----

 **EXECUTION COPY**

 

**SETTLEMENT AGREEMENT** 

This SettlementAgreement (the "Agreement") is entered into on this 22nd dayof February, 2007, by and among Zi Corporation, a corporation organized underthe laws of Alberta, Canada (the "Corporation"), Marty Steinberg, solelyin his capacity as Court appointed Receiver (the "Receiver") of LancerManagement Group LLC ("LMG"), Lancer Management Group II LLC ("LMGII"),Lancer Offshore Inc. ("Offshore"), Omnifund Ltd. ("Omnifund"),LSPV Inc. ("LSPV"), LSPV LLC ("LSPV LLC"), CLR Associates, LLC ("CLR"),G.H. Associates LLC ("GH"), and Alpha Omega Group Inc. ("AOG")(collectively the "Receivership Entities") and responsible person forLancer Partners, L.P. ("Partners", together with the ReceivershipEntities shall be referred to as the "Lancer Entities"),1Quarry Bay Investments Inc., an Alberta corporation and Michael Lobsinger, anindividual (jointly referred to as "Lobsinger", and together with allother parties named in this paragraph, and each of their respectivepredecessors, successors, parents, subsidiaries, directors, officers, employees,partners, limited partners and agents, the "Parties").

**RECITALS**

 

**WHEREAS**, certain disputes anddifferences have arisen among the Parties and various legal, regulatory andother proceedings have been commenced by the Parties with respect to thoseclaims; 

 

**WHEREAS**, the effect of acts taken byMichael Lauer and others preceding the Receiver's appointment on the Shares(defined below) beneficially held by the Receiver on behalf of the LancerEntities and the right of the Receiver to take certain actions as a shareholderof the Corporation as a result of acts taken by Michael Lauer and otherspreceding the Receiver's appointment have been the subject of litigation,regulatory proceedings and disputes between the Parties;  

 

**WHEREAS**, the Parties desire tocompromise any and all outstanding claims and issues, whether on behalf of theCorporation against the Receiver and the Lancer Entities, or on behalf of theReceiver and/or the Lancer Entities, as applicable, against the Corporation, aswell as any regulatory matters that have been raised or exist, through the datehereof; 

 

**WHEREAS**, each of the Parties hasdetermined that it is in their best interests to resolve the existing claims anddisputes among the Parties by entering into this Agreement;  

___________________________________                1 Throughout this Agreement, at times references are madeto "the Receiver" without reference to Partners, the Receivership Entities orthe Lancer Entities. The rights and obligations of the Receiver contained hereinextend, where applicable, from the Receiver to the Receivership Entities andalso on behalf of Partners, which is not in receivership. To the extent anyprovision herein applies to the rights, interests or claims of Partners, theReceiver acts solely in his capacity as the responsible person in control ofPartners as a debtor-in-possession. 
1

 

 

**WHEREAS**, the directors of theCorporation have determined, with the benefit of independent legal advice andother professional advice, that it is in the best interests of the Corporationand its shareholders that the Corporation enter into this Agreement;

 

**WHEREAS**, the Parties will use theirbest efforts to secure orders from the United States District Court for theSouthern District of Florida (the "District Court"), presiding over theproceeding styled *Securities and Exchange Commission v. Michael Lauer et al.*,Case No. 03-80612-CIV-MARRA/SELTZER, and the United States Bankruptcy Court forthe Southern District of Florida (the "Bankruptcy Court"), presiding overthe case styled *In re Lancer Partners, L.P.*, Case No. 0611721-BKC-JKO, (i)authorizing  the Receiver to execute this Agreement on behalf of theReceivership Entities and Partners; and (ii) ordering that the Parties complywith the terms of this Agreement and the other agreements and instrumentsexecuted in connection with this Agreement;

 

**WHEREAS**, the Corporation and theReceiver have held preliminary discussions with the staff of Alberta SecuritiesCommission (the "ASC") and have received the verbal advice of the ASCthat it will, upon execution of this agreement and application of theCorporation, dismiss with prejudice the proceedings commenced by the Corporationbefore the ASC, styled *Zi Corporation v. Marty Steinberg et al.*, *Docket E/03084*, over which it has jurisdiction (the "Pending ASC Action");

 

**NOW, THEREFORE**, in consideration ofthe mutual promises contained herein and such other good and valuableconsideration, the receipt and sufficiency of which is hereby acknowledged, theParties agree as follows: 

 

1.

Recitals & Agreement to Satisfy Various Conditions Precedent. 

(a).

The above recitals are true and correct and are incorporated inthis Agreement. 

(b).

The Exhibits to this Agreement are as follows:

Exhibit A - Form of Mutual Release

Exhibit B - ASC Request Letter

Exhibit C - Definition of Qualified Offering

Exhibit D - Form of Consulting Agreement

Exhibit E - Form of Lobsinger Lockup Agreement

Exhibit F - Form of Receiver Lockup Agreement

Exhibit G - Lobsinger Letter of Resignation 

Exhibit H - Form of Lobsinger Resignation Resolution 

 

(c).

 The Parties agree that for the next 60 days, they will use theirbest efforts to, as soon as possible, secure an order from the District Courtand the Bankruptcy Court approving and ratifying the Receiver's execution ofthis Agreement (the "Court Orders") on behalf of the ReceivershipEntities and Partners, respectively. As part of such best efforts, the Partieswill, within three (3) business days of the date of execution of this Agreement,jointly present this Agreement to the District Court and the Bankruptcy Courtfor its authorization and ratification. 

2

 

 

(d).

The Parties agree that for 60 days after receipt of the CourtOrders they will: (i) use their best efforts to secure from the ASC anacknowledgement that the ASC will dismiss, terminate or discontinue (or hasdismissed, terminated or discontinued) with prejudice the Pending ASC Action(the "ASC Acknowledgement"); (ii) use their best efforts to secure fromthe ASC an acknowledgement that affirmatively indicates that it has no objectionto the Parties terminating the Pending ASC Action on the terms set forth in thisAgreement (the "ASC No Objection Letter"); and (iii) use their bestreasonable efforts to secure from the ASC an acknowledgement that the ASC willtake no further action based on acts of Michael Lauer and others which precededthe Receiver's appointment (the "ASC No Action Consent").  In furtherance(and not limitation) of the foregoing, the Parties will, within three (3)business days of the receipt of the Court Orders jointly present this Agreementto the ASC together with a letter substantially in the form of Exhibit Bhereto (the "ASC Request Letter") in order to jointly solicit the ASCAcknowledgement.  

(e).

Each of the Parties acknowledge and agree that between thesigning of this Agreement and the Outside Closing Date (as defined in subsection1(h) below):  (i) they will jointly approach the ASC and each use their bestefforts to seek an adjournment of any hearings currently scheduled prior to theOutside Closing Date; (ii) the Receiver will not reinstitute its contemptmotion; (iii) they will not take any steps in the Court of Queen's Bench ActionNo. 0501-11761; (iv) neither of them will take any steps in Appeal Nos.0601-0051AC and 0601-0097AC, other than informing the Alberta Court of Appealthat the Parties have a standstill agreement in place; (v) the Receiver willvoluntarily extend the time for Allen & Caron Inc. to respond to the Receiver'ssubpoena; and (vi) they will not initiate any new legal proceedings against eachother or against any person acting on the other's behalf. 

(f).

Each of the Parties acknowledge and agree that between thesigning of this Agreement and Outside Closing Date, they will not, from anysource or proceeding, seek or accept any award or settlement with respect to anyClaim (as such term is defined below) and, to the extent permitted by law, theywill not commence, maintain, prosecute, participate, assist, cooperate or permitto be filed by any other person or on their behalf, any action or proceeding ofany kind, judicial or administrative (on their own behalf and/or on behalf ofany other person and/or on behalf or as a member of any alleged class orperson), in any court or agency against other Parties or any of their (asapplicable) past, present, or future parent corporations, affiliates,shareholders, officers, directors, successors, legal representatives andassigns, with respect to any act, omission, transaction or occurrence withrespect to any Claim; provided, however, the Parties may continue to maintain anExisting Claim (as such term is defined below) solely to the extent expresslypermitted by other  terms of this Section 1.  For the purposes of thisAgreement, Claim is defined to include all rights, claims, demands, damages,debts, liabilities, accounts, covenants, rights to indemnification, liens,attorney's fees, costs, expenses, actions and causes of action of every kind andnature whatsoever, now known or unknown, suspected or unsuspected, in law or inequity, which any of the Parties own or hold or at any time heretofore has everhad, owned or held, or may hereafter have, own or hold against any of the otherParties, based upon, related to or arising out of any matter, act, failure toact, fact, event, happening, occurrence, transaction or omission existing oroccurring prior to the date hereof.  For the purposes of this Agreement, theterm Existing Claims is defined to include: (i) the action filed in the Court ofQueen's Bench of Alberta, Judicial District of Calgary, styled *Zi Corporationv. Marty Steinberg et al.*, Action No. 0501--11761; (ii) the Pending ASCAction; (iii) the appeal filed before the Court of Appeal of Alberta, styled *Zi Corporation v. Marty Steinberg et al.*, Appeal No. 0601-0051AC; and (iv)the appeal filed before the Court of Appeal of Alberta styled *MartySteinberg, et al. v. Alberta Securities Commission*, Appeal No. 0601--0097AC.

