<PAGE> 1
As filed with the Securities and Exchange Commission on July 27, 1999
Registration No. 333-______
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
REDBACK NETWORKS
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3576 77-0438443
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1389 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(Address of principal executive offices) (Zip Code)
-------------------
REDBACK NETWORKS
1997 STOCK PLAN
SHARES ACQUIRED UNDER WRITTEN COMPENSATION AGREEMENTS WITH
CERTAIN DESIGNATED INDIVIDUALS AND CERTAIN UNNAMED INDIVIDUALS
(Full title of the Plans)
-------------------
DENNIS L. BARSEMA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REDBACK NETWORKS
1389 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(Name and address of agent for service)
--------------------
408-548-3500
(Telephone number, including area code, of agent for service)
-------------------
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CALCULATION OF REGISTRATION FEE
=============================================================================================================
Title of Proposed Maximum Proposed Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered (1) per Share (2) Price (2) Fee
---------- -------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
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<PAGE> 2
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Shares Acquired Under Written
Compensation Agreements With
Certain Designated Individuals
and Certain Unnamed Individuals
Common Stock (par value $0.0001) 426,322 shares $153 $72,675,000 $20,205
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the Written Compensation
Agreements with Certain Designated Individuals and Certain Unnamed
Individuals because of any stock dividend, stock split, recapitalization
or other similar transaction effected without the receipt of
consideration which results in an increase in the number of the
outstanding shares of Common Stock of Redback Networks.
(2) Calculated only for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the average of the
high and low prices per share of Common Stock of Redback Networks on
July 22, 1999.
EXPLANATORY NOTE
Redback Networks has prepared this Registration Statement in accordance with the
requirements of Form S-8 under the Securities Act of 1933, as amended (the "1933
Act"), to register shares of its common stock, $0.0001 par value per share.
Under cover of this Form S-8 is a Reoffer Prospectus Redback Networks prepared
in accordance with Part I of Form S-3 under the 1933 Act. The Reoffer Prospectus
may be utilized for reofferings and resales of up to 475,000 shares of common
stock acquired by selling stockholders under the Redback Networks 1997 Stock
Plan.
<PAGE> 3
REDBACK NETWORKS
FORM S-8 CROSS REFERENCE SHEET SHOWING LOCATION OF INFORMATION
REQUIRED BY PART I OF FORM S-3
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Form S-3 Item Number Location/Heading in Prospectus
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1. Forepart of Registration Statement and Cover page
Outside Front Cover page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Page of Prospectus Certain Information by Reference
3. Summary Information, Risk Factors and Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Not applicable
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holder Selling Security Holder
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Not Applicable
Registered
10. Interests of Named Experts and Counsel Not Applicable
11. Material Changes Not Applicable
12. Incorporation of Certain Information Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
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<PAGE> 4
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
Redback Networks ("Redback") hereby incorporates by reference into this
Registration Statement the following documents previously filed with the
Securities and Exchange Commission (the "SEC"):
(a) Redback's prospectus filed with the SEC under Rule 424(b) under the
Securities Act of 1933, as amended (the "1933 Act"), in connection with
Registration Statement No. 333-744479 on Form S-1 filed with the SEC on March
16, 1999, the amendment filed on April 22, 1999, the amendment filed on May 4,
1999, the amendment filed on May 12, 1999 and the amendment filed on May 14,
1999, which contains the audited financial statements for the period August 30,
1996 (inception) through December 31, 1996 and for Redback's fiscal years ended
December 31, 1997 and 1998.
(b) The description of Redback's outstanding Common Stock contained in Redback's
Registration Statement No. 0-25853 on Form 8-A filed with the SEC on April 22,
1999, under Section 12 of the 1934 Act, including any amendment or report filed
to update the description.
All reports and definitive proxy or information statements filed under
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold shall also be incorporated by
reference into this Registration Statement and to be a part hereof from the date
of filing of such documents.
Item 4. Description of Securities
Not Applicable.
Item 5. Interests of Named Experts and Counsel
Not Applicable.
Item 6. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. Redback's
Bylaws provide for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. Redback's Certificate of
Incorporation provides that, under Delaware law, its directors shall not be
liable for monetary damages for breach of their fiduciary duty as directors to
Redback and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the fiduciary duty of the directors, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Redback for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws. Redback has entered into Indemnification Agreements with its officers and
directors. The Indemnification Agreements provide Redback's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law.
II-2
<PAGE> 5
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
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Exhibit Number Exhibit
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4 Instrument Defining Rights of Stockholders. Reference is made
to Redback's Registration Statement No. 0-25853 on Form 8-A,
which is incorporated herein by reference under Item 3(b) of
this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian LLP.
23.1 Consent of PricewaterhouseCoopers, LLP, Independent
Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 Form of Written Compensation Agreement.
