SETTLEMENT AGREEMENT

This Settlement Agreement (this "Agreement") is made and entered
effective as of December 6, 2002 (the "Effective Date"), by and between America
Online, Inc., Delaware corporation with its principal place of business at 22000
AOL Way, Dulles, Virginia 20166-9323, including its "Affiliates" (as that term
is defined below) (collectively "AOL"), and Zi Corporation, an Alberta
corporation, having its principal place of business at Suite 2100, 840 - 7
Avenue SW, Calgary, Alberta Canada T2P 3G2, and Zi Corporation of America, Inc.
a Nevada Corporation, having is principal place of business at Two Embarcadero
Center, Suite 2320, San Francisco, CA USA 94111 including its "Affiliates" (as
that term is defined below) (collectively "Zi"). AOL and Zi are referred to
collectively as the "Parties" herein.



TERMS OF AGREEMENT

For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Parties agree as follows:

1.0     Certain Definitions.

As used in this Agreement, the term:

1.1     "Affiliates" means: each of the Parties' respective
parents (owning greater than fifty percent (50%) of a Party), affiliates (of
which greater than fifty percent (50%) is owned by a Party's parent company or
by a subsidiary of a Party's parent company) and subsidiaries (of which greater
than fifty percent (50%) is owned by a party or another of its subsidiary
companies); each of the Parties' and its respective parents', affiliates' and
subsidiaries' directors, officers, employees, agents, representatives, insurers
and attorneys, in and to the extent of their capacity as such; and, all of the
Parties' and the foregoing's respective predecessors, successors, heirs,
executors, administrators and assigns (except as limited by Section 23
(Assignment)). Without limiting the foregoing and without other limitation:
Affiliates of AOL shall include AOL-Time Warner and all subsidiaries thereof;
and Affiliates of Zi shall include Zi Corporation and Zi Corporation of America,
Inc. and all subsidiaries thereof. With respect to each Party, its Affiliates
shall also be deemed to include any entity in which that Party beneficially owns
more than NINETEEN PERCENT (19%) of the equity interest therein and which
operates under a trademark owned or controlled by that Party.

1.2     "Lawsuit" means: Civil Case Number C 00-0989 MMC in the
United States District Court for the Northern District of California, San
Francisco Division (captions for which include Tegic Communications, Inc. v. Zi
Corporation and Zi Corporation of America, Inc.).





Execution Version



1.3      "Person"means: any
individual, corporation, partnership, limited liability company, governmental
authority, association, joint venture, division or other cognizable entity,
whether or not having distinct legal personality.

1.4      "Court" means the United States
District Court for the Northern District of California, San Francisco Division,
the forum for the Lawsuit.

2.0     Zi's Cash Payments to AOL.

2.1     Subject to the terms set forth in this Agreement, Zi shall pay
Nine Million United States Dollars ($9,000,000) (the "Payment Amount") to AOL
within ten days after a demand is made by AOL to Zi. If Zi makes each of the
Scheduled Payments (as defined hereinafter) in full, in the manner set forth
below, and by the deadlines set forth for each such Scheduled Payment, and
without any offset, recoupment, counterclaim or other deduction of any sort
whatsoever, then after all such Scheduled Payments have been fully and timely
made, the remainder of the Payment Amount shall automatically and forever,
without further action by any Party, be forgiven and released and shall no
longer be owed by Zi (the "Release").

2.2     Subject to sections 2.4 and 2.5, the Payment Amount will be paid
as follows:

* to be received by AOL by no later than *;

* to be received by AOL by no later than *;

* to be received by AOL by no later than *; and

* to be received by AOL by no later than January 2, 2004,

(collectively, the "Scheduled Payments").

2.3     Payment shall be made to the order of America Online, Inc. by
certified cheque or certified bank draft delivered to the address set out in
section 10.1 hereof, or via wire transfer, with a concurrent fax notification to
Seth Brown, Legal Department, America Online, Inc. (fax) 703-265-1075. The
pertinent wire information is as follows:

JP Morgan

1 Chase Manhattan Plaza

New York, NY 10081

ABA # 021000021

Account # 323070752

America Online, Inc.



| | 
| | 

2.2

*Amounts and dates in
this section have been omitted pursuant to a confidential treatment application
filed with the Securities and Exchange Commission concurrent with the public
filing of this document.



Execution Version



2.4     If for any reason whatsoever any of the Scheduled Payments is not
made in full and on or before the deadline set forth above for each Scheduled
Payment, and in strict compliance with the terms set forth above, then ten
calendar days following the deadline set forth above if such Scheduled Payment
has not been made in the amount and manner required, then the entire remainder
of the Payment Amount shall be owed by Zi to AOL and the Release shall not
occur. For the sake of clarity, there shall be no ten-day cure period applicable
to the first Scheduled Payment set forth in Section 2.2.

2.5     AOL will forbear from making demand for the balance of the
Payment Amount unless and until Zi has defaulted in the payment of the Scheduled
Payments in full and on time and such payment default has continued for a period
of ten calendar days according to the terms set forth above or Zi has defaulted
under its obligations in Sections 2, 4 or 7 of this Agreement.

2.6     Notwithstanding anything to the contrary in this Agreement, if
(a) Zi fails to fully and timely comply with Sections 2 and 4of this Agreement;
or (b) Zi is in violation of the Judgment or AOL's rights thereunder, or (c) Zi
or any other person or entity files any suit or other action seeking to avoid
any payment made by Zi to AOL or seeking to require AOL to disgorge or return
any payment made by Zi, including without limitation any Scheduled Payments; and
ten calendar days have passed without cure by Zi, then the entire remainder of
the Payment Amount shall be immediately owed by Zi to AOL and the Release shall
not occur.

2.7     Zi hereby releases, waives, and discharges any and all claims
(known and unknown), suits, actions, causes of action, rights, demands,
obligations, debts or liabilities of any kind whatsoever relating to patent
infringement, enforceability, or validity against AOL and each of its officers,
directors, employees, affiliates, attorneys, advisors, representatives,
successors, assigns, and Affiliates (including without limitation Tegic
Communications Corporation) (collectively, "Zi Released Claims"), arising in the
United States prior to the date of execution of this Agreement, and Zi shall not
assert any such Zi Released Claims in any forum.

2.8     Upon the occurrence of the Release, AOL releases, waives, and
discharges any and all claims (known and unknown), suits, actions, causes of
action, rights, demands, obligations, debts or liabilities of any kind
whatsoever relating to patent infringement, enforceability, or validity against
Zi and each of its officers, directors, employees, affiliates, attorneys,
advisors, representatives, successors, assigns, and Affiliates (collectively,
"AOL Released Claims"), arising in the United States prior to the date of
execution of this Agreement, and AOL shall not assert any such AOL Released
Claims in any forum.

2.9     Concurrently with the execution of this Agreement by the Parties,
(i) Zi Corporation shall execute and deliver to AOL the Security Agreement
attached hereto as Exhibit B (Canadian security agreement), and (ii) Zi
Corporation of America, Inc. shall execute and deliver to AOL the Security
Agreement attached hereto as Exhibit C (US security agreement).

Execution Version



2.10     Zi shall, and hereby agrees at its expense, to do such further
things, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and to take all such actions as AOL may from
time to time reasonably request for the better assuring and preserving of the
liens and security interests and the rights and remedies created hereby or set
forth or described herein, including but not limited to, (a) the execution and
delivery of such additional notes, security agreements, conveyances,
assignments, documents and instruments as AOL may reasonably request, and (b)
the payment of any fees and taxes required in connection with the execution and
delivery of any such documents, agreements, or instruments, the granting of the
security interests created hereby and/or the execution, filing and recordation
of any financing statements (including fixture filings), or other documents as
AOL may deem reasonably necessary or desirable for the perfection of the
security interests provided for and granted hereunder.

3.0     Limited Covenant Not To Sue on Adjudicated Version 4.5
Functionality.

3.1     *

3.2     *

3.3     *

4.0     Détente

4.1     Subject to the limitations expressly set forth below and provided
that AOL is in compliance with the AOL Détente Covenant (as defined below), Zi
hereby covenants to AOL that Zi will not bring or file suit, take any action
adverse to AOL or its Affiliates before an administrative body, or otherwise
assert any claim against AOL (including its Affiliates) in or before any court,
arbitrator, tribunal or administrative agency in any country of the world, based
upon or arising out of any matters relating to patent validity, enforceability
or infringement during a six (6) month period commencing as of the Effective
Date (the "Zi Détente Covenant").

4.2     *

4.3     *

4.4     *

4.5     *

| | 
| | 

3.1, 3.2, 3.3

* The language of
these sections has been omitted pursuant to a confidential treatment application
filed with the Securities and Exchange Commission concurrent with the public
filing of this document.



4.2, 4.3, 4.4, 4.5

* The language of
these sections has been omitted pursuant to a confidential treatment application
filed with the Securities and Exchange Commission concurrent with the public
filing of this document.

Execution Version



5.0     Entry of Judgment and Dismissal of the Lawsuit.

Promptly following, but not later than five (5) business days following, the
exchange among the Parties of signed copies of this Agreement and payment of *
to AOL pursuant to Section 2.0, each of the Parties, jointly and/or separately,
shall enter the Judgment attached as Exhibit A hereto, dismiss with prejudice
and/or move the court for dismissal with prejudice of the Lawsuit and of all
matters at issue in the Lawsuit. The Parties shall reasonably cooperate with one
another to enter the Judgment, obtain dismissal with prejudice of the Lawsuit
and will reasonably cooperate with one another to prepare and/or sign any other
documents, motions, proposed orders and/or proposed entries reasonably necessary
to achieve such entry of the Judgment and dismissal.

6.0     Admission.

6.1      Zi agrees that the U.S. Patents
numbered 5,818,437 and 6,011,554 are valid and enforceable, and Zi has infringed
the patents.

7.0     Nondisclosure.

7.1      Except (i) as specifically described in
Sections 7.1, 7.2 and 7.3 of this Agreement, (ii) as required by law (including
applicable securities laws and regulations), (iii) as required to assert its
rights hereunder, (iv) as required for disclosures to its own officers,
directors, employees and professional advisers on a "need-to-know" basis, or (v)
under an obligation of confidentiality no less stringent than as set forth in
this Paragraph 7.1, to prospective investors, investment bankers, financial
institutions or other lenders or potential acquirors, each party hereto agrees
that neither it nor its directors, officers, employees, consultants or agents
shall disclose the existence of this Agreement, the terms or drafts of this
Agreement, or any matters relating to this Agreement (all of which are deemed
"Confidential Information") without the prior written consent of the other
party. For greater certainty, without limiting the foregoing, AOL will not
object to Zi's dissemination on a one-time basis, for purposes of compliance
with applicable securities laws, regulations and stock exchange requirements,
immediately following execution of this Agreement by the Parties and payment of
the first Scheduled Payment to AOL, a press release in the form attached hereto
as Exhibit D.