3

 

 

(g).

 Each of the Parties acknowledge and agree that between thesigning of this Agreement and the Outside Closing Date, they will cooperate anduse their reasonable efforts to assist the Receiver to secure from the CanadianCourts and the ASC such orders, agreements and/or statements that will assistthe Corporation and/or the Receiver defend any Claim.

(h).

 Other than as set forth in this Section 1, Sections 7 -10, andSections 12 - 20 of this Agreement, the Parties acknowledge and agree that thisAgreement and all of the documents executed in connection herewith will not beeffective unless and until the Receiver receives the  Court Orders entered bythe District Court and the Bankruptcy Court and the Receiver and the Corporationeach receives the ASC Acknowledgement (or the Receiver waives his right toreceive any or all elements of the Court Orders and/or the ASC Acknowledgementor the Corporation waives the right to receive the ASC Acknowledgement). (Forthe avoidance of doubt, the Receiver shall not, in the course of using his bestefforts, be required and/or obligated in any way to waive his right to receiveeither the ASC Acknowledgement or the Court Orders.)  The Effective Date of thisAgreement (the "Effective Date") shall be the first date the foregoingconditions precedent are satisfied or waived and, accordingly, the Agreementbecomes effective on that date.  If, notwithstanding the best efforts of theParties, the Effective Date does not occur on or prior to the 120thcalendar day (the "Outside Closing Date") after the signing of thisAgreement, this Agreement shall have no, and shall be deemed never to have hadany, force and effect other than as set forth in this Section 1 and Sections 7 -20.  Upon receipt of the Court Orders, the Receiver shall make available a copyof the Court Orders to the Corporation and Lobsinger.  

2.

Termination of  Litigation and Regulatory Proceedings. 

(a).

As of the Effective Date, each of the Parties agrees toimmediately discontinue with prejudice all litigation and regulatory proceedingsof any kind, judicial or administrative, commenced on their own behalf and/or onbehalf of any other person or entity and/or on behalf of or as a member of anyalleged class of persons, in any court or before any agency, panel or tribunal,against any other Party, or against any of their past, present, or future parentcorporations, subsidiaries, affiliates, shareholders, officers, directors,employees, successors, legal or other representatives (including Allen & CaronInc.) or assigns, with respect to any act, omission, transaction, claim oroccurrence, known or unknown, up to and including the date of the execution ofthis Agreement.   

(b).

As of the Effective Date, without limiting the foregoing, each ofthe Parties agrees to use its best efforts and to take all lawful actionsnecessary or desirable to cause the Existing Claims to be discontinued orabandoned, without costs.  As part of such best efforts, the Parties shallwithin three (3) business days after the Effective Date, if not sooner, take alllawful actions necessary or desirable to cause the August 10, 2005, *Ex Parte*Order of the Queen's Bench of Alberta to be terminated and set aside and tocause the Existing Claims to be discontinued and dismissed with prejudice as toall Parties to the Existing Claims.  

4

 

 

(c).

As of the Effective Date, the Receiver shall as soon asreasonably practicable,  apply to the Court of the Queen's Bench of Alberta foran order terminating the *ex parte* order granted by said Court on August10, 2005, and the Corporation will consent to such an order being granted. Immediately upon the granting of such an order, the Parties will take alllawful actions necessary or desirable to cause the existing claims to bediscontinued or, in the case of appeals, abandoned, all without any order forcosts.  

(d)

As of the Effective Date, the Parties agree that: (i) they willnot support and will cooperate in opposing any effort of any shareholder of Zior the ASC to take any action against any Party based on the acts of MichaelLauer and others that preceded the date of the Receiver's appointment.  

3.

Releases, Consulting Agreement & Lobsinger Resignation.The Parties shall deliver the following documents in trust to Gowling, Lafleur,Henderson LLP to take effect upon the occurrence of the Effective Date.  

(a).

The Corporation will deliver each of the Current and FormerDirectors and to the Receiver a Release in the form of Exhibit A attachedhereto (which will release the Receiver in his individual capacity as well as inhis capacity as the Receiver of the Lancer Entities and as responsible personfor Partners); 

(b).

The Receiver will deliver to the Corporation and each of theCurrent and Former Directors a Release in the form of Exhibit A; 

(c).

The current and former directors listed on Schedule 3(c)(the "Current and Former Directors") of the Corporation as of the date ofthe signing of this Agreement will deliver to the Receiver, the Lancer Entitiesand the Corporation a Release in the form of Exhibit A; and

(d)

The Receiver, the Lancer Entities, and the Corporation shalldeliver to each of the Current and Former Directors a Release in the form ofExhibit A.  

 

(e)

The Corporation shall enter into a consulting agreement withLobsinger in the form of Exhibit D hereto (the "Consulting Agreement"),pursuant to which the Corporation and Lobsinger represent and warrant that thereare no agreements, commitments and understandings, whether written or oral,between the Corporation and either Lobsinger, Quarry Bay Investments Inc., orany related person or affiliated person and the Corporation will have noobligations or liabilities to Lobsinger, except as provided in the:  (i)Consulting Agreement; and (ii) the option agreements set forth on Schedule3(e)(ii) attached hereto (the "Option Agreements") entitling Lobsinger to purchase 950,000 common shares in the capital of the Corporation.

 

(f)

On the Effective Date, the irrevocable letter of resignation fromLobsinger (the "Lobsinger Letter of Resignation") attached hereto as Exhibit G shall become effective, pursuant to which Mr. Lobsinger willimmediately resign as a member of the board of directors of the Corporation andany other board or other position of any subsidiary or affiliate of theCorporation and will cooperate to cause the board of directors of theCorporation to pass a resolution in substantially the form of Exhibit Hattached hereto (the "Lobsinger Resignation Resolution") that will acceptthe Lobsinger Letter of Resignation.  

5

 

 

4.

Certain Representations and Covenants

                (a)

                Receiver's Shareholder Status.  TheReceiver hereby represents and certifies that the Receiver owns, on behlaf ofthe Lancer Entities, 18,718,000 common shares of the Corporation (the "Shares").The Corporation represents that it does not have any knowledge that the Receiverdoes not own all of the Shares, and agrees not to contest or dispute theReceiver's and/or the Lancer Entities' claim to the Shares, or ownership of anyof them.  The Parties agree and acknowledge that as of the Effective Date, (i)the Receiver has the power and authority to exercise, on behalf of the LancerEntities, all rights and privileges with respect to all of the Shares,including, without limitation, (x) the right to vote all such Shares at anymeeting of shareholders of the Corporation by proxy or in person with full powerand authority to exercise all rights and privileges afforded to othershareholders of the Corporation, and (y) subject only to the contractualrestrictions contained herein, requisition a meeting of the shareholders of theCorporation; (ii) the Lancer Entities have the full power to exercise all rightsand privileges with respect to shares of the Corporation held by or for thebenefit of the Lancer Entities; (iii) Lobsinger and the Corporation will take nosteps to prevent the Receiver or the Lancer Entities from exercising any oftheir rights or privileges as shareholders and, except to the extent compelledby law, will not assist, encourage or cooperate with any other person or entitywho seeks to limit or prevent the exercise of those rights.  In the event thatany other person or entity seeks to compel their assistance or cooperation inthat regard, they will promptly notify the Receiver and will take such actionsas the Receiver may reasonably request in an effort to limit the assistance orcooperation to the minimum required by law; (iv) Lobsinger and the Corporationwill not, based on any actions taken by the Lancer Entities or the Receiver orany other person or entity prior to the date hereof, raise any objection to theexercise by the Receiver or the Lancer Entities of any rights or privileges withrespect to shares of the Corporation held by or for the benefit of the LancerEntities; (v) the Corporation will cooperate with, and use its best efforts toassist, the Receiver in connection with the exercise by the Receiver of anyrights or privileges with respect to shares of the Corporation held by or forthe benefit of the Lancer Entities, (vii) in the event that any or all of theshares of the Corporation now held by or for the benefit of the Lancer Entitiesare distributed (as approved by the District Court) to any creditors of orinvestors in the Lancer Entities, then the recipients of such shares shall havethe benefit of the provisions above as if such recipients were Lancer Entities,and the Receiver will hold the benefit of this subsection (vii) in trust forsuch recipients.

