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                                                                    EXHIBIT 10.4

                             SETTLEMENT AGREEMENT
                             --------------------

     THIS SETTLEMENT AGREEMENT, dated this ______ day of July, 2000, and deemed
effective June 29, 2000, by, between, and among LML PAYMENT SYSTEMS, INC.
("LML"), CHEQUEMARK HOLDINGS, INC. ("CHI"), CHEQUEMARK PATENT, INC. ("CPI"),
CHEQUEMARK, INC. ("Chequemark"), ROBERT R. HILLS ("Mr. Hills"), and CHEQUEMARK
TECHNOLOGIES CORPORATION n/k/a MARK TECHNOLOGIES, INC. ("CTC").

                                  WITNESSETH:
                                  ----------

     WHEREAS, on or about March 11, 1998, pursuant to a "Patent Purchase
Agreement", CPI purchased U.S. Patent No. 5,484,988 ("the '988 Patent") relating
to the "Checkwriting Point-of-Sale System," ("the Checkwriting System") a
related patent application and related technology ("the Patent Estate") from Mr.
Hills and Henry M. Nichols ("Mr. Nichols"), ultimately in exchange for shares of
LML stock and future earn-out shares of LML stock, and

     WHEREAS, on or about March 11, 1998, pursuant to an "Asset Purchase
Agreement" Chequemark purchased the assets, including software, executable code
and source code relating to the Checkwriting System, of CTC ultimately in
exchange for shares of LML stock, and future earn-out shares of LML stock, and

     WHEREAS, on or about March 11, 1998, Mr. Hills entered into an "Employment
Agreement" with Chequemark in which he agreed to remain employed by Chequemark
for a period of one (1) year, and

     WHEREAS, to secure his one (1) year employment obligation, Mr. Hills
pledged the shares of LML stock he received pursuant to the Patent Purchase
Agreement and his portion of the shares of LML stock received by CTC under the
Asset Purchase Agreement; and
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     WHEREAS, the Share Certificates representing the shares then pledged by Mr.
Hills are held in escrow by the law firm of Dinsmore & Shohl in Columbus,
Ohio,("the Escrowed Shares"); and

     WHEREAS, LML disputes Mr. Hills' and CTC's ownership and maintains that Mr.
Hills committed a "Unilateral Resignation" and that, therefore, the LML Share
Certificates belong to LML, and

     WHEREAS, Mr. Hills, and CTC claim ownership of the Escrowed Shares, and
deny that Mr. Hills effected a "Unilateral Resignation", and

     WHEREAS, on or about March 10, 1999, LML and CPI commenced an action in the
United States District Court for the Middle District of Florida styled LML
                                                                       ---
Payment Systems, Inc., Chequemark Patent, Inc. and Chequemark Holdings, Inc. v.
-------------------------------------------------------------------------------
Robert R. Hills, Case No. 99-217 Civ-J-20A (the "Federal Court Action"), to
---------------
require Mr. Hills to execute an assignment of patent application ser. No.
08/775,400, and

     WHEREAS, the signatories to this Settlement Agreement desire amicably to
settle and dispose of all claims and causes of action alleged in the Federal
Court Action and otherwise existing between or among them as of the date of this
Settlement Agreement, and

     NOW, THEREFORE, in consideration of the mutual promises and agreements of
each signatory set forth in this Agreement and other good and sufficient
consideration, the sufficiency of which is acknowledged by the parties hereto,
it is agreed by, between, and among LML, CPI, CHI, Chequemark, Mr. Hills, and
CTC that:

     1.   WAIVER OF CLAIMS (LML, CPI, CHI and Chequemark) - LML, CPI, CHI and
          -----------------------------------------------
Chequemark, jointly and severally,  hereby waive any and all claims and causes
of action that they may have against Mr. Hills and/or CTC, jointly or severally,
for an accounting, for money damages

                                       2
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(compensatory and punitive), for attorneys' fees or costs, or for any other
legal or equitable relief whatsoever arising from or related to any
interactions, dealings or relationships between or among the parties hereto.

