Document:

Zi Corporation: Exhibit 4.12 - Prepared by TNT Filings Inc.

  

 EXECUTION COPY

 

SETTLEMENT AGREEMENT

 

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

RECITALS

 

WHEREAS, certain disputes and
differences have arisen among the Parties and various legal, regulatory and
other proceedings have been commenced by the Parties with respect to those
claims; 

 

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

 

WHEREAS, the Parties desire to
compromise any and all outstanding claims and issues, whether on behalf of the
Corporation against the Receiver and the Lancer Entities, or on behalf of the
Receiver and/or the Lancer Entities, as applicable, against the Corporation, as
well as any regulatory matters that have been raised or exist, through the date
hereof; 

 

WHEREAS, each of the Parties has
determined that it is in their best interests to resolve the existing claims and
disputes among the Parties by entering into this Agreement; 

 

___________________________________

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

1

 

 

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

 

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

 

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

 

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

 

1.

Recitals & Agreement to Satisfy Various Conditions Precedent.
 

(a).

The above recitals are true and correct and are incorporated in
this Agreement. 

(b).

The Exhibits to this Agreement are as follows:

Exhibit A - Form of Mutual Release

Exhibit B - ASC Request Letter

Exhibit C - Definition of Qualified Offering

Exhibit D - Form of Consulting Agreement

Exhibit E - Form of Lobsinger Lockup Agreement

Exhibit F - Form of Receiver Lockup Agreement

Exhibit G - Lobsinger Letter of Resignation 

Exhibit H - Form of Lobsinger Resignation Resolution 

 

(c).

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

2

 

 

(d).

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

(e).

Each of the Parties acknowledge and agree that between the
signing of this Agreement and the Outside Closing Date (as defined in subsection
1(h) below):  (i) they will jointly approach the ASC and each use their best
efforts to seek an adjournment of any hearings currently scheduled prior to the
Outside Closing Date; (ii) the Receiver will not reinstitute its contempt
motion; (iii) they will not take any steps in the Court of Queen's Bench Action
No. 0501-11761; (iv) neither of them will take any steps in Appeal Nos.
0601-0051AC and 0601-0097AC, other than informing the Alberta Court of Appeal
that the Parties have a standstill agreement in place; (v) the Receiver will
voluntarily extend the time for Allen & Caron Inc. to respond to the Receiver's
subpoena; and (vi) they will not initiate any new legal proceedings against each
other or against any person acting on the other's behalf. 

(f).

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

3

 

 

(g).

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

(h).

 Other than as set forth in this Section 1, Sections 7 -10, and
Sections 12 - 20 of this Agreement, the Parties acknowledge and agree that this
Agreement and all of the documents executed in connection herewith will not be
effective unless and until the Receiver receives the  Court Orders entered by
the District Court and the Bankruptcy Court and the Receiver and the Corporation
each receives the ASC Acknowledgement (or the Receiver waives his right to
receive any or all elements of the Court Orders and/or the ASC Acknowledgement
or the Corporation waives the right to receive the ASC Acknowledgement). (For
the avoidance of doubt, the Receiver shall not, in the course of using his best
efforts, be required and/or obligated in any way to waive his right to receive
either the ASC Acknowledgement or the Court Orders.)  The Effective Date of this
Agreement (the "Effective Date") shall be the first date the foregoing
conditions precedent are satisfied or waived and, accordingly, the Agreement
becomes effective on that date.  If, notwithstanding the best efforts of the
Parties, the Effective Date does not occur on or prior to the 120th
calendar day (the "Outside Closing Date") after the signing of this
Agreement, this Agreement shall have no, and shall be deemed never to have had
any, force and effect other than as set forth in this Section 1 and Sections 7 -
20.  Upon receipt of the Court Orders, the Receiver shall make available a copy
of the Court Orders to the Corporation and Lobsinger.  

2.

Termination of  Litigation and Regulatory Proceedings.
 

(a).

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

(b).

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

4

 

 

(c).

As of the Effective Date, the Receiver shall as soon as
reasonably practicable,  apply to the Court of the Queen's Bench of Alberta for
an order terminating the ex parte order granted by said Court on August
10, 2005, and the Corporation will consent to such an order being granted.
 Immediately upon the granting of such an order, the Parties will take all
lawful actions necessary or desirable to cause the existing claims to be
discontinued or, in the case of appeals, abandoned, all without any order for
costs.  

(d)

As of the Effective Date, the Parties agree that: (i) they will
not support and will cooperate in opposing any effort of any shareholder of Zi
or the ASC to take any action against any Party based on the acts of Michael
Lauer and others that preceded the date of the Receiver's appointment.  

3.

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

(a).

The Corporation will deliver each of the Current and Former
Directors and to the Receiver a Release in the form of Exhibit A attached
hereto (which will release the Receiver in his individual capacity as well as in
his capacity as the Receiver of the Lancer Entities and as responsible person
for Partners); 

(b).

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

(c).

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

(d)

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

 

(e)

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

 

(f)

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

5

 

 

4.