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Item 9. Undertakings
A. Redback hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement
(i) to include any prospectus required by Section
10(a)(3) of the 1933 Act,
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in this Registration Statement and
(iii) to include any material information with respect
to the plan of distribution not previously
disclosed in this Registration Statement or any
material change to such information in this
Registration Statement; provided, however, that
clauses (1)(i) and (1)(ii) shall not apply if
the information required to be included in a
post-effective amendment by those paragraphs is
contained in periodic reports filed with or
furnished to the SEC by Redback under Section 13
or Section 15(d) of the 1934 Act that are
incorporated by reference in this Registration
Statement;
(2) that for the purpose of determining any liability under the
1933 Act each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of Written Compensation Agreements
with Certain Designated Individuals and Certain Unnamed
Individuals.
B. Redback hereby undertakes that, for purposes of determining any
liability under the 1933 Act, each filing of Redback's annual report under
Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities
II-3
<PAGE> 6
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers or controlling persons of Redback under the
indemnification provisions summarized in Item 6 or otherwise, Redback has been
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the 1933 Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Redback of expenses incurred or paid by a director, officer or
controlling person of Redback in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Redback will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 7
REOFFER PROSPECTUS
SIGNATURES
The Securities Act of 1933, as amended, requires that Redback
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has had this Registration Statement
signed on its behalf by the undersigned, who is duly authorized, in the City of
Sunnyvale, State of California on this 26th day of July, 1999.
REDBACK NETWORKS
By: /s/Dennis L. Barsema
-------------------------------------
Dennis L. Barsema
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Redback Networks,
a Delaware corporation, do hereby constitute and appoint Dennis L. Barsema and
Geoffrey C. Darby, and either of them, the lawful attorneys-in-fact and agents
with full power and authority to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, and either one of them,
determine may be necessary or advisable or required to enable said corporation
to comply with the Securities Act of 1933, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents, or either one of them, shall do or cause to
be done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney on the date indicated.
Under the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
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Signature Title Date
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/s/Dennis L. Barsema President, Chief Executive Officer July 26, 1999
- ------------------------ and Director
Dennis L. Barsema (Principal Executive Officer)
/s/Geoffrey C. Darby Chief Financial Officer, Treasurer July 26, 1999
- ------------------------ and Secretary (Principal Financial
Geoffrey C. Darby and Accounting Officer)
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<PAGE> 8
REOFFER PROSPECTUS
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<S> <C> <C>
Director
- ------------------------
James R. Flach
/s/Pierre R. Lamond Director July 26, 1999
- ------------------------
Pierre R. Lamond
/s/Daniel J. Warmenhoven Director July 26, 1999
- ------------------------
Daniel J. Warmenhoven
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<PAGE> 9
REOFFER PROSPECTUS
Shares of Common Stock
Redback Networks
This Reoffer Prospectus relates to 426,322 shares of the Common
Stock, par value $0.0001 (the "Common Stock"), of Redback Networks (the
"Company"), which may be offered from time to time by certain key employees
named herein and certain employees who are not named herein who are not
affiliates and may sell up to 1,000 shares each pursuant to this Registration
Statement (the "Registered Stockholders"). It is anticipated that the Registered
Stockholders will offer shares for sale at prevailing prices on the Nasdaq
National Market System on the date of sale. The Company will receive no part of
the proceeds of sale made hereunder. All expenses of registration incurred in
connection with this offering are being borne by the Company, but all selling
and other expenses incurred by each of the Registered Stockholders will be borne
by each such Registered Stockholder.
The Common Stock is traded on the Nasdaq National Market System.
The Registered Stockholders and any broker executing selling
orders on behalf of the Registered Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in which event commissions received by such broker may be
deemed to be underwriting commissions under the Securities Act.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Registered Stockholder. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, nor shall there be any sale of these
securities by any person in any jurisdiction in which it is unlawful for such
person to make such offer, solicitation or sale. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
The date of this Prospectus is July 26, 1999.
<PAGE> 10
AVAILABLE INFORMATION
The Company will be subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") upon the first date on which its Common Stock is registered under Section
12(g) of the Exchange Act and in accordance therewith will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Room of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
219 South Dearborn Street, Chicago, IL 60604; 26 Federal Plaza, New York, NY
10007; and 5757 Wilshire Boulevard, Los Angeles, CA 90036, at prescribed rates.
The Common Stock is quoted on the Nasdaq National Market System. Reports, proxy
statements, informational statements and other information concerning the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual
reports containing additional financial statements and a report thereon by
independent certified public accountants.
A copy of any document incorporated by reference in the
Registration Statement (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the Registration Statement incorporates) of
which this Reoffer Prospectus forms a part but which is not delivered with this
Reoffer Prospectus will be provided by the Company without charge to any person
(including any beneficial owner) to whom this Reoffer Prospectus has been
delivered upon the oral or written request of such person. Such requests should
be directed to Carrie Perzow, Redback Networks, 1389 Moffett Park Drive,
Sunnyvale, CA 94089. The Company's telephone number at that location is (408)
548 3500.