     2.   WAIVER OF CLAIMS (Mr. Hills and CTC) - Mr. Hills and CTC jointly and
          ------------------------------------
severally, hereby waive any and all claims and causes of action that they may
have against LML, CHI, CPI and/or Chequemark , jointly and severally,  for an
accounting, for money damages (compensatory and punitive), for attorneys' fees
or costs, or for any legal or equitable relief whatsoever arising from or
related to any interactions, dealings, or relationships between or among the
parties hereto.

     3.   GENERAL RELEASE (LML, CPI, CHI and Chequemark) - Simultaneously with
          ----------------------------------------------
the execution and delivery of this Settlement Agreement, LML, CPI, CHI and
Chequemark shall execute and deliver to Mr. Hills and CTC in care of the
Mediator in escrow a General Release in the form attached as Exhibit A to this
Agreement.

     4.   GENERAL RELEASE (CTC and Mr. Hills) - Simultaneously with the
          -----------------------------------
execution and delivery of this Settlement Agreement, CTC and Mr. Hills shall
execute and deliver to LML, CPI, CHI and Chequemark in care of the Mediator in
escrow a General Release in the form attached as Exhibit B to this Agreement.
Nothing in this release shall affect the obligation under the Asset Purchase
Agreement for LML to issue earn-out shares representing the non-Mr. Hills'
shareholders ownership interest in CTC as of March 11, 1998.

     5.   AGREED FINAL JUDGMENT AND PERMANENT INJUNCTION - Within five (5) days
          ----------------------------------------------
after the execution of this Settlement Agreement, the signatories to this
Settlement Agreement shall file in the Federal Court Action a Stipulation And
Joint Motion For Entry Of Agreed Final Judgment And Permanent Injunction (with
attached Agreed Final Judgment And Permanent

                                       3
<PAGE>

Injunction) in the form attached as Exhibit C to this Agreement. The signatories
to this Agreement shall not appeal in any way the Agreed Final Judgment And
Permanent Injunction. If any signatory must engage in legal action defending,
enforcing or otherwise arising out of this Agreement and/or the Agreed Final
Judgment And Permanent Injunction, the prevailing party or parties shall be
entitled to its, his, or their attorneys' fees, costs of investigation, and
court costs (including all deposition costs) for such action.

     6.   EXECUTION OF PATENT ASSIGNMENT - Simultaneous with the execution of
          ------------------------------
this Settlement Agreement, Mr. Hills shall execute and deliver to the Mediator
in escrow (i) one (1) comprehensive Assignment of Invention in the form attached
as Exhibit D to this Settlement Agreement.  Further, Mr. Hills shall, on request
and without further consideration but at the expense of CPI, communicate to CPI
or its representatives or nominees any facts known to him, testify in any legal
proceedings, sign all lawful papers, execute all divisional, continuing and
reissue applications, make all rightful oaths, and generally aid CPI, its
successors, assigns and nominees, to obtain and enforce proper patent protection
for the Checkwriting System in all countries.

     7.   PAYMENT FOR SHARE CERTIFICATES/ESCROW - No later than July 14, 2000,
          -------------------------------------
LML shall deliver to the Mediator a wire transfer in the sum of $2,500,000 and
shall deliver to the Mediator (by July 17, 2000) 75,000 unrestricted shares of
LML common stock in the name of Robert R. Hills in exchange for Mr. Hills' and
CTC's entire interests in the LML Share Certificates Nos. 14048 and 14049 as
well as for any earn-out shares attributable to Mr. Hills, pursuant to the
Patent Purchase Agreement or the Asset Purchase Agreement and his ownership
position, as of March 11, 1998, (46.24%) of CTC.  The Mediator shall disburse
the funds and the stock consistent

                                       4
<PAGE>

with the Mediation Agreement once Mr. Hills has met his obligations required to
be performed by July 17, 2000, under the Settlement Agreement.

