
               Affiliate or Associate of an Acquiring Person or any Person
               acting jointly or in concert with an Acquiring Person or any
               Affiliate or Associate of an Acquiring Person) who becomes a
               Transferee concurrently with or subsequent to the Acquiring
               Person becoming an Acquiring Person

          shall become null and void without any further action, and any holder
of such Rights (including any Transferee) shall not have any right whatsoever to
exercise such Rights under any provision of this Agreement and shall not have
thereafter any other rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise.

     (c) Any Rights Certificate that represents Rights Beneficially Owned by a
Person described in either clauses (i) or (ii) of subsection 4.1 (b) or
transferred to any nominee of any such Person, and any Rights Certificate issued
upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain the following legend:

          The Rights represented by this Rights Certificate were Beneficially
Owned by a Person who was an Acquiring Person or who was an Affiliate or an
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement) or was acting jointly or in concert with any of them. This Rights
Certificate and the Rights represented hereby shall become void in the
circumstances specified in subsection 4.1 (b) of the Rights Agreement.

provided that the Rights Agent shall not be under any responsibility to
ascertain the existence of facts that would require the imposition of such
legend but shall be required to impose such legend only if instructed in writing
to do so by the Corporation or if a holder fails to certify upon transfer or
exchange in the space provided on the Rights Certificate that such holder is not
a Person described in either clauses (i) or (ii) of subsection 4.1(b).

     (d) In the event that there shall not be sufficient Shares authorized for
issuance to permit the exercise in full of the Rights in accordance with this
section 4.1, the Corporation shall take all such action as may be necessary to
authorize additional Shares for issuance upon the exercise of the Rights.

                                       25

<PAGE>

                                   ARTICLE 5.
                                THE RIGHTS AGENT

5.1. General

     (a) The Corporation hereby appoints the Rights Agent to act as agent for
the Corporation and the holders of Rights in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Corporation may from time to time appoint one or more co-Rights Agents as it may
deem necessary or desirable subject to the approval of the Rights Agent. In the
event the Corporation appoints one or more co-Rights Agents, the respective
duties of the Rights Agents and co-Rights Agents shall be as the Corporation may
determine with the 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 counsel fees and other disbursements incurred in the execution and
administration of this Agreement and the exercise and performance of its duties
hereunder (including the reasonable fees and other disbursements of any expert
retained by the Rights Agent with the approval of the Corporation, such approval
not to be unreasonably withheld). The Corporation also agrees to indemnify the
Rights Agent, its officers, directors and employees, for, and to hold them
harmless against, any loss, liability, cost, claim, action, damage or expense,
incurred without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done, suffered or omitted by the Rights Agent in
connection with the acceptance, execution and administration of this Agreement,
including the costs and expenses of defending against any claim of liability,
which right to indemnification will survive the termination of this Agreement or
the resignation or removal of the Rights Agent. The Corporation shall inform the
Rights Agent in a reasonably timely manner of events which may materially affect
the administration of this Agreement by the Rights Agent and at any time, upon
request, shall provide to the Rights Agent an incumbency certificate with
respect to the then current directors of the Corporation.

     (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 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.

5.2. Merger or Amalgamation 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 or stockholder services business of the Rights
Agent or any successor Rights Agent, will be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of section 5.4 hereof. In case at the time such

                                       26

<PAGE>

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.

5.3. 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 consult with legal counsel (who may be legal
counsel for the Corporation) and the opinion of such counsel will be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion. 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 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 by a certificate signed by a Person believed by the Rights Agent to
be the Chairman of the Board, the President or any Vice-President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
of the Corporation and delivered to the Rights Agent; and such certificate will
be full authorization to the Rights Agent for any action taken 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 willful misconduct;

                                       27

<PAGE>

     (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 Shares or the Rights Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and recitals
are and will be deemed to have been made by the Corporation only;

     (e) the Rights Agent will not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except the due
authorization, execution and delivery hereof by the Rights Agent) or in respect
of the validity or execution of any Share certificate or Rights Certificate
(except its countersignature thereof); nor will it be responsible for any breach
by the Corporation of any covenant or condition contained in this Agreement or
in any Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
subsection 4.1(b)) or any adjustment required under the provisions of section
3.2 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 3.2 describing any such adjustment); nor
will it by any act hereunder be deemed to make any representation or warranty as
to the authorization of any Shares to be issued pursuant to this Agreement or
any Rights or as to whether any Shares will, when issued, be duly and validly
authorized, executed, issued and delivered as fully paid and nonassessable;

     (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 believed by the Rights Agent to be the Chairman of the Board, the
President, any Vice-President or the Secretary or any Assistant-Secretary or the
Treasurer or any Assistant-Treasurer of the Corporation, and to apply to such
Persons 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 Person; it being understood that instructions to
the Rights Agent shall, except where circumstances make it impracticable 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 possible
after the giving of such instructions;

     (h) the Rights Agent and any shareholder or stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in 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; and

     (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

                                       28

<PAGE>

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.

5.4. Change of Rights Agent

     The Rights Agent may resign and be discharged from its duties under this
Agreement upon 60 days' notice in writing (or such lesser notice as is
acceptable to the Corporation (mailed to the Corporation and to each transfer
agent of Shares by registered or certified mail, and to the holders of Rights in
accordance with section 6.9, all of which shall be at the Corporation's expense.
The Corporation may remove the Rights Agent upon 30 days notice in writing,
mailed to the Rights Agent and to each transfer agent of the Shares by
registered or certified mail. 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 by the Corporation), then the holder
of any Rights may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Corporation or by such a court, shall be a corporation incorporated under
the laws of Canada or a province thereof authorized to carry on the business of
a trust company in the Province of Ontario. After appointment, the successor
Rights Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent upon receipt of all outstanding fees and expenses
owing by the Corporation to the predecessor Rights Agent under this Agreement,
any property at the time held by it hereunder and execute and deliver any
further assurance, conveyance, act or deed necessary for such 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 Shares, and mail a notice thereof in writing to the holders of the
Rights. Failure to give any notice provided for in this section 5.4, 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 6.
                                  MISCELLANEOUS

6.1. Redemption and Waiver

     (a) Subject to the prior consent of the holders of Voting Shares obtained
in accordance with section 6.6, the Board of Directors may, at its option, at
any time prior to the occurrence of a Flip-in Event as to which the application
of section 4.1 has not been waived pursuant to this section 6.1, elect to redeem
all but not less than all of the then outstanding Rights at a redemption price
of $.001 per Right appropriately adjusted in a manner analogous to the
applicable adjustment provided for in section 3.2 in the event that an event of
the type analogous to any of the events described in section 3.2 shall have
occurred (such redemption price being herein referred to as the "Redemption
Price").