Certain Representations and Covenants

                (a)

                Receiver's Shareholder Status.  The
Receiver hereby represents and certifies that the Receiver owns, on behlaf of
the Lancer Entities, 18,718,000 common shares of the Corporation (the "Shares").
The Corporation represents that it does not have any knowledge that the Receiver
does not own all of the Shares, and agrees not to contest or dispute the
Receiver's and/or the Lancer Entities' claim to the Shares, or ownership of any
of them.  The Parties agree and acknowledge that as of the Effective Date, (i)
the Receiver has the power and authority to exercise, on behalf of the Lancer
Entities, all rights and privileges with respect to all of the Shares,
including, without limitation, (x) the right to vote all such Shares at any
meeting of shareholders of the Corporation by proxy or in person with full power
and authority to exercise all rights and privileges afforded to other
shareholders of the Corporation, and (y) subject only to the contractual
restrictions contained herein, requisition a meeting of the shareholders of the
Corporation; (ii) the Lancer Entities have the full power to exercise all rights
and privileges with respect to shares of the Corporation held by or for the
benefit of the Lancer Entities; (iii) Lobsinger and the Corporation will take no
steps to prevent the Receiver or the Lancer Entities from exercising any of
their rights or privileges as shareholders and, except to the extent compelled
by law, will not assist, encourage or cooperate with any other person or entity
who seeks to limit or prevent the exercise of those rights.  In the event that
any other person or entity seeks to compel their assistance or cooperation in
that regard, they will promptly notify the Receiver and will take such actions
as the Receiver may reasonably request in an effort to limit the assistance or
cooperation to the minimum required by law; (iv) Lobsinger and the Corporation
will not, based on any actions taken by the Lancer Entities or the Receiver or
any other person or entity prior to the date hereof, raise any objection to the
exercise by the Receiver or the Lancer Entities of any rights or privileges with
respect to shares of the Corporation held by or for the benefit of the Lancer
Entities; (v) the Corporation will cooperate with, and use its best efforts to
assist, the Receiver in connection with the exercise by the Receiver of any
rights or privileges with respect to shares of the Corporation held by or for
the benefit of the Lancer Entities, (vii) in the event that any or all of the
shares of the Corporation now held by or for the benefit of the Lancer Entities
are distributed (as approved by the District Court) to any creditors of or
investors in the Lancer Entities, then the recipients of such shares shall have
the benefit of the provisions above as if such recipients were Lancer Entities,
and the Receiver will hold the benefit of this subsection (vii) in trust for
such recipients.

 

(b) 

Solvency and Value.   (i)  The
Corporation confirms that the Corporation is solvent and that nothing in this
Agreement or in the execution of this Agreement will cause the Corporation to
become insolvent; however, the Parties acknowledge that the Corporation has
included a "going concern note" in its most recent financial statements, and
requires additional financing to continue as a going concern.  (ii)  To the
extent that the Receiver and/or the Lancer Entities has/have received or will
receive, by virtue of this Agreement, "transfers" or "preferences" as such terms
are defined by the Bankruptcy Code, the Receiver and/or the Lancer Entites
has/have given new and reasonably equivalent value contemporaneously in exchange
for such transfers and such transfers have not rendered the Corporation
insolvent.  (iii)  To the extent that Receiver and/or the Lancer Entities
has/have received or will receive, "transfers" or "preferences" by virtue of
this Agreement, it is hereby agreed that Receiver and/or the Lancer Entities
will not have received more than they would if the Corporation commenced
proceedings under Chapter 7 of the Bankruptcy Code.  (iv)  In the event any
payments or transfers made by the Corporation to the Receiver or any of the
Lancer Entities, directly or indirectly, or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, voided,
and/or required to be repaid to a trustee, receiver or any other party appointed
under the Bankruptcy Code, Canadian, state or federal law, common law or
equitable cause, the obligation or part thereof intended to be satisfied under
this Agreement shall be reinstated or shall continue to be effective, as the
case may be, and shall remain fully enforceable pursuant to this Agreement and
applicable law to the extent that such payments or transfers are voided, set
aside or required to be disgorged, to the extent permitted by law.  (v)  The
Parties confirm that these provisions, individually and collectively, constitute
a material inducement for the Receiver to enter into this Agreement.  

6

 

 

(c) 

Authority and Enforceability.  Each
Party confirms that: (i) it has the power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement; (ii) the execution and delivery of this Agreement will not violate or
conflict with the organizational documents of such Party, or with any other
agreement to which such person or entity is a party; (iii) it is fully
authorized and empowered to execute and deliver this Agreement; and (iv) this
Agreement has been duly and validly executed and delivered by such Party and
constitutes the valid and binding obligation of such Party, enforceable against
such Party in accordance with its terms, except in each case as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws affecting or limiting the enforcement of creditors' rights generally.  

 

(d)

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

 

5.

Covenants.  

(a)  

Corporation Covenants:  

The Corporation hereby covenants as follows:

 

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

7

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

(B)     elect
a slate of directors to the board of the Corporation to be selected as described
in Section 6 below; and 

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

(ii)

The Receiver shall be entitled and permitted to vote the Shares
without restriction and the Corporation shall use its best efforts to assist the
Receiver to do so; provided, however, that the Receiver shall at the  2007 AGM
vote in favor of the matters set forth in Section 5(a)(i) above. 