 

(b) 

Solvency and Value.   (i)  TheCorporation confirms that the Corporation is solvent and that nothing in thisAgreement or in the execution of this Agreement will cause the Corporation tobecome insolvent; however, the Parties acknowledge that the Corporation hasincluded a "going concern note" in its most recent financial statements, andrequires additional financing to continue as a going concern.  (ii)  To theextent that the Receiver and/or the Lancer Entities has/have received or willreceive, by virtue of this Agreement, "transfers" or "preferences" as such termsare defined by the Bankruptcy Code, the Receiver and/or the Lancer Entiteshas/have given new and reasonably equivalent value contemporaneously in exchangefor such transfers and such transfers have not rendered the Corporationinsolvent.  (iii)  To the extent that Receiver and/or the Lancer Entitieshas/have received or will receive, "transfers" or "preferences" by virtue ofthis Agreement, it is hereby agreed that Receiver and/or the Lancer Entitieswill not have received more than they would if the Corporation commencedproceedings under Chapter 7 of the Bankruptcy Code.  (iv)  In the event anypayments or transfers made by the Corporation to the Receiver or any of theLancer Entities, directly or indirectly, or any part thereof are subsequentlyinvalidated, declared to be fraudulent or preferential, set aside, voided,and/or required to be repaid to a trustee, receiver or any other party appointedunder the Bankruptcy Code, Canadian, state or federal law, common law orequitable cause, the obligation or part thereof intended to be satisfied underthis Agreement shall be reinstated or shall continue to be effective, as thecase may be, and shall remain fully enforceable pursuant to this Agreement andapplicable law to the extent that such payments or transfers are voided, setaside or required to be disgorged, to the extent permitted by law.  (v)  TheParties confirm that these provisions, individually and collectively, constitutea material inducement for the Receiver to enter into this Agreement.  

6

 

 

(c) 

Authority and Enforceability.  EachParty confirms that: (i) it has the power and authority to execute and deliverthis Agreement and to consummate the transactions contemplated by thisAgreement; (ii) the execution and delivery of this Agreement will not violate orconflict with the organizational documents of such Party, or with any otheragreement to which such person or entity is a party; (iii) it is fullyauthorized and empowered to execute and deliver this Agreement; and (iv) thisAgreement has been duly and validly executed and delivered by such Party andconstitutes the valid and binding obligation of such Party, enforceable againstsuch Party in accordance with its terms, except in each case as suchenforceability may be limited by bankruptcy, insolvency, reorganization or otherlaws affecting or limiting the enforcement of creditors' rights generally.  

 

(d)

Review of Documentation and Release; Consultation with Counsel. Each Party confirms that: (i) in the negotiation and drafting of this Agreementit has had the opportunity to consult with counsel of its choice; (ii) itscounsel (or the Party itself if not represented by counsel) has had an**opportunity to contribute to the negotiation and drafting of this Agreement;(iii) the principle of construing a document most strictly against its draftershall not apply with respect to the interpretation of this Agreement; (iv) ithas had access to all relevant documents and information; and (v) it has takenwhatever actions it has deemed necessary to adequately evaluate the terms andprovisions hereof and to execute and deliver this Agreement. 

 

5.

Covenants.  

(a)  

Corporation Covenants:  

The Corporation hereby covenants as follows:

 

(i)           The Corporation will seek to hold a meeting of its shareholders in respect ofthe fiscal year ended 2006 by June 30, 2007 (the "2007AGM") and solicit proxies in favor of the following matters:

7

(A)     setthe number of directors to be elected at the 2007 AGM at no less than five (5)directors and no more than six (6) directors; 

(B)     electa slate of directors to the board of the Corporation to be selected as describedin Section 6 below; and 

(C)    re-appoint Deloitte Touche or appoint such new auditor as the directors of theCorporation may unanimously recommend, as auditor of the Corporation. 

(ii)

The Receiver shall be entitled and permitted to vote the Shareswithout restriction and the Corporation shall use its best efforts to assist theReceiver to do so; provided, however, that the Receiver shall at the  2007 AGMvote in favor of the matters set forth in Section 5(a)(i) above. 

 

(iii) 

Up until the Corporation's shareholders' meeting held in respectof the fiscal year ended 2007 (the "2008 AGM") the Receiver shall havethe right to designate two persons as director nominees (the "ReceiverDesignees") to be elected or appointed as directors of the Corporation. Accordingly, at the 2007 AGM, the Receiver shall have the right to designatetwo persons as the Corporation's director nominees. 

 

The Corporation shall use its best efforts to cause the directornominees set forth in Section 6 of this Agreement or their replacement nomineesappointed pursuant to this Agreement to be elected at the 2007 AGM, to serve fora term expiring at the 2008 AGM.

 

(iv)  The Corporation shall not nominate Michael Lobsinger,Quarry Bay Investments Inc. nor any of their affiliates, directors, officers,employees, partners, limited partners, agents or counsel as a director of theCorporation, or vote any shares to support Michael Lobsinger, Quarry BayInvestments Inc. or their affiliates for appointment to the board of directorsof the Corporation.  Notwithstanding the foregoing, at the 2007 AGM and up untilthe 2008 AGM, Lobsinger shall have the right to designate two (2) nominees to beelected or appointed as directors of the Corporation (the "LobsingerDesignees").    

 

(v)  The Corporation may, if the directors determine it to be inthe best interests of the Corporation, consummate an offering of securities,which may consist of or include an offering of common shares, warrants and/ordebt instruments (a "Financing") in order to obtain funding for theCorporation.  None of the Lancer Entities, Lobsinger and their respectiveaffiliates shall subscribe for securities of the Corporation in any Financing ofthe Corporation without the prior written approval of both the Receiver andLobsinger until the later of: (1) June 30, 2008; or (2) the 2008 AGM.  

8

 

 

(vi)  The Corporation shall not, based on any actions taken priorto the date hereof by the Lancer Entities, the Receiver or any of theirrespective owners, investors, directors, partners, managers, advisers,employees, or agents or any other person or entity, raise any objection to theexercise by the Receiver or the Lancer Entities of any rights or privileges withrespect to the Shares. 

 

(vii)  The Corporation shall never take any steps to prevent theReceiver, the Lancer Entities or the beneficial owners of the Lancer Entitiesfrom exercising any of their rights or privileges as direct or indirect holdersof the Shares and shall never assist, encourage or cooperate with any otherperson or entity that seeks to limit or prevent the exercise by the Receiver ofsuch rights or privileges.

 

(viii) Up until the 2008 AGM (but not including the solicitationof proxies by the Corporation for the 2008 AGM), the Corporation (including itsmanagement, board of directors or any other person pursuant to a resolution orthe instructions of, or with the acquiescence of, the directors or a committeeof the directors) shall not: (i) solicit proxies for less than (5) fivedirectors or more than six (6) directors; nor (ii) change its number ofdirectors to a number greater than six (6) without the prior written consent ofboth the Receiver and Lobsinger.  

 

(ix)

In the event that a Receiver Designee for any reason ceases toserve as a member of the board of directors of the Corporation during his or herterm of office, the resulting vacancy shall be filled by another ReceiverDesignee designated by the Receiver as soon as reasonably possible after thevacancy occurs.

 

(x)

In the event that a Lobsinger Designee for any reason ceases toserve as a member of the board of directors of the Corporation during his or herterm of office for any reason, the resulting vacancy shall be filled by anotherLobsinger Designee designated by Lobsinger as soon as reasonably possible afterthe vacancy occurs.

 

(xi)

The Corporation shall take all necessary action to effectuatethis Agreement and shall take no action that will interfere with the terms ofthis Agreement.

 

(b)

Lobsinger Covenants.