                                       29

<PAGE>

     (b) If before the occurrence of a Flip-in Event a Person acquires, pursuant
to a Permitted Bid or a Competing Permitted Bid, outstanding Voting Shares other
than Voting Shares Beneficially Owned by such Person at the date of the
Permitted Bid or the Competing Permitted Bid, the Board of Directors of the
Corporation shall, immediately upon such acquisition and without further
formality be deemed to have elected to redeem the Rights at the Redemption
Price.

     (c) Where a Take-over Bid that is not a Permitted Bid or a Competing
Permitted Bid is withdrawn or otherwise terminated after the Separation Time has
occurred and prior to the occurrence of a Flip-in Event, the Board of Directors
may elect to redeem all the outstanding Rights at the Redemption Price. Upon the
Rights being redeemed pursuant to section 6.1(c), all the provisions of this
Agreement shall continue to apply as if the Separation Time had not occurred and
Rights Certificates representing the number of Rights held by each holder of
record of Voting Shares as of the Separation Time had not been mailed to each
such holder and for all purposes of this Agreement the Separation Time shall be
deemed not to have occurred.

     (d) Within ten Business Days after the Board of Directors electing or being
deemed to have elected to redeem the Rights or, if section 6.1 (a) is
applicable, within 10 Business Days after the holders of Voting Shares or the
holders of Rights have approved a redemption of Rights in accordance with
section 6.1, the Corporation shall give notice of such redemption to the holders
of the then outstanding Rights by mailing such notice to each such holder at his
last address as it appears on the Rights Register (as defined in section 2.3(a))
or, prior to the Separation Time, on the register of Shares maintained by the
Corporation's transfer agent. Each such notice of redemption shall state the
method by which the payment of the Redemption Price shall be made. The
Corporation may not redeem, acquire or purchase for any value any Rights at any
time in any manner other than that specifically set forth in this section 6.1 or
in connection with the purchase of Voting Shares prior to the Separation Time.

     (e) If the Board of Directors elects to or is deemed to have elected to
redeem the Rights and, in circumstances where section 6.1(a) is applicable, such
redemption is approved by the holders of Voting Shares or the holders of Rights
in accordance with section 6.6, (A) the right to exercise the Rights will
thereupon without further action and without notice terminate and the only right
thereafter of the holder of a Right shall be to receive the Redemption Price and
(B) no further Rights shall thereafter be issued.

     (f) The Board of Directors may, in respect of any Flip-in Event, waive the
application of section 4.1 to that Flip-in Event provided that both of the
following conditions are satisfied: (i) the Board of Directors has determined
that the Acquiring Person became an Acquiring Person by inadvertence and without
any intent or knowledge that it would become an Acquiring Person; and (ii) such
Acquiring Person has reduced its Beneficial Ownership of Voting Shares such that
at the time of waiver pursuant to this section 6.1 (f) it is no longer an
Acquiring Person.

     (g) The Board of Directors may, until a Flip-in Event shall have occurred,
upon written notice delivered to the Rights Agent determine to waive the
application of section 4.1 to a Flip-in Event but only if such Flip-in Event
occurs by reason of a Take-over Bid made by way of a take-over bid circular to
all holders of record of Voting Shares which are subject to the

                                       30

<PAGE>

Take-over Bid (which, for greater certainty, does not include the circumstances
described in section 6.1(f)); provided however, that if the Board of Directors
waives the application of section 4.1 to a particular Flip-in Event pursuant to
this section 6.1(g), the Board of Directors shall be deemed to have waived the
application of section 4.1 to any other Flip-in Event occurring by reason of any
Take-over Bid which is made by means of a take-over bid circular to all holders
of record of the class or classes of Voting Shares which are subject to the
Take-over Bid 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 section 6.1(g).

     (h) The Board of Directors may, with the prior consent of the holders of
Voting Shares given in accordance with section 6.6, determine, at any time prior
to the occurrence of a Flip-in Event as to which the application of section 4.1
has not been waived pursuant to this section 6.1, if such Flip-in Event would
occur by reason of an acquisition of Voting Shares otherwise than pursuant to a
Take-over Bid made by means of a Take-over Bid circular to all holders of record
of Voting Shares and otherwise than in the circumstances set forth in Subsection
6.1(f), to waive the application of section 4.1 to such Flip-in Event. In the
event that the Board of Directors proposes such a waiver, the Board of Directors
shall extend the Separation Time to a date subsequent to and not more than 10
Business Days following the meeting of shareholders called to approve such
waiver.

     (i) The Corporation shall give prompt written notice to the Rights Agent of
any waiver of the application of section 4.1 made by the Board of Directors
under this section 6.1.

6.2. Expiration

     No Person shall have any rights pursuant to this Agreement or in respect of
any Right after the Expiration Time, except the Rights Agent as specified in
section 5.1.

6.3. Shareholder Review

     At 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 to the holders of Voting Shares of the Corporation for their
consideration and, if thought advisable, approval, ratifying the continued
existence of the Rights. 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.

6.4. Issuance of New Rights Certificate

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

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<PAGE>

6.5. Fractional Rights and Fractional Shares

     (a) The Corporation shall not be required to issue fractions of Rights or
to distribute Rights Certificates that evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Right 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 3.1(e).