TABLE OF CONTENTS
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Page
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THE COMPANY........................................................... 3
RISK FACTORS.......................................................... 4
REGISTERED STOCKHOLDERS............................................... 15
PLAN OF DISTRIBUTION.................................................. 16
DOCUMENTS INCORPORATED BY REFERENCE................................... 17
INDEMNIFICATION....................................................... 17
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2
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THE COMPANY
Redback Networks (the "Company") is a leading provider of advanced
networking systems that enable carriers, cable operators and service providers
to rapidly deploy high-speed access to the Internet and corporate networks. Our
products, consisting of the Subscriber Management System, or SMS 500 and SMS
1000, combine networking hardware with sophisticated software. Our products
connect and manage large numbers of subscribers using any of the major
high-speed access technologies, including digital subscriber line, which is a
technology that brings high-speed access over standard copper telephone lines,
cable and wireless. We sell our products through our direct sales force,
resellers and distribution partners.
Bridging the gap between high-speed access concentrators and routers
connecting to the Internet backbone, our flagship product, the SMS 1000, is
currently being used by many of the largest carriers and service providers.
UUNET, a subsidiary of MCI Worldcom, SBC, Southwestern Bell Information Systems
and Pacific Bell Internet, subsidiaries of SBC and GTE have been, since
inception, our largest customers in terms of revenues. Other representative
customers include Ameritech, Bell Canada, Bell South, Concentric, Earthlink,
Flashcom, Korea Telecom, Verio and @Work, a division of @Home. They are
representative in terms of, among other things, the type of provider, the
mixture of broadband services offered and the mixture of regional versus
national deployment.
In recent years, there has been a significant increase in demand by
businesses and consumers for broadband, or high-speed, access to the Internet
and to corporate networks. While carriers, cable operators and service providers
are attempting to provide inexpensive and comprehensive broadband access, there
are several major challenges associated with scaling and configuring existing
network architectures to accommodate large numbers of new high-speed
subscribers. We believe widespread deployment of broadband services requires a
new model for subscriber management that efficiently terminates subscriber
connections, manages broadband subscribers, provides flexibility for
connections, and supports multiple broadband access technologies simultaneously.
Our products meet the above requirements. Whether deployed at subscriber
aggregation points by carriers, by cable operators or by service providers, our
products accept a large concentration of high-speed data traffic from such
devices as digital subscriber line concentrators, cable modem termination
systems and wireless termination systems. Our products reduce the processing
requirements placed on routers connecting to the Internet backbone in broadband
networks. Our SMS 1000 today supports up to 4,000 simultaneous subscribers. The
key benefits of our solution include:
- Enhances Broadband Operations. Our products bridge the operational gap
between "last mile" access networks that serve businesses and homes and
the routers connecting to the Internet backbone and corporate networks.
- Supports All Major Access Technologies. Our products support all major
access technologies, including digital subscriber line, cable, wireless
and dial.
- Facilitates Rapid and Scalable Deployment. Our products allow service
providers to use existing access, accounting and management control
systems, enabling them to quickly deploy high-speed access and achieve
rapid time-to-market for significant revenue-generating services.
- Provides Platform for the Delivery of Value-Added Services. Our products
enable carriers, cable operators and service providers to create and
market new service offerings that extend broadband connectivity and
capabilities.
- Simplifies End-User Administration and Support. Our products allow easy
configuration and administration of end-user broadband modems, further
reducing the cost of providing service.
We are focused on delivering subscriber management solutions to carriers
and service providers and intend to use our position in the digital subscriber
line market to penetrate the cable and wireless broadband markets. We believe
our software differentiates our solution and provides a competitive advantage by
delivering advanced subscriber management services and functionality. We will
continue to develop features and functionalities and expand our product family
to further enhance the ability of carriers, cable operators and service
providers to deliver profitable services.
3
<PAGE> 12
The Company's executive offices are located at 1389 Moffett Park
Drive, Sunnyvale, CA 94089. The Company's telephone number is (408) 548 3500.
RISK FACTORS
An investment in our common stock involve a high degree of risk. You should
carefully consider the following risk factors and the other information in this
prospectus before investing in our common stock. Our business, results of
operations and financial condition could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of any investment you make in our
common stock.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY
We were founded in August 1996 and only began shipping products in material
quantities in the second quarter of 1998. You should consider the risks and
difficulties frequently encountered by companies like ourselves in a new and
rapidly evolving market. From February 28, 1998 to March 31, 1999, we have
experienced significant growth -- from 39 employees to 127 employees. Our
ability to sell products and services, and the level of success, if any, we
achieve, depends, among other things, on the level of demand for broadband
access services, which is a new and rapidly evolving market. See "Risk
Factors -- We are dependent on the widespread adoption of broadband access
services." Our business strategy may be unsuccessful and we may not successfully
address the risks we face.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES
We incurred net losses of $142,000 from our inception in August 1996
through December 31, 1996, $4.4 million for the year ended December 31, 1997,
$9.9 million for the year ended December 31, 1998 and $3.8 million for the three
months ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit
of approximately $18.2 million. We have not achieved profitability and we expect
to continue to incur net losses in the future.