7.2      Both Parties shall refrain from any
press releases or other publicity reflecting negatively on the other related to
the Lawsuit. Each party shall refrain from voluntarily cooperating with third
parties related to disputes, litigation, defenses, claims, settlement
discussions, patent validity, patent infringement or patent license disputes
involving the other party and arising in the United States, unless either party
is contractually obligated to assist, defend or indemnify such third parties for
the dispute, litigation or claim at issue.

| | 
| | 

5.0

* The amount in this
section has been omitted pursuant to a confidential treatment application filed
with the Securities and Exchange Commission concurrent with the public filing of
this document.

Execution Version



7.3      Zi may disclose to a Zi customer or
potential customer, pursuant to a binding and enforceable non-disclosure
agreement or contract containing binding and enforceable confidentiality terms,
the attached Exhibit E, or in the alternative, Zi may choose to represent and
warrant in its confidential contracts with its customers (which contain binding
and enforceable confidentiality terms) that Zi and its customers will not be
sued pursuant to the terms of Section 3 above. All other terms of this Agreement
shall remain strictly confidential.

7.4     Tegic may disclose to a Tegic customer or potential customer
under a binding and enforceable non-disclosure agreement or contract containing
binding and enforceable confidentiality terms the attached Exhibit E. All other
terms of the settlement shall remain strictly confidential.

7.5      Upon receipt and deposit of each of the
Scheduled Payment(s), AOL will confirm in writing upon request within ten (10)
days the receipt of the Scheduled Payment(s).

8.0     For Settlement and Settlement Discussion Purposes.

8.1     This Agreement, drafts of the Agreement, the matters referred to
herein, any communications exchanged between Zi and AOL or their attorneys or
employees relating to this Agreement, and any documents or other materials shown
or exchanged during the course of discussions regarding this Agreement have been
for confidential settlement discussion purposes only, shall be treated as
evidence of conduct or statements made in settlement negotiations, are and shall
be subject to the provisions of Rule 408 of the Federal Rules of Evidence (and
any applicable corresponding national, state, local or other such rule or
privilege). For the sake of clarity, this section shall not be read to conflict
with the Nondisclosure provisions of Section 7.0 of this Agreement.

9.0     Independence of the Parties and Certain Exclusions.

9.1     The Parties are independent and neither party shall be deemed an
agent of the other in connection with the exercise of any rights hereunder,
except to the extent, if any, necessary to fulfill the terms set forth in this
Settlement Agreement, and neither party shall have any right or authority to
assume or create any obligation or responsibility on behalf of the other.

9.2     Nothing in this Agreement shall be construed as requiring either
party to provide the other with any know-how, technical assistance, marketing
assistance, or in any manner assist the other in the manufacture, use or sale of
products or exercise of any right hereunder.

9.3     Except as expressly set forth in this Agreement, nothing in this
Agreement shall be construed as a grant from one of the Parties to the other of
any rights in or to any other property, tangible or intangible, including
without limitation copyrights, trademarks and trade secrets.

Execution Version



10.0     Notices.

10.1     Any notice related to this Agreement shall be in writing and
shall be effective when deposited, first-class postage prepaid, in the U.S. mail
addressed to the Parties respectively, at the following addresses. Duplicates of
such notices may also be sent by facsimile transmission to the facsimile numbers
indicated below.



| | America Online, Inc.   |  | Zi Corporation                 
| | ---------------------- |  | -------------------------------
| | 22000 AOL Way          |  | Suite 2100, 840 - 7 Avenue SW  
| | Dulles, Virginia 20166 |  | Calgary, Alberta Canada T2P 3G2
| | Attn: General Counsel  |  | Attn: General Counsel          
| | Fax: 703-265-1075      |  | Fax: (403) 233-8878            

10.2     Each party may give written notice of a change of its address to
the other party.

10.3     In the event that either of the Parties contends that the other
has committed a breach of its obligations under this Agreement (except Section 2
of this Agreement), then it shall provide written notice of such and shall
afford the breaching party a ten-calendar-day period to cure the breach. Any
such breach that is not cured (except for a dispute under Section 2 of this
Agreement) shall then be subject to the procedures set forth below which pertain
to Disputes.

11.0     Governing Law.

11.1     The substantive laws of the State of New York shall govern the
terms of this Agreement, notwithstanding choice of law rules or principles. The
Parties irrevocably consent to nonexclusive jurisdiction to seek to enforce this
Agreement in the State of New York and the State of California, including
specifically the United States District Court for the Northern District of
California, or the United States District Court for the Southern District of New
York. Nothing in this provision shall prevent the Parties from seeking to
enforce this Agreement in any other jurisdiction anywhere in the world.

12.0     Disputes.

12.1     *

12.2      *

12.3      *

| | 
| | 

12.1, 12.2, 12.3

* The language of
these sections has been omitted pursuant to a confidential treatment application
filed with the Securities and Exchange Commission concurrent with the public
filing of this document.

Execution Version



13.0     Representations regarding Authority and Capacity.

13.1     Each of the Parties represents that it is authorized and has the
power to enter this Agreement, that it enters into this Settlement Agreement of
its own free will and has not relied on any representation not explicitly set
forth in this Agreement.

13.2     Each of the undersigning persons represent and warrant that
he/she is duly authorized by his/her respective identified principal to sign and
enter this Agreement on behalf of his/her respective identified principal.

13.3     To the extent, if any, that a party is unable and/or not
formally authorized to act on behalf of its Affiliates with respect to the
provisions in this Agreement, then such party shall, at its own expense, procure
such ability and/or authority from such of its Affiliates or shall, at its own
expense, defend, indemnify and hold harmless the other party and such other
party's Affiliates from claims that otherwise would have been addressed by this
Agreement if such Affiliates had been bound to it.

14.0     Headings.

14.1     Headings as used herein are for convenience or reference only,
and shall not be construed to limit or extend the language of the provisions to
which such captions may refer.

15.0     Severability.

15.1     If any provision of this Agreement or the application thereof to
any situation or circumstance shall be invalid or unenforceable, the remainder
of this Agreement shall not be affected, and each remaining provision shall be
valid and enforceable to the fullest extent, unless the deletion of such
provision shall cause this Agreement to become materially adverse to any party,
in which event the Parties shall use their respective best efforts to arrive at
an accommodation which best preserves for the Parties the benefits and
obligations of the offending provision.

16.      Entire Agreement.

16.1      This Agreement constitutes the entire,
integrated agreement between the Parties relating to the subject matter hereof.
It supersedes all previous communications, oral or written, between the Parties
with respect to the subject matter hereof. No agreement or understanding
varying, modifying, or extending the same, nor any subsequent course of dealing
or conduct of the Parties, shall be binding upon either party hereto unless in
writing and signed by a duly authorized officer or representative of each party
hereto.

17.0     Joint Drafting and Equal Bargaining Positions.

17.1      It is the case and shall be deemed
that this Agreement has been jointly drafted by the Parties, that the Parties
are each sophisticated commercial enterprises of substantially equal bargaining
power with respect to this Agreement and the matters referenced in this
Agreement, and that each has been represented and

Execution Version



obtained advice from the legal
counsel of its choice with respect to this Agreement and the matters referenced
in this Agreement. In entering into this Agreement, the signatories represent
that they have completely read, and fully understand, the terms of this
Agreement, and have voluntarily accepted such terms. The terms of this Agreement
shall not be interpreted or construed in favor of or against either party on the
ground that one party was the purported draftsperson hereof or that one party
was purportedly in an unfair or unequal bargaining position.

18.0     Assignment.

18.1      *

18.2      *

19.0     Bankruptcy.

19.1     The Parties agree that, in the event that any proceeding shall
be instituted by or against a Party seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking an entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its
property, or a Party shall take any action to authorize any of the foregoing
actions, the other Party shall have the right, in the event it has not
terminated this Agreement pursuant hereto, to retain and enforce its respective
rights under this Agreement.

20.      No Waiver

20.1      No right granted hereunder and no
breach of any provision hereof shall be deemed waived unless such waiver is in
writing and signed by the party claimed to have so waived. Any waiver of any
right granted hereunder or of any breach of any provision hereof shall not
constitute a waiver of any further or subsequent right or breach.

21.0     Signatures and Exchange.

21.1     This Agreement may be executed in counterparts, each of which,
when so executed, shall, together, constitute and be one and the same
instrument. To expedite settlement, telecopied signatures of the Parties shall
be acceptable.

| | 
| | 

18.1, 18.2

* The language of
these sections has been omitted pursuant to a confidential treatment application
filed with the Securities and Exchange Commission concurrent with the public
filing of this document.

Execution Version



IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be
executed by their authorized representatives in duplicate.

> America Online, Inc.
>     
>     Zi Corporation of America, Inc.By:
>     "Alex Felker"
>     
>     By:
>     "Michael E. Lobsinger"Alex Felker
>     
>     Michael E. LobsingerPrint Name
>     
>     Print NameDecember 6, 2002
>     
>     December 6, 2002Date
>     
>     DateSr. Vice President
>     
>     Chief Executive OfficerTitle
>     
>     TitleZi CorporationBy:
>     "Michael E. Lobsinger"Michael E. Lobsinger

| |  |                            
| |  | ---------------------------
| |  | December 6, 2002           
| |  | Date                       
| |  |                            
| |  |                            
| |  | Chief
    Executive Officer
| |  | Title                      