     (b) The Corporation shall not be required to issue fractions of Shares upon
exercise of the Rights or to distribute certificates that evidence fractional
Shares. In lieu of issuing fractional Shares, the Corporation shall pay to the
registered holders 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 a whole Share.

6.6. Supplements and Amendments

     (a) The Corporation may make, without the approval of the holders of Rights
or Voting Shares, any amendments to this Agreement (i) to correct any clerical
or typographical error or (ii) which are required to maintain the validity and
effectiveness of the Agreement as a result of any change in any applicable laws,
rules or regulatory requirements. The Corporation may, prior to the date of the
shareholders' meeting referred to in section 6.19, supplement, amend, vary,
rescind or delete any of the provisions of this Agreement without the approval
of any holders of Rights or Voting Shares (whether or not such action would
materially adversely affect the interest of the holders of Rights generally)
where the Board of Directors acting in good faith deemed such action necessary
or desirable. Notwithstanding anything in this section 6.6 to the contrary, no
amendment shall be made to the provisions of Article 5 except with the written
concurrence of the Rights Agent to such supplement or amendment.

     (b) Subject to Subsection 6.6(a), the Corporation may, with the prior
consent of the holders of Voting Shares obtained as set forth below, at any time
before the Separation Time, amend, vary or rescind any of the provisions of this
Agreement and the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally). Such consent shall be
deemed to have been given in provided by the holders of Voting Shares at a
special meeting called and held in compliance with applicable laws, rules and
regulatory requirements and the requirements in the articles and by-laws of the
Corporation. Subject to compliance with any requirements imposed by the
foregoing, consent shall be given if the proposed amendment, variation or
rescission is approved by the affirmative vote of a majority of the votes cast
by Independent Shareholders represented in person or by proxy at the special
meeting.

     (c) The Corporation may, with the prior consent of the holders of Rights
obtained as set forth below, at any time after the Separation Time and before
the Expiration Time, amend, vary or rescind any of the provisions of this
Agreement and the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally). Such consent shall be
deemed to have been given if provided by the holders of Rights at a special

                                       32

<PAGE>

meeting of holders of Rights called and held in compliance with applicable laws
and regulatory requirements and, to the extent possible, with the requirements
in the articles and by-laws of the Corporation applicable to meetings of holders
of Voting Shares, applied mutatis mutandis. Subject to compliance with any
requirements imposed by the foregoing, consent shall be given if the proposed
amendment, variation or rescission is approved by the affirmative vote of a
majority of the votes cast by holders of Rights (other than holders of Rights
whose Rights have become null and void pursuant to section 4.1(b)), represented
in person or by proxy at the special meeting.

     (d) Any amendments made by the Corporation to this Agreement pursuant to
Subsection 6.6(a) which are required to maintain the validity and effectiveness
of this Agreement as a result of any change in any applicable laws, rules or
regulatory requirements shall:

          (i)  if made before the Separation Time, be submitted to the holders
               of Voting Shares of the Corporation at the next meeting of
               shareholders and the shareholders may, by the majority referred
               to in section 6.6(b) confirm or reject such amendment; and

          (ii) if made after the Separation Time, be submitted to the holders of
               Rights at a meeting to be called for on a date not later than
               immediately following the next meeting of shareholders of the
               Corporation and the holders of Rights may, by resolution passed
               by the majority referred to in section 6.6(c), confirm or reject
               such amendment.

Any such amendment shall be effective from the date of the resolution of the
Board of Directors adopting such amendment, until it is confirmed or rejected or
until it ceases to be effective (as described in the next sentence) and, where
such amendment is confirmed, it continues in effect in the form so confirmed. If
such amendment is or is not submitted to the shareholders of the Corporation or
holders of Rights as required, then such amendment shall cease to be effective
from and after the termination of the meeting at which it was rejected or to
which it should have been but was not submitted or 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 this Agreement to
substantially the same effect shall be effective until confirmed by the
shareholders of the Corporation or holders of Rights as the case may be.

     (e) The Corporation shall be required to provide the Rights Agent with
notice in writing of any such amendment, recision or variation to this Agreement
as referred to in this section 6.6 within five days of effecting such amendment,
recision or variation.

6.7. Rights of Action

     Subject to the terms of this Agreement, all 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

                                       33

<PAGE>

holders right to exercise such holder's Rights in the manner provided in such
holder's Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against, actual or threatened
violations of, the obligations of any Person subject to this Agreement.

6.8. Notice of Proposed Actions

     In case the Corporation shall propose after the Separation Time and prior
to the Expiration Time:

     (a) to effect or permit (in cases where the Corporation's permission is
required) any Flip-in Event;

or

     (b) 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 6.9, a notice of such proposed action, which shall
specify the date on which such Flip-in Event, 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 taking such proposed action.

6.9. Notices

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

     Kingsway Financial Services Inc.
     5310 Explorer Drive
     Suite 200
     Mississauga, Ontario
     L4W 5H8

     Attention: President and Chief Executive Officer
     Fax: (905) 629-5008

     Any notice or demand authorized or required by this Agreement to be given
or made by the Corporation or by the holder of any Rights to or on the Rights
Agent shall be sufficiently given or made if delivered or sent by first-class
mail, postage prepaid, or by fax (with, in the case of fax, an original copy of
the notice or demand sent by first class mail, postage prepaid, to the

                                       34

<PAGE>

Corporation following the giving of the notice or demand by fax) addressed
(until another address is filed in writing with the Corporation) as follows:

     Montreal Trust Company of Canada
     151 Front Street West, 8th Floor
     Stock Transfer Department Toronto, Ontario
     M5J 2N1

     Attention: Senior Manager, Client Services
     Fax: (416) 981-9800

     Notices or demands authorized or required by this Agreement to be given or
made by the Corporation or the Rights Agent to or on the holder of any Rights
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, or by fax (with, in the case of fax, an original copy of the
notice or demand sent by first class mail, postage prepaid, to the Corporation
following the giving of the notice or demand by fax) addressed to such holder at
the address of such holder as it appears upon the registry books of the Rights
Agent or, prior to the Separation Time, on the registry books of the Corporation
for the Common Shares. If mail service is or is threatened to be interrupted at
a time when the Corporation or the Rights Agent wishes to give a notice or
demand hereunder to or on the holders of the Rights, the corporation or the
Rights Agent may, notwithstanding the foregoing provisions of this section 6.9,
give such notice by means of publication once in each of two successive weeks in
the business section of the Financial Post or in such other publication or
publications as may be designated by the Corporation and notice so published
shall be deemed to have been given on the date on which the first publication of
such notice in any such publication has taken place. Any notice that is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice.