 Lobsinger hereby covenants as follows

(i) 

On or after the Effective Date and until the expiration of theearlier of: (1) the Consulting Agreement; or (2) six months from the datehereof, in connection with a Qualified Offering (as defined in Exhibit Cattached hereto, the "Qualified Offering") and upon the request of aregistered agent (a "Placement Agent") acting on behalf of theCorporation in connection with a Qualified Offering, Lobsinger will agree toexecute and deliver a lockup agreement in substantially the same form as theform of lockup agreement attached hereto as Exhibit E (the "LobsingerLockup"), pursuant to which Lobsinger will agree not to sell, make any shortsale of loan, grant any option for the purchase of, or otherwise dispose of anyshares or derivative securities of the Corporation without the prior writtenconsent of the Placement Agent, from the closing of the Qualified Offering andthrough the date that is six (6) months thereafter; provided, however, thatLobsinger shall not be required to provide any lock-up agreement that is longerthan or more onerous than any lock-up agreement provided by the Receiverpursuant to Section 5(c)(i) herein.  

 

(ii) 

The Receiver shall be entitled and permitted to vote the Sharesin the manner described in this Agreement without restriction and Lobsingershall not take any action to prevent such voting. 

 

(iii) [Intentionally Omitted]

9

 

 

(iv)

Lobsinger shall cooperate to cause the nominees set forth inSection 6 of this Agreement (or their replacements in accordance Section 6hereof) to be elected or appointed to the  board of directors of theCorporation, at the 2007 AGM and/or at any shareholder or director meetings heldprior to the 2008 AGM that address the election or appointment of directors,including, without limitation, voting all of the shares of the Corporation'scommon stock beneficially owned by Lobsinger at such time in favor of thenominees set forth in Section 6 of this Agreement. Lobsinger shall not take anyaction to oppose or assist in opposing  the election or appointment of nomineesset forth in Section 6 of this Agreement to the  board of directors of theCorporation at the 2007 AGM and/or at any shareholder or director meetings heldprior to the 2008 AGM that address the election or appointment of directors.

 

(v) 

Lobsinger shall not, at the 2007 AGM or at any time prior toApril 30, 2008 nominate Lobsinger, Quarry Bay Investments Inc. or theiraffiliates as a director of the Corporation, or vote any shares to support  Lobsinger,Quarry Bay Investments Inc. or their affiliates for appointment to the board ofdirectors. Notwithstanding the foregoing, at the 2007 AGM, Lobsinger shall havethe right to designate two persons as the Lobsinger Designees.

 

(v)  

Lobsinger shall not, based on any actions taken prior to the datehereof  by the Lancer Entities, the  Receiver or any of their respective owners, investors, directors, partners, managers, advisers, employees, oragents  or any other person or entity, raise any objection to the exercise bythe Receiver or the Lancer Entities of any rights or privileges with respect tothe Shares. 

 

(vi)  

Lobsinger shall take no steps to prevent the Receiver or theLancer Entities from exercising any of their rights or privileges asshareholders and will not assist, encourage or cooperate with any other personor entity that seeks to limit or prevent the exercise of such rights orprivileges.

 

(vii)  

Lobsinger shall take all actions necessary to effectuate thisAgreement and shall take no action that will frustrate or interfere with theterms of this Agreement. 

 

(c)

Receiver Covenants.  

The Receiver hereby covenants as follows:

 

(i) 

On or after the Effective Date and until the expiration of theearlier of: (a) the Consulting Agreement; or (b) six months from the datehereof, in connection with a Qualified Offering and upon the request of aPlacement Agent, the Receiver will agree to execute and deliver a lockupagreement in substantially the same form as the form of lockup agreementattached hereto as Exhibit F (the "Receivership Lockup") pursuantto which the Receiver will agree not to sell, make any short sale or loan, grantany option for the purchase of, or otherwise dispose of any shares or derivativesecurities of the Corporation without the prior written consent of the PlacementAgent, from the closing of the Qualified Offering and through the date that issix (6) months thereafter; provided, however, that (i) the Receiver shall not berequired to provide any lock-up agreement that is longer than or more onerousthan any lock-up agreement provided by Lobsinger pursuant to Section 5(b)(i)herein, and (ii) the Receiver shall have the right to make an in kinddistribution of the Zi common stock to any investor in the Lancer Entities thatagrees to hold such shares subject to the terms and conditions comparable to theReceivership Lockup.   

10

 

 

(ii) 

The Receiver shall cooperate to cause the nominees set forth inSection 6 of this Agreement (or their replacements in accordance with Section 6hereof) to be elected to the board of directors of the Corporation at the 2007AGM and/or at any shareholder or director meetings held prior to the 2008 AGMthat address the election or appointment of directors, including withoutlimitation voting all of the shares of the Corporation's common stock held bythe Lancer Funds in favor of the nominees set forth in Section 6 of thisAgreement.  The Receiver shall not take any action to oppose or assist inopposing  the election or appointment of nominees set forth in Section 6 of thisAgreement to the  board of directors of the Corporation at the 2007 AGM and/orat any shareholder or director meetings held prior to the 2008 AGM that addressthe election or appointment of directors

 

(iii)

The Receiver shall take all actions necessary to effectuate thisAgreement and shall take no action that will frustrate or interfere with theterms of this Agreement. 

 

6.

Board Composition.  

(a)  

The initial Receiver Designees to be designated for election tothe board of directors of the Corporation at the 2007 AGM shall be and areDonald P. Moore and Robert Stefanski.  

(b)

The initial Lobsinger Designees to be designated for election tothe board of directors of the Corporation at the 2007 AGM shall be and areRichard Tingle and Donald Hyde.

 

(c)

If at any time the board of directors of the Corporation deems ithelpful or necessary to add one (1) additional member to the board of directors(a "New Board Member") then the board of directors may do so by an act ofthe board of directors.  

 

(d) 

The board of directors of the Corporation will solicit proxies ofthe Shareholders of the Corporation for the 2007 AGM as follows:

(i)

To elect the Receiver Designees.

       

(ii)

To elect the Lobsinger Designees.

       

(iii)          To elect Milos      Djokovic and the New Board Member, if applicable, to the board of      directors of the Corporation provided that if Milos Djokovic and the New      Board Member, if applicable, or either of them shall not wish to stand for      election at the 2007 AGM or in the event that Milos Djokovic is no longer      the Chief Executive Officer of the Corporation, the Board shall solicit      proxies of the Shareholders of the Corporation to elect, as their      replacement or replacements, the person or persons, as the case may be, to      be determined by the board of directors of the Corporation. 
11

 

 

(e) 

The above-mentioned recommendation by the board of directors of the Corporationwill be presented to the shareholders of the Corporation as part of themanagement proxy circular to be circulated in connection with the 2007 AGM. Each of the Parties shall, at least one (1) week prior to the 2007 AGM, provideeach other Party written confirmation of: (i) the number of shares theybeneficially own; and (ii) the instructions they provided to the Corporationwith respect to the voting of their shares. If any Party disputes the number ofshares or the voting instructions, that Party shall provide written notice ofsuch dispute to the other Party within 2 business days. Failure to provide suchnotice shall be considered a waiver of the right to object or dispute suchwritten confirmation(s).

 

(f)

The right of the Receiver to, pursuant to the terms of thisAgreement, appoint two Receiver Nominees to the board of directors of theCorporation (and the covenant of the other Parties to cause the ReceiverNominees to be appointed to the board of directors of the Corporation) shallcease upon the earlier of: (i) the 2008 AGM; or (ii) the date the Receiver, theLancer Entities and the beneficial holders of the Lancer Entities cease to bethe beneficial owner of at least 10% of the equity securities of theCorporation.  For the avoidance of doubt, the provisions of this Section 6 shallin no way impact: (i)  the rights granted to the Receiver and Lancer Entities inthe Voting Rights Agreement dated July 15, 2004, by and between the Corporation,Lancer Offshore, Inc., Lancer Partners, L.P., Omnifund, Ltd., and LSPV, LLC (the"Voting Rights Agreement"); or (ii) the rights and privileges of theReceiver as a shareholder of Zi, including those rights and privileges set forthin Section 4 of this Agreement.

 

(g)

The right of Lobsinger to appoint two Lobsinger Nominees to theboard of directors of the Corporation (and the covenant of the other Parties tocause the Lobsinger Nominees to be appointed to the board of directors of theCorporation) shall cease upon the earlier of: (i) the 2008 AGM; or (ii) the dateLobsinger ceases to be the beneficial owner of 5% of the equity securities ofthe Corporation. 

 

(h)

For the avoidance of doubt, the Parties agree that a Party'sright to designate a director nominee does not independently disqualify suchdirector nominee from being considered "independent".   For the purposes of thisAgreement, the calculation of a Party's beneficial ownership shall be madewithout giving effect to any option or warrant with an exercise price per shareof common stock greater than then five day, volume weighted average tradingprice of the Corporation's common stock.

 

7.