 

(iii) 

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

 

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

 

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

 

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

8

 

 

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

 

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

 

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

 

(ix)

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

 

(x)

In the event that a Lobsinger Designee for any reason ceases to
serve as a member of the board of directors of the Corporation during his or her
term of office for any reason, the resulting vacancy shall be filled by another
Lobsinger Designee designated by Lobsinger as soon as reasonably possible after
the vacancy occurs.

 

(xi)

The Corporation shall take all necessary action to effectuate
this Agreement and shall take no action that will interfere with the terms of
this Agreement.

 

(b)

Lobsinger Covenants.

 Lobsinger hereby covenants as follows

(i) 

On or after the Effective Date and until the expiration of the
earlier of: (1) the Consulting Agreement; or (2) six months from the date
hereof, in connection with a Qualified Offering (as defined in Exhibit C
attached hereto, the "Qualified Offering") and upon the request of a
registered agent (a "Placement Agent") acting on behalf of the
Corporation in connection with a Qualified Offering, Lobsinger will agree to
execute and deliver a lockup agreement in substantially the same form as the
form of lockup agreement attached hereto as Exhibit E (the "Lobsinger
Lockup"), pursuant to which Lobsinger will agree not to sell, make any short
sale of loan, grant any option for the purchase of, or otherwise dispose of any
shares or derivative securities of the Corporation without the prior written
consent of the Placement Agent, from the closing of the Qualified Offering and
through the date that is six (6) months thereafter; provided, however, that
Lobsinger shall not be required to provide any lock-up agreement that is longer
than or more onerous than any lock-up agreement provided by the Receiver
pursuant to Section 5(c)(i) herein.  

 

(ii) 

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

 

(iii) [Intentionally Omitted]

9

 

 

(iv)

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

 

(v) 

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

 

(v)  

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

 

(vi)  

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

 

(vii)  

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

 

(c)

Receiver Covenants.  

The Receiver hereby covenants as follows:

 

(i) 

On or after the Effective Date and until the expiration of the
earlier of: (a) the Consulting Agreement; or (b) six months from the date
hereof, in connection with a Qualified Offering and upon the request of a
Placement Agent, the Receiver will agree to execute and deliver a lockup
agreement in substantially the same form as the form of lockup agreement
attached hereto as Exhibit F (the "Receivership Lockup") pursuant
to which the Receiver will agree not to sell, make any short sale or loan, grant
any option for the purchase of, or otherwise dispose of any shares or derivative
securities of the Corporation without the prior written consent of the Placement
Agent, from the closing of the Qualified Offering and through the date that is
six (6) months thereafter; provided, however, that (i) the Receiver shall not be
required to provide any lock-up agreement that is longer than or more onerous
than any lock-up agreement provided by Lobsinger pursuant to Section 5(b)(i)
herein, and (ii) the Receiver shall have the right to make an in kind
distribution of the Zi common stock to any investor in the Lancer Entities that
agrees to hold such shares subject to the terms and conditions comparable to the
Receivership Lockup.   

10

 

 

(ii) 

The Receiver shall cooperate to cause the nominees set forth in
Section 6 of this Agreement (or their replacements in accordance with Section 6
hereof) to be elected to the board of directors of the Corporation at the 2007
AGM and/or at any shareholder or director meetings held prior to the 2008 AGM
that address the election or appointment of directors, including without
limitation voting all of the shares of the Corporation's common stock held by
the Lancer Funds in favor of the nominees set forth in Section 6 of this
Agreement.  The Receiver shall not take any action to oppose or assist in
opposing  the election or appointment of nominees set forth in Section 6 of this
Agreement to the  board of directors of the Corporation at the 2007 AGM and/or
at any shareholder or director meetings held prior to the 2008 AGM that address
the election or appointment of directors

 

(iii)

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

 

6.

Board Composition.  

(a)  

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

(b)

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

 

(c)

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

 

(d) 

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

  
    
      
      (i)

      
      To elect the Receiver Designees.

      
       

      
      (ii)

      
      To elect the Lobsinger Designees.

      
       

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

      
    

  

11

 

 

(e) 

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

 

(f)

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

 

(g)

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

 

(h)

For the avoidance of doubt, the Parties agree that a Party's
right to designate a director nominee does not independently disqualify such
director nominee from being considered "independent".   For the purposes of this
Agreement, the calculation of a Party's beneficial ownership shall be made
without giving effect to any option or warrant with an exercise price per share
of common stock greater than then five day, volume weighted average trading
price of the Corporation's common stock.

 

7.

Bankruptcy-Related Provisions.

(a) 

The Corporation hereby warrants and represents that it does not
intend, by executing and delivering this Agreement or any other document
contemplated herein, or by entering into any of the other transactions referred
to in this Agreement, does so without the intent to hinder, delay or defraud any
person or entity to whom the Corporation is indebted or shall become indebted.
   The Corporation further represents that it is entering into this Agreement to
enable the Corporation to secure financing for the Corporation.  If the
Corporation is unable to obtain financing for its ongoing business even after
entering into this Agreement, then the Parties acknowledge that bankruptcy may
be an alternative for the Corporation, and nothing herein shall be deemed to
prevent the board of directors of the Corporation from exercising its discretion
to act in the best interests of the Corporation, which could include filing a
voluntary insolvency, bankruptcy or similar proceeding. 