6.10. 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 fulfill 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.

6.11. 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.

6.12. 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; but this Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights Agent
and the holders of the Rights.

                                       35

<PAGE>

6.13. Governing Law

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

6.14. Language

     Les parties aux presents ont exigees que la presente convention ainsi que
tous les documents et avis qui s'y rattachent et/ou qui en decouleront 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 the English language.

6.15. Approvals

     Any obligation of the Corporation or action or event contemplated by this
Agreement shall be subject to the receipt of any requisite approval or consent
from any governmental or regulatory authority, and shall be subject to approval
by ordinary resolution of the shareholders of the Corporation.

6.16. Declaration as to Non-Canadian 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, 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 an appropriate Canadian resident acting as a fiduciary (a "Fiduciary") of
Rights or securities issuable on exercise of Rights, the holding thereof in
trust for the Person entitled thereto (but reserving to the Fiduciary or to the
Fiduciary and the Corporation as the Corporation may determine, absolute
instrument 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 any province or
territory thereof in which such issue or delivery would be unlawful without
registration of the relevant Persons or securities for such purposes.

6.17. Counterparts

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

6.18. Severability

     If any section, subsection, clause, subclause, term or provision hereof or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent be invalid or

                                       36

<PAGE>

unenforceable, such section, subsection, clause, subclause, term or provision
shall be ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
sections, subsections, clauses, subclauses, terms and provisions hereto or the
application of such section, subsection, clause, subclause, term or provision to
circumstances other than those as to which it is held invalid or unenforceable.

6.19. Effective Date

     This Agreement is in full force and effect in accordance with its terms
from the date hereof. If this Agreement is not confirmed by the requisite number
of votes cast by the holders of Common Shares of the Corporation represented in
person or by proxy at the 1999 annual meeting of shareholders of the Corporation
who vote in respect of confirmation of this Agreement at such meeting, then this
Agreement and any then outstanding Rights shall be of no further force and
effect from the date of the 1999 annual meeting of shareholders of the
Corporation.

6.20. Successors

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

6.21. Time of the Essence

     Time shall be of the essence in this Agreement.

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

                                        KINGSWAY FINANCIAL SERVICES INC.

                                        Per: /s/ William Star
                                             -----------------------------------

                                        Per: /s/ W. Shaun Jackson
                                             -----------------------------------

                                        MONTREAL TRUST COMPANY OF CANADA

                                        Per: /s/ Dan Dishy
                                             -----------------------------------

                                        Per: /s/ Jamie Bajzik
                                             -----------------------------------

                                       37

<PAGE>

                            EXTRACT OF MINUTES OF THE

                             SHAREHOLDERS MEETING OF

              KINGSWAY FINANCIAL SERVICES INC. HELD ON MAY 2, 2002

          "BE IT RESOLVED AS A RESOLUTION OF THE SHAREHOLDERS OF KINGSWAY
          FINANCIAL SERVICES INC. THAT:

          the shareholders rights plan of the Corporation remain effective in
          accordance with the terms thereof."

          CERTIFIED to be a true and accurate copy of a resolution of the
shareholders of the Corporation, passed in accordance with the provisions of
Business Corporations Act (Ontario), as of the 2nd day of May, 2002 which
resolution is still in full force and effect, unamended, as of the date hereof.

          Dated as of the 9th day of June, 2003.

                                         /s/ Michael Slan
                                        ----------------------------------------
                                        Michael Slan - Secretary

<PAGE>

                        KINGSWAY FINANCIAL SERVICES INC.

                     AMENDED AND RESTATED STOCK OPTION PLAN
                                   (May, 2001)
                               (Amended May, 2003)

1.   Purpose of Plan

1.1 The purpose of the Plan is to attract, retain and motivate persons as
directors, officers, key employees and consultants of the Corporation and its
Subsidiaries and to advance the interests of the Corporation by providing such
persons with the opportunity, through share options, to acquire an increased
proprietary interest in the Corporation.

2.   Defined Terms

     Where used herein, the following terms shall have the following meanings,
respectively:

2.1 "Board" means the board of directors of the Corporation or, if established
and duly authorized to act, the Executive Committee or another Committee
appointed for such purpose by the board of directors of the Corporation;

2.2 "Business Day" means any day, other than a Saturday or a Sunday, on which
the Exchange is open for trading;

2.3 "Consultant" means an individual (including an individual whose services are
contracted through a corporation) with whom the Corporation or any Subsidiary
has a contract for substantial services;

2.4 "Corporation" means Kingsway Financial Services Inc. and includes any
successor corporation thereto;

2.5 "Eligible Person" means any director, officer, employee (part-time or
full-time) or Consultant of the Corporation or any Subsidiary, a registered
retirement savings plan established for the benefit of any such Person, or a
corporation controlled by such Person;

2.6 "Exchange" means The Toronto Stock Exchange;

2.7 "Insider" means:

     (a)  an insider as defined under Section I(1) of the Securities Act
          (Ontario), other than a person who falls within that definition solely
          by virtue of being a director or senior officer of a Subsidiary; and