Execution Version



Exhibit A



Consent Judgment Attached Here

Execution Version







EXHIBIT A

|QUINN EMANUEL URQUHART OLIVER &
    HEDGES, LLP                                                                                                                                                                                                                                             
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Charles K. Verhoeven (Bar No.
    170151)
    Susan L. Wines (Bar No. 168643)                                                                                                                                                                                                               
|Victoria F. Maroulis (Bar No.
    202603)                                                                                                                                                                                                                                                   
|Jennifer Kash Hartog (Bar No.
    203679)
    W. Paul Schuck (Bar No. 203717)                                                                                                                                                                                                               
|201 Sansome Street, 6th Floor
    San Francisco, California 94104                                                                                                                                                                                                                           
|Telephone: (415) 986 5700
    Facsimile: (415) 987 5707                                                                                                                                                                                                                                     
|Attorneys for
    Plaintiff-Counterclaim Defendant
    TEGIC COMMUNICATIONS, INC.                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                            
|IN THE UNITED
    STATES DISTRICT COURT                                                                                                                                                                                                                                                     
|FOR THE NORTHERN
    DISTRICT OF CALIFORNIA                                                                                                                                                                                                                                                 
|SAN FRANCISCO
    DIVISION                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                            
|TEGIC COMMUNICATIONS, INC., a
    Washington Corporation,                                                                                                                                                                                                                                   
|Plaintiff-Counterclaim                                                                                                                                                                                                                                                                      
|Defendant,                                                                                                                                                                                                                                                                                  
|v.                                                                                                                                                                                                                                                                                          
|ZI CORPORATION, a Canadian
    Corporation, and ZI CORPORATION OF                                                                                                                                                                                                                           
|AMERICA, INC., a Nevada
    Corporation,                                                                                                                                                                                                                                                    
|Defendants-Counterclaim
        Plaintiffs.                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                            
|It has been represented to this Court that the parties,
    Plaintiff and Counterclaim Defendant Tegic Communications, Inc.
    ("Plaintiff") and Defendants Zi Corporation and Zi Corporation, Inc.
    ("Defendants") have agreed to a compromise and settlement of this civil
    action.
|                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                            
|[PROPOSED] CONSENT JUDGMENT                                                                                                                                                                                                                                                                 
|AND PERMANENT INJUNCTION                                                                                                                                                                                                                                                                    

1

|WHEREFORE, with
    the consent of the parties, through their respective counsel, IT IS HEREBY
    FINALLY ORDERED, ADJUDGED AND DECREED as follows:                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     The Court
    has jurisdiction of the parties and the subject matter of this action.                                                                                                                                                                                                                                                                                               
|2.     Plaintiff
    Tegic Communications, Inc. owns and has standing to sue for infringement of
    its U.S. Patent No. 5,818,437 ("'437 Patent") and U.S. Patent No. 6,011,554
    ("'554 Patent").                                                                                                                                                                                     
|3.     Plaintiff
    and Defendants have entered into a Settlement Agreement settling this
    action.                                                                                                                                                                                                                                                                                    
|4.     Defendants hereby agree, and the Court accordingly
    orders, that the '437 Patent and the '554 Patent are valid and enforceable
    and that Defendants have willfully infringed the '437 Patent and the '554
    Patent causing $9 million in damages to Plaintiff.                                                                                                             
|5.     Defendants hereby agree, and the Court accordingly
    orders, that Defendants, their officers, agents, servants, employees,
    attorneys, and all those persons acting in concert or participating with
    them, are permanently enjoined from infringing the '437 Patent and the '554
    Patent either directly, or by inducing or contributing to their
    infringement, by:
|(A)  making, using, importing,
    offering for sale, or selling in the United States eZiText versions 4.0, 4.1
    or 4.2 for alphabetic languages; or                                                                                                                                                                                                                                   
|(B)  making, using offering for
    sale, or selling in the United States any product, or component, that is not
    colorably different from eZiText versions 4.0, 4.1 or 4.2 for alphabetic
    languages;                                                                                                                                                                              
|6.     In
    accordance with, and subject to, the terms and conditions of the Settlement
    Agreement, Plaintiff's Complaint, and Defendants' Counterclaim, are hereby
    dismissed with prejudice                                                                                                                                                                                     
|7.     Defendants hereby agree that any breach by them of
    the Settlement Agreement, including any failure to timely pay any settlement
    amount, shall entitle Plaintiff to immediately execute any unpaid portion of
    the $9 million damages award owed pursuant to the Settlement Agreement.                                                                                   

2

|8.     This Court retains jurisdiction over
    the parties for the purposes of enforcing the terms and conditions of this
    Order and the Settlement Agreement.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------
|9.     Each party shall bear its own costs
    and attorneys' fees.                                                                                               
|                                                                                                                                                                  
|DATED: December _____, 2002                                                                                                                                       
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|DATED: December _____, 2002                                                                                                                                       
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| | [PROPOSED] CONSENT JUDGMENT
| | ---------------------------
| | AND PERMANENT INJUNCTION   

3



|Pursuant to the agreement of the
    parties, it is so ordered.
|---------------------------------------------------------------
|                                                               
|Dated: ___________, 2002                                       
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|[PROPOSED] CONSENT JUDGMENT                                    
|AND PERMANENT INJUNCTION                                       
|                                                               

4





Exhibit B





Canadian Security Agreement Attached Here





CANADIAN

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (as from time
to time amended, modified, restated, supplemented and in effect, this "Security
Agreement") is entered into as of December 6, 2002, by ZI CORPORATION
an Alberta corporation, having its principal place of business at Suite 2100,
840-7th Avenue S.W., Calgary, Alberta, Canada, T2P 3G2 (collectively with its
Affiliates, the "Grantor"), to and in favor of AMERICA ONLINE, INC.,
Delaware corporation, having its principal place of business at 22000 AOL Way,
Dulles, Virginia 20166-9323 (collectively with its Affiliates, the "Secured
Party").

RECITALS:

A.     Pursuant to the Settlement Agreement of even date herewith between
Grantor and Secured Party ("Settlement Agreement"), Grantor has promised
and agreed, among other things, to pay to Secured Party the sum of Nine Million
and 00/100ths United States Dollars (USD $9,000,000) (the "Payment Amount").
Notwithstanding the foregoing, and as set forth more fully in the Settlement
Agreement, if the Grantor makes each of the Scheduled Payments (as defined in
the Settlement Agreement) in full, in the manner set forth in the Settlement
Agreement, and by the deadlines set forth in the Settlement Agreement for each
such Scheduled Payment, and without any offset, recoupment, counterclaim or
other deduction of any sort whatsoever, then after all such Scheduled Payments
have been fully and timely made, the remainder of the Payment Amount will be
forgiven and released and will no longer be owed by the Grantor to the Secured
Party.

B.     As a material inducement and as a condition to Secured Party to enter
into the Settlement Agreement, the Grantor has agreed to grant to the Secured
Party a perfected lien on and security interest in all of the Collateral (as
defined below) pursuant to the terms of this Security Agreement in order to
secure the due and punctual payment of (i) the Payment Amount, as and when the
same shall become due, and (ii) all reasonable costs , fees and expenses of the
Secured Party and its agents, representatives and attorneys incurred in
connection with any sale (or other disposition) or the retaking, holding,
handling, preparing for sale (or other disposition) of the Collateral or
otherwise in connection with this Security Agreement or the enforcement hereof
(including, but not limited to, the reasonable fees and expenses of the Secured
Party's agents and attorneys on a solicitor and his own client basis, and court
costs (whether at trial, appellate or administrative levels), if any, incurred
by the Secured Party in so doing) (collectively, the "Obligations").

C.     It is a condition precedent to the execution of the Settlement
Agreement by the Secured Party that the Grantor concurrently execute and deliver
this Security Agreement.

NOW, THEREFORE, for and in
consideration of the covenants and provisions set forth herein, and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Grantor hereby agrees as follows, intending to be bound
hereby:

-2-



ARTICLE 1

SECURITY INTEREST

1.1     Grant of Security Interest. As general and continuing security for
the Obligations, the Grantor hereby grants to the Secured Party, by way of
mortgage, charge, assignment and transfer, a security interest in all presently
owned and hereafter acquired personal property of the Secured Party of
whatsoever nature and kind and wheresoever situate and all Proceeds thereof and
therefrom, renewals therefrom, Accessions thereto and substitutions therefor
(collectively, the "Collateral").

No Postponement. The Secured Party and the have not agreed to
        postpone the time or attachment of the security interest granted hereby.

1.2     Definitions. In this Security Agreement, any reference to "Accessions",
"Accounts" or "Proceeds" shall be interpreted in
accordance with their respective meanings given in the Personal Property
Security Act (Alberta), as amended from time to time, including any amendments
thereto and any legislation substituted therefore and amendments thereto.

1.3     Contractual Rights. The security interests granted pursuant to this
Security Agreement do not and will not extend to, and the Collateral will not
include, any agreement, right, franchise, license or permit (the "Contractual
Rights") to which the Grantor is a party or of which the Grantor has the
benefit, to the extent that the creation of such security interests would
constitute a breach of the terms of or permit any person to terminate the
Contractual Rights, but the Grantor will hold its interest therein in trust for
the Secured Party and will assign such Contractual Rights to the Secured Party
forthwith upon obtaining the consent of the other party or parties thereto.

ARTICLE 2

REPRESENTATIONS AND
WARRANTIES



2.1     Representations and Warranties. The Grantor represents, warrants and
agrees as follows:

| | (a) | Subject to the Permitted
    Encumbrances (as defined below), Grantor has (or shall have) absolute, good
    and marketable title to all the Collateral, wherever and whenever acquired,
    free and clear of any lien in priority to the lien granted herein, and the
    Grantor has not filed, nor is there on record, a financing statement under
    the Code (or similar statement or instrument of registration under the law
    of any jurisdiction) covering any Collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | As a result of the execution and
    delivery of this Security Agreement and the filing of any financing
    statements or other documents necessary to assure, preserve and perfect the
    security interest created hereby to the extent a lien may be perfected by
    filing a financing statement, the Secured Party shall have a valid,
    perfected, enforceable lien on, and a continuing security interest in, the
    Collateral, enforceable and superior as such as against creditors and
    purchasers (other than purchasers of Inventory in the ordinary course of
    business) and as against any owner of real property where any of the
    equipment or Inventory is located and as against any purchaser of such real
    property and any present or future creditor obtaining a mortgage or other
    lien on such real property, and, subject to Permitted Encumbrances, such
    lien shall be superior and prior to all other liens.

