ITEK - I think I may have been the first one to pick this up. But looks like there is some confirmation.
Bad News
PAGE ONE: Cuban's Radical Investment [delayed]
via COMTEX
Jan 26, 2006 8:38:00 PM
Ridgeland, MS, JAN 26, 2006 (EventX/Knobias.com via COMTEX) --
Today's Page One feature in the Knobias, Inc. (otcbb: KNBS) Small-cap ClipReport highlights Immediatek, Inc. (otcbb: ITEK), and its recent gain. To receive the Small-Cap ClipReport Daily, please visit:
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Cuban's Radical Investment
Private placements, also called "PIPEs" for short, have become an ever increasing occurrence in the small cap space. The raising of capital via private rather than public offerings is becoming more and more common. The result is the sale of securities to a relatively small number of investors and usually at a cheaper price than the actual market price, but there are certain occasions when a higher price is agreed upon by all parties and others when the exact price isn’t known by the market.
There seems to be an occurrence of where one of the latter has happened recently.
Immediatek, Inc. (ITEK), through a wholly owned subsidiary DiscLive, is an independent leader in recording live content and making it available immediately after the event. The company claims to be expanding its business rapidly as the live disc and media phenomena continues to grow. The Dallas-based company is headed by musician and entrepreneur Zach Bair, but there could be a new influence about to enter.
If you kept up with anything in the small-cap stock space on Thursday, you were probably aware of the huge move that shares of ITEK made. The issue reached an intraday high of 55c before closing at 105.26% on volume that reached the 5 million share level dwarfing its 83,244 average daily share volume.
This extraordinary move was possibly caused by news indicating that Mark Cuban, through Radical Holdings LP, is buying shares in ITEK. The strange part about this is that the company, in a PRE 14C filed on January 24, 2006, pointed this fact out, but the public still flocked to this issue and pushed its shares higher. This filing was made to disclose that written consent by a majority of stockholders had been given to authorize the following:
- The Securities Purchase Agreement between the company and Radical Holdings LP;
- An amendment to the articles of incorporation to effectuate a 10-for-1 reverse split;
- An amendment to the articles of incorporation to remove preemptive rights of stockholders; and
- An amendment to the articles of incorporation that authorizes the board to designate the series and to determine the attributes and preferences of each issue of preferred stock.
A closer look at the filing showed that under the deal, Radical Holdings L.P., which Cuban heads, will buy 4.39 million Series A Convertible Preferred Stock for a purchase price of $3 million or $0.683 per preferred share (not common). In the purchase agreement between ITEK and Radical, this series of preferred stock will be convertible into shares of common stock representing at least 95% of the outstanding shares.
The $3 million from this transaction is expected to be used to pay debts and liabilities and for working capital. Any remaining funds will be used to pay a special dividend, with $300,000 set aside until the first anniversary of the closing date to satisfy any other liabilities that may arise.
Another interesting point is the fact that a 10-1 reverse split of the common shares will have to take place before Radical buys the preferred. It is also mentioned in the filing, but the preferred shares will not be split. As of January 10, 2006, the Company had 38.17 million shares outstanding and 500 million authorized. Splitting the common shares will allow the Radical transaction to go through without making the company increase its number of authorized shares. After the split, the Company should have approximately 3.82 million shares outstanding.
The rumors, chat and press that were issued yesterday may have led to investors believing that they could enter a position at a cheaper level than Cuban and Radical, but a simple reading of the filing shows that this is not the case.
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