     (b)  an associate as defined under Section 1(1) of the Securities Act
          (Ontario) of any person who is an insider by virtue of (a) above;

                                        1

<PAGE>

2.8 "Long-Term Disability" means the inability of an employee to continue
employment with the Corporation or a Subsidiary due to a long-term disability
for which benefits are claimed or received under an insurance plan established
by the Corporation or, if applicable, the Subsidiary, by which the employee is
employed for such purpose;

2.9 "Market Price" at any date in respect of the Shares shall be the closing
price of such Shares on the Exchange on the last Business Day preceding the date
on which the Option is approved by the Board (or, if such Shares are not then
listed and posted for trading on the Exchange, on such stock exchange in Canada
on which the Shares are listed and posted for trading as may be selected for
such purpose by the Board). In the event that such Shares did not trade on such
Business Day, the Market Price shall be the average of the bid and ask prices in
respect of such Shares at the close of trading on such date. In the event that
such Shares are not listed and posted for trading on any stock exchange, the
Market Price shall be the fair market value of such Shares as determined by the
Board in its sole discretion;

2.10 "Option" means an option granted under the Plan to purchase Shares;

2.11 "Option Price" means the price per Share at which Shares may be purchased
under the Option, as the same may be adjusted from time to time in accordance
with Article 8;

2.12 "Optionee" means an Eligible Person to whom an Option has been granted;

2.13 "Person" means an individual, a corporation, a partnership, an
unincorporated association or organization, a trust, a government or department
or agency thereof and the heirs, executors, administrators or other legal
representatives of an individual and an associate or affiliate of any thereof as
such terms are defined in the Business Corporations Act (Ontario);

2.14 "Plan" means this Kingsway Financial Services Inc. Stock Option Plan, as
the same may be amended or varied from time to time;

2.15 "Share Compensation Arrangement" means any stock option, stock option plan,
employee stock purchase plan or any other compensation or incentive mechanism
involving the issuance or potential issuance of Shares, including a share
purchase from treasury which is financially assisted by the Corporation by way
of a loan, guarantee or otherwise;

2.16 "Shares" means the common shares of the Corporation or, in the event of an
adjustment contemplated by Article 8, such other shares or securities to which
an Optionee may be entitled upon the exercise of an Option as a result of such
adjustment; and

2.17 "Subsidiary" means any corporation which is a subsidiary, as such term is
defined in the Business Corporations Act (Ontario) (as such provision is from
time to time amended, varied or re-enacted), of the Corporation;

2.18 "Termination For Cause" means the cessation of employment of an employee of
the Corporation or a Subsidiary which, in the absolute discretion of the Chief
Executive Officer, is by reason of, but not limited to, such employee having
been guilty of serious misconduct, habitual neglect of duty, incompetence, or
conduct incompatible with his or her duties, or prejudicial to the Corporation's
or Subsidiary's business, or he or she has been guilty of willful

                                        2

<PAGE>

disobedience to the Corporation's or Subsidiary's policies or instructions in a
matter of substance;

2.19 "Termination Without Cause" means the cessation of the employment of an
employee of the Corporation or a Subsidiary for reasons other than (i) those
defined in Termination For Cause; (ii) resignation; (iii) retirement at age 65
or older; (iv) death; or (v) Long Term Disability.

3.   Administration of the Plan

3.1 The Plan shall be administered in accordance with the rules and policies of
the Exchange in respect of employee stock option plans by the Board. The Board
shall receive recommendations of management and shall determine and designate
from time to time those directors, officers, employees and Consultants of the
Corporation or its Subsidiaries to whom an Option should be granted, the number
of Shares which will be optioned from time to time to any Eligible Person, and
the terms and conditions of the grant.

3.2 The Board shall have the power, where consistent with the general purpose
and intent of the Plan and subject to the specific provisions of the Plan:

     (a)  to establish policies and to adopt, prescribe, amend or vary rules and
          regulations for carrying out the purposes, provisions and
          administration of the Plan and make all other determinations necessary
          or advisable for its administration;

     (b)  to interpret and construe the Plan and to determine all questions
          arising out of the Plan and any Option granted pursuant to the Plan
          and any such interpretation, construction or determination made by the
          Board shall be final, binding and conclusive for all purposes;

     (c)  to determine which Eligible Persons are granted Options and to grant
          Options;

     (d)  to determine the number of Shares covered by each Option;

     (e)  to determine the Option Price;

     (f)  to determine the time or times when Options will be granted and
          exercisable;

     (g)  to determine if the Shares which are subject to an Option will be
          subject to any restrictions upon the exercise of such Option; and

     (h)  to prescribe the form of the instruments relating to the grant,
          exercise and other terms of Options.

4.   Shares Subject to the Plan

4.1 Options may be granted in respect of authorized and unissued Shares provided
that, subject to increase by the Board, the receipt of the approval of the
Exchange and the approval of shareholders of the Corporation, the maximum
aggregate number of Shares reserved

                                        3

<PAGE>

by the Corporation for issuance and which may be purchased upon the exercise of
all Options issued pursuant to the Plan shall not exceed 4,800,000. Shares in
respect of which Options are not exercised shall be available for subsequent
Options under the Plan. No fractional Shares may be purchased or issued under
the Plan.

5.   Eligibility; Grant, Terms of Options

5.1 Options may be granted to Eligible Persons.

5.2 Options may be granted by the Corporation pursuant to the recommendations of
the Board from time to time provided and to the extent that such decisions are
approved by the Board.

5.3 Subject to the provisions of this Plan, the number of Shares subject to each
option, the Option Price, the expiration date of each Option, the extent to
which each Option is exercisable from time to time during the term of the Option
and other terms and conditions relating to each such Option shall be determined
by the Board. At no time shall the period during which an Option shall be
exercisable exceed ten (10) years, provided that such period shall not exceed
five (5) years for Options granted after February 11, 2003.