-3-



| | (c) | None of the Collateral is held by a
    third party in any location as assignee, trustee, bailee, consignee or in
    any similar capacity.                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | The address of the Grantor's chief
    executive office is 2100, 840-7th Avenue S.W., Calgary, Alberta, Canada, T2P
    3G2, and the only name used by the Grantor is Zi Corporation.
| | (e) | When used in this Security
    Agreement, the term "Permitted Encumbrances" shall mean:                                                                                              
| |     | (i)                                                                                                                                                                                  
| |     | (ii)                                                                                                                                                                                 
| |     | (iii)                                                                                                                                                                                
| |     | (iv)                                                                                                                                                                                 
| |     | (v)                                                                                                                                                                                  



ARTICLE 3

COVENANTS



3.1     Covenants. The Grantor hereby covenants and agrees as follows:

| | (a) | So long as this Agreement remains in effect or
    any of the obligations or liabilities of the Grantor hereunder remain unpaid
    or unperformed: (i) the Grantor shall take any and all actions reasonably
    requested by the Secured Party to further evidence or perfect the security
    interests created and granted hereby (including, without limitation, filing
    any financing or continuation statements); (ii) at the Grantor's expense,
    Grantor shall take any and all actions reasonably necessary or desirable to
    defend the Collateral against the claims and demands of all Persons other
    than the Secured Party, and to defend the security interest of the Secured
    Party in and to the Collateral and the priority thereof against any lien of
    any nature; and (iii) the Grantor shall not voluntarily or involuntarily
    exchange, lease, sell, transfer or otherwise dispose of any Collateral, or
    otherwise amend or terminate any contract or other document or instrument
    constituting part of the Collateral, except for transactions that
    individually, or in aggregate would have a material adverse effect on the
    ability of the Grantor to perform its obligations under the Settlement
    Agreement.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-4-



| | (b) | Grantor shall pay, as and when due, all taxes,
    fees, assessments and other charges now or hereafter imposed upon the
    Collateral except for any tax, fee, assessment or other charge the validity
    of which is being contested in good faith by appropriate proceedings and so
    long as Grantor has set aside on its books adequate reserves with respect
    thereto.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ARTICLE 4

REMEDIAL MATTERS



| | 4.1 | Event of Default. An "Event of
    Default" shall exist hereunder if (a) any of the Scheduled Payments is not
    made in full pursuant to Section 2.2, Section 2.4 or 2.6 of the Settlement
    Agreement, and subject to any notice and cure rights set out therein, the
    entire remainder of the "Payment Amount" (as defined therein) is owed and
    "Release" (as defined therein) is prohibited from occurring, or (b) Grantor
    shall file a voluntary petition for bankruptcy, insolvency, receivership or
    similar event, or (c) an involuntary petition for bankruptcy, insolvency,
    receivership or similar event involving Grantor shall be filed.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.2 | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

-5-

4.3     Collections. Upon the occurrence and during the continuance of an
Event of Default, the Secured Party may, in its sole discretion, in its name or
in the name of the Grantor, or otherwise: (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement deemed desirable with
respect to any of the Collateral, but shall be under no obligation to do so; or
(b) extend the time of payment, arrange for payment in installments, or
otherwise modify the term of, or release, any of the Collateral, without thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of, the Grantor, other than to discharge the Grantor in so doing with respect to
liabilities of the Grantor to the extent that the liabilities are paid or
repaid. After the occurrence and during the continuance of an Event of Default,
any money, checks, notes, bills, drafts, or commercial paper received by the
Grantor shall be held in trust for the Secured Party and any other secured party
having rights thereto senior to the Secured Party and shall be promptly turned
over to the Secured Party or any other secured party having rights thereto
senior to the Secured Party as their interest shall appear. The Secured Party
may make such payments and take such actions as the Secured Party, in its sole
discretion, deems necessary to protect its security interest in the Collateral
or the value thereof, and the Secured Party is hereby unconditionally and
irrevocably authorized (without limiting the general nature of the authority
hereinabove conferred) to pay, purchase, contest or compromise any Liens which
in the judgment of the Secured Party appear to be equal to, prior to or superior
to its security interest in the Collateral and any Liens not expressly permitted
by this Security Agreement.

4.4     Possession; Sale of Collateral.

| | (a) | Upon the occurrence and during the continuance
    of an Event of Default, the Secured Party may, subject to the rights of any
    other secured party having rights senior the Secured Party: (i) require the
    Grantor to assemble the tangible assets that comprise part of the Collateral
    and make them available to the Secured Party at any place or places
    reasonably designated by the Secured Party; (ii) to the extent permitted by
    applicable law, with or without notice or demand for performance and without
    liability for trespass, enter any premises where the Collateral may be
    located and peaceably take possession of the same, and may demand and
    receive such possession from any person who has possession thereof, and may
    take such measures as it may deem necessary or proper for the care or
    protection thereof (including, but not limited to, the right to remove all
    or any portion of the Collateral); and (iii) with or without taking such
    possession may sell or cause to be sold, in one or more sales or parcels,
    for cash, on credit or for future delivery, without assumption of any credit
    risk, all or any portion of the Collateral, at public or private sale or at
    any broker's board or any securities exchange, without demand of performance
    or notice of intention to sell or of time or place of sale, except ten (10)
    days' written notice to the Grantor of the time and place of such sale or
    sales (and such other notices as may be required by applicable statute, if
    any, and which cannot be waived), which the Grantor hereby
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-



| |  | expressly acknowledges is commercially
    reasonable. The Collateral may be sold or disposed of for cash, upon credit
    or for future delivery as the Secured Party shall deem appropriate. Each
    such purchaser at any such sale shall hold the property sold absolutely,
    free from any claim or right on the part of the Grantor, and the Grantor
    hereby waives (to the extent permitted by law) all rights of redemption,
    stay and appraisal that the Grantor now has or may at any time in the future
    have under any rule of law or statute now existing or hereafter enacted. At
    any such sale, the Collateral, or portion thereof, to be sold may be sold in
    one lot as an entirety or in separate parcels, as the Secured Party may (in
    its sole and absolute discretion) determine. The Secured Party shall not be
    obligated to make any sale of any Collateral if it shall determine not to do
    so, regardless of the fact that notice of sale of such Collateral shall have
    been given. The Secured Party may, without notice or publication, adjourn
    any public or private sale or cause the same to be adjourned from time to
    time by announcement at the time and place fixed for sale, and such sale
    may, without further notice, be made at the time and place to which the same
    was so adjourned. In case any sale of all or any part of the Collateral is
    made on credit or for future delivery, the Collateral so sold may be
    retained by the Secured Party until the sale price is paid by the purchaser
    or purchasers thereof, but the Secured Party shall not incur any liability
    for the failure to collect or realize upon any or all of the Collateral or
    for any delay in doing so and, in case of any such failure, shall not be
    under any obligation to take any action with respect thereto; provided, such
    Collateral may be sold again upon like notice. At any public sale made
    pursuant to this Section 4.4, the Secured Party may bid for or purchase,
    free from any right of redemption, stay or appraisal and all rights of
    marshalling, the Collateral and any other security for the Obligations or
    otherwise on the part of the Grantor (all said rights being also hereby
    waived and released by the Grantor to the fullest extent permitted by law),
    the Collateral or any part thereof offered for sale and may make payment on
    account thereof by using any claim then due and payable to the Secured Party
    from the Grantor as a credit against the purchase price, and the Secured
    Party may, upon compliance with the terms of sale, hold, retain and dispose
    of such property without further accountability to the Grantor therefor. For
    purposes hereof, a written agreement to purchase the Collateral or any
    portion thereof shall be treated as a sale thereof; the Secured Party shall
    be free to carry out such sale pursuant to such agreement, and the Grantor
    shall not be entitled to the return of the Collateral or any portion thereof
    subject thereto, notwithstanding the fact that after the Secured Party shall
    have entered into such an agreement, all Events of Default shall have been
    remedied and any obligations to the Secured Party shall have been paid in
    full. As an alternative to exercising the power of sale herein conferred
    upon it, the Secured Party may proceed by a suit or suits at law or in
    equity to foreclose this Security Agreement and to sell the
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-



| |     | Collateral or any portion thereof pursuant to a
    judgment or decree of a court or courts having competent jurisdiction or
    pursuant to a proceeding by a court-appointed receiver. In any action
    hereunder, the Secured Party shall be entitled to the appointment of a
    receiver without notice, to peaceably take possession of all or any portion
    of the Collateral and to exercise such powers as the court shall confer upon
    the receiver. Notwithstanding the foregoing, if an Event of Default shall
    occur and be continuing, the Secured Party shall be entitled to apply,
    without notice to the Grantor, any cash or cash items constituting
    Collateral in their possession to payment of the Obligations.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | If an Event of Default shall occur and be
    continuing, the Secured Party shall, in addition to exercising any and all
    rights and remedies afforded to them hereunder, have all the rights and
    remedies of a secured party under all applicable provisions of law,
    including but not limited to, the Code.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | The Grantor agrees that notwithstanding
    anything to the contrary contained in this Security Agreement, the Grantor
    shall remain liable under each contract or other agreement giving rise to
    Accounts and general intangibles and all other contracts or agreements
    constituting part of the Collateral and the Secured Party shall not have any
    obligation or liability in respect thereof.                                                                                                                                                                                                                                                                                                                                    
| | (d) | After the occurrence and during the continuance
    of an Event of Default, upon the Secured Party's request, but subject to the
    rights of any other secured party having rights senior to the Secured Party,
    the Grantor shall deliver to the Secured Party all original and other
    documents, evidencing and relating to the sale and delivery of Inventory or
    Accounts, including but not limited to, all original orders, invoices and
    shipping receipts. The Grantor shall also furnish to the Secured Party,
    promptly upon the request of the Secured Party, such reports,
    reconciliations and aging balances regarding Accounts as the Secured Party
    may request from time to time.                           

4.5     Receiver. The Secured Party may appoint by instrument in writing one
or more receivers, managers or receiver/manager for the Collateral or the
business and undertaking of the Grantor pertaining to the Collateral (the
"Receiver"). Any such Receiver will have, in addition to any other rights,
remedies and powers which a Receiver may have at law, in equity or by statute,
the rights and powers set out in Sections 4.2, 4.3 and 4.4 of this Security
Agreement. In exercising such rights and powers, any Receiver will act as and
for all purposes will be deemed to be the agent of the Grantor and the Secured
Party will not be responsible for any act or default of any Receiver. The
Secured Party may remove any Receiver and appoint another from time to time. No
Receiver appointed by the Secured Party need be appointed by, nor need its
appointment be ratified by, or its actions in any way supervised by, a court.

4.6     Right to Have Court Appoint a Receiver. The Secured Party may, at any
time, apply to a court of competent jurisdiction for the appointment of a
Receiver, or other official, who may have powers the same as, greater or lesser
than, or otherwise different from, those capable of being granted to a Receiver
appointed by the Secured Party pursuant to this Agreement.

-8-

4.7     Application of Proceeds. Unless the Secured Party otherwise directs,
the proceeds of any sale of Collateral pursuant to this Security Agreement or
otherwise, as any Collateral consisting of cash, shall be applied after receipt
by the Secured Party as follows, subject to the rights of any other secured
party having rights senior to the Secured Party:

First, to the payment of all reasonable costs, fees and expenses of the
    Secured Party and its agents, representatives and attorneys on a solicitor
    and his own client basis incurred in connection with such sale or with the
    retaking, holding, handling, preparing for sale (or other disposition) of
    the Collateral or otherwise in connection with this Security Agreement or
    any of the Obligations, including, but not limited to, the reasonable fees
    and expenses of the Secured Party's agents and attorneys' and court costs
    (whether at trial, appellate or administrative levels), if any, incurred by
    the Secured Party in so doing;

Second, to the payment of the outstanding balance of the Obligations; and

Third, to the Grantor or to such other Person as a court may direct.