12

 

 

(b) 

The Corporation is solvent and the actions contemplated in this
Agreement shall not result in the Corporation becoming insolvent; however, the
Parties acknowledge that the Corporation has included a "going concern note" in
its most recent financial statements, and requires additional financing to
continue as a going concern.

 

(c)

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

 

(d) 

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

 

(e) 

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

13

 

 

(f) 

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

 

8.

Modification/Amendment. This
Agreement may not be altered, modified, amended, or otherwise changed except in
writing executed by a legal representative of each Party.

9.

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

10.

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

11.

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

12.

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

(i)

If to the Corporation:

 

Zi Corporation

Suite 2100, 840 - 7 Avenue SW

Calgary, Alberta

T2P 3G2 CANADA

Attn:  Milos Djokovic, President and CEO

 

With a copy to:

 

Burnet, Duckworth & Palmer LLP

Suite 1400, 350 - 7 Avenue SW

Calgary, Alberta, Canada  T2P 3N9

Attn:  Doug A. McGillivray, Esq.

14

 

 

(ii)

If to the Receiver:

 

Hunton & Williams LLP

1111 Brickell Avenue

Suite 2500

Miami, Florida 33131-1802

Attn:  

Marty Steinberg, Esq.,

Receiver for the Receivership Entities

and responsible person for Lancer Partners, L.P.

 

with a copy to:

 

Hunton & Williams, LLP

1111 Brickell Avenue

Suite 2500

Miami, Florida  33131-1801

Attn:  

Craig Rasile Esq. & 

David E. Wells, Esq.

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

  

(iii)

If to Lobsinger:

 

Michael Lobsinger

Bay No. 4, 12110 40th Street SE

Calgary, Alberta Canada T2Z 4K6

 

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

15

 

 

13.

Governing Law and Dispute Resolution.
 This Agreement will be governed by the laws of Florida.  Any dispute,
controversy or claim between the Parties, whether arising out of, relating to or
in connection with this Agreement, shall be resolved by binding arbitration as
the sole and exclusive remedy as to the matters in dispute conducted by one (1)
neutral arbitrator in accordance with the commercial arbitration rules and
procedures (as well as the expedited procedures) of the American Arbitration
Association ("AAA") from time to time as modified by the terms hereof.
 Any Party may initiate an arbitration of a dispute by delivering a written
demand for arbitration to the other Party.  The arbitrator shall be appointed by
the AAA in accordance with the AAA's commercial arbitration rules and procedures
within ten (10) days after receipt of such notice. The arbitrator may not be a
current or former client or employee of any Party or an attorney that has
provided legal advice to any party, nor may the arbitrator be a current or
former employee of a direct competitor of any of the Parties.  Within ten (10)
days after the arbitrator is appointed, the Parties and the arbitrator shall
hold a hearing at which the Parties may present evidence and arguments, be
represented by counsel and conduct cross-examination.  The arbitrator shall
apply the provisions of this Agreement, without varying therefrom in any
respect.  The arbitrator shall render a written decision that relates
specifically and exclusively to the dispute in question no later than five (5)
days after the end of the hearing.  The decision of the arbitrator shall be
final, conclusive and binding on the Parties, and any Party shall be entitled as
a matter of right to have judgment on such award entered by the District Court.
 All fees and costs of the arbitrator shall be paid equally by each Party
involved in the dispute, except that each Party shall pay its own attorneys' and
experts' fees and costs.  The Parties shall be obligated to continue their
respective obligations in accordance with the terms and conditions of this
Agreement until the dispute under this Section is resolved, unless otherwise
ordered by the arbitrator.  The exclusive venue of arbitration shall be Chicago,
Illinois, unless the Parties mutually agree otherwise.  The language of the
arbitration shall be English.  In the event the Corporation or Lobsinger refuse
to comply with this Section in resolving any disputes, arising out of, relating
to or in connection with this Agreement, such disputes, whether in law or in
equity, shall be considered proceedings ancillary to the action styled 
Securities and Exchange Commission v. Michael Lauer et al., Case No.
03-80612-CIV-MARRA/SELTZER (the "Enforcement Action"), currently pending
before the District Court. The District Court presiding over the Enforcement
Action shall have original and exclusive jurisdiction over any such legal or
equitable disputes including, without limitation any claims for injunctive
relief or specific performance and any dispute arising under Canadian law,
Florida law or both.  The Parties hereby irrevocably submit in any suit, action
or proceeding arising out of or relating to such dispute, including, without
limitation, claims for injunctive relief or specific performance, to the
exclusive jurisdiction of the District Court and waive any and all objections to
such jurisdiction or venue that it may have under the laws of any state or
country, including, without limitation, any argument that jurisdiction, situs
and/or venue are inconvenient or otherwise improper.  The Parties further agree
that process may be served upon them in any manner authorized under the laws of
the United States or Florida, and each waives any objection that it otherwise
may have to such process.  The provisions of this Section supersede the dispute
resolution provisions of the Voting Rights Agreement (defined herein in Section
6(f)).

14.

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

15.

