News Column

Spectra Settles Lawsuit For USD2.1 Million, Terminates Agreement

June 20, 2014

Hana Stewart-Smith

LONDON (Alliance News) - Spectra Systems Corp Friday said it had opted to settle a lawsuit for USD2.1 million and terminate a royalty agreement with one of its shareholders and business partners to avoid further costs.

The lawsuit pertained to a license agreement on sales of some banknote authentication materials, as the shareholder claimed it was owed USD2.1 million under the agreement for the period between 2004 and 2013, and was filed in February 2013. However, Spectra disagreed with the shareholder's interpretation of the agreement.

The amount of damages claimed by the lawsuit was reduced to USD1.3 million last November due to the enforcement of the statute of limitations, which bars claims that accrued more than six years prior to the filing of the suit.

Spectra will take an exceptional cost for the settlement of USD1.9 million in its results for 2013, after offsetting accruals already made for the period between 2006 and 2012.

Spectra said it was pleased to have reached a settlement that avoids "further significant legal costs", and also terminates the agreement, avoiding liabilities which would have continued throughout its remaining years.

The company said that, had it been successful in the trial regarding the 2004 and 2013 period, it would have owed USD800,000 to the shareholder, and along with estimated legal fees of USD500,000, would have led to a total cost of USD1.3 million to Spectra.

Whilst legal advice suggested that Spectra was likely to be successful for this period, it was less certain of its success regarding the remainder of the contract. Based on historical levels of authentication materials shipped before 2012, Spectra said it could have resulted in around USD1.6 million in contract payments for future years, and potentially much higher if order volumes in the future exceed historical levels.

Taking into account the potential cost for the remaining years of the contract and legal fees, Spectra estimated it could have seen USD2.9 million in total costs. As a result, it concluded that the USD2.1 million settlement and termination was the "correct business decision" and would lead to significant savings for the company.

Spectra plans to release its 2013 results on April 30.

Shares in Spectra were trading down 6.1% at 23.00 pence Friday morning.

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Source: Alliance News

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