4.8     Authority of Secured Party. The Secured Party shall have and be
entitled to exercise all such powers hereunder as are specifically delegated to
the Secured Party by the terms hereof, together with such powers as are
reasonably incidental thereto. The Secured Party may execute any of its duties
hereunder by or through its agents or employees and shall be entitled to retain
counsel and to act in reliance upon the advice of such counsel concerning all
matters pertaining to its duties hereunder.

4.9     Certain Waivers; Grantor Not Discharged. The Grantor expressly and
irrevocably waives (to the extent permitted by applicable law) presentment,
demand of payment and protest of nonpayment in respect of its Obligations under
this Security Agreement. The obligations and duties of the Grantor hereunder are
irrevocable, absolute, and unconditional and shall not be discharged, impaired
or otherwise affected by (a) the failure of the Secured Party to assert any
claim or demand or to enforce any right or remedy against the Grantor or any
grantee under the provisions of this Security Agreement or any waiver, consent,
extension, indulgence or other action or inaction in respect thereof, (b) any
extension or renewal of any part of the Obligations, (c) any rescission, waiver,
amendment or modification of any of the terms or provisions of any agreement
related to this Security Agreement, (d) the release of any liens on or security
interests in any part of the Collateral or the release, sale or exchange of or
failure to foreclose against any security held by or for the benefit of the
Secured Party for payment or performance of the Obligations, (e) the bankruptcy,
insolvency or reorganization of the Grantor or any grantee or any other Persons,
(f) any change, restructuring or termination of the corporate structure or
existence of the Grantor or any grantee or any restructuring or refinancing of
all or any portion of the Obligations, or (g) any other event that under law
would discharge the obligations of a surety.

-9-



ARTICLE 5

MISCELLANEOUS

5.1     Further Assurances. The Grantor agrees, at its expense, to do such
further things, to execute, acknowledge, deliver and cause to be duly filed all
such further instruments and documents and take all such actions as the Secured
Party may from time to time reasonably request for the better assuming and
preserving of the security interests and the rights and remedies created hereby,
including but not limited to, the execution and delivery of such additional
conveyances, assignments, agreements and instruments, the payment of any fees
and taxes required in connection with the execution and delivery of this
Security Agreement, the granting of the security interests created hereby and
the execution, filing and recordation of any financing statements (including
fixture filings) or other documents as the Secured Party may deem reasonably
necessary or desirable for the perfection of the security interests granted
hereunder. The Grantor hereby authorizes the Secured Party, as a secured party
under the Code, to file financing statements or continuation statements signed
only by the Secured Party, and agrees to pay all expenses in connection with any
such filing.

5.2     Effectiveness. This Security Agreement shall take effect immediately
upon execution by the Grantor.

5.3     Continuing Lien. It is the intent of the parties hereto that the
security interest provided for herein shall attach to after-acquired as well as
existing Collateral.

5.4     Termination. Upon the earlier of (i) the payment in full of the
Scheduled Payments and the occurrence of the Release (as defined in the
Settlement Agreement), and (ii) the payment in full of the Payment Amount, the
Secured Party shall reassign, redeliver and release (or cause to be so
reassigned, redelivered and released), without recourse upon or warranty by the
Secured Party, and at the sole expense of the Grantor, to the Grantor, against
receipt therefor, such of the Collateral (if any) as shall not have been sold or
otherwise applied by the Secured Party pursuant to the terms hereof and not
theretofore reassigned, redelivered and released to the Grantor, together with
appropriate instruments of reassignment and release.

5.5     Notices. All notices and other communications given to or made upon
any party hereto in connection with this Security Agreement shall, except as
otherwise expressly herein provided, be in writing (including telecopy, telexed
or telegraphic communication) and mailed via certified mail, nationwide
overnight courier service, telexed, telegraphed or delivered to the respective
parties, as follows:

to the Secured Party:

America Online, Inc.

22000 AOL Way

Dulles, Virginia 20166

Attention: General
            Counsel

Facsimile: 703/265-1075

-10-



with a copy to:

Arnold & Porter

555 12th Street, N.W.

Washington, D.C.
            20004-1202

Attention: Michael L.
            Bernstein

Facsimile: 202/942-5999

to the Grantor:

Zi Corporation

Suite 2100, 840 - 7
            Avenue SW

Calgary, Alberta Canada
            T2P 3G2

Attention: General
            Counsel

Fax: 403/233-8878

> with a copy to:

Blake, Cassels & Graydon
            LLP

Suite 3500, Bankers Hall
            East

855 2nd Street S.W.

Calgary, Alberta, Canada
            T2P 4J8

Attention: Ross Bentley

Fax: 403/260-9700

5.6     Successors and Assigns. Whenever in this Security Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, and all covenants, promises and agreements
by or on behalf of the Secured Party that are contained in this Security
Agreement shall bind and inure to the benefit of its respective successors and
assigns. The Grantor may not assign or transfer any of its rights or obligations
hereunder except in conjunction with, and on the same terms as, any assignment
or transfer of the rights and obligations of the Grantor in accordance with the
terms of the Settlement Agreement.

5.7     Applicable Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the Province of Alberta and the
federal laws of Canada applicable thereto. For the purpose of legal proceedings,
this Security Agreement shall be deemed to have been made in the Province of
Alberta and to be performed there and the courts of the Province of Alberta
shall have jurisdiction over all disputes which may arise under this Security
Agreement and the Grantor irrevocably and unconditionally submits to the
non-exclusive jurisdiction of such courts, provided always that nothing herein
contained shall prevent the Secured Party from proceeding at its election
against the Grantor in the courts of any other Province of Canada, or other
country or jurisdiction.

-11-

5.8     Waivers. No failure or delay of the Secured Party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
future exercise thereof or the exercise of any other right or power. The rights
and remedies of the Secured Party hereunder are cumulative and not exclusive of
any rights or remedies which they would otherwise have. No waiver of any
provision of this Security Agreement or consent to any departure by the Grantor
therefrom shall in any event be effective unless the same shall be authorized as
provided in Section 5.1 or Section 5.9, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Grantor in any case shall entitle the Grantor to any
other or further notice or demand in similar or other circumstances.

5.9     Amendments. Neither this Security Agreement nor any provision hereof
may be amended or modified except pursuant to an agreement or agreements in
writing entered into by the Grantor and the Secured Party.

5.10     Severability. In the event any one or more of the provisions
contained in this Security Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby.

5.11     Counterparts. This Security Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one contract, and shall become effective
when copies hereof which, when taken together, bear the signatures of each of
the parties hereto shall be delivered or mailed to the Secured Party.

5.12     Headings. Article and Section headings used herein are for
convenience of reference only and are not to affect the construction of, or to
be taken into consideration in interpreting, this Security Agreement.

5.13     Waiver of Jury Trial. Grantor hereby expressly waives any right to a
trial by jury in any action or proceeding to enforce or defend any right, power,
or remedy under or in connection with this Security Agreement, and agrees that
any such action shall be tried before a court and not before a jury. The terms
and provisions of this Section 5.13 constitute a material inducement for the
Secured Party entering into the Security Agreement.

5.14     Interpretation. In the event of a conflict between this Security
Agreement and the Settlement Agreement, the terms of such Settlement Agreement
shall control.

5.15     Survival. Except as otherwise expressly set forth in this Security
Agreement, all representations, warranties, covenants and agreements of the
Grantor contained in this Security Agreement shall survive the execution,
delivery and performance of this Security Agreement until the termination of
this Security Agreement pursuant to Section 5.4 hereof.

5.16     Incorporation of Definitions. Each capitalized term used but not
otherwise defined in this Security Agreement shall have the meaning ascribed to
such term in the Settlement Agreement.

-12-

5.17     Copy of Agreement and Financing Statement. The Grantor hereby
acknowledges receiving a copy of this Security Agreement, and waives all rights
to receive from the Secured Party a copy of any financing statement, financing
change statement or verification statement filed at any time or from time to
time in respect of this Security Agreement.

5.18     Subordination. Secured Party shall provide its written consent to
subordination of the security interests granted pursuant to this Security
Agreement to any liens granted by Grantor to third-party lenders (not affiliated
with Grantor) who or which now, or in the future, provide secured financing to
Grantor in the ordinary course of Grantor's business (including for the purpose
of paying any of the Payment Amount), and shall execute appropriate documents,
as necessary, to effectuate such subordination. Grantor shall pay Secured
Party's reasonable attorneys fees and expenses incurred in responding to
requests for such consent (not to exceed in any one case the amount of
$5,000.00).

IN WITNESS WHEREOF, the Grantor has executed this Security
Agreement under seal as of the date first above written.



ZI CORPORATION



[SEAL]

By:



Name:





Title:





Date:







Exhibit C





United States Security Agreement Attached Here







SECURITY AGREEMENT

THIS SECURITY AGREEMENT (as from time to time amended,
modified, restated, supplemented and in effect, this "Security Agreement")
is entered into as of December 6, 2002, by ZI CORPORATION OF AMERICA, INC.,
a Nevada corporation, having its principal place of business at Two Embarcadero
Center, Suite 2320, San Francisco, California 94111 (collectively with its
Affiliates, the "Grantor"), to and in favor of AMERICA ONLINE, INC.,
Delaware corporation, having its principal place of business at 22000 AOL Way,
Dulles, Virginia 20166-9323 (collectively with its Affiliates, the "Secured
Party").

RECITALS:

A.     Pursuant to the Settlement Agreement of even date herewith between
Grantor and Secured Party ("Settlement Agreement"), Grantor has promised
and agreed, among other things, to pay to Secured Party the sum of Nine Million
and 00/100ths United States Dollars (USD $9,000,000) (the "Payment Amount").
Notwithstanding the foregoing, and as set forth more fully in the Settlement
Agreement, if the Grantor makes each of the Scheduled Payments (as defined in
the Settlement Agreement) in full, in the manner set forth in the Settlement
Agreement, and by the deadlines set forth in the Settlement Agreement for each
such Scheduled Payment, and without any offset, recoupment, counterclaim or
other deduction of any sort whatsoever, then after all such Scheduled Payments
have been fully and timely made, the remainder of the Payment Amount will be
forgiven and released and will no longer be owed by the Grantor to the Secured
Party.