To date, we have funded our operations from the sale of equity securities,
from bank borrowings and by means of equipment lease financing. We expect to
continue to incur significant product development, sales and marketing, and
general and administrative expense. As a result, we must generate significant
revenues to achieve profitability. We may not sustain recent growth rates in our
revenues, and we may never achieve sufficient revenue levels to achieve
profitability. If we do achieve profitability in some future period, we cannot
be certain that we would sustain profitability on a quarterly or annual basis in
the future.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY
Factors likely to cause quarterly fluctuations in revenues and operating
results include:
- Fluctuations in demand for broadband access services;
- The timing and size of sales of our products and services;
- The lack of any significant backlog;
- Announcements of new products and product enhancements by competitors;
- The entry of new competitors into our market, including by acquisition;
- Unexpected delays in introducing new or enhanced products, including
manufacturing delays;
- Our ability to control expenses;
- Our ability to ship products on a timely basis and at a reasonable cost;
and
- The mix of our products sold and the mix of distribution channels through
which our products are sold.
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<PAGE> 13
A high percentage of our expenses, including those related to engineering,
sales and marketing, research and development, and general administrative
functions, are essentially fixed in the short term. As a result, if we
experience delays in generating or recognizing revenue, our quarterly operating
results are likely to be materially adversely affected. In addition, we plan to
increase our operating expenses to expand our engineering and sales and
marketing operations, broaden our customer support capabilities, develop new
distribution channels, fund increased levels of research and development and
build our operational infrastructure. If growth in our revenues does not outpace
the increase in these expenses, our business, results of operations and
financial condition could be materially adversely affected.
We rely on a single third-party manufacturer to build our products. Any
interruption in the operations of this manufacturer would adversely affect our
ability to meet our scheduled product deliveries to our customers. This would
cause significant variations in our quarterly operating results and our
business, results of operations and financial condition would be materially
adversely affected.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful. You should not rely
on our results for one quarter as any indication of our future performance. It
is likely that in some future quarter our operating results may be below the
expectations of public market analysts or investors. If this occurs, the price
of our common stock would likely decrease.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT
IF OR WHEN A SALE WILL BE MADE
The timing of our sales revenue is difficult to predict because of the
length and variability of the sales cycle for our products. Customers often view
the purchase of our products as a significant and strategic decision. As a
result, customers typically undertake significant procedures relating to the
evaluation, testing, implementation and acceptance of our products. This
evaluation process frequently results in a lengthy sales cycle, typically
ranging from three months to over one year. While our customers are evaluating
our products and before they place an order with us, we may incur substantial
sales and marketing expenses and expend significant management efforts. In
addition, product purchases are frequently subject to unplanned administrative,
processing and other delays. This is particularly true for larger customers for
whom our products represent a very small percentage of their overall purchase
activities. These customers are often engaged in multiple simultaneous
purchasing decisions, some of which may pertain to more immediate needs and
absorb the immediate attention of the customer. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter or
at all, our business, results of operations and financial condition could be
materially adversely affected.
IN ANY QUARTER, A SMALL NUMBER OF CUSTOMERS ARE LIKELY TO ACCOUNT FOR A
SUBSTANTIAL MAJORITY OF OUR REVENUE
In each of the last five quarters in the period ended March 31, 1999, we
had at least one customer that accounted for 15% or more of our total revenue in
the quarter. In the fourth quarter of 1998, UUNET, Nortel Networks and GTE and
its affiliated entities accounted for 28%, 13% and 12%, respectively, of our
total revenue. In the first quarter of 1999, UUNET, Southwestern Bell
Information Systems and GTE and its affiliated entities accounted for 43%, 10%
and 7%, respectively, of our total revenue. We anticipate that a small number of
customers with large orders will continue to account for a majority of our
quarterly revenue. However, we do not have any contracts or other agreements
that guarantee continued sales to these or any other customers. If our customers
alter their purchasing habits, or reevaluate their need for our products, or if
we fail to receive a large order in any future period, our business, results of
operations and financial condition would be materially adversely affected.
5
<PAGE> 14
WE ARE ENTIRELY DEPENDENT ON OUR SMS PRODUCT FAMILY.
The SMS 1000 and SMS 500 are the only products that we currently sell. We
intend to introduce new products and enhancements to existing products in the
future. Our inability to timely and successfully introduce new products and
product enhancements, or the failure of these new products or enhancements to
achieve market acceptance, could materially adversely affect our business,
results of operations and financial condition.
THERE IS A LIMITED NUMBER OF POTENTIAL CUSTOMERS FOR OUR SMS 1000
To date, substantially all of our revenues have been derived from sales and
service related to the SMS 1000 product. The SMS 1000 and any other new high-end
product that we may develop and introduce in the future are marketed primarily
to large customers. There are only a limited number of large existing and
potential customers and this number is not expected to increase significantly in
the future.
