LML Payment 8-K 4-3-2006 (Telecheck)
UNITED
STATES SECURITIES AND
EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported) April
3, 2006
LML
PAYMENT SYSTEMS INC.
(Exact
name of registrant as specified in its charter)
Yukon
Territory
(State
or
other jurisdiction of incorporation)
0-13959
(Commission
File Number)
98-0209289
(IRS
Employer Identification No.)
1680-1140
West Pender Street, Vancouver, BC V6E 4G1
(Address
of principal executive offices and Zip Code)
(604)
689-4440
Registrant's
telephone number, including area code
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Item
1.01.
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Entry
into a Material Definitive Agreement.
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LML
Payment Systems Inc. (the “Registrant”), LML Patent Corp., an indirect
wholly-owned subsidiary of the Registrant, and LML Payment Systems Corp., an
indirect wholly-owned subsidiary of the Registrant (collectively, “LML”) have
entered into a Settlement and License Agreement (the “Agreement”) with TeleCheck
Services, Inc. and TeleCheck International, Inc. (collectively, “TeleCheck”) and
First Data Corp. (“First Data”). The Agreement was effective April 3, 2006 (the
“Effective Date”).
Pursuant
to the Agreement, LML settled all litigation between First Data and TeleCheck,
on the one hand, and LML, on the other hand, including both the litigation
in
the U.S. District Court for the District of Delaware and the litigation in
the
U.S. District Court for the Eastern District of Texas, and entered into a patent
cross-license agreement with First Data and TeleCheck. The Agreement provides
First Data and TeleCheck with a non-exclusive, fully-paid license to LML's
patents for electronic check conversion, including LML's U.S. Patent Nos.
6,354,491; 6,283,366; 6,164,528; and 5,484,988 (collectively, the “LML Licensed
Patents”). The Agreement also provides LML with a non-exclusive, fully-paid
license to TeleCheck's U.S. Patent Nos. 5,679,938 and 5,679,940 for interactive
check authorizations and risk assessment (collectively, the “TeleCheck Licensed
Patents”). The license term for the cross-licenses of the LML Licensed Patents
and the TeleCheck Licensed Patents expires on the date of expiration of the
last
to expire of the LML Licensed Patents and the TeleCheck Licensed Patents.
The
Agreement also included mutual releases among the parties pursuant to which
LML
released First Data and TeleCheck from all causes of action in law or at equity
related to the LML Licensed Patents that may have arisen prior to the Effective
Date, and First Data and TeleCheck released LML from all causes of action in
law
or at equity related to the TeleCheck Licensed Patents that may have arisen
prior to the Effective Date.
As
part
of the consideration for the settlement of the litigation and the release and
licenses granted by LML to First Data and TeleCheck, First Data or TeleCheck
has
agreed under the Agreement to pay LML a release fee and other payment in the
amount of $15,000,000 U.S. within 14 calendar days of the Effective Date.
Under
the
Agreement, LML also granted to First Data and TeleCheck a non-exclusive,
fully-paid license to use any other U.S. patents owned by LML as of the
Effective Date as well as any patents obtained or acquired by LML after the
Effective Date and before January 16, 2013, with the license term for such
license expiring on January 16, 2013. In addition, First Data and TeleCheck
also
granted to LML a non-exclusive, fully-paid license to any other U.S. patents
owned by First Data and TeleCheck as of the Effective Date as well as any
patents obtained or acquired by First Data or TeleCheck after the Effective
Date
and before January 16, 2013, with the license term for such license expiring
on
January 16, 2013 (for products and services currently being commercially offered
by LML).
The
foregoing description is subject to and qualified in its entirety by the
Agreement, which is filed as Exhibit 10.1 hereto and incorporated herein by
reference.
Special
Fee Arrangement for the Enforcement of LML’s Patent
Portfolio
As
part
of LML’s strategy to enforce its patent portfolio (which includes licensing
negotiations and, if required, litigation), and to take advantage of the
significant resources and intellectual property expertise of Kirkland &
Ellis LLP (one of the U.S.’s premier law firms), LML Patent Corp. entered into a
Special Fee Arrangement with Kirkland & Ellis LLP.
Pursuant
to the Special Fee Arrangement, upon the execution of a license agreement
between LML and a licensee, Kirkland & Ellis is entitled to receive a
specified percentage of any up-front fee and a specified percentage of any
royalties payable under the license agreement. The amount to be received by
Kirkland is a sliding scale that ranges from a low of 10% of any up-front fee
and 10% of the greater of any actual royalties or any annual minimum royalties
(continuing for the life of the agreement or license) in the event of the
execution of a license agreement with a licensee prior to the initiation of
litigation against that licensee, to a high of 35% of any up-front fee and
35%
of the greater of any actual royalties or any annual minimum royalties
(continuing for the life of the agreement or license) in the event of a license
agreement or settlement agreement that is entered into after the date that
is 60
days prior to the commencement of trial, or after verdict, judgment or appeal
in
LML’s favor (or in the case where LML receives a payment in satisfaction of a
judgment against a potential licensee).
In
addition, the specified percentages of up-front fees and royalties that Kirkland
is entitled to receive under the Special Fee Arrangement were modified with
respect to LML’s retention of Kirkland to defend LML against Telecheck in the
Texas litigation. Pursuant to the Amended Special Fee Arrangement, the highest
percentage that Kirkland could receive was increased to 45% (in the case of
any
license agreement or settlement agreement between LML and Telecheck and/or
Telecheck International, Inc. or a payment in satisfaction of a judgment against
Telecheck and/or Telecheck International, Inc.). Pursuant to the Special Fee
Arrangement, as modified, LML expects to pay approximately $6,750,000 U.S.
in
legal fees to Kirkland & Ellis LLP that are directly attributable to the
First Data and Telecheck Settlement and License Agreement.
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Item
9.01.
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Financial
Statements and Exhibits.
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10.1
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Settlement
and License Agreement entered into effective as of April 3, 2006
by and
among LML Patent Corp., LML Payment Systems Inc., LML Payment Systems
Corp., TeleCheck Services, Inc., TeleCheck International, Inc., and
First
Data Corp. (filed herewith).
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99.1
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News
Release issued by the Registrant on April 3, 2006 (previously
filed).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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LML
PAYMENT SYSTEMS INC.
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/s/
Carolyn Gaines
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By:
Carolyn Gaines
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Corporate
Secretary
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Date:
April 6, 2006
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