Redback exchange for 5% convertibles runs through Oct. 30

New York, Oct. 1 - Redback Networks Inc.'s exchange offer for its 5% convertible subordinated notes due 2007 is expected to run through Oct. 30, according to preliminary documents filed with the Securities and Exchange Commission. The documents are subject to change.

The San Jose, Calif. broadband network equipment company is offering holders of the $467.5 million principal amount of convertibles 47.5 million post-reverse split shares of common stock, equivalent to 95% of its equity.

It is also soliciting consents for a prepackaged bankruptcy filing.

Redback said in the offer documents filed with the SEC that it believes "that the completion of the financial restructuring is crucial to our continuing viability."

It continued: "We estimate that our unrestricted liquid assets would be insufficient to cover our estimated funding needs through the fourth quarter of 2003 if the objectives of the financial restructuring are not achieved."

As of June 30, 2003, it had $486.1 million of long-term obligations and a stockholders' deficit of $61.2 million. As of June 30, 2003, cash, cash equivalents and short-term investments were $67.4 million, of which $29.4 million was restricted as collateral for secured loans or letters of credit.

Upcoming principal and interest payments are $11.7 million in the last two quarters of 2003, $23.4 million in each of the next three years and $479.2 million in 2007. It also has rental payments under its real property operating leases of $10.2 million in the last two quarters of 2003, $19.2 million in 2004, $16.8 million in 2005, $15.8 million in 2006, $16.0 million in 2007, $16.6 million in 2008 and $34.0 million after 2008.

Redback also said that it believes the attractiveness of its products and services and its suppliers' confidence have been impaired by its financial condition.

The company's financial problems have also "detracted significantly" from its attractiveness to potential lenders and investors.

The proposed restructuring would allow it to meet its obligations to the end of the fourth quarter of 2003 but it would then need to raise significant additional financing during the fourth quarter to fund operations beyond that time.

So far, Redback said it has received two separate proposals from commercial lenders for commitments for receivable-, asset- and inventory-based borrowing facilities.

In the exchange, holders will receive 101.6 post-reverse split shares per $1,000 principal amount of notes.

Alongside the exchange, Redback is also proposing a 73.39:1 reverse split of its common stock, subject to the approval of stockholders. Stockholders will also receive seven-year warrants for 5.4 million post-reverse split shares. Of theses, 2.6 million will be exercisable at $5.00 per share and 2.8 million at $9.50 per share.

The exchange expires at midnight ET on Oct. 30 unless extended.

The tender offer is subject to at least 98% of the convertibles being tendered and not withdrawn.

If the 98% minimum tender threshold is not met, Redback said it will likely make a prepackaged Chapter 11 filing on similar terms.

Redback currently has a lock-up agreement with holders of approximately 67% of its convertibles that runs through Nov. 3 unless it completes the exchange or files for bankruptcy first. The holders have agreed to tender in the exchange and vote in favor of the prepackaged bankruptcy filing.

The exchange is subject to stockholders approving the reverse split.

UBS Investment Bank (415 352-6085) is the dealer manager for the exchange. The Altman Group, Inc. (800 467-0671) is the exchange agent.

Redback said it is unlikely it will make the $11.7 million interest payment scheduled for Oct. 1 except on those still outstanding after completion of the recapitalization.

Red herring at:

http://www.sec.gov/Archives/edgar/data/1081290/000119312503056397/ds4a.htm

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