     8.   RETURN OF LML PROPERTY (CTC and Mr. Hills) - No later than July 17,
          ------------------------------------------
2000, CTC and Mr. Hills (i) shall deliver to the Mediator in escrow all assets,
equipment, software and documentary information belonging to LML, CPI, CHI
and/or Chequemark in their possession, custody, or control in any form (e.g.
                                                                        ----
originals and  photocopies of the forgoing, and all derivations of software and
source code, including but not limited to information put on computer diskettes
and hard drives) and shall file with the Court sworn affidavits, in the form
attached as Exhibits G and H to this Agreement, stating their compliance with
the requirements of this Paragraph 8.  The property in escrow pursuant to this
Paragraph shall be released to LML simultaneous with the release of the 25,000
shares of LML stock consistent with the Mediation Agreement.

     9.   CANCELLATION OF ASSIGNMENTS/RETURN OF SOFTWARE - On or before July 17,
          ----------------------------------------------
2000, Mr. Hills shall obtain from Global Technologies, LLC ("Global") Airtime
Technologies, Inc., and Dean S. Keil  a release of all rights, title and
interest if any, Global, Airtime or Mr. Keil may have in the '988 Patent in the
form attached as Exhibit E, negating the '988 Patent Assignment executed by Mr.
Hills to Global,  as testified in his deposition.  Mr. Hills shall deliver the
signed and notarized release to the Mediator by July 17, 2000, for delivery to
LML simultaneous with the release of the funds and 50,000 shares as required by
the Mediation Agreement.  Within thirty (30) days of the date Mr. Hills executes
this Agreement, Mr. Hills shall obtain from Global, Airtime Technologies, Inc.
("Airtime"), Dean Keil (and their respective employees, principals, agents,
representatives, subsidiaries and affiliates) and any other party to whom Mr.
Hills, CTC, Global, Mr. Keil or Airtime have delivered (other than CPI, LML or
Chequemark)  all copies of the Checkwriting System software and source code.
Within thirty (30) days of the date Mr. Hills executes this Agreement, Mr. Hills
shall execute an affidavit in the form attached as Exhibit I stating that (i) he
has not assigned the '988 Patent to anyone other than to himself, or Global
Technologies, LLC, (ii) that he has obtained all copies, of which he is aware of
the Checkwriting

                                       5
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System software and source code from all non-LML parties, (iii) that he has
returned all copies of the Checkwriting System software and source code, of
which he is aware, to the Mediator in escrow and (iv) that he has not retained
in any form a copy of the Checkwriting System software or source code or any
portion thereof. The property held in escrow (other than the release) pursuant
to this Paragraph shall be released to LML simultaneous with the release of the
25,000 shares of LML stock consistent with the Mediation Agreement.

     10.  DEFAMATORY OR DISPARAGING WRITTEN OR ORAL STATEMENTS - No signatory to
          ----------------------------------------------------
this Settlement Agreement shall publish to customers, prospective customers or
anyone else defamatory or disparaging written or oral statements about the
products, services, employees, or others of any other signatory to this
Agreement.  In addition, Mr. Hills and Diane Hills shall refrain from making or
publishing disparaging statements about Patrick Gaines, Wendy Ogilvie, Carolyn
Mosher, Robert Moore and Don Choquer.  By signing this page of the agreement,
Patrick Gaines, Wendy Ogilvie, Carolyn Mosher, Robert Moore and Don Choquer
agree to refrain from making or publishing disparaging statements about   Mr.
Hills or Diane Hills. By signing this page of the agreement,  Diane Hills agrees
to refrain from making or publishing disparaging statements about  Patrick
Gaines, Wendy Ogilvie, Carolyn Mosher, Robert Moore or Don Choquer.

                                       6
<PAGE>

     11.  PRESS RELEASE - Mr. Hills shall join LML in a press release in which
          -------------
Mr. Hills shall state that he has resolved his dispute with LML and that he
acknowledges that pursuant thereto, CPI is the owner of the '988 Patent and the
Checkwriting System.