No Admission.

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

16

 

 

16.

Changes in Facts.

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

17.

Invalidity.

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

18.

Expenses.

Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby, including the preparation and execution of this Agreement and
performance of the transactions contemplated hereby, and all fees and expenses
of investment bankers, finders, brokers, agents, representatives, consultants,
counsel and accountants, will be paid by the Party incurring such costs and
expenses.

19.

Entire Agreement.

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

20.

Successors and Assigns. 

Whenever in this Agreement any of the Parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
Party and, where applicable, the heirs, executors and administrators of such
Party; and all covenants, promises and agreements by or on behalf of any Party
that are contained in this Agreement shall bind their respective successors,
assigns, heirs, executors and administrators.  Notwithstanding the foregoing, no
Party shall have the right to assign its rights, privileges and/or obligations
hereunder to any person.  This Agreement is not intended to create any third
party beneficiaries or rights in favor of any third party beneficiaries. 

17

 

 

21.

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

 

 

 

[SIGNATURE PAGE FOLLOWS]

 

 

18

 

IN WITNESS WHEREOF, the undersigned
have executed this Agreement as of the date first above written.

 

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

	 	 
	By:	/s/ Marty Steinberg
	Name:	Marty Steinberg
	Title:	Receiver

  

19

 

SCHEDULE 3(c)

 

	
    
    Current and Former Directors

    
    

 

    
    Michael Lobsinger

    
    Derrick Armstrong

    
    Richard Tingle

    
    Donald P. Moore

    
    Howard Balloch

    
    Don Hyde

    
    Thompson MacDonald

    
    Michael Mackenzie

    
    Milos Djokovic

    
    Robert Paul Stefanski

 

 

SCHEDULE 3(e)(ii)

 

Option Agreements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

EXHIBIT A

 

FORM OF MUTUAL RELEASE

 

(See Attached)

 

 

 

 

EXHIBIT B

 

FORM OF ASC REQUEST LETTER

 

(See Attached)

 

 

 

 

 

 

EXHIBIT C

 

DEFINITION OF QUALIFIED OFFERING 

 

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

 

(a) Equity Offering 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(b) Debt Offering 

 

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

 

 

 

(II) the effective amount of interest for such debentures is no
higher than 10% per annum; 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

EXHIBIT C.1

 

Broad Based Anti-Dilution Protection 

 

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

 

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

 

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

 

 

  

EXHIBIT D

 

CONSULTING AGREEMENT

 

BETWEEN

 

MICHAEL E. LOBSINGER

 

– and –

 

ZI CORPORATION

 

WHEREAS, Michael E. Lobsinger, an
individual ("Lobsinger"), is a party to that certain Settlement Agreement
dated February __, 2007 among Zi Corporation, a corporation organized under the
laws of Alberta, Canada (the "Corporation"), Marty Steinberg, solely in
his capacity as Court appointed Receiver (the "Receiver") of Lancer
Management Group, LLC ("LMG"), Lancer Management Group II, LLC ("LMGII"),
Lancer Offshore, Inc. ("Offshore"), Omnifund, Ltd. ("Omnifund"),
LSPV, Inc. ("LSPV"), LSPV, LLC ("LSPV LLC"), CLR Associates, LLC
("CLR"), G.H. Associates, LLC ("GH"), and Alpha Omega Group Inc.
("AOG") (collectively the "Receivership Entities") and as
responsible person for Lancer Partners, L.P. ("Partners" and together
with the Receivership Entities, the "Lancer Entities"), Quarry Bay
Investments Inc., an Alberta corporation, and Lobsinger (the "Settlement
Agreement"); 

 

WHEREAS, Lobsinger will resign as a
director of the Corporation effective on the Effective Date as defined in the
Settlement Agreement; 

 

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

 

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

 

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

 

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

 

 

 

NOW, THEREFORE, it is mutually
agreed:

 

1.

That in consideration of the payment of an hourly rate equal to
Two Hundred and Fifty Dollars ($250.00) up to a maximum aggregate amount of Ten
Thousand Dollars ($10,000.00) and the continued relationship of Lobsinger as a
consultant for the purposes of the Plan, Lobsinger will agree to consult and
provide advice to the board of directors of the Corporation (the "Board") when
requested in writing by the unanimous approval of the Board for the period from
January 1, 2007 until the December 31, 2007.  

2.

The Corporation and Lobsinger acknowledge that the Corporation
has paid the premiums on a key-man insurance policy on Lobsinger in the amount
of Ten Million Dollars ($10,000,000.00) until June 30, 2007.  The Corporation
and Lobsinger agree that this key-man insurance policy shall remain in place
until June 30, 2007, and, by election to be made by Lobsinger at his sole
discretion on or before May 31, 2007, Lobsinger may elect to assume the key-man
policy at his expense and transfer the policy such that the Corporation has no
further interest or obligation.  In the absence of such election, the policy
shall be permitted to terminate on June 30, 2007.  If Lobsinger elects to assume
the policy, the Corporation shall cooperate to effect a transfer of the policy
for the sole benefit of Lobsinger and his beneficiaries at the expense of
Lobsinger.  

3.