5.4 In the event that no specific determination is made by the Board with
respect to any of the following matters, each Option shall, subject to any other
specific provisions of the Plan, contain the following terms and conditions:

     (a)  the period during which an Option shall be exercisable shall be ten
          (10) years from the date the Option is granted to the Optionee,
          provided that such period shall end on the 5th anniversary of the date
          of grant for Options granted after February 11, 2003;

     (b)  subject to Section 5.4(c) hereof, the Optionee may not take up any
          Shares which are the subject of an Option during the 12 month period
          from the date the Option is granted, and thereafter, the Optionee may
          take up not more than 33-1/3% of the Shares covered by the Option
          during each subsequent 12 month period; provided, however, that if the
          number of Shares taken up under the Option during any such 12 month
          period is less than 33-1/3% of the Shares covered by the Option, the
          Optionee shall have the right, at any time or from time to time during
          the remainder of the term of the Option, to purchase such number of
          Shares subject to the Option which were purchasable, but not purchased
          by him, during such 12 month period; and

     (c)  provided the Optionee is not a full time employee of the Corporation
          or any Subsidiary, the Optionee shall not be bound by any restrictions
          on exercising Options after the 12 month period ending after the date
          the Option is granted.

5.5 The Option Price of Shares which are the subject of any Option shall in no
circumstances be lower than the Market Price of the Shares at the date of the
grant of the Option.

                                        4

<PAGE>

5.6 The maximum number of Shares which may be reserved for issuance to any one
Optionee under this Plan or under any other Share Compensation Arrangement shall
not exceed 5% of the Shares outstanding at the date of the grant (on a
non-diluted basis).

5.7 The maximum number of Shares which may be reserved for issuance to Insiders
under the Plan or under any other Share Compensation Arrangement shall be 10% of
the Shares outstanding at the date of the grant (on a non-diluted basis).

5.8 The maximum number of Shares which may be issued to any one Insider and such
Insider's associates under the Plan and any other Share Compensation Arrangement
in any 12 month period shall be 5% of the Shares outstanding at the date of the
issuance (on a non-diluted basis). The maximum number of Shares which may be
issued to Insiders under the Plan and any other Share Compensation Arrangement
in any 12 month period shall be 10% of the Shares outstanding at the date of the
issuance (on a non-diluted basis).

5.9 Any entitlement to acquire Shares granted pursuant to the Plan or any other
Share Compensation Arrangement prior to the Optionee becoming an Insider shall
be excluded for the purposes of the limits set out in 5.7 and 5.8 above.

5.10 An Option is personal to the Optionee and is non-assignable; provided,
however, that nothing herein shall prevent an Optionee from assigning any or all
of the Options held by such Optionee to a registered retirement savings plan
established for the benefit of such Optionee.

5.11 In addition to the limitations set out in sections 5.6, 5.7 and 5.8 hereof,
the number of Options to be granted to each Eligible Person who is a director of
the Corporation or a Subsidiary but not an employee or officer of the
Corporation or a Subsidiary shall not exceed 5,000 Options per fiscal year.

6.   Exercise of Options

6.1 Subject to the provisions of the Plan, an Option may be exercised from time
to time by delivery to the Corporation at its registered office of a written
notice of exercise addressed to the Secretary of the Corporation specifying the
number of Shares with respect to which the Option is being exercised and
accompanied by payment in full of the Option Price of the Shares to be
purchased. Certificates for such Shares shall be issued and delivered to the
Optionee within a reasonable period of time following the receipt of such notice
and payment.

6.2 Notwithstanding any of the provisions contained in the Plan or in any
Option, the Corporation's obligation to issue Shares to an Optionee pursuant to
the exercise of an Option shall be subject to:

     (a)  completion of such registration or other qualification of such Shares
          or obtaining approval of such governmental or regulatory authority as
          counsel to the Corporation shall reasonably determine to be necessary
          or advisable in connection with the authorization, issuance or sale
          thereof,

     (b)  the listing of such Shares on the Exchange; and

                                        5

<PAGE>

     (c)  the receipt from the Optionee of such representations, agreements and
          undertakings, including as to future dealings in such Shares, as the
          Corporation or its counsel reasonably determines to be necessary or
          advisable in order to safeguard against the violation of the
          securities laws of any jurisdiction.

In this connection the Corporation shall, to the extent necessary, take all
reasonable steps to obtain such approvals, registrations and qualifications as
may be necessary for the issuance of such Shares in compliance with applicable
securities laws and for the listing of such Shares on the Exchange.

7.   Termination of Employment: Death, Resignation, Long-Term Disability,
     Termination

7.1 The entitlement of a Consultant to Options including the termination thereof
shall be in accordance with the terms of the consulting agreement entered into
between the Corporation or the Subsidiary and the Consultant.

7.2 In the event of the death, retirement at age 65 or older or Long-Term
Disability of an Optionee while in the employment of the Corporation or a
Subsidiary prior to 5:00 p.m. (Toronto time) on the expiration date of an
Option, all the Shares subject to the Option shall immediately vest on the date
of such death, retirement or Long-Term Disability and may be exercised by the
Optionee or by the legal representatives of such Optionee, as the case may be,
at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the
date which is the third anniversary of the date of death, retirement or
Long-Term Disability of such Optionee or the expiration date of the Option,
whichever is the earlier, after which the Option shall in all respects cease and
terminate and be of no further force or effect whatsoever as to such of the
Shares in respect of which such Option had not been previously exercised.

7.3 In the event of the Termination For Cause of an Optionee prior to 5:00 p.m.
(Toronto time) on the expiration date of an Option, all Options granted to such
Optionee under the Plan shall in all respects forthwith cease and terminate and
be of no further force or effect whatsoever as to such of the Shares in respect
of which such Option had not previously been exercised.