B.     As a material inducement and as a condition to Secured Party to enter
into the Settlement Agreement, the Grantor has agreed to grant to the Secured
Party a perfected lien on and security interest in all of the Collateral (as
defined below) pursuant to the terms of this Security Agreement in order to
secure the due and punctual payment of (i) the Payment Amount, as and when the
same shall become due, and (ii) all reasonable costs , fees and expenses of the
Secured Party and its agents, representatives and attorneys incurred in
connection with any sale (or other disposition) or the retaking, holding,
handling, preparing for sale (or other disposition) of the Collateral or
otherwise in connection with this Security Agreement or the enforcement hereof
(including, but not limited to, the reasonable fees and expenses of the Secured
Party's agents and attorneys, and court costs (whether at trial, appellate or
administrative levels), if any, incurred by the Secured Party in so doing)
(collectively, the "Obligations").

C.     It is a condition precedent to the execution of the Settlement
Agreement by the Secured Party that the Grantor concurrently execute and deliver
this Security Agreement.

NOW, THEREFORE, for and in consideration of the covenants and
provisions set forth herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Grantor hereby agrees as
follows, intending to be bound hereby:

-2-



ARTICLE 1

SECURITY INTEREST

1.1     Grant of Security Interest. As security for the Obligations, the
Grantor hereby sells, conveys, assigns, pledges and grants a continuing and
unconditional security interest to the Secured Party, its successors and
assigns, in and to:

| | (a) | all equipment (including all "Equipment"
    as term is defined in Section 28:9-102(a)(33) of the District of Columbia
    Code (such code, together with any other successor or applicable adoption of
    the Uniform Commercial Code in any applicable jurisdiction, the "Code")),
    machinery, vehicles, fixtures, improvements, supplies, office furniture,
    fixed assets, all as now owned or hereafter acquired by Grantor or in which
    Grantor has or hereafter acquires any interest, and any items substituted
    therefor as replacements and any additions or accessions thereto;                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | all goods (including all "Goods" as defined in
    Section 28:9-102(a)(44) of the Code) and all inventory (including all
    "Inventory" as defined in Section 28:9-102(a)(48) of the Code) of Grantor,
    now owned or hereafter acquired by Grantor or in which Grantor has or
    hereafter acquires any interest, including but not limited to, raw
    materials, scrap inventory, work in process, products, packaging materials,
    finished goods, documents of title, chattel paper and other instruments
    covering the same and all substitutions therefor and additions thereto (all
    of the property described in this clause (b) being hereinafter collectively
    referred to as "Inventory");                                                                                                                                                                                                                                                                                
| | (c) | all present and future accounts in which
    Grantor has or hereafter acquires any interest (including all "Accounts" as
    defined in Section 28:9-102(a)(2) of the Code), contract rights (including
    all rights to receive payments and other rights under all equipment and
    other leasing contracts) and rights to payment and rights or accounts
    receivable evidencing or representing indebtedness due or to become due
    Grantor on account of goods sold or leased or services rendered, claims,
    instruments and other general intangibles (including tax refunds, royalties
    and all other rights to the payment of money of every nature and
    description), including but not limited to, any such right evidenced by
    chattel paper, and all liens, securities, guaranties, remedies, security
    interests and privileges pertaining thereto (all of the property described
    in this clause (c) being hereinafter collectively referred to as "Accounts");
| | (d) | all investment property now owned or hereafter
    acquired by Grantor (including all "Investment Property" as defined in
    Section 28:9-102(a)(49) of the Code), including, without limitation, all
    securities (certificated and uncertificated), securities accounts,
    securities entitlements, commodity contracts and commodity accounts;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

-3-(e)
    all general intangibles now owned or hereafter
    acquired by Grantor or in which Grantor has or hereafter acquires any
    interest (including all "General Intangibles" as defined in Section
    28:9-102(a)(42) of the Code), including but not limited to, choses in action
    and causes of action and all licenses and permits (to the extent the
    collateral assignment of such licenses and permits is not prohibited by
    applicable law), registrations, franchises, corporate or other business
    records, systems, designs, software, goodwill, logos, indicia, business
    identifiers, inventions, processes, production methods, proprietary
    information, know-how and trade-secrets of Grantor, and all trade-names,
    copyrights, patents, trademarks (including service marks) or patent or
    trademark applications, contract rights (including, without limitation, all
    rights to receive payments and other rights under all equipment and other
    leasing contracts, instruments and documents owned or used by Grantor, and
    any goodwill relating thereto);(f)
    all other property owned by Grantor or in which
    Grantor has or hereafter acquires any interest, wherever located, and of
    whatever kind or nature, tangible or intangible;(g)
    all insurance policies of any kind maintained
    in effect by Grantor, now existing or hereafter acquired, under which any of
    the property referred to in clauses (a) through (f) above is insured,
    including but not limited to, any proceeds payable to Grantor pursuant to
    such policies;(h)
    all moneys, cash collateral, chattel paper,
    checks, notes, bills of exchange, documents of title, money orders,
    negotiable instruments, commercial paper, and other securities, instruments,
    documents, deposit accounts, deposits and credits from time to time whether
    or not in the possession of or under the control of the Secured Party; and(i)
    any consideration received when all or any part
    of the property referred to in clauses (a) through (h) above is sold,
    transferred, exchanged, leased, collected or otherwise disposed of, or any
    value received as a consequence of possession thereof, including but not
    limited to, all products, proceeds (including all "Proceeds" as defined in
    Section 28:9-102(a)(64) the Code), cash, negotiable instruments and other
    instruments for the payment of money, chattel paper, security agreements or
    other documents, insurance proceeds or proceeds of other proceeds now or
    hereafter owned by Grantor or in which Grantor has an interest.

The property set forth in clauses (a) through
(i) of the preceding sentence, together with property of a similar nature which
the Grantor hereafter owns or in which the Grantor hereafter acquires any
interest, collectively is referred to herein as the "Collateral."

1.2     Contractual Rights. The security interests granted pursuant to
this Security Agreement do not and will not extend to, and the Collateral will
not include, any agreement, right, franchise, license or permit (the "Contractual
Rights") to which the Grantor is a party or of which the Grantor has the
benefit, to the extent that the creation of such security interests would

-4-

constitute a breach of the terms of or permit any person to terminate
the Contractual Rights, but the Grantor will hold its interest therein in trust
for the Secured Party and will assign such Contractual Rights to the Secured
Party forthwith upon obtaining the consent of the other party or parties
thereto.



ARTICLE 2

REPRESENTATIONS AND WARRANTIES

2.1     Representations and Warranties. The Grantor represents, warrants and
agrees as follows:

| | (a) | Subject to the Permitted
    Encumbrances (as defined below), Grantor has (or shall have) absolute, good
    and marketable title to all the Collateral, wherever and whenever acquired,
    free and clear of any lien in priority to the lien granted herein, and the
    Grantor has not filed, nor is there on record, a financing statement under
    the Code (or similar statement or instrument of registration under the law
    of any jurisdiction) covering any Collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | As a result of the execution and
    delivery of this Security Agreement and the filing of any financing
    statements or other documents necessary to assure, preserve and perfect the
    security interest created hereby to the extent a lien may be perfected by
    filing a financing statement, the Secured Party shall have a valid,
    perfected, enforceable lien on, and a continuing security interest in, the
    Collateral, enforceable and superior as such as against creditors and
    purchasers (other than purchasers of Inventory in the ordinary course of
    business) and as against any owner of real property where any of the
    equipment or Inventory is located and as against any purchaser of such real
    property and any present or future creditor obtaining a mortgage or other
    lien on such real property, and, subject to Permitted Encumbrances, such
    lien shall be superior and prior to all other liens.
| | (c) | None of the Collateral is held by a
    third party in any location as assignee, trustee, bailee, consignee or in
    any similar capacity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (d) | The address of the Grantor's chief
    executive office is Two Embarcadero Center, Suite 2320, San Francisco,
    California 94111, and the only name used by the Grantor is Zi Corporation of
    America, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (e) | When used in this Security
    Agreement, the term "Permitted Encumbrances" shall mean:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

-5-(iii)
    public and statutory liens not yet due and
    similar liens arising by operation of law;(iv)
    the interest of any person under any operating
    lease or purchase money security interest; and(v)
    any lien in respect of shares of Magic Lantern
    Group Inc. and proceeds thereof.



ARTICLE 3

COVENANTS

3.1     Covenants. The Grantor hereby covenants and agrees as follows:

| | (a) | So long as this Agreement remains in effect or
    any of the obligations or liabilities of the Grantor hereunder remain unpaid
    or unperformed: (i) the Grantor shall take any and all actions reasonably
    requested by the Secured Party to further evidence or perfect the security
    interests created and granted hereby (including, without limitation, filing
    any financing or continuation statements); (ii) at the Grantor's expense,
    Grantor shall take any and all actions reasonably necessary or desirable to
    defend the Collateral against the claims and demands of all Persons other
    than the Secured Party, and to defend the security interest of the Secured
    Party in and to the Collateral and the priority thereof against any lien of
    any nature; and (iii) the Grantor shall not voluntarily or involuntarily
    exchange, lease, sell, transfer or otherwise dispose of any Collateral, or
    otherwise amend or terminate any contract or other document or instrument
    constituting part of the Collateral, except for transactions that
    individually, or in aggregate would have a material adverse effect on the
    ability of the Grantor to perform its obligations under the Settlement
    Agreement.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Grantor shall pay, as and when due, all taxes,
    fees, assessments and other charges now or hereafter imposed upon the
    Collateral except for any tax, fee, assessment or other charge the validity
    of which is being contested in good faith by appropriate proceedings and so
    long as Grantor has set aside on its books adequate reserves with respect
    thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



ARTICLE 4

REMEDIAL MATTERS

4.1     Event of Default. An "Event of Default" shall exist hereunder
if (a) any of the Scheduled Payments is not made in full pursuant to Section
2.2, Section 2.4 or 2.6 of the Settlement Agreement, and subject to any notice
and cure rights set out therein, the entire remainder of the "Payment, Amount"
(as defined therein) is owed and "Release" (as defined therein) is prohibited
from occurring, or (b) Grantor shall file a voluntary petition for bankruptcy,
insolvency, receivership or similar event, or (c) an involuntary petition for
bankruptcy, insolvency, receivership or similar event involving Grantor shall be
filed.