Other than the consideration outlined herein and the
reimbursement of reasonable expenses incurred by Lobsinger in providing such
advice, no further payments shall be made to Lobsinger pursuant to this
Consulting Agreement.

4.

No further benefits, perks or entitlements other than those
expressly indicated above will be paid by the Corporation to Lobsinger pursuant
to this Consulting Agreement and it is acknowledged and agreed that all
benefits, perks and entitlements pursuant to any other consulting agreements
have terminated.

AGREED this ____ day of February,
2007.

	 	ZI CORPORATION
	 	 	 
	Per:
    _______________________	 
	MICHAEL
    E. LOBSINGER	 
	 	 

  

  

EXHIBIT E

 

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

 

LOCK UP AGREEMENT

 

BETWEEN:

MICHAEL E. LOBSINGER

 

– and –

 

 

ZI CORPORATION

 

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

 

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

 

1.

Lobsinger does for himself and on behalf of any corporate
entities that he controls directly or indirectly, agree with Zi that he or any
corporations for which he controls and which hold shares in Zi to not sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any shares or derivative securities of Zi without the prior written
consent of such placement agent or underwriter from the date of signing this
Agreement and for a period of six (6) months thereafter. 

2.

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

3.

Each of Zi and Lobsinger acknowledges and agrees that (i) Zi may
not waive any obligation, condition or covenant of this Agreement without the
written consent of the Receiver; and (ii) each of the Receiver and any placement
agent that consummates a Qualified Offering for Zi is an intended third party
beneficiary of this Agreement, with full power and standing to enforce the terms
and conditions of this Agreement.

[SIGNATURE PAGE FOLLOWS]

 

 

 

ZI CORPORATION

____________________________________

 

Per:___________________________

 

 

MICHAEL E. LOBSINGER

 

__________________________

 

 

 

EXHIBIT F 

 

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

 

RECEIVER LOCK UP AGREEMENT

 

BETWEEN:

MARTY STEINBERG, Receiver,

on behalf of THE LANCER ENTITIES

 

 – and –

 

 

ZI CORPORATION

 

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

 

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

 

1.

The Receiver does for himself and on behalf of any corporate
entities that he controls directly or indirectly, agree with Zi that he or any
corporations for which he controls and which hold shares in Zi to not sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any shares or derivative securities of Zi without the prior written
consent of such placement agent or underwriter from the date of signing this
Agreement and for a period of six (6) months thereafter, provided however
notwithstanding the foregoing the Receiver shall have a right to make an in kind
distribution of the Zi's common stock to any investor of the Lancer Entities
that agrees to hold such shares subject to the foregoing lock up;

2.

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

3.

Each of Zi and the Receiver acknowledges and agrees that (i) Zi
may not waive any obligation, condition or covenant of this Agreement without
the written consent of Lobsinger; and (ii) each of Lobsinger and any placement
agent that consummates a Qualified Offering for Zi is an intended third party
beneficiary of this Agreement, with full power and standing to enforce the terms
and conditions of this Agreement.

 

 

ZI CORPORATION

 

Per:_________________________

 

 

______________________________

MARTY STEINBERG

 

 

 

 

EXHIBIT G

 

FORM OF LOBSINGER RESIGNATION LETTER

 

TO:

ZI CORPORATION 

 

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

 

DATED _____________ 2007.

	
     	
     	
     
	
     	
     	
    
    MICHAEL LOBSINGER

 

 

 

 

EXHIBIT H

 

FORM OF ZI BOARD RESOLUTION ACCEPTING LOBSINGER RESIGNATION

 

Resolution in writing of the Directors of Zi Corporation
passed without meeting and in accordance with the 
Business Corporations Act (Alberta) effective
________________, 2007.

 

Resignation of Michael Lobsinger

 

It is resolved that the resignation of Michael Lobsinger from his
position as a director of Zi Corporation and from any directorship, office or
employment he holds in all subsidiaries or affiliates of Zi Corporation  is
accepted effective in accordance with its terms.

	 
	 
	 
	
    Milos Djokovic
	 
	 
	 
	
    Donald Hyde
	 
	 
	 
	
    Donald Moore
	 
	 
	 
	
    Robert Stefanski
	 
	 
	 
	
    Richard TingleMetallica Resources Inc.: Exhibit 4.25 - Prepared by TNT Filings Inc.

  

EMPLOYMENT AGREEMENT 

This Employment Agreement (the
"Agreement"), is effective as of April 1, 2006, among METALLICA MANAGEMENT INC.,
a Colorado corporation ("Corporation"), METALLICA RESOURCES INC., a company
federally incorporated in Canada ("Metallica") and TROY J, FIERRO ("Executive").

WHEREAS the Executive commenced
employment with the Corporation effective April 1, 2006; 

WHEREAS the Executive and the
Corporation have agreed that the ongoing employment of the Executive shall be
subject to the terms and conditions set forth herein; and 

WHEREAS the Corporation is a
wholly-owned subsidiary of Metallica, and pursuant to a management agreement
between the Corporation and Metallica, the Corporation provides certain
managerial and administrative services to Metallica and its other subsidiaries.