7.4 In the event of the Termination Without Cause of an Optionee prior to 5:00
p.m. (Toronto time) on the expiration date of an Option, such Optionee may
exercise each Option then held by such Optionee under the Plan to the extent
that such Option was vested at the time of the Termination Without Cause
(provided however that the Chief Executive Officer may, in his or her sole
discretion cause any or all additional Options held by such Optionee to vest
immediately), at any time up to and including, but not after, 5:00 p.m. (Toronto
time) on the 30th day following the time of Termination Without Cause (or such
later day as the Chief Executive Officer of the Corporation in his or her sole
discretion may determine, which shall not exceed three years from the time of
Termination Without Cause) or the expiration date of the Option, whichever is
the earlier, after which the Option shall in all respects cease and terminate
and be of no further force or effect whatsoever as to such of the Shares in
respect of which such Option had not been previously exercised.

                                        6

<PAGE>

7.5 In the event of (i) the resignation of an Optionee as an employee of the
Corporation or a Subsidiary such that the Optionee is no longer an Eligible
Person; or (ii) the resignation of an Optionee as a member of the Board such
that the Optionee is no longer an Eligible Person, in each such case prior to
5:00 p.m. (Toronto time) on the expiration date of an Option, such Optionee may
exercise each Option then held by such Optionee under the Plan to the extent
that each such Option was vested at the time of such resignation, at any time up
to and including, but not after, 5:00 p.m. (Toronto time) on the 30th day (or
such later day as the Chief Executive Officer of the Corporation in his or her
sole discretion may determine, which in the case of an employee shall not exceed
three years and in the case of an Optionee who is not an employee and is a
member of the Board, shall not exceed one year) following the effective date of
resignation, or the expiration date of the Option, whichever is earlier, after
which the Option shall in all respects cease and terminate and be of no further
force or effect whatsoever as to such of the Shares in respect of which such
Option had not been previously exercised.

7.6 In the event of the death of an Optionee while a member of the Board or a
Consultant prior to 5:00 p.m. (Toronto time) on the expiration date of an
Option, all the Shares subject to the Option shall immediately vest on the date
of such death and may be exercised by the legal representatives of such Optionee
at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the
date which is the first anniversary of the date of death of such Optionee or the
expiration date of the Option, whichever is the earlier, after which the Option
shall in all respects cease and terminate and be of no further force or effect
whatsoever as to such of the Shares in respect of which such Option had not been
previously exercised.

7.7 In the event that an Optionee who is a member of the Board ceases to be a
member of the Board or a Consultant ceases to be a Consultant other than as
provided for in subsections 7.5 and 7.6 above, such that the Optionee is no
longer an Eligible Person prior to 5:00 p.m. (Toronto time) on the expiration
date of an Option, all the Shares subject to the Option shall immediately vest
on the date of such cessation and may be exercised by the Optionee at any time
up to and including, but not after, 5:00 p.m. (Toronto time) on the date which
is the first anniversary of the date of cessation as a member of the Board of
such Optionee or the expiration date of the Option, whichever is the earlier,
after which the Option shall in all respects cease and terminate and be of no
further force or effect whatsoever as to such of the Shares in respect of which
such Option had not been previously exercised.

7.8 Options shall not be affected by any change of employment of the Optionee or
by the Optionee ceasing to be a director where the Optionee continues to be
employed by the Corporation or continues to be a director of any Subsidiary or
an officer of the Corporation or any Subsidiary.

8.   Change in Control and Certain Adjustments

8.1 Notwithstanding any other provision of this Plan, in the event of:

     (a)  the acquisition by any Person who was not, immediately prior to the
          effective time of the acquisition, a registered or a beneficial
          shareholder in the Corporation of Shares or rights or options to
          acquire Shares of the Corporation or securities which are convertible
          into Shares of the Corporation or any combination thereof

                                        7

<PAGE>

          such that, after the completion of such acquisition, such Person would
          be entitled to, exercise 20% or more of the votes entitled to be cast
          at a meeting of the shareholders; or

     (b)  the sale by the Corporation of all or substantially all of the
          property or assets of the Corporation;

then, notwithstanding that at the effective time of such transaction the
Optionee may not be entitled to all the Shares granted by the Option, the
Optionee shall be entitled to exercise the Options to the full amount of the
Shares remaining at that time within 90 days of the close of any such
transaction.

8.2 Appropriate adjustments with respect to Options granted or to be granted, in
the number of Shares optioned and at the Option Price, shall be made by the
Board to give effect to adjustments in the number of Shares of the Corporation
resulting from subdivisions, consolidations or reclassifications of the Shares
of the Corporation, the payment of stock dividends or cash dividends by the
Corporation (other than dividends in the ordinary course), the distribution of
securities, property or assets by way of dividend or otherwise (other than
dividends in the ordinary course), or the relevant changes in the capital stock
of the Corporation or the amalgamation or merger of the Corporation with or into
any other entity, subsequent to the approval of the Plan by the Board. The
appropriate adjustment in any particular circumstance shall be conclusively
determined by the Board in its sole discretion, subject to approval by the
Shareholders of the Corporation and to acceptance by the Exchange respectively,
if applicable.

9.   Amendment or Discontinuance of Plan

9.1 The Board may amend or discontinue the Plan at any time upon receipt of
requisite regulatory approval including, without limitation, the approval of the
Exchange; provided, however, that no such amendment may increase the maximum
number of Shares that may be optioned under the Plan, change the manner of
determining the minimum Option Price or, without the consent of the Optionee,
alter or impair any of the terms of any Option previously granted to an Optionee
under the Plan without the approval of the shareholders of the Corporation. Any
amendments to the terms of an Option shall also require regulatory approval
including, without limitation, the approval of the Exchange.

10.  Miscellaneous Provisions

10.1 The holder of an Option shall not have any rights as a shareholder of the
Corporation with respect to any of the Shares covered by such Option until such
holder shall have exercised such Option in accordance with the terms of the Plan
(including tendering payment in full of the Option Price of the Shares in
respect of which the Option is being exercised) and the issuance of Shares by
the Corporation.

