Lucent buys assets of beleaguered Riverstone

Lucent and Riverstone Networks have signed a definitive asset purchase agreement under which Lucent will acquire substantially all of Riverstone’s business operations for $170 million in cash. Over the last year, Lucent and Riverstone have worked together in a strategic alliance, delivering carrier Ethernet routers to service provider customers. This transaction provides Lucent with next-generation Ethernet infrastructure.

Riverstone is operating under Chapter 11 bankruptcy protection while the SEC investigates conduct under prior management. Its stock was delisted by Nasdaq in 2003.

Separately, Riverstone says it expects the SEC later this week to consider a proposed settlement of the investigation and anticipated proceedings against Riverstone. Riverstone offered to settle the pending investigation by consenting to the entry of an order by the SEC under Section 12(j) of the Securities Exchange Act of 1934 that will revoke the registration of the company’s stock. Riverstone proposed this settlement with the understanding that it would conclude all pending SEC matters against the company. In addition, Riverstone took into account that it was negotiating a sale of the company’s assets.

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.

Following this sale, Riverstone intends to satisfy its remaining non-operating liabilities including payment of its convertible subordinated notes in the amount of $65,875,000; provide for any contingent liabilities and costs of liquidation; and distribute its remaining cash to Riverstone’s shareholders as part of a plan of liquidation.

While Riverstone says it presently has sufficient cash to fund its continuing operations, U.S. bankruptcy law permits use of Section 363 of Chapter 11 for solvent companies that wish to sell their assets in a supervised auction. Riverstone says it believes that the use of Section 363 in this fashion ensures an orderly strategic sale of the business and follow-on liquidation and dissolution of its public entity.

Riverstone’s transaction with Lucent is expected to close by the middle of the calendar year 2006. The transaction is also subject to customary regulatory approvals, the resolution of the SEC’s pending investigation and bankruptcy court approval of the final sale terms. No shareholder consent is required.

Separately, Lucent this week announced an agreement with IBM to develop, market and deliver joint products based on the IP Multimedia Subsystem (IMS) specifications to wireless and wireline carriers.

Under the agreement, Lucent and IBM will work together to develop, test and deliver IMS infrastructure, service creation and network management systems, including billing and operating systems products.

The two companies have developed a reference architecture to support operations and billing systems that combine IBM’s WebSphere, Rational and Tivoli software, Lucent’s VitalSuite products, and/or third-party software, and services from each party.

Lucent and IBM are already creating “pre-IMS” joint products and are currently conducting or have completed proof- of-concept testing with five different service providers in Europe, Asia and North America.