WE FACE NEW RISKS WITH THE INTRODUCTION OF OUR SMS 500 PRODUCT
We recently introduced the SMS 500, which is designed for use by customers
that intend to provide services to a smaller number of subscribers than those
using the SMS 1000. Given this targeted market, sales of the SMS 500 may involve
sales to smaller customers. Sales to smaller customers entail some additional
risks, including increased credit risks, the need for additional sales and
support personnel to support an increased volume of customers and the need to
develop a leasing program to facilitate market acceptance. Our business, results
of operations and financial condition could be materially adversely affected if
any of these risks materialize. To date, we have sold a limited number of our
SMS 500, and revenues from these sales were immaterial. The SMS 500 may not
achieve a significant degree of market acceptance. If the SMS 500 is not
successful, our ability to generate revenues will be limited to sales of the SMS
1000 to our customers with a large number of subscribers, which will have a
material adverse effect on our business, results of operations and financial
condition.
OUR PRODUCTS MUST ANTICIPATE AND MEET SPECIFIC CUSTOMER REQUIREMENTS AND
DEMANDS
Many of our customers require product features and capabilities that our
SMS products may not have. The requirement that we add features to our products
in order to achieve a sale may result in a longer sales cycle, increased
research and development expenses and reduced margins on our products. To
achieve market acceptance for our products, we must effectively and timely
anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Our failure to develop products or offer services
that satisfy customer requirements would materially adversely affect our
business, results of operations and financial condition.
We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process that
requires the accurate anticipation of technological and market trends. We may
experience design, manufacturing, marketing and other difficulties that could
delay or prevent the development, introduction or marketing of new products and
enhancements. The introduction of new or enhanced products also requires that we
manage the transition from older products in order to minimize disruption in
customer ordering patterns and ensure that adequate supplies of new products can
be delivered to meet anticipated customer demand. Our inability to effectively
manage this transition would materially adversely affect our business, results
of operations and financial condition.
WE NEED TO GAIN ACCEPTANCE IN OTHER BROADBAND ACCESS MARKETS
To date, we have derived substantially all of our revenues from sales of
the SMS 1000 for use in the digital subscriber line market for broadband access.
We intend to expend a substantial amount of time and resources to achieve market
acceptance of our products in other markets, including the cable and wireless
markets. We may be unable to simultaneously or effectively address evolving
demands in these markets, and customers in these markets may choose to implement
competing technologies or products. In addition, if we are not first in these
markets, competitors may gain market acceptance first, thereby
6
<PAGE> 15
making it difficult, if not impossible, for us to gain subsequent market
acceptance. If we are unable to achieve acceptance of our products in these
markets, our ability to generate revenues will be limited, and our business,
results of operations and financial condition would be materially adversely
affected.
WE EXPECT INCREASED COMPETITION
We may be unable to compete successfully with current or future
competitors. If we do not compete successfully against current or future
competitors, our business, results of operations and financial condition will be
materially adversely affected. Currently, competition in our market is intense.
The broadband access markets we are targeting, including digital subscriber
line, cable and wireless, are new and rapidly evolving and we expect these
markets to become highly competitive in the future. In addition, we expect new
competitors to emerge in the broadband access market as that market evolves due
to technological innovation and regulatory changes. We face actual and potential
competition from public and private companies providing routers connecting to
the Internet backbone, access concentrators and subscriber aggregation systems.
Cisco, the leading provider of routers connecting to the Internet backbone,
offers products that compete directly with our products, and also provides a
comprehensive range of broadband access systems. We expect companies that offer
access concentrators and routers to incorporate some subscriber management
functionality into their products. These companies include Nortel Networks which
recently agreed to acquire Shasta, a private company providing subscriber
management services, and Ascend, which has announced its pending acquisition by
Lucent. In addition, there are several other private companies that provide
subscriber management features in access concentrators or routing platforms.
Many of our principal competitors, including Cisco, Alcatel, Nortel
Networks/Shasta, Lucent/Ascend, and some companies that may compete with us in
the future, are large public companies that have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we have. As a result, these competitors are able to devote greater resources to
the development, promotion, sale and support of their products. In addition, our
competitors that have large market capitalizations or cash reserves are much
better positioned than we are to acquire other companies, including our
competitors, and thereby acquire new technologies or products that may displace
our product lines. Any of these acquisitions could give our competitors a
strategic advantage that would materially adversely affect our business, results
of operations and financial condition.
Many of our competitors have significantly more established customer
support and professional services organizations than we do. In addition, many of
our competitors have much greater name recognition and have a more extensive
customer base, broader customer relationships and broader product offerings than
our company. These companies can leverage their customer bases and broader
product offerings and adopt aggressive pricing policies to gain market share. We
have encountered, and expect to continue to encounter, potential customers that,
due to existing relationships with our competitors, are committed to the product
offerings of these competitors. As a result, these potential customers may not
consider purchasing our products. We expect to face competition in the following
areas:
- Product pricing;
- Breadth of product lines;
- Sales and distribution capability;
- Product features and enhancements, including product performance,
reliability, size, compatibility and scalability;
- Product ease of deployment;
- Conformance to industry standards; and
- Technical support and service.