     12.  RESTRICTIONS ON COMPETITIVE ACTIVITY - From the date of this
          ------------------------------------
Settlement Agreement and for a period of three (3) years thereafter, Mr. Hills,
whether as an employee, officer, director, shareholder, consultant, independent
contractor or otherwise, shall not, Directly or Indirectly, carry on or be
engaged in or be concerned with or interested in or advise or provide any
consulting or other services for any person, business or other entity that
produces markets, sells or otherwise deals in products or services competitive
with the products or services produced, marketed, sold, licensed, or otherwise
dealt in by LML or any of its direct or indirect subsidiaries and which relate
to the electronic payment and collections industry.  "Directly or Indirectly" in
the context of any action taken by Mr. Hills includes any action or activity
taken directly or indirectly either in person or through employees, agents,
partners, joint venturers or in any other manner whatsoever by Mr. Hills, for
Mr. Hills' own benefit or for the benefit of any person or entity competing with
Chequemark, LML or any of LML's direct or indirect subsidiaries, whether such
action is taken individually or in partnership or jointly in conjunction with
any person as principal, agent, trustee, employee, partner, shareholder owner or
otherwise.

     13.  ATTORNEYS' FEES - Except as provided in Paragraph 5 of this Agreement,
          ---------------
the signatories to this Settlement Agreement shall each bear their own
respective attorneys' fees, costs, and expenses.

     14.  COMPROMISE - This settlement is the compromise of disputed claims and,
          ----------
except to the limited extent set forth in this Settlement Agreement, the
settlement provided for in this

                                       7
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Agreement in no way constitutes an admission of any fact, claim, or allegation
and in no way indicates or implies or admits the truth of any allegation or
claim in any pleading or other paper or document lodged or filed in the Federal
Court Action.

     15.  TERMINATION/RESCISSION - The signatories to this Settlement Agreement
          ----------------------
understand and acknowledge that the facts in respect of which this Agreement is
made may hereafter prove to be other than, or different from, the facts in that
connection now known by one or more of them or believed by one or more of them
to be true, and they agree that all of the terms of this Agreement shall be in
all respects effective and not subject to termination or rescission by any such
difference in facts.

     16.  ENTIRE AGREEMENT; MODIFICATION BY WRITING ONLY - This Settlement
          ----------------------------------------------
Agreement (together with the ancillary documents attached to the Agreement as
exhibits) and the Mediation Agreement incorporates, embodies, expresses, and
supersedes all agreements and understandings between or among its signatories,
and neither this Agreement (nor any of the ancillary documents attached to this
Agreement as exhibits) may be altered or modified except in writing duly
executed by its signatories.  In the event of any inconsistency between or among
this Agreement, the ancillary documents or the Mediation Agreement, the
Mediation Agreement (not including the attachments to the Mediation Agreement)
shall control.

     17.  FLORIDA CONTRACT; FLORIDA LAW - This Settlement Agreement (together
          -----------------------------
with the ancillary documents attached to the Agreement as exhibits) shall be
deemed to constitute a contract made and entered into under the laws of the
State of Florida, and for all purposes this Agreement and its ancillary
documents shall be construed and governed in accordance with the laws of the
State of Florida.

                                       8
<PAGE>

     18.  CORPORATE AUTHORITY (LML, CPI, CHI and Chequemark) - LML, CPI, CHI and
          --------------------------------------------------
Chequemark represent and warrant that they have full corporate authority and the
necessary corporate approval to enter into and to perform the Settlement
Agreement in accordance with its terms, and they agree that the terms and
provisions of this Agreement, and the Mediation Agreement including the terms
and provisions of the ancillary documents attached to this Agreement as
exhibits, shall apply to all affiliates, parents, subsidiaries, and divisions of
each.  On or before July 17, 2000, LML, CPI, CHI and Chequemark shall pass a
resolution from their board of directors authorizing them to execute and deliver
this Agreement and to do all things necessary to fulfill their obligations under
this Agreement.  On or before July 17, 2000, LML, CPI, CHI and Chequemark shall
deliver a certified copy of the resolution (if one joint resolution is lawful)
or resolutions (if more than one resolution is necessary) to the Mediator, who
will then deliver the resolution or resolutions to counsel for Mr. Hills as part
of the July 17, 2000, distribution contemplated by the Mediation Agreement.