Bankruptcy-Related Provisions.

(a) 

The Corporation hereby warrants and represents that it does notintend, by executing and delivering this Agreement or any other documentcontemplated herein, or by entering into any of the other transactions referredto in this Agreement, does so without the intent to hinder, delay or defraud anyperson or entity to whom the Corporation is indebted or shall become indebted.   The Corporation further represents that it is entering into this Agreement toenable the Corporation to secure financing for the Corporation.  If theCorporation is unable to obtain financing for its ongoing business even afterentering into this Agreement, then the Parties acknowledge that bankruptcy maybe an alternative for the Corporation, and nothing herein shall be deemed toprevent the board of directors of the Corporation from exercising its discretionto act in the best interests of the Corporation, which could include filing avoluntary insolvency, bankruptcy or similar proceeding. 

12

 

 

(b) 

The Corporation is solvent and the actions contemplated in thisAgreement shall not result in the Corporation becoming insolvent; however, theParties acknowledge that the Corporation has included a "going concern note" inits most recent financial statements, and requires additional financing tocontinue as a going concern.

 

(c)

Consent to Relief from Automatic Stay. In the event the Corporation files a voluntary petition seeking relief underthe Bankruptcy Code or the Corporation becomes the subject of an involuntarybankruptcy proceeding in which an order for relief is entered and not dismissedwithin thirty (30) days, or otherwise becomes the subject of any petition thatis not dismissed within thirty (30) days seeking any reorganization,arrangement, composition, readjustment, liquidation, dissolution, assignment forthe benefit of creditors, or similar relief under any present or future federalor state laws or statutes relating to bankruptcy, insolvency, or other relieffor debtors, or the Corporation seeks, consents to or acquiesces in theappointment of a trustee, receiver, conservator or liquidator, including anysimilar proceedings under Canadian law, the Corporation agrees that the Receiverand/or any of the Lancer Entities will not be adequately protected and thereforewill each be entitled to immediate relief from any automatic stay prescribed byapplicable Canadian, state or federal law including, but not limited to, 11U.S.C. § 362, to enforce their rights under this Agreement.  This entitlementshall be irrespective of any of the requirements of Canadian, state or federallaw including, but not limited to, 11 U.S.C. § 362, and the Receiver and/or theLancer Entities shall not be obligated to satisfy those requirements in order toobtain stay relief.

 

(d) 

The Corporation further agrees that to the extent the Receiverand/or the Lancer Entities has/have received, or will receive, by virtue of thisAgreement, "transfers" or "preferences" as such terms are defined by theBankruptcy Code, Receiver and/or the Lancer Entities has/have given new valueand reasonably equivalent value contemporaneously in exchange for such transfersand such transfers have not rendered Corporation insolvent.  To the extent thatReceiver and/or the Lancer Entities has/have received or will receive by virtueof this Agreement, "transfers" or "preferences", it is hereby agreed that theReceiver and/or the Lancer Entities will not have received more than they wouldif the Corporation commenced proceedings under Chapter 7 of the Bankruptcy Code.

 

(e) 

Reinstatement of Obligations. Notwithstanding the provisions of the preceding paragraphs, in the event anypayments or transfers made by the Corporation to the Receiver or the LancerEntities, directly or indirectly, or any part thereof are subsequentlyinvalidated, declared to be fraudulent or preferential, set aside, voided,and/or required to be repaid to a trustee, receiver or any other party appointedunder the Bankruptcy Code, Canadian, state or federal law, common law orequitable cause, the obligation or part thereof intended to be satisfied of theCorporation under this Agreement shall be reinstated or shall continue to beeffective, as the case may be, and shall remain fully enforceable pursuant tothis Agreement and applicable law to the extent that such payments or transfersare voided, set aside or required to be disgorged, to the extent permitted bylaw.

13

 

 

(f) 

The foregoing Bankruptcy provisions in this Section 7collectively constitute a material inducement for the Receiver to enter intothis Agreement. 

 

8.

Modification/Amendment. ThisAgreement may not be altered, modified, amended, or otherwise changed except inwriting executed by a legal representative of each Party.

9.

Execution in Counterparts.**** This Agreement may be executed in two or more counterparts, each of which shallbe deemed an original, but all of which together shall constitute one and thesame instrument, and which shall all be deemed executed on the date listedabove.

10.

Disclosure. The Parties acknowledgeand agree that upon the execution and delivery of this Agreement, theCorporation and the Receiver shall issue a joint press release summarizing thematerial terms of this Agreement, which summary is expected to be: (i) filedwith the SEC by the Corporation on Form 6-K; (ii) filed with the SEC by theReceiver on a Schedule 13; and (iii) referenced in early warning reports to befiled with the ASC and the Ontario Securities Commission by the Receiver. TheCorporation shall file a material change report within ten days in accordancewith the applicable Canadian legal requirements. 

11.

Non-Disparagement.  The Partiesagree not to do or say anything in the future to disparage, denigrate orotherwise impugn the commercial or personal reputations of any other Partyhereto, or any of their respective officers, directors, employees and/or agents.

12.

Notices.  Any notices, demands,consents, agreements, requests, or other communications which may be required tobe given, served or sent by any Party to any other Party or obtained from anyParty pursuant to this Agreement must be in writing and must be (a) mailed byfirst-class United States of America mail or by regular mail in Canada,registered or certified, return receipt requested, postage prepaid; or (b) handdelivered personally by independent express courier as follows:

**(i)**

**If to the Corporation:**

 

Zi Corporation

Suite 2100, 840 - 7 Avenue SW

Calgary, Alberta

T2P 3G2 CANADA

Attn:  Milos Djokovic, President and CEO

 

With a copy to:

 

Burnet, Duckworth & Palmer LLP

Suite 1400, 350 - 7 Avenue SW

Calgary, Alberta, Canada  T2P 3N9

Attn:  Doug A. McGillivray, Esq.

14

 

 

**(ii)**

**If to the Receiver:**

 

Hunton & Williams LLP

1111 Brickell Avenue

Suite 2500

Miami, Florida 33131-1802

Attn:  

Marty Steinberg, Esq.,

*Receiver for the Receivership Entities*

*and responsible person for Lancer Partners, L.P.*

 

with a copy to:

 

Hunton & Williams, LLP

1111 Brickell Avenue

Suite 2500

Miami, Florida  33131-1801

Attn:  

Craig Rasile Esq. & 

David E. Wells, Esq.

*Counsel for the Receiver and Lancer Partners, L.P.*

  

**(iii)**

**If to Lobsinger:**

 

Michael Lobsinger

Bay No. 4, 12110 40th Street SE

Calgary, Alberta Canada T2Z 4K6

 

Any notice or other communications so sent will be deemedreceived three (3) working days in the case of mailing and upon actual receiptin the case of hand delivery (with the return receipt or the courier deliveryreceipt being deemed conclusive evidence of such delivery).  Each Party maydesignate by notice in writing a new address to which any notice, demand,consent, agreement, request or communication may thereafter be given, served orsent.

15

 

 

13.