-6-

4.2     Powers of Attorney.

| | (a) | The Grantor hereby irrevocably appoints Secured
    Party (and any officer or agent thereof) as its true and lawful
    attorney-in-fact, with power of substitution for and in the name of the
    Grantor or otherwise, for the use and benefit of the Secured Party,
    effective upon the occurrence and during the continuance of an Event of
    Default, to sell, assign, transfer, pledge, make any agreement with respect
    to or otherwise deal with all or any of the Collateral, and to do all other
    acts and things necessary to carry out this Security Agreement, as fully and
    completely as though the Secured Party were the absolute owner of the
    Collateral for all purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Beyond the duty of the Secured Party to
    exercise reasonable care in the custody of any Collateral in its possession,
    the Secured Party shall not, under any circumstance or in any event
    whatsoever, have any liability for any part of the Collateral, nor shall the
    Secured Party have any liability for any error or omission or delivery of
    any kind incurred in the good faith settlement, collection or payment of any
    of the Collateral or any monies received in payment therefor or for any
    damages resulting therefrom, nor shall this Security Agreement impose upon
    the Secured Party any obligation to perform any obligation with respect to
    the Collateral. The costs of collection, notification and enforcement
    (including, without limitation, reasonable attorneys' fees and reasonable
    out-of-pocket expenses) shall be borne solely by the Grantor whether the
    same are incurred by the Grantor or the Secured Party. In no event shall the
    Secured Party be liable for any matter or thing in connection with this
    Security Agreement other than to account for moneys actually received by the
    Secured Party in accordance with the terms hereof.

4.3     Collections.
Upon the occurrence and during the continuance of an Event of Default, the
Secured Party may, in its sole discretion, in its name or in the name of the
Grantor, or otherwise: (a) demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for, or
make any compromise or settlement deemed desirable with respect to any of the
Collateral, but shall be under no obligation to do so; or (b) extend the time of
payment, arrange for payment in installments, or otherwise modify the term of,
or release, any of the Collateral, without thereby incurring responsibility to,
or discharging or otherwise affecting any liability of, the Grantor, other than
to discharge the Grantor in so doing with respect to liabilities of the Grantor
to the extent that the liabilities are paid or repaid. After the occurrence and
during the continuance of an Event of Default, any money, checks, notes, bills,
drafts, or commercial paper received by the Grantor shall be held in trust for
the Secured Party and any other secured party having rights thereto senior to
the Secured Party and shall be promptly turned over to the Secured Party or any
other secured party having rights thereto senior to the Secured Party as their
interest shall appear. The Secured Party may make such payments and take such
actions as the Secured Party, in its sole discretion, deems necessary to protect
its security interest in the Collateral or the value thereof, and the Secured
Party is hereby unconditionally and irrevocably authorized (without limiting the
general nature of the authority hereinabove conferred) to pay, purchase, contest
or compromise any Liens

-7-

which in the
judgment of the Secured Party appear to be equal to, prior to or superior to its
security interest in the Collateral and any Liens not expressly permitted by
this Security Agreement.

4.4     Possession; Sale of Collateral.

| | (a) | Upon the occurrence and during the continuance
    of an Event of Default, the Secured Party may, subject to the rights of any
    other secured party having rights senior the Secured Party: (i) require the
    Grantor to assemble the tangible assets that comprise part of the Collateral
    and make them available to the Secured Party at any place or places
    reasonably designated by the Secured Party; (ii) to the extent permitted by
    applicable law, with or without notice or demand for performance and without
    liability for trespass, enter any premises where the Collateral may be
    located and peaceably take possession of the same, and may demand and
    receive such possession from any person who has possession thereof, and may
    take such measures as it may deem necessary or proper for the care or
    protection thereof (including, but not limited to, the right to remove all
    or any portion of the Collateral); and (iii) with or without taking such
    possession may sell or cause to be sold, in one or more sales or parcels,
    for cash, on credit or for future delivery, without assumption of any credit
    risk, all or any portion of the Collateral, at public or private sale or at
    any broker's board or any securities exchange, without demand of performance
    or notice of intention to sell or of time or place of sale, except ten (10)
    days' written notice to the Grantor of the time and place of such sale or
    sales (and such other notices as may be required by applicable statute, if
    any, and which cannot be waived), which the Grantor hereby expressly
    acknowledges is commercially reasonable. The Collateral may be sold or
    disposed of for cash, upon credit or for future delivery as the Secured
    Party shall deem appropriate. Each such purchaser at any such sale shall
    hold the property sold absolutely, free from any claim or right on the part
    of the Grantor, and the Grantor hereby waives (to the extent permitted by
    law) all rights of redemption, stay and appraisal that the Grantor now has
    or may at any time in the future have under any rule of law or statute now
    existing or hereafter enacted. At any such sale, the Collateral, or portion
    thereof, to be sold may be sold in one lot as an entirety or in separate
    parcels, as the Secured Party may (in its sole and absolute discretion)
    determine. The Secured Party shall not be obligated to make any sale of any
    Collateral if it shall determine not to do so, regardless of the fact that
    notice of sale of such Collateral shall have been given. The Secured Party
    may, without notice or publication, adjourn any public or private sale or
    cause the same to be adjourned from time to time by announcement at the time
    and place fixed for sale, and such sale may, without further notice, be made
    at the time and place to which the same was so adjourned. In case any sale
    of all or any part of the Collateral is made on credit or for future
    delivery, the Collateral so sold may be retained by the Secured Party until
    the sale price is paid by the purchaser or purchasers thereof, but the
    Secured Party shall not incur any liability for the failure to collect or
    realize upon any or all of the
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-8-

| |     | Collateral or for any delay in doing so and, in case of any such failure,
    shall not be under any obligation to take any action with respect thereto;
    provided, such Collateral may be sold again upon like notice. At any public
    sale made pursuant to this Section 4.4, the Secured Party may bid for or
    purchase, free from any right of redemption, stay or appraisal and all
    rights of marshalling, the Collateral and any other security for the
    Obligations or otherwise on the part of the Grantor (all said rights being
    also hereby waived and released by the Grantor to the fullest extent
    permitted by law), the Collateral or any part thereof offered for sale and
    may make payment on account thereof by using any claim then due and payable
    to the Secured Party from the Grantor as a credit against the purchase
    price, and the Secured Party may, upon compliance with the terms of sale,
    hold, retain and dispose of such property without further accountability to
    the Grantor therefor. For purposes hereof, a written
    agreement to purchase the Collateral or any portion thereof shall be treated
    as a sale thereof; the Secured Party shall be free to carry out such sale
    pursuant to such agreement, and the Grantor shall not be entitled to the
    return of the Collateral or any portion thereof subject thereto,
    notwithstanding the fact that after the Secured Party shall have entered
    into such an agreement, all Events of Default shall have been remedied and
    any obligations to the Secured Party shall have been paid in full. As an
    alternative to exercising the power of sale herein conferred upon it, the
    Secured Party may proceed by a suit or suits at law or in equity to
    foreclose this Security Agreement and to sell the Collateral or any portion
    thereof pursuant to a judgment or decree of a court or courts having
    competent jurisdiction or pursuant to a proceeding by a court-appointed
    receiver. In any action hereunder, the Secured Party shall be entitled to
    the appointment of a receiver without notice, to peaceably take possession
    of all or any portion of the Collateral and to exercise such powers as the
    court shall confer upon the receiver. Notwithstanding the foregoing, if an
    Event of Default shall occur and be continuing, the Secured Party shall be
    entitled to apply, without notice to the Grantor, any cash or cash items
    constituting Collateral in their possession to payment of the Obligations.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | If an Event of Default shall occur and be
    continuing, the Secured Party shall, in addition to exercising any and all
    rights and remedies afforded to them hereunder, have all the rights and
    remedies of a secured party under all applicable provisions of law,
    including but not limited to, the Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (c) | The Grantor agrees that notwithstanding
    anything to the contrary contained in this Security Agreement, the Grantor
    shall remain liable under each contract or other agreement giving rise to
    Accounts and general intangibles and all other contracts or agreements
    constituting part of the Collateral and the Secured Party shall not have any
    obligation or liability in respect thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

-9-

| | (d) | After the occurrence and during the continuance
    of an Event of Default, upon the Secured Party's request, but subject to the
    rights of any other secured party having rights senior to the Secured Party,
    the Grantor shall deliver to the Secured Party all original and other
    documents, evidencing and relating to the sale and delivery of Inventory or
    Accounts, including but not limited to, all original orders, invoices and
    shipping receipts. The Grantor shall also furnish to the Secured Party,
    promptly upon the request of the Secured Party, such reports,
    reconciliations and aging balances regarding Accounts as the Secured Party
    may request from time to time.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4.5     Receiver. The Secured Party may appoint by instrument in
writing one or more receivers, managers or receiver/manager for the Collateral
or the business and undertaking of the Grantor pertaining to the Collateral (the
"Receiver"). Any such Receiver will have, in addition to any other rights,
remedies and powers which a Receiver may have at law, in equity or by statute,
the rights and powers set out in Sections 4.2, 4.3 and 4.4 of this Security
Agreement. In exercising such rights and powers, any Receiver will act as and
for all purposes will be deemed to be the agent of the Grantor and the Secured
Party will not be responsible for any act or default of any Receiver. The
Secured Party may remove any Receiver and appoint another from time to time. No
Receiver appointed by the Secured Party need be appointed by, nor need its
appointment be ratified by, or its actions in any way supervised by, a court.

4.6     Right to Have Court Appoint a Receiver. The Secured Party may,
at any time, apply to a court of competent jurisdiction for the appointment of a
Receiver, or other official, who may have powers the same as, greater or lesser
than, or otherwise different from, those capable of being granted to a Receiver
appointed by the Secured Party pursuant to this Agreement.

4.7     Application of Proceeds. Unless the Secured Party otherwise
directs, the proceeds of any sale of Collateral pursuant to this Security
Agreement or otherwise, as any Collateral consisting of cash, shall be applied
after receipt by the Secured Party as follows, subject to the rights of any
other secured party having rights senior to the Secured Party:

First, to the payment of all reasonable costs, fees and expenses of the
    Secured Party and its agents, representatives and attorneys incurred in
    connection with such sale or with the retaking, holding, handling, preparing
    for sale (or other disposition) of the Collateral or otherwise in connection
    with this Security Agreement or any of the Obligations, including, but not
    limited to, the reasonable fees and expenses of the Secured Party's agents
    and attorneys' and court costs (whether at trial, appellate or
    administrative levels), if any, incurred by the Secured Party in so doing;

Second, to the payment of the outstanding balance of the Obligations; and

Third, to the Grantor or to such other Person as a court may direct.