NOW THEREFORE in consideration
of the mutual covenants and promises contained herein, and other good and
valuable consideration, the parties hereto agree as follows: 

1.        
Employment Duties. The Corporation agrees to continue to employ the
Executive as the Vice President - Operations, and the Executive hereby agrees to
continue such employment, Moreover, the Executive shall also act as the Vice
President - Operations of Metallica, and shall hold such offices of Metallica's
subsidiaries (hereafter the "Associated Companies") as shall be assigned to him
by the Boards of Directors of the Corporation or Metallica. In such capacities,
the Executive shall have responsibility for the supervision and direction of all
engineering, metallurgical and operational activities for all mineral assets of
the Corporation, Metallica and the Associated Companies, and such other
activities as may be requested from time to time. The Executive shall report to,
and accept direction from, the Chief Executive Officer of Metallica. Executive
shall devote substantially all of his time, abilities and attention to the
business of the Corporation, Metallica and the Associated Companies and shall
use his best efforts to perform faithfully and efficiently the duties and
responsibilities assigned to Executive. 

2.        
Employment Period. Subject to sections 9, 10, 11 and 12 hereof, the term
of this Agreement shall commence on the date hereof and shall terminate April 1,
2008. Provided, however, that this Agreement shall continue to govern the
employment of the Executive by the Corporation after April 1, 2008 unless either
the Corporation or the Executive terminates this Agreement either (i) effective
April 1, 2008, by written notice to the other party given not later than October
3, 2007, or (ii) after April 1, 2008, upon not less than six months' written
notice to the other party. 

3.        
Compensation. As compensation for his services hereunder, the Corporation
shall pay to the Executive a salary of US$140,000 per annum by equal monthly
installments in arrears. The salary shall be reviewed periodically by the Board
of Directors of the Corporation. The Executive may also be eligible for periodic
bonuses to be determined by the Board of Directors based upon performance. 

4.        
Expenses. The Corporation shall reimburse the Executive for such
traveling, hotel, entertainment and other out-of-pocket expenses as he may from
time to time properly incur while conducting the businesses of the Corporation,
Metallica, or the Associated Companies and as may be approved by the Chief
Executive Officer of the Corporation. 

5.        
Benefits. The Executive shall be entitled to such other benefits and to
such holidays to be agreed upon by the Executive and the Corporation. These
benefits and holidays shall include, but not be limited to: eligibility in the
Corporation's 401 -k plan; health, dental and disability insurance; and life
insurance at two times annual salary. The Executive shall be entitled to four
weeks of paid annual vacation. The maximum number of accrued and unused vacation
hours that can be carried over from one calendar year to the following calendar
year is 160 hours. 

6.        
Stock Options. The Executive shall be entitled to participate in the
Corporation's stock option plan to the extent and upon such terms as may be
determined from time to time by the Board of Directors of the Corporation. The
Executive shall be granted at the commencement of employment 225,000 options
under this plan, priced according to the fair market value as determined by the
Toronto Stock Exchange practices. These options will be for a five year term
with 75,000 vesting immediately, 75,000 vesting after year one and the balance
after year two. 

7.        
Nonsolicitation. The Executive shall not at any time either during his
employment by the Corporation and/or for a period of two years thereafter
attempt to induce any person to leave the employment of the Corporation,
Metallica or the Associated Companies. 

8.        
Confidentiality / Trade Secrets. The Executive acknowledges that in the
course of carrying out, performing and fulfilling his duties with the
Corporation, Metallica or the Associated Companies, he has had and will have
access to and be entrusted with the Corporation, Metallica and the Associated
Companies' trade secrets and with detailed confidential information concerning
the present and contemplated exploration projects, prospects and opportunities
of the Corporation, Metallica and the Associated Companies. The Executive
acknowledges that the disclosure of any such trade secrets or confidential
information to the competitors of the Corporation, Metallica or the Associated
Companies or to the general public would be highly detrimental to the best
interests of the Corporation, Metallica and the Associated Companies. The
Executive further acknowledges and agrees that the right to maintain such trade
secrets and detailed confidential information constitutes a proprietary right
which the Corporation, Metallica and the Associated Companies are entitled to
protect. Accordingly, the Executive covenants and agrees with the Corporation
and Metallica that he will not (either during the continuance of his employment
by the Corporation, Metallica or the Associated Companies or at any time
thereafter) disclose any such trade secrets or confidential information to any
person nor shall he use the same for any purpose other than those of the
Corporation, Metallica or the Associated Companies unless such information is
otherwise known to the public. 

9.        
Termination by the Corporation. Notwithstanding section 2 hereof, but
subject to sections 10, 11 and 12 hereof, the Corporation may terminate the
employment of the Executive: 

(a)    
For Good Cause (as defined below) and in such event the Executive shall not be
entitled to any payment on account of such termination, other than compensation
due him in respect of the period ending on the date of termination. 

(b)    
If the Executive dies or becomes disabled (any such disability to be assessed
under applicable laws) and in such event the Executive shall not be entitled to
any payment on account of such termination, other than compensation due him in
respect of the period ending on the date of termination. 

(c)    
Upon six months' notice and in such event the Executive shall not be entitled to
any payment on account of such termination, other than compensation due him in
respect of the period ending on the date of termination. 