Governing Law and Dispute Resolution. This Agreement will be governed by the laws of Florida.  Any dispute,controversy or claim between the Parties, whether arising out of, relating to orin connection with this Agreement, shall be resolved by binding arbitration asthe sole and exclusive remedy as to the matters in dispute conducted by one (1)neutral arbitrator in accordance with the commercial arbitration rules andprocedures (as well as the expedited procedures) of the American ArbitrationAssociation ("AAA") from time to time as modified by the terms hereof. Any Party may initiate an arbitration of a dispute by delivering a writtendemand for arbitration to the other Party.  The arbitrator shall be appointed bythe AAA in accordance with the AAA's commercial arbitration rules and procedureswithin ten (10) days after receipt of such notice. The arbitrator may not be acurrent or former client or employee of any Party or an attorney that hasprovided legal advice to any party, nor may the arbitrator be a current orformer employee of a direct competitor of any of the Parties.  Within ten (10)days after the arbitrator is appointed, the Parties and the arbitrator shallhold a hearing at which the Parties may present evidence and arguments, berepresented by counsel and conduct cross-examination.  The arbitrator shallapply the provisions of this Agreement, without varying therefrom in anyrespect.  The arbitrator shall render a written decision that relatesspecifically and exclusively to the dispute in question no later than five (5)days after the end of the hearing.  The decision of the arbitrator shall befinal, conclusive and binding on the Parties, and any Party shall be entitled asa matter of right to have judgment on such award entered by the District Court. All fees and costs of the arbitrator shall be paid equally by each Partyinvolved in the dispute, except that each Party shall pay its own attorneys' andexperts' fees and costs.  The Parties shall be obligated to continue theirrespective obligations in accordance with the terms and conditions of thisAgreement until the dispute under this Section is resolved, unless otherwiseordered by the arbitrator.  The exclusive venue of arbitration shall be Chicago,Illinois, unless the Parties mutually agree otherwise.  The language of thearbitration shall be English.  In the event the Corporation or Lobsinger refuseto comply with this Section in resolving any disputes, arising out of, relatingto or in connection with this Agreement, such disputes, whether in law or inequity, shall be considered proceedings ancillary to the action styled *Securities and Exchange Commission v. Michael Lauer et al.*, Case No.03-80612-CIV-MARRA/SELTZER (the "Enforcement Action"), currently pendingbefore the District Court. The District Court presiding over the EnforcementAction shall have original and exclusive jurisdiction over any such legal orequitable disputes including, without limitation any claims for injunctiverelief or specific performance and any dispute arising under Canadian law,Florida law or both.  The Parties hereby irrevocably submit in any suit, actionor proceeding arising out of or relating to such dispute, including, withoutlimitation, claims for injunctive relief or specific performance, to theexclusive jurisdiction of the District Court and waive any and all objections tosuch jurisdiction or venue that it may have under the laws of any state orcountry, including, without limitation, any argument that jurisdiction, situsand/or venue are inconvenient or otherwise improper.  The Parties further agreethat process may be served upon them in any manner authorized under the laws ofthe United States or Florida, and each waives any objection that it otherwisemay have to such process.  The provisions of this Section supersede the disputeresolution provisions of the Voting Rights Agreement (defined herein in Section6(f)).

14.

Waiver of Jury Trial. EACH PARTYHERETO HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES THE RIGHT ANYPARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY DISPUTE BASED HEREON,ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHERAGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OFCONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OFANY PARTY. 

15.

No Admission.

It is understood and agreed by the Parties that this Agreementand the consideration exchanged therefore, are made in compromise of disputedclaims and that by agreeing to this compromise and settlement, no Party ismaking or shall be construed to have made an admission of liability as to anyclaim or demand made by any other Party.

16

 

 

16.

Changes in Facts.

Each of the Parties acknowledges that the facts on the basis of which this Agreement is entered into may turn out to be incomplete or incorrector other than or different from the facts now known to such  Party or believedby such Party to be true, and , with the exception of false statements madeherein by other Parties, each Party  expressly assumes the risk of the factsturning out to be incomplete or incorrect or other than or different from suchknown or believed facts and, with the exception of instances in which falsestatements are made herein by other Parties,  agrees that this Agreement shallbe in all respects effective and binding despite any such difference. 

17.

Invalidity.

If any provision in this Agreement is held to be invalid orunenforceable by any court of competent jurisdiction, the other provisions ofthis Agreement will remain in full force and effect.  Any provision of thisAgreement, held invalid or unenforceable only in part or degree, will remain infull force and effect to the extent not held invalid or unenforceable.  

18.

Expenses.

Whether or not the transactions contemplated hereby areconsummated, except as otherwise provided herein, all costs and expensesincurred in connection with this Agreement and the transactions contemplatedhereby, including the preparation and execution of this Agreement andperformance of the transactions contemplated hereby, and all fees and expensesof investment bankers, finders, brokers, agents, representatives, consultants,counsel and accountants, will be paid by the Party incurring such costs andexpenses.

19.

Entire Agreement.

This Agreement, together with the Exhibits hereto, represents theentire agreement among the Parties with respect to the subject matter hereof andsupercedes and replaces all prior agreements and existing contracts between theParties with respect to the subject matter hereof, provided however that theVoting Rights Agreement dated July 15, 2004, by and between the Corporation,Lancer Offshore, Inc., Lancer Partners, L.P., Omnifund, Ltd., and LSPV, LLC,shall remain in effect to the extent not inconsistent with this Agreement.  Ifthe Voting Rights Agreement is inconsistent with this Agreement, the terms andprovisions of this Agreement shall supersede the Voting Rights Agreement.  

20.

Successors and Assigns. 

Whenever in this Agreement any of the Parties hereto is referredto, such reference shall be deemed to include the successors and assigns of suchParty and, where applicable, the heirs, executors and administrators of suchParty; and all covenants, promises and agreements by or on behalf of any Partythat are contained in this Agreement shall bind their respective successors,assigns, heirs, executors and administrators.  Notwithstanding the foregoing, noParty shall have the right to assign its rights, privileges and/or obligationshereunder to any person.  This Agreement is not intended to create any thirdparty beneficiaries or rights in favor of any third party beneficiaries. 

17

 

 

21.

District Court and Bankruptcy Court Approval; ASCAcknowledgement. NOTWITHSTANDING ANYTHING CONTAINEDHEREIN TO THE CONTRARY, THE PARTIES ACKNOWLEDGE AND AGREE THAT,  WITH THEEXCEPTION OF SECTION 1 AND SECTIONS 7-20 OF THIS AGREEMENT, THE AND PERFORMANCEBY THE RECEIVER AND THE LANCER ENTITIES OF THIS AGREEMENT AND EACH OF THE TERMSAND CONDITIONS CONTAINED HEREIN, AND THE CONSUMMATION OF ANY TRANSACTIONSCONTEMPLATED HEREBY, IS SUBJECT IN ALL RESPECTS TO THE APPROVAL ANDAUTHORIZATION OF EACH OF THE DISTRICT COURT AND THE BANKRUPTCY COURT PURSUANT TOTHE ENTRY OF AN ORDER OR ORDERS BY EACH OF THE DISTRICT COURT AND THE BANKRUPTCYCOURT THAT SHALL BE SATISFACTORY IN FORM AND SUBSTANCE TO THE RECEIVER AND THELANCER ENTITIES. THE PARTIES FURTHER ACKNOWLEDGE AND AGREE THAT THIS AGREEMENTAND ALL OF THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH WILL, WITH THEEXCEPTION OF SECTION 1 AND SECTIONS 7--20, SHALL NOT BE EFFECTIVE WITHOUT: (I) THE RECEIVER'S RECEIPT OF THE  FOREGOING APPROVAL AND RATIFICATION OF EACH OFTHE DISTRICT COURT AND THE BANKRUPTCY COURT AND THE RECEIVER'S RECEIPT OF THE ASC ACKNOWLEDGMENT IN FORM AND SUBSTANCE SATISFACTORY TO THE RECEIVER AND THELANCER ENTITIES; OR (II) THE RECEIVER'S WAIVER OF ITS RIGHT TO RECEIVE ANY ORALL ELEMENTS OF THE COURT ORDERS AND/OR THE ASC ACKNOWLEDGEMENT. 

 

 

 

**[SIGNATURE PAGE FOLLOWS]**

 

 

18

 

**IN WITNESS WHEREOF,** the undersignedhave executed this Agreement as of the date first above written.

 
**ZI      CORPORATION**  By: /s/ Milos DjokovicName:Milos DjokovicTitle:President  **MICHAEL LOBSINGER**  /s/      Michael Lobsinger  **QUARRY BAY INVESTMENTS INC.**  By: /s/ Michael      LobsingerName: Michael LobsingerTitle:President  **MARTY STEINBERG, as Court appointed Receiver of Lancer      Management Group, LLC, Lancer Management Group II, LLC, Lancer Offshore,      Inc., Omnifund, Ltd., LSPV, Inc., LSPV, LLC, CLR Associates, LLC, G.H.      Associates LLC, and Alpha Omega Group, Inc. and person in control of      Lancer Partners, L.P.  By:/s/ Marty SteinbergName:Marty SteinbergTitle:Receiver
  

19

 

SCHEDULE 3(c)

 

**Current and Former Directors**

 

Michael Lobsinger

Derrick Armstrong

Richard Tingle

Donald P. Moore

Howard Balloch

Don Hyde

Thompson MacDonald

Michael Mackenzie

Milos Djokovic

Robert Paul Stefanski
 

 

SCHEDULE 3(e)(ii)

 

Option Agreements

 

1)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation dated May 6, 2003 and effective as of April 17, 2003 pursuant towhich the Corporation granted Lobsinger the option to purchase 100,000 shares ofthe Corporation.  

 

2)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation dated June 23, 2003 and effective as of June 11, 2003 pursuantto which the Corporation granted Lobsinger the option to purchase 100,000 sharesof the Corporation.  

 

3)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation dated March 26, 2004 and effective as of March 25, 2004 pursuantto which the Corporation granted Lobsinger the option to purchase 400,000 sharesof the Corporation.  

