In a prospectus filed with the U.S. Securities and Exchange Commission detailing its proposed merger with Arch Communications Group Inc., Paging Network Inc. unveiled how it plans to distribute equity of its VAST Solutions Group, which it will spin off as part of the merger.
VAST is PageNet’s wireless messaging solutions division, designed to create end-to-end wireless solutions for corporate customers.
When the merger was announced, PageNet said its shareholders and bondholders would receive 80.5-percent equity in the VAST subsidiary once it was spun off, but did not provide details.
In the SEC filing, PageNet said it would issue 16.1 million shares of Class B common stock of VAST to both shareholders and bondholders, representing the 80.5-percent equity promised.
To pay off the $1.2 billion in debt notes held by bondholders, PageNet will distribute “13.78 million shares of Class B common stock of VAST, representing up to 68.9 percent of the equity ownership of VAST,” according to the prospectus, as well as 616.8 million shares of PageNet common stock and additional shares of Arch stock.
The remaining 2.32 million Class B VAST shares will be distributed to current PageNet shareholders, giving them an 11.6-percent equity stake in the company. The combined company will hold the leftover 19.5-percent equity share of VAST.
The Class B shares are not publically traded shares. At some point after the merger with Arch is complete, the combined company will spin off VAST and hold an initial public offering. Those holding Class B stock may then convert their shares into public stock according to a schedule dependent on the value of VAST determined through the IPO.
PageNet bondholders who can take advantage of the stock offering include holders of the company’s 8.88 percent senior subordinated notes due 2006, 10.13 percent senior subordinated notes due 2007 and 10 percent senior subordinated notes due 2008.
For every $1,000 in debt held, those holding notes due 2006 will receive a total of 516.85 shares of Class A PageNet common stock-convertible to 64.45 shares of Arch stock-and 11.54 shares of Class B VAST stock. Bondholders holding notes due 2007 will receive 518.91 shares of PageNet common stock-convertible to 64.7 shares of Arch common stock-and 11.59 shares of VAST stock. Those with notes due 2008 will receive 508.41 shares of PageNet stock-convertible to 63.39 shares of Arch stock-and 11.35 shares of VAST stock.
Once merged with Arch, 29.4-percent ownership of the combined company will be held by Arch shareholders, 17.2 percent by Arch senior discount note holders, 1.2 percent by Arch Series C shareholders, 44.5 percent by PageNet bondholders and 7.5 percent by PageNet common shareholders.
The filing also disclosed
PageNet’s reason for pursuing a merger transaction. In it, PageNet said it had serious concerns over maintaining its liquidity in the face of declining revenues. The company revealed that another paging carrier, which it did not name, approached PageNet with a merger proposal first, but the terms of the transaction were not agreeable to PageNet’s board. In particular, PageNet officers wanted to retain control of VAST.
Given its financial situation, though, Jack Frazee, PageNet chairman and chief executive officer, decided to continue pursuing a merger and approached Arch instead.
In the meantime, PageNet’s subscriber base continues its downward slide. The filing listed its current units in service at 8.8 million, 500,000 fewer than the 9.3 million reported after the third quarter.
PageNet is expected to release its fourth-quarter earnings report in early February.