10.2 Nothing in the Plan or any Option shall confer upon an Optionee any right
to continue in the employ of the Corporation or any Subsidiary or affect in any
way the right of the Corporation or any Subsidiary to terminate his employment
at any time; nor shall anything in the Plan or any Option be deemed or construed
to constitute an agreement, or an expression of intent, on the part of the
Corporation or any Subsidiary to extend the employment of any

                                        8

<PAGE>

Optionee beyond the time which he would normally be retired pursuant to the
provisions of any present or future retirement plan of the Corporation or any
Subsidiary or beyond the time at which he would otherwise be retired pursuant to
the provisions of any contract of employment with the Corporation or any
Subsidiary.

10.3 To the extent required by law or regulatory policy or necessary to allow
Shares issued on exercise of an Option to be free of resale restrictions, the
Corporation shall report the grant, exercise or termination of the Option to the
Exchange and the appropriate securities regulatory authorities.

11.  Shareholder and Regulator Approval

11.1 The Plan shall be subject to the approval of the Shareholders of the
Corporation to be given a resolution at a meeting of the Shareholders of the
Corporation in accordance with the Business Corporations Act (Ontario) and to
acceptance by the Exchange. Any Options granted prior to such approval and
acceptances shall be conditioned upon such approval and acceptance being given
and no such Options may be exercise unless such approval and acceptance is
given.

                                       9<PAGE>

                                                                     Exhibit 4.3

[LOGO]                                                          Shares . Actions

Incorporated Under The Laws                                          C000000
of the Province of Ontario                 CUSIP 496904 10 3      Number  Numero
Constituee selon les lois de
la Province d'Ontario

This is to Certify that
La presente atteste que

Fully Paid and Non-Assessable Common Shares Of
Actions ordinaires entierement liberees et non cotisables de

                        KINGSWAY FINANCIAL SERVICES INC.
transferable only on the registers of the Corporation upon surrender of this
certificate with a transfer endorsed thereon or delivered therewith duly
executed by an appropriate person. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar of the
Corporation.
     In Witness Whereof the Corporation has caused this certificate to be signed
by its duly authorized officers.

transferables soulement aux registres de la Societe sux remise du present
certificat avec la formule de transfent dument enclossee ou sux livraison dudit
certificat accompagne d'un tel transfert dument signe pax une personne
competente. Le present certificat n'est valide que s'il est contresigne par
l'agent des transferts et insorit par l'agent charge de la tenue des regitres de
la Societe.
     En foi de quoi, la Societe a fait signer le present certificat par ses
XXXXXX diment autorises.

Dated
Date
     --------------------------

/s/                                           /s/
   -----------------------------                 ------------------------------
   Chairman, President and Chief                 Executive Vice-President and
   Executive Officer                             Chief Financial Officer
   President du conseil, President               Vice-president executif et chef
   el chef de la direction                       des finances

Countersigned and Registered:
Contresigne et inscrit:                      Montreal
Computershare Trust Company of Canada,       Toronto
Societe de Fiducie Computershare du Canada,  Vancouver
Transfer Agent and Registrar
Agent des transferts et agent
change de la tenue a des registres

By:
Par:
    --------------------------------------------------
               Authorized Officer - Dirigeant autorise

Countersigned and Registered:
Contresigne et inscrit:
Computershare Trust Company, Inc.,           Denver, Colorado
Transfer Agent and Registrar                 New York, New York
Agent des transferts et agent
change de la tenue a des registres

By:
Par:
    --------------------------------------------------
               Authorized Officer - Dirigeant autorise

The shares represented by this certificate are transferable in Montreal, Toronto
and Vancouver in Canada and Denver, Colorado and New York, New York in the
U.S.A.

Les actions representees par le present certificat sont transferables a
Montreal, Toronto et Vancouver au Canada et Denver, Colorado et New York,
New York aux Etats Unis.

                                     [LOGO]

<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ NOTICE: The signature of this assignment must correspond with the name as    +
+ written upon the face of the certificate, in every particular, without       +
+ alteration or enlargement, or any change whatever, and must be guaranteed by +
+ a bank, trust company or a member of a recognized stock exchange.            +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ AVIS: La signature de ce transfert doit correspondre en tous points au nom   +
+ inscrit au recto de ce certificat sans y elosgic, ajouter ou re trancher.    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

<TABLE>
<CAPTION>

<S>                                                          <C>
    For Value received, the undersigned herby sells,        Contre valeur recue, le soussigne vend
assigns and transfers unto                              cede st transporte par les presentes a

                   S.I.N. [_][_][_]-[_][_][_]-[_][_][_] N.A.S.

The Income Tax Act now requires issuers and/or              La lor de l impot sur le revenu exige presentment
their agents to request individual Canadians to             que les emetteurs et leur mandataires ou les deux
furnish their Social Insurance Numbers (S.I.N.)             demandent aux Canadiens qui sont des particuliers
for use in all reports to Revenue Canada by                 de fournir leur numero d'assurance sociale (N.A.S.)
Canadian payors. Please provide the transfee's              pour utilisation dans tous les rapports que les
S.I.N. above in the space provided.                         payeurs Canadiens font parvenir a Revenu Canada.
                                                            Veuillez indiquer le N.A.S. du beneficiaire du
                                                            transfert dans l'espace prevu a cette fin.
----------------------------------------------------------------------------------------------------------

                                                                         Shares
-------------------------------------------------------------------------Actions
of the capital stock represented by the within          du capital-action representees par le present
certificate, and does hereby irrevocably constitute     certificat et constitue et nomme par les presentes
and appoint

-----------------------------------------------------------------------------------------------------------
attorney to transfer the said stock on the books of     son fonde de pouvoir irrevocable pour le transfered
the within named Corporation with full power of         desdites actions dans les livres de la Societe ci-
substitution in the premises.                           nominee avec plein pouvoir de substitution dans
                                                        les circonstances.

Date___________________________________________________

                                 Signature______________________________________

Witness
Temoin__________________________________________________________________________

Signature Guaranteed By:
</TABLE>

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