10.       
Change of Control. In the event that following a Change of Control (as
hereinafter defined), either: 

(a)    
the Corporation terminates the employment of the Executive other than for Good
Cause (as hereinafter defined); or 

(b)    
the Executive resigns from his employment hereunder for Good Reason (as
hereinafter defined) within six months following the Change of Control, 

the Corporation shall pay to the Executive a lump sum in cash
on the date of termination or resignation an amount equal to three times the
Executive's annual salary in effect for the financial year of the Corporation
during which the Change of Control occurs, 

11.       
Definitions. For the purposes of this Agreement: "Change of Control"
means: 

(a)    
the acquisition by any "offerer" (as defined in Part XX of the Securities Act
(Ontario)) of beneficial ownership of more than 50% of the outstanding voting
securities of Metallica, by means of a takeover bid or otherwise;

(b)    
any consolidation or merger of Metallica in which Metallica is not the
continuing or surviving corporation or pursuant to which shares of Metallica
would be converted into cash, securities or other property, other than a merger
of Metallica in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation immediately after
the merger; 

(c)    
any sale, lease, exchange or other transfer (in one transaction or a series or
related transaction) of all or substantially all of the assets of Metallica; or

(d)    
the approval by the shareholders of Metallica of any plan of liquidation or
dissolution of Metallica. 

"Good Reason" means any circumstance
in which the Executive is induced by actions of the Corporation, Metallica or
the Associated Companies to terminate his employment other than on a purely
voluntary basis, and without limiting the generality of the foregoing shall
include; 

(a)    
a reduction or diminution in the level of responsibility, title or office of the
Executive; 

(b)    
a reduction in the compensation level of the Executive, taken as a whole; 

(c)    
forced relocation to another geographic location; or 

(d)    
the failure of the Corporation or any successor corporation to maintain
substantially similar employment terms with the Executive after the Change of
Control as were in existence prior to the Change of Control. 

"Good Cause" means:

(a)    
the conviction, or plea of nolo contendere, of the Executive on a felony
charge; 

(b)    
a willful failure of the Executive to perform the duties necessary to carry out
the Executive's responsibilities which failure has not been cured within ten
(10) business days after a written notice setting forth such failure has been
given to the Executive; 

(c)    
dishonest conduct taken by or committed at the request of Executive which is
intentional and materially injurious to the Corporation; or 

(d)    
the repeated willful violations by the Executive of the Executive's obligations
under this Agreement. 

12.        
Termination by the Executive. The Executive may terminate his employment
with the Corporation upon six months' notice and in such event the Executive
shall not be entitled to any payment on account of such termination, other than
compensation due him in respect of the period ending on the date of termination.

13.        
Moving Expenses. The Corporation will reimburse the Executive for
reasonable moving costs from Coeur d'Alene, Idaho to Colorado. This reimbursment
will include realtor commissions and closing costs associated incurred in
selling Executive's Coeur d'Alene residence and other reasonable expenses
incurred in connection with transporting household goods, up to a mutually
agreed maximum amount, and transportation for Executive and his family to
Colorado. The Corporation will also provide Executive and his family with up to
six weeks of temporary living expenses, up to a mutually agreed maximum amount.
It is understood that Executive does not intend to relocate to Colorado
until the Spring of 2007. 

14.        
Severability. All of the provisions of this Agreement including without
limitation section 7, are intended by the parties hereto as separate the
divisible provisions and, if, for any reason, any one of them (or part thereof)
is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision (or part thereof) shall be affected
thereby. Executive agrees that the restrictions imposed by section 7 is
reasonable in scope and duration and acknowledges that he has or shall receive
sufficient consideration from Corporation to make enforceable the restrictions
and limitations contained in section 7 of this Agreement. 

15.        
Notice. Any notice in writing required to be given to the Executive
hereunder shall be sufficiently given if delivered to the Executive personally
or mailed by registered mail, postage prepaid, addressed to the Executive at his
last residential address known to the Secretary of the Corporation. Any such
notice mailed as aforesaid shall be deemed to have been received by the
Executive on the third business day following the date of mailing. Any notice in
writing required or permitted to be given to the Corporation hereunder shall be
given by registered mail, postage prepaid, addressed to its head office. Any
such notice mailed as aforesaid shall be deemed to have been received by the
Corporation on the third business day following the date of mailing. Any such
address for the giving of notices hereunder may be changed by notice in writing
given hereunder. 

16.        
Previous Agreements Terminated and Cancelled. Any and all previous
agreements written or oral, between the parties hereto or on their behalf
relating to the employment of the Executive by the Corporation, are hereby
terminated and cancelled, and each of the parties hereto hereby releases and
forever discharges the other of and from all manner of actions, causes of
action, claims and demands whatsoever under or in respect of any such
agreements. 

17.        
Governing Law. The provisions of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado, without
reference to the principals of conflicts of laws thereunder, and each of the
parties hereto by their execution of this Agreement irrevocably agrees to the
jurisdiction of the courts of Denver, Colorado. 

18.        
Assignment. This Agreement is personal to the Executive and shall not be
assignable by the Executive. This Agreement shall be assignable by the
Corporation. 

IN 
WITNESS WHEREOF the parties hereto have set their hands and seals as of the
date first above written.

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