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<PAGE> 16
We expect that competitive pressures may result in price reductions,
reduced margins and loss of market share, which would materially adversely
affect our business, results of operations and financial condition.
WE ARE DEPENDENT ON A SINGLE CONTRACT MANUFACTURER
We rely on a single third-party manufacturer, Electromax, to build our
products. We may not be able to effectively manage our relationship with
Electromax and Electromax may not meet our future requirements for timely
delivery. We have no written agreement with Electromax. We have relationships
with two other third-party manufacturers, one of which currently builds our
prototypes. Although both of these other third-party manufacturers are capable
of building our products, any interruption in the operations of Electromax would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition.
In addition, the products that Electromax or any other manufacturer builds
for us may be insufficient in quality or in quantity to meet our needs.
Electromax or any other manufacturer may not meet the technological or delivery
requirements of our current products or any future products that we may develop
and introduce. The inability of Electromax or any other of our contract
manufacturers in the future to provide us with adequate supplies of high-quality
products, or the loss of Electromax or any other of our contract manufacturers
in the future, would cause a delay in our ability to fulfill customer orders
while another of our third-party manufacturers begins production and would have
a material adverse effect on our business, results of operations and financial
condition.
SOME OF THE KEY COMPONENTS IN OUR PRODUCTS COME FROM SINGLE OR LIMITED
SOURCES OF SUPPLY
We currently purchase several key components used in the manufacture of our
SMS 500 and our SMS 1000 products from single or limited sources of supply.
These manufacturers include Altera, Brooktree, Connector Technologies,
Foresight, Intel, Level One, Powerspec, Siemens and Ziatech. We have no
guaranteed supply arrangement with these suppliers, and we or our manufacturers
may fail to obtain these supplies in a timely manner in the future. Financial or
other difficulties faced by these suppliers or significant changes in demand for
these components could limit the availability to us of these components. Any
interruption or delay in the supply of any of these components, or the inability
to obtain these components from alternate sources at acceptable prices and
within a reasonable amount of time, would adversely affect our ability to meet
scheduled product deliveries to our customers and would materially adversely
affect our business, results of operations and financial condition. In addition,
qualifying additional suppliers is time-consuming and expensive.
WE MAY BE UNABLE TO MATCH PRODUCTION WITH PRODUCT DEMAND
We currently use a rolling six-month forecast based on anticipated product
orders, product order history and backlog to determine our materials
requirements. Lead times for the materials and components that we order vary
significantly and depend on numerous factors, including the specific supplier,
contract terms and demand for a component at a given time. If actual orders do
not match our forecasts, we may have excess or inadequate inventory of materials
and components, which could materially adversely affect our business, results of
operations and financial condition.
WE MAY BE UNABLE TO PROPERLY MANAGE GROWTH
We have expanded our operations rapidly since our inception. The number of
our employees increased from 39 in February 1998 to 127 in March 1999. We intend
to continue to expand in order to pursue existing and potential market
opportunities and are in the process of hiring additional engineering and sales
personnel. We intend to hire a significant number of engineers in 1999. Our
ability to continue to attract and retain highly skilled personnel is a critical
factor in determining whether we will be successful in the future. Competition
for highly skilled personnel is intense, especially in the San Francisco Bay
Area. We may fail to attract, assimilate or retain qualified personnel to
fulfill our current
8
<PAGE> 17
or future needs. If we so fail, our business, results of operations and
financial condition could be materially adversely affected. Our planned rapid
growth places a significant demand on management and financial and operational
resources. In order to grow and achieve future success, we must:
- Retain existing personnel;
- Hire, train, manage and retain additional qualified personnel; and
- Effectively manage multiple relationships with our customers, suppliers
and other third parties.
We are currently seeking to lease additional office space to accommodate
our growing operations. We may be unable to locate necessary office space on
commercially reasonable terms or in a timely manner. Failure to do so would have
a material adverse effect on our business, results of operations and financial
condition. Our current office lease expires in September 1999. Any required
relocation may be disruptive to our business.
OUR PLANNED EXPANSION TO INTERNATIONAL MARKETS WILL INVOLVE NEW RISKS
In 1998, we derived approximately 15% of our revenues from sales to
customers outside of the United States. Our ability to achieve future success
will depend in part on the expansion of our international sales and operations.
International operations are generally subject to a number of risks, including:
- Expenses associated with customizing products for foreign countries;
- Protectionist laws and business practices that favor local competition;
- Dependence on local vendors;
- Multiple, conflicting and changing governmental laws and regulations;
- Longer sales cycles;
- Longer accounts receivable cycles;
- Increased difficulties in collecting accounts receivable;
- Difficulties in managing operations across disparate geographic areas;
- Difficulties associated with enforcing agreements through foreign legal
systems;
- Reduced or limited protection of our intellectual property rights in some
countries;
- Foreign currency exchange rate fluctuations; and
- Political and economic instability.