-10-

4.8     Authority of Secured Party. The Secured Party shall have and
be entitled to exercise all such powers hereunder as are specifically delegated
to the Secured Party by the terms hereof, together with such powers as are
reasonably incidental thereto. The Secured Party may execute any of its duties
hereunder by or through its agents or employees and shall be entitled to retain
counsel and to act in reliance upon the advice of such counsel concerning all
matters pertaining to its duties hereunder.

4.9     Certain Waivers; Grantor Not Discharged. The Grantor expressly
and irrevocably waives (to the extent permitted by applicable law) presentment,
demand of payment and protest of nonpayment in respect of its Obligations under
this Security Agreement. The obligations and duties of the Grantor hereunder are
irrevocable, absolute, and unconditional and shall not be discharged, impaired
or otherwise affected by (a) the failure of the Secured Party to assert any
claim or demand or to enforce any right or remedy against the Grantor or any
grantee under the provisions of this Security Agreement or any waiver, consent,
extension, indulgence or other action or inaction in respect thereof, (b) any
extension or renewal of any part of the Obligations, (c) any rescission, waiver,
amendment or modification of any of the terms or provisions of any agreement
related to this Security Agreement, (d) the release of any liens on or security
interests in any part of the Collateral or the release, sale or exchange of or
failure to foreclose against any security held by or for the benefit of the
Secured Party for payment or performance of the Obligations, (e) the bankruptcy,
insolvency or reorganization of the Grantor or any grantee or any other Persons,
(f) any change, restructuring or termination of the corporate structure or
existence of the Grantor or any grantee or any restructuring or refinancing of
all or any portion of the Obligations, or (g) any other event that under law
would discharge the obligations of a surety.

ARTICLE 5

MISCELLANEOUS

5.1     Further Assurances. The Grantor agrees, at its expense, to do
such further things, to execute, acknowledge, deliver and cause to be duly filed
all such further instruments and documents and take all such actions as the
Secured Party may from time to time reasonably request for the better assuming
and preserving of the security interests and the rights and remedies created
hereby, including but not limited to, the execution and delivery of such
additional conveyances, assignments, agreements and instruments, the payment of
any fees and taxes required in connection with the execution and delivery of
this Security Agreement, the granting of the security interests created hereby
and the execution, filing and recordation of any financing statements (including
fixture filings) or other documents as the Secured Party may deem reasonably
necessary or desirable for the perfection of the security interests granted
hereunder. The Grantor hereby authorizes the Secured Party, as a secured party
under the Code, to file financing statements or continuation statements signed
only by the Secured Party, and agrees to pay all expenses in connection with any
such filing.

5.2     Effectiveness. This Security Agreement shall take effect
immediately upon execution by the Grantor.

5.3     Continuing Lien. It is the intent of the parties hereto that
the security interest provided for herein shall attach to after-acquired as well
as existing Collateral.

-11-

5.4     Termination. Upon the earlier of (i) the payment in full of
the Scheduled Payments and the occurrence of the Release (as defined in the
Settlement Agreement), and (ii) the payment in full of the Payment Amount, the
Secured Party shall reassign, redeliver and release (or cause to be so
reassigned, redelivered and released), without recourse upon or warranty by the
Secured Party, and at the sole expense of the Grantor, to the Grantor, against
receipt therefor, such of the Collateral (if any) as shall not have been sold or
otherwise applied by the Secured Party pursuant to the terms hereof and not
theretofore reassigned, redelivered and released to the Grantor, together with
appropriate instruments of reassignment and release.

5.5     Notices. All notices and other communications given to or made
upon any party hereto in connection with this Security Agreement shall, except
as otherwise expressly herein provided, be in writing (including telecopy,
telexed or telegraphic communication) and mailed via certified mail, nationwide
overnight courier service, telexed, telegraphed or delivered to the respective
parties, as follows:

to the Secured Party:

America Online, Inc.

22000 AOL Way

Dulles, Virginia 20166

Attention: General Counsel

Facsimile: 703/265-1075

with a copy to:

Arnold & Porter

555 12th Street, N.W.

Washington, D.C. 20004-1202

Attention: Michael L. Bernstein

Facsimile: 202/942-5999

to the Grantor:

Zi Corporation of America, Inc.

c/o Zi Corporation of Canada

Suite 2100, 840 - 7 Avenue SW

Calgary, Alberta Canada T2P 3G2

Attention: General Counsel

Fax: 403/233-8878

with a copy to:

Blake, Cassels & Graydon LLP

Suite 3500, Bankers Hall East

855 2nd Street S.W.

Calgary, Alberta, Canada T2P 4J8

Attention: Ross Bentley

Fax: 403/260-9700

-12-

5.6     Successors and Assigns. Whenever in this Security Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party, and all covenants, promises
and agreements by or on behalf of the Secured Party that are contained in this
Security Agreement shall bind and inure to the benefit of its respective
successors and assigns. The Grantor may not assign or transfer any of its rights
or obligations hereunder except in conjunction with, and on the same terms as,
any assignment or transfer of the rights and obligations of the Grantor in
accordance with the terms of the Settlement Agreement.

5.7     Applicable Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the District of Columbia (without
regard to conflicts of laws principles).

5.8     Waivers. No failure or delay of the Secured Party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or future exercise thereof or the exercise of any other right
or power. The rights and remedies of the Secured Party hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Security Agreement or consent to any departure
by the Grantor therefrom shall in any event be effective unless the same shall
be authorized as provided in Section 5.1 or Section 5.9, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on the Grantor in any case shall entitle the
Grantor to any other or further notice or demand in similar or other
circumstances.

5.9     Amendments. Neither this Security Agreement nor any provision
hereof may be amended or modified except pursuant to an agreement or agreements
in writing entered into by the Grantor and the Secured Party.

5.10     Severability. In the event any one or more of the provisions
contained in this Security Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby.

5.11     Counterparts. This Security Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one contract, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto shall be delivered or mailed to the Secured Party.

5.12     Headings. Article and Section headings used herein are for
convenience of reference only and are not to affect the construction of, or to
be taken into consideration in interpreting, this Security Agreement.

-13-

5.13     Waiver of Jury Trial. Grantor hereby expressly waives any
right to a trial by jury in any action or proceeding to enforce or defend any
right, power, or remedy under or in connection with this Security Agreement, and
agrees that any such action shall be tried before a court and not before a jury.
The terms and provisions of this Section 5.13 constitute a material inducement
for the Secured Party entering into the Security Agreement.

5.14     Interpretation. In the event of a conflict between this
Security Agreement and the Settlement Agreement, the terms of such Settlement
Agreement shall control.

5.15     Survival. Except as otherwise expressly set forth in this
Security Agreement, all representations, warranties, covenants and agreements of
the Grantor contained in this Security Agreement shall survive the execution,
delivery and performance of this Security Agreement until the termination of
this Security Agreement pursuant to Section 5.4 hereof.

5.16     Incorporation of Definitions. Each capitalized term used but
not otherwise defined in this Security Agreement shall have the meaning ascribed
to such term in the Settlement Agreement.

5.17     Subordination. Secured Party shall provide its written
consent to subordination of the security interests granted pursuant to this
Security Agreement to any liens granted by Grantor to third-party lenders (not
affiliated with Grantor) who or which now, or in the future, provide secured
financing to Grantor in the ordinary course of Grantor's business (including for
the purpose of paying any of the Payment Amount), and shall execute appropriate
documents, as necessary, to effectuate such subordination. Grantor shall pay
Secured Party's reasonable attorneys fees and expenses incurred in responding to
requests for such consent (not to exceed in any one case the amount of
$5,000.00).

IN WITNESS WHEREOF,the Grantor has executed this Security
Agreement under seal as of the date first above written.



ZI CORPORATION OF AMERICA, INC.



[SEAL]

By:



Name:



Title:



Date:







Exhibit D



Press Release Attached Here





NEWS RELEASE



Zi Corporation and Tegic Communications Inc. Settle Patent
Litigation



Dulles, Virginia and Calgary, Alberta--December 9, 2002 --Tegic
Communications Inc., a subsidiary of America Online Inc., and Zi Corporation (Nasdaq:
ZICA) (TSX: ZIC) today jointly announced that the patent infringement litigation
between the two parties has been settled to their mutual satisfaction. The terms
of the settlement agreement are confidential.



About Tegic Communications

Tegic Communications, a leading developer of software for wireless phones,
was founded in 1995 to develop and market communication technologies for the
telecommunications and computing industries and was acquired by America Online,
Inc. in December 1999. Tegic Communications is headquartered in Seattle and has
offices in the UK, Japan and China. Tegic's flagship product, T9 Text Input, is
the leading alphabet-based and Chinese and Japanese character-based text input
software. For more information about T9 Text Input, visit www.t9.com or AOL
Keyword: T9 Text Input.

Tegic is a trademark and T9 is a registered trademark of Tegic
Communications. All other trademarks or registered trademarks belong to their
respective holders.

About Zi Corporation

Zi Corporation (www.zicorp.com) is a market-driven technology company
delivering intelligent interface solutions to enhance the user experience of
wireless and consumer technologies. The company's core technology products,
eZiTap and eZiText, connect people to short messaging, e-mail, e-commerce, Web
browsing and similar applications in almost any written language. eZiNet is a
new network-based platform that enables handset manufacturers and network
operators to provide users with access to media rich content and information
stored on a network, despite the memory restrictions of the mobile device. Zi
supports its strategic partners and customers from offices in Asia, Europe and
North America. A publicly traded company, Zi Corporation is listed on the Nasdaq
National Market (ZICA) and the Toronto Stock Exchange (ZIC

Certain statements in this press release that involve expectations or
intentions (such as those relating to future deployments or planned cooperation)
may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The information in this press release
is based on Zi Corporation's current expectations and assumptions, and is
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those anticipated. Such risks include, among others,
general business and economic conditions, competitive actions, continued
acceptance of Zi Corporation's products and services and dependence on third
party performance as well as the risks and uncertainties referred to in Zi
Corporation's 20-F for the most recent calendar year that is filed with the
Securities and Exchange Commission. The reader should not place undue reliance
on such forward looking statements. Zi Corporation does not assume any
obligation to update such forward looking statements.

# # # #



For more information:

| | Zi Corporation
    Dale Kearns, Chief Financial
    Officer
    403 233 8875
    investor@zicorp.com | America Online Inc.
    Nicholas Graham,
    Corporate Communications
    703 265 1746
| | ---------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------



Confidential Business Information - Not for Public Distribution - To be
Disclosed only Pursuant to Binding, Non-Disclosure Agreement

Exhibit E*





Agreed Excerpt of Section 3, Settlement Agreement, Attached
Here