Message: Buy-out is unlikely
From the 8-K dated 03/28/07… Agreement for Legal Services
On March 23, 2007 e.Digital Corporation (the "Company") entered into an agreement for legal services and contingent fee arrangement ("Agreement") with Duane Morris LLP. The Agreement provides that Duane Morris will be the Company's exclusive legal counsel in connection with the assertion of the Company's flash memory related patents against infringers ("Patent Enforcement Matters').
On March 23, 2007 e.Digital Corporation (the "Company") entered into an agreement for legal services and contingent fee arrangement ("Agreement") with Duane Morris LLP. The Agreement provides that Duane Morris will be the Company's exclusive legal counsel in connection with the assertion of the Company's flash memory related patents against infringers ("Patent Enforcement Matters').
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In the event the Company is acquired or sold or elects to sell the covered patents or upon certain other corporate events or in the event the Company terminates the Agreement for any reason, then Duane Morris shall be entitled to collect accrued costs and a fee equal to three times overall time and expenses accrued in connection with the Agreement and a fee of 15% of a good faith estimate of the overall value of the covered patents. The Company has agreed to provide Duane Morris a lien and a security interest in the patents to secure its obligations under the Agreement. 3 times their time and expenses PLUS 15% of the patents’ overall value? Sounds like “a substantial penalty for early withdraw” to me. While we’re speculating on a possible buy-out down the road, it is clear that DM has already thought of this. Surely the company would resist any such attempts unless the purchase price were so high that they could comfortably absorb these contractual costs. I can’t imagine that 50 cents a share would cut it. I kind of like that DM felt it necessary to make this part of their agreement. It implies in yet another way that they feel the patents are valuable and as such have taken steps to protect their own work product.- Sinkman
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