In addition, if we grow internationally, we will need to expand our
worldwide operations and enhance our communications infrastructure. If we fail
to implement and improve these systems, our ability to accurately forecast sales
demand, manage our supply chain and record and report financial and management
information would be adversely affected. This could materially adversely affect
our business, results of operations and financial condition.
UNDETECTED SOFTWARE OR HARDWARE ERRORS COULD HAVE A MATERIAL ADVERSE EFFECT
ON US
Networking products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We have
experienced minor errors in the past in connection with new products. We expect
that errors will be found from time to time in new or enhanced products after we
begin commercial shipments. These problems may cause us to incur significant
warranty and repair costs, divert the attention of our engineering personnel
from our product development efforts and cause significant customer relations
problems. The occurrence of these problems could result in the delay or loss of
market acceptance of our products and would likely have a material adverse
effect on our business, results of operations and financial condition.
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<PAGE> 18
Our customers use our products to provide broadband access to their
customers. Defects, integration issues or other performance problems in our
products could result in financial or other damages to our customers or could
damage market acceptance for our products. Our customers could also seek damages
for losses from us, which, if they were successful, could have a material
adverse effect on our business, results of operations and financial condition. A
product liability claim brought against us, even if unsuccessful, would likely
be time consuming and costly.
OUR FAILURE AND THE FAILURE OF OUR KEY SUPPLIERS AND CUSTOMERS TO BE YEAR
2000 COMPLIANT COULD NEGATIVELY IMPACT OUR BUSINESS
The Year 2000 computer issue creates a variety of risks for us. If systems
do not correctly recognize date information when the year changes to 2000, our
business, results of operations and financial condition could be materially
adversely affected. The risks involve:
- Potential warranty or other claims by our customers;
- Errors in systems we use to run our business;
- Errors in systems used by our suppliers;
- Errors in systems used by our customers; and
- Potential reduced spending by other companies on broadband Internet
access products as a result of significant information systems spending
on Year 2000 remediation.
Our internal systems include both our information technology, and
non-information technology systems. We have conducted an initial audit of our
material internal information technology systems, including both our own
software products and third-party software and hardware technology. We have not
yet initiated an assessment of our non-information technology systems. To the
extent that we are unable to test the technology provided by third-party
vendors, we are seeking assurances from these vendors that their systems are
Year 2000 compliant. We may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems. These
unanticipated problems and costs could have a material adverse effect on our
business, results of operations and financial condition.
We intend to contact our critical suppliers to determine if the suppliers'
operations and the products and services provided to us are Year 2000 compliant.
Where practicable, we will attempt to mitigate our risks with respect to the
failure of our suppliers to be Year 2000 compliant by locating Year 2000
compliant replacement suppliers. However, our failure to mitigate our Year 2000
risks remains a possibility and could have a material adverse impact on our
business, results of operations and financial condition.
We have been informed by Electromax, our contract manufacturer, that its
manufacturing systems are Year 2000 compliant. However, Electromax may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in their internal information technology and
non-information technology systems. These unanticipated problems and costs could
cause manufacturing delays or difficulties for our products and harm
Electromax's operations. Additionally, Electromax has not yet ascertained
whether any of its suppliers is Year 2000 compliant. The failure of a supplier
of Electromax to be Year 2000 compliant could also adversely affect Electromax's
operations. Any of these events could materially adversely affect our business,
results of operations and financial condition.
We believe that the SMS 1000 is Year 2000 compliant. However, despite
testing by us and by current and potential customers, and despite assurances
from developers of products incorporated into the SMS 1000, the SMS 1000 may
contain undetected errors or defects associated with Year 2000 date functions.
We believe that, based solely on internal testing, the recently introduced SMS
500 is
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<PAGE> 19
Year 2000 compliant. We have made assurances to our customers that the SMS 1000
and the SMS 500 are Year 2000 compliant. The failure of our products to be Year
2000 compliant would result in numerous customer claims, which could have a
material adverse impact on our business, results of operations and financial
condition.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or potential customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, spending on Year 2000 issues
could reduce or eliminate the budgets that our current or potential customers
could have for purchases of our products. As a result, our business, results of
operations and financial condition could be materially adversely affected.
To date, our Year 2000 related costs have not been material. We have funded
these costs from available cash without separately accounting for these costs.
Although our future Year 2000 compliance costs are not expected to be
significant, we may experience unanticipated material problems and costs
associated with Year 2000 compliance that could adversely affect our business,
results of operations and financial condition. We have not yet developed any
contingency plan to address situations that may result if we are unable to
achieve Year 2000 readiness of our critical operations. The cost of developing
and implementing a Year 2000 contingency plan may be material.
If our internal systems, our products or the internal systems at our
manufacturers are not Year 2000 compliant, our business, results of operation
and financial condition would be materially adversely affected.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We have filed one U.S. patent application. There can be no assurance that this
application will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. Furthermore, other parties may independently develop similar or
competing technology or design around any patents that may be issued to us.
Although we attempt to protect our intellectual property rights, we may be
unable to prevent the misappropriation of our intellectual property,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
Others may allege that our products infringe upon their proprietary rights.