 

4)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation effective as of September 16, 2004 pursuant to which theCorporation granted Lobsinger the option to purchase 50,000 shares of theCorporation.  

 

5)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation dated July 25, 2005 and effective as of July 21, 2005 pursuantto which the Corporation granted Lobsinger the option to purchase 150,000 sharesof the Corporation.  

 

6)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation dated June 5, 2006 and effective as of April 4, 2006 pursuant towhich the Corporation granted Lobsinger the option to purchase 100,000 shares ofthe Corporation.  

 

7)  Employee Stock Option Agreement by and between Lobsinger andthe Corporation effective January 10, 2007 pursuant to which the Corporationgranted Lobsinger the option to purchase 50,000 shares of the Corporation.  

 

 

 

**EXHIBIT A**

 

FORM OF MUTUAL RELEASE

 

(See Attached)

 

 

 

 

**EXHIBIT B**

 

FORM OF ASC REQUEST LETTER

 

(See Attached)

 

 

 

 

 

 

**EXHIBIT C**

 

DEFINITION OF QUALIFIED OFFERING 

 

A Qualified Offering is defined to be an offering that meets thecriteria in either (a) or (b) below: 

 

(a) Equity Offering 

 

(I) the Company issues common stock in exchange for at leastU.S.$3,000,000 of net proceeds; 

 

(II) the common stock is issued in accordance with the prevailingpolicies of the Toronto Stock Exchange and NASDAQ and at no more than a 25%discount to the prevailing market price of the common stock ("prevailing marketprice" is defined as the daily volume weighted average price of such commonstock on the Nasdaq National Market System or, if it ceases to be listed on theNasdaq National Market System, such other securities market on which such commonstock is principally listed or traded for the five (5) business days ending onthe day preceding the date of the execution of documents for the QualifiedOffering between the hours of 9:30 a.m. and 4:00 p.m. on a trading day (asreported by Bloomberg Financial L.P.)); 

 

(III) for each share of common stock issued in the subjectoffering, an investor may receive warrants to purchase up to a maximum of 1.0shares of common stock; 

 

(IV) such warrants shall be exercisable at a price no lower thanthe relevant offering price of the common stock (the "Exercise Price");

 

(V) such warrants shall be exercisable for a term no greater thanfive (5) years; 

 

(VI)  the warrants shall have broad based anti-dilutionprotections that are no more favorable to the holder of the warrants than theanti-dilution protections set forth in Exhibit C.1; and 

 

(VII) the Lancer Entities' Beneficial Ownership Percentage of theCorporation will not, without the consent of the Receiver, decrease by more than20% as a result of the offering (i.e. the  relative percentage decrease, and notthe absolute percentage decrease, will not be more than 20%) For purposes ofthis paragraph "Beneficial Ownership Percentage" is defined to be the quotientof (x) the number of Shares beneficially owned by the Lancer Entities, dividedby (y) the sum of the number of outstanding shares of the Corporation plus anyshares of the Corporation issuable upon conversion or exercise of derivativesecurities. 

 

(b) Debt Offering 

 

(I) the Company issues debentures, including debenturesconvertible into common stock, in exchange for at least U.S.$3,000,000 of netproceeds; 

 

 

 

(II) the effective amount of interest for such debentures is nohigher than 10% per annum; 

 

(III) the maturity date of such debentures is no sooner thaneighteen (18) months from the date of issuance for 50% of the debentures and two(2) years from the date of issuance on the other 50%; 

 

(IV) the common stock issued pursuant to a conversion of suchdebentures is issued at a conversion price (the "Conversion Price") whichis no less than 90% of the prevailing market price at the time of issuance ofthe debentures; 

 

(V) for each share of common stock that is issuable uponconversion of the debentures assuming the debenture was converted on the date ofissuance, an investor may receive warrants to purchase up to a maximum of 1.0shares of common stock at a warrant exercise price not less than offering priceof the common stock;  

 

(VI) such warrants shall be exercisable for a term no greaterthan five (5) years; 

 

(VII) the warrants shall have broad based anti-dilutionprotections that are no more favorable to the holder of the warrants than theanti-dilution protections set forth in Exhibit C.1; and 

 

(VIII) the Lancer Entities' Beneficial Ownership Percentage ofthe Corporation will not, without the consent of the Receiver, decrease by morethan 20% as a result of the offering (i.e. the  relative percentage decrease,and not the absolute percentage decrease, will not be more than 20%) . Forpurposes of this paragraph "Beneficial Ownership Percentage" is defined to bethe quotient of (x) the number of Shares beneficially owned by the LancerEntities, divided by (y)  the number of outstanding shares of the Corporation,plus any shares of the Corporation issuable upon conversion or exercise ofderivative securities. 

 

 

 

 

**EXHIBIT C.1**

 

Broad Based Anti-Dilution Protection 

 

In the event that the Corporation issues additional common stockafter the date hereof at an Effective Price (as defined below) that is less thanthe Exercise Price or the Debenture Warrant Exercise Price, then the ExercisePrice or the Debenture Warrant Exercise Price, respectively, shall be adjustedas follows: 

 

The Exercise Price or the Debenture Warrant Exercise Price (asapplicable) shall be multiplied by a fraction, the numerator of which shall be(x) the sum of (A) the number of shares of common stock (on an as converted,fully diluted basis assuming exercise of all then outstanding convertible orexercisable securities, including convertible debentures, options and warrants,(a "Fully Diluted Basis")) outstanding on the record date of such issuance plus(B) the quotient obtained by dividing the Total Consideration (as defined below)by the Exercise Price or Debenture Warrant Exercise Price (as applicable) thenin effect, and the denominator of which shall be (y) the number of shares ofcommon stock (on a Fully Diluted Basis) outstanding on the record date of suchissuance or sale plus the maximum number of additional shares of common stockissued by the Corporation or deemed to be issued pursuant to this Exhibit C.1 inconnection with such issuance or sale.  

 

The "Effective Price" of any additional common stock shall meanthe quotient determined by dividing the total number of shares of common stockissued or sold, or deemed to have been issued or sold by the Corporation underthis Exhibit C.1, into the aggregate consideration received, or deemed to havebeen received by the Corporation for such issuance under this Exhibit C.1, forsuch additional common stock (the "Total Consideration").

 

 

  

**EXHIBIT D**

 

**CONSULTING AGREEMENT**

 

**BETWEEN**

 

**MICHAEL E. LOBSINGER**

 

– and –

 

**ZI CORPORATION**

 

**WHEREAS,** Michael E. Lobsinger, anindividual ("**Lobsinger**"), is a party to that certain Settlement Agreementdated February __, 2007 among Zi Corporation, a corporation organized under thelaws of Alberta, Canada (the "**Corporation**"), Marty Steinberg, solely inhis capacity as Court appointed Receiver (the "**Receiver**") of LancerManagement Group, LLC ("**LMG**"), Lancer Management Group II, LLC ("**LMGII**"),Lancer Offshore, Inc. ("**Offshore**"), Omnifund, Ltd. ("**Omnifund**"),LSPV, Inc. ("**LSPV**"), LSPV, LLC ("**LSPV LLC**"), CLR Associates, LLC("**CLR**"), G.H. Associates, LLC ("**GH**"), and Alpha Omega Group Inc.("**AOG**") (collectively the "**Receivership Entities**") and asresponsible person for Lancer Partners, L.P. ("**Partners**" and togetherwith the Receivership Entities, the "**Lancer Entities**"), Quarry BayInvestments Inc., an Alberta corporation, and Lobsinger (the "**SettlementAgreement**"); 

 

**WHEREAS**, Lobsinger will resign as adirector of the Corporation effective on the Effective Date as defined in theSettlement Agreement; 

 

**WHEREAS**, Lobsinger and theCorporation are desirous of working together strictly on a consulting basisafter his resignation as a director of the Corporation; 

 

**WHEREAS**, the need for the consultingservices will be on a "when and as needed" basis;

 

**WHEREAS**, as of the date hereof,Lobsinger holds certain stock options to purchase common shares in theCorporation and restricted stock units (collectively, the "DerivativeSecurities"), with the exercise prices, maturity dates and vesting datespursuant to which each option or restricted stock unit was granted;

 

**WHEREAS**, pursuant to theCorporation's stock option plan (the "Plan"), the options and restricted unitsheld by a director or officer, employee or consultant of the Corporation shallautomatically expire ninety (90) days after such person ceases to be a director,officer, employee and consultant of the Corporation;

 

 

 

**NOW, THEREFORE**, it is mutuallyagreed:

 

1.

