Riverstone Networks files Chapter 11, to sell business operations for $170 million

By Caroline Salls

Pittsburgh, Feb. 7 - Riverstone Networks, Inc. filed for Chapter 11 bankruptcy Tuesday with the U.S. Bankruptcy Court for the District of Delaware and reached a definitive asset purchase agreement with Lucent Technologies under which Lucent will acquire substantially all of Riverstone's business operations for $170 million in cash, according to a company news release.

The company's cash and convertible subordinated notes are not included in the purchase agreement.

According to the release, Lucent and Riverstone have worked together in a strategic alliance over the last year to deliver ethernet routers to service provider customers.

Following the close of the transaction, Riverstone will become part of Lucent's multimedia network solutions business. Substantially all of Riverstone's employees are expected to join Lucent.

The transaction is expected to close by the middle of 2006 and is subject to customary regulatory approvals, the resolution of the Securities and Exchange Commission's pending investigation of accounting issues that arose under Riverstone's previous management and bankruptcy court approval of the final sale terms.

According to the release, no shareholder consent is required.

While Riverstone said it has sufficient cash to fund its continuing operations, bankruptcy law permits use of Section 363 of Chapter 11 for solvent companies that wish to sell their assets in a supervised auction, the release said.

According to court documents, Riverstone has $98.34 million in assets and $130.07 million in debts.

The company's largest unsecured creditor is U.S. Bank NA, as indenture trustee, with a $65.88 million bond debt claim.

Riverstone said it believes the Chapter 11 filing ensures an orderly strategic sale of the business and follow-on liquidation and dissolution of its public entity.

Because Riverstone is conducting the sale under Chapter 11, completion of its financial audit will be not necessary, and work with its auditors has been suspended.

"We are extremely pleased and energized to join forces with an industry leader that we have admired and with which we have closely collaborated over the past year," Riverstone president and chief executive officer Oscar Rodriguez said in the release.

"We view this combination as a major win for our stockholders, customers, resellers and employees around the world. In addition to maximizing value for our stakeholders, this transaction will enable Riverstone to successfully build on its heritage of innovation.

"With Lucent, we will now be better able to address our customers' needs and to extend Riverstone's technology leadership into new markets while also keeping our development cycles on a fast track," Rodriguez added in the release.

Following the sale, Riverstone said it intends to satisfy its remaining non-operating liabilities, including payment of its $65.88 million of convertible subordinated notes; provisions for any contingent liabilities and costs of liquidation and distribution of its remaining cash to Riverstone's shareholders as part of a plan of liquidation.

Riverstone is a Santa Clara, Calif., provider of carrier ethernet routers. Its Chapter 11 case number is 06-10110.

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