     19.  CORPORATE AUTHORITY (Chequemark Technologies Corporation) - CTC
          --------------------------------------------------------
represents and warrants that it has full corporate authority and the necessary
corporate approval to enter into and to perform this Settlement Agreement in
accordance with its terms, and it agrees that the terms and provisions of this
Agreement, and the Mediation Agreement including the terms and provisions of the
ancillary documents attached to this Agreement as exhibits, shall apply to all
affiliates, parents, subsidiaries, and divisions of each.  On or before July 17,
2000, CTC shall pass a resolution from its board of directors authorizing Mr.
Hills to execute and deliver this Agreement and do all things necessary to
fulfill the obligations under this Agreement.  On or before July 17, 2000, Mr.
Hills shall deliver a certified copy of the resolution to the Mediator, who will
then deliver the

                                       9
<PAGE>

certified copy to counsel for LML as part of the July 17, 2000 distribution
contemplated by the Mediation Agreement.

     20.  HILLS' AUTHORITY ON BEHALF OF CTC  - Mr. Hills warrants and represents
          ----------------------------------
that he has informed or will inform all minority shareholders, if any, of CTC
that, as part of this Settlement Agreement, LML is no longer obligated to issue
earn-out shares under the Asset Purchase Agreement as to the portion of LML
shares issued under the Asset Purchase Agreement representing Mr. Hills'
ownership of 46.24% of the total shares of CTC stock. Mr. Hills represents that
he has complete authority to bind CTC in connection with release of the share
certificates and the waiver of the said Asset Purchase earn-out shares. In the
event that one or more minority shareholders of CTC bring legal action against
LML, CPI, CHI, Chequemark or any of their respective officers or directors
because of CTC's execution of  this Settlement Agreement or the Mediation
Agreement, Mr. Hills shall indemnify and hold harmless  LML, CPI, CHI,
Chequemark and their respective officers or directors, from all claims or causes
of action relating to the release of the share certificates and/or waiver of
said earn-out shares.  Mr. Hills also agrees to indemnify  LML, CPI, CHI,
Chequemark and their respective officers or directors for all legal fees, costs
and expenses incurred in any such action brought by one or more CTC minority
shareholders in connection with the release of the share certificates and/or
waiver of the Asset Purchase Agreement earn-out shares.

     21.  SUCCESSORS AND ASSIGNS - The legal rights and obligations of this
          ----------------------
Settlement Agreement (and the ancillary documents attached to the Agreement as
exhibits) are intended to, and shall, inure to the benefit of and be binding
upon the signatories to this Agreement and their respective legal
representatives, successors and assigns.

                                       10
<PAGE>

     22.  COUNTERPARTS - This Settlement Agreement shall be executed in six (6)
          ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Agreement.


Witnessed By:                              LML PAYMENT SYSTEMS, INC.

__________________________                 By: __________________________
                                               Its Authorized Officer
__________________________


                                           CHEQUEMARK PATENT, INC.


__________________________                 By: __________________________
                                               Its President
__________________________

                                           CHEQUEMARK HOLDINGS, INC.


__________________________                 By: __________________________
                                               Its President
__________________________

                                           CHEQUEMARK HOLDINGS, INC.

__________________________                 By: __________________________
                                               Its President
__________________________

                                           MARK TECHNOLOGIES, INC.

                                           By: __________________________
__________________________
                                               Its President
__________________________

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<PAGE>

__________________________                 _______________________________
                                           Robert R. Hills
__________________________

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