That in consideration of the payment of an hourly rate equal toTwo Hundred and Fifty Dollars ($250.00) up to a maximum aggregate amount of TenThousand Dollars ($10,000.00) and the continued relationship of Lobsinger as aconsultant for the purposes of the Plan, Lobsinger will agree to consult andprovide advice to the board of directors of the Corporation (the "Board") whenrequested in writing by the unanimous approval of the Board for the period fromJanuary 1, 2007 until the December 31, 2007.  

2.

The Corporation and Lobsinger acknowledge that the Corporationhas paid the premiums on a key-man insurance policy on Lobsinger in the amountof Ten Million Dollars ($10,000,000.00) until June 30, 2007.  The Corporationand Lobsinger agree that this key-man insurance policy shall remain in placeuntil June 30, 2007, and, by election to be made by Lobsinger at his solediscretion on or before May 31, 2007, Lobsinger may elect to assume the key-manpolicy at his expense and transfer the policy such that the Corporation has nofurther interest or obligation.  In the absence of such election, the policyshall be permitted to terminate on June 30, 2007.  If Lobsinger elects to assumethe policy, the Corporation shall cooperate to effect a transfer of the policyfor the sole benefit of Lobsinger and his beneficiaries at the expense ofLobsinger.  

3.

Other than the consideration outlined herein and thereimbursement of reasonable expenses incurred by Lobsinger in providing suchadvice, no further payments shall be made to Lobsinger pursuant to thisConsulting Agreement.

4.

No further benefits, perks or entitlements other than thoseexpressly indicated above will be paid by the Corporation to Lobsinger pursuantto this Consulting Agreement and it is acknowledged and agreed that allbenefits, perks and entitlements pursuant to any other consulting agreementshave terminated.

**AGREED** this ____ day of February,2007.
 **ZI CORPORATION**   Per:    _______________________ **MICHAEL    E. LOBSINGER**   
 

  

**EXHIBIT E**

 

This Agreement made as of the ____ day of _______________, 2007.

 

**LOCK UP AGREEMENT**

 

**BETWEEN:**

**MICHAEL E. LOBSINGER**

 

– and –

 

 

**ZI CORPORATION**

 

**IN CONSIDERATION** of the mutualpromises and the releases secured *inter alia* in favor of Michael E.Lobsinger ("Lobsinger");

 

**AND IN CONSIDERATION** of Lobsingerbeing a beneficiary under a Settlement Agreement entered into by and among,Lobsinger, Zi Corporation, a corporation organized under the laws of Alberta,Canada (the "Corporation" or "Zi") and Marty Steinberg, solely in his capacityas Court appointed Receiver (the "Receiver") of Lancer Management Group, LLC,Lancer Management Group II, LLC, Lancer Offshore, Inc., Omnifund, Ltd., LSPV,Inc., LSPV, LLC, CLR Associates, LLC, G.H. Associates, LLC, and Alpha OmegaGroup, Inc. (collectively the "Receivership Entities") and as responsible personfor Lancer Partners, L.P. ("Partners" and together with the ReceivershipEntities "Lancer Entities"):

 

1.

Lobsinger does for himself and on behalf of any corporateentities that he controls directly or indirectly, agree with Zi that he or anycorporations for which he controls and which hold shares in Zi to not sell, makeany short sale of, loan, grant any option for the purchase of, or otherwisedispose of any shares or derivative securities of Zi without the prior writtenconsent of such placement agent or underwriter from the date of signing thisAgreement and for a period of six (6) months thereafter. 

2.

Each of Zi and Lobsinger acknowledges and agrees that neither mayterminate this Agreement unless (i) Zi provides written notice to the Receiverthat it intends to terminate this Agreement at least five (5) business daysprior to such termination; and (ii)  Zi also terminates that certain Lock UpAgreement entered into by and between Zi and the Receiver pursuant to the termsof the Settlement Agreement.  

3.

Each of Zi and Lobsinger acknowledges and agrees that (i) Zi maynot waive any obligation, condition or covenant of this Agreement without thewritten consent of the Receiver; and (ii) each of the Receiver and any placementagent that consummates a Qualified Offering for Zi is an intended third partybeneficiary of this Agreement, with full power and standing to enforce the termsand conditions of this Agreement.

**[SIGNATURE PAGE FOLLOWS]**

 

 

 

**ZI CORPORATION**

____________________________________

 

Per:___________________________ 

 

**MICHAEL E. LOBSINGER**

 

__________________________

 

 

 

**EXHIBIT F**

 

This Agreement made as of the ____ day of _______________, 2007.

 

**RECEIVER LOCK UP AGREEMENT**

 

**BETWEEN:**

**MARTY STEINBERG**, Receiver,on behalf of THE LANCER ENTITIES

 

 – and –

 

 

**ZI CORPORATION**

 

**IN CONSIDERATION**of the mutualpromises and the releases secured *inter alia* in favor of Marty Steinberg,solely in his capacity as Court appointed Receiver (the "Receiver") of LancerManagement Group, LLC, Lancer Management Group II, LLC, Lancer Offshore, Inc., Omnifund, Ltd., LSPV, Inc., LSPV, LLC, CLR Associates, LLC, G.H. Associates,LLC, and Alpha Omega Group, Inc. (collectively the "Receivership Entities") andas responsible person for Lancer Partners, L.P. ("Partners" and together withthe Receivership Entities, the "Lancer Entities");

 

**AND IN CONSIDERATION** of the Receiverbeing a beneficiary under a Settlement Agreement entered into by and among theReceiver, Zi Corporation, a corporation organized under the laws of Alberta,Canada ("Zi") and Michael E. Lobsinger ("Lobsinger"):

 

1.

The Receiver does for himself and on behalf of any corporateentities that he controls directly or indirectly, agree with Zi that he or anycorporations for which he controls and which hold shares in Zi to not sell, makeany short sale of, loan, grant any option for the purchase of, or otherwisedispose of any shares or derivative securities of Zi without the prior writtenconsent of such placement agent or underwriter from the date of signing thisAgreement and for a period of six (6) months thereafter, provided howevernotwithstanding the foregoing the Receiver shall have a right to make an in kinddistribution of the Zi's common stock to any investor of the Lancer Entitiesthat agrees to hold such shares subject to the foregoing lock up;

2.

Each of Zi and the Receiver acknowledges and agrees that neithermay terminate this Agreement unless (i) Zi provides written notice to Lobsingerthat it intends to terminate this Agreement at least five (5) business daysprior to such termination; and (ii)  Zi also terminates that certain Lock UpAgreement entered into by and between Zi and Lobsinger pursuant to the terms ofthe Settlement Agreement.  

3.

Each of Zi and the Receiver acknowledges and agrees that (i) Zimay not waive any obligation, condition or covenant of this Agreement withoutthe written consent of Lobsinger; and (ii) each of Lobsinger and any placementagent that consummates a Qualified Offering for Zi is an intended third partybeneficiary of this Agreement, with full power and standing to enforce the termsand conditions of this Agreement.

 

 

**ZI CORPORATION**

 

Per:_________________________

 

 

______________________________**MARTY STEINBERG**

 

 

 

 

**EXHIBIT G**

 

FORM OF LOBSINGER RESIGNATION LETTER

 

TO:

ZI CORPORATION 

 

I, Michael Lobsinger, of  Calgary, Alberta hereby irrevocablyresign as a director of Zi Corporation and from any other directorship, officeor employment that I hold of all subsidiaries or affiliates of Zi Corporation,such resignation to become effective on the Effective Date defined in aSettlement Agreement made among Zi Corporation,  Marty Steinberg in his capacityas the receiver of certain entities described in the Settlement Agreement as theLancer Entities, Quarry Bay Investments Inc. and myself dated ______, 2007.  

 

DATED _____________ 2007.
                         
MICHAEL LOBSINGER
 

 

 

 

**EXHIBIT H**

 

FORM OF ZI BOARD RESOLUTION ACCEPTING LOBSINGER RESIGNATION

 

**Resolution in writing of the Directors of Zi Corporationpassed without meeting and in accordance with the***Business Corporations Act* (**Alberta) effective________________, 2007.**

 

**Resignation of Michael Lobsinger**

 

It is resolved that the resignation of Michael Lobsinger from hisposition as a director of Zi Corporation and from any directorship, office oremployment he holds in all subsidiaries or affiliates of Zi Corporation  isaccepted effective in accordance with its terms.
       Milos Djokovic       Donald Hyde       Donald Moore       Robert Stefanski       Richard Tingle 
 **