Any parties asserting that our products infringe upon their proprietary rights
would force us to defend ourselves or our customers, manufacturers or suppliers
against alleged infringement of intellectual property rights. We could incur
substantial costs to prosecute or defend this litigation. In addition,
intellectual property litigation could force us to do one or more of the
following:
- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all; or
- Redesign those products or services that incorporate the disputed
technology.
In the event of a successful claim of infringement against us and our
failure or inability to develop non-infringing technology or license the
infringed technology on acceptable terms and on a timely basis, our business,
results of operations and financial condition would be materially adversely
affected. We may be subject to these claims in the future.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary
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<PAGE> 20
rights of competitors. These claims could result in costly litigation and the
diversion of our technical and management personnel. As a result, our business,
results of operations and financial condition could be materially adversely
affected.
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
At March 31, 1999, we had approximately $5.3 million in cash, cash
equivalents and short-term investments. In April 1999, we used approximately
$2.5 million of these amounts to repay outstanding debt obligations. In April
1999, we also secured a commitment for a $2.0 million asset-based borrowing
facility. We believe that these amounts, combined with proceeds from our initial
public offering and cash anticipated to be available from future operations,
will enable us to meet our working capital requirements for at least the next 12
months. However, if cash from available sources is insufficient, or if cash is
used for acquisitions or other unanticipated uses, we may need additional
capital.
The development and marketing of new products and the expansion of reseller
channels and associated support personnel will require a significant commitment
of resources. In addition, if the market for broadband access develops at a
slower pace than anticipated or if we fail to establish significant market share
and achieve a meaningful level of revenue, we may continue to incur significant
operating losses and utilize significant amounts of capital. As a result, we
could be required to raise substantial additional capital. Additional capital
may not be available to us at all, or if available, may be available only on
unfavorable terms. Any inability to raise additional capital when we require it
would materially adversely affect our business, results of operations and
financial condition. Any additional issuance of equity or equity-related
securities will be dilutive to our stockholders.
RISKS RELATED TO THE BROADBAND ACCESS INDUSTRY
WE ARE DEPENDENT ON THE WIDESPREAD ADOPTION OF BROADBAND ACCESS SERVICES
Sales of our products depend on the increased use and widespread adoption
of broadband access services, and the ability of our customers to market and
sell broadband access services. Our business, results of operations and
financial condition would be materially adversely affected if the use of
broadband access services does not increase as anticipated or if our customers'
broadband access services are not received well by the marketplace. Critical
issues concerning use of broadband access services are unresolved and will
likely affect use of broadband access services. These issues include:
- Security;
- Reliability;
- Bandwidth;
- Congestion;
- Cost;
- Ease of access; and
- Quality of service.
Even if these issues are resolved, if the market for products that provide
broadband access to the Internet and to corporate networks fails to develop, or
develops at a slower pace than anticipated, our business, results of operations
and financial condition would be materially adversely affected.
THE BROADBAND ACCESS SERVICES MARKET IS SUBJECT TO RAPID CHANGE
The broadband access services market is new and is characterized by rapid
technological change, frequent enhancements to existing products and new product
introductions, changes in customer requirements and evolving industry standards.
We may be unable to respond quickly or effectively to these developments. The
introduction of new products by competitors, market acceptance of products based
on
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<PAGE> 21
new or alternative technologies, or the emergence of new industry standards,
could render our existing or future products obsolete, which would materially
adversely affect our business, results of operations and financial condition.
The emergence of new industry standards might require us to redesign our
products. If our products fail to comply with widely adopted industry standards,
our customers and potential customers may not purchase our products. This would
have a material adverse effect on our business, results of operations and
financial condition.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION OF THE
COMMUNICATIONS INDUSTRY
The jurisdiction of the Federal Communications Commission, or FCC, extends
to the communications industry, to our customers and to the products and
services that our customers sell. Future FCC regulations, or regulations set
forth by other regulatory bodies, may adversely affect the broadband access
services industry. Regulation of our customers may have a material adverse
affect on our business, results of operations and financial condition. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into broadband access
markets. In addition, international regulatory bodies are beginning to adopt
standards for the communications industry. The delays that these governmental
processes entail may cause order cancellations or postponements of product
purchases by our customers, which would materially adversely affect our
business, results of operations and financial condition.
RISKS RELATED TO THE SECURITIES MARKETS
OUR STOCK PRICE MAY BE VOLATILE
An active public market for our common stock may not be sustained. The
market for technology stocks has been extremely volatile. The following factors
could cause the market price of our common stock to fluctuate significantly:
- Our loss of a major customer;
- Our addition or the departure of key Redback Networks personnel;
- Variations in our quarterly operating results;
- Announcements by us or our competitors of significant contracts, new
products or product enhancements, acquisitions, distribution
partnerships, joint ventures or capital commitments;
- Changes in financial estimates by securities analysts;
- Our sales of common stock or other securities in the future;
- Changes in market valuations of broadband access technology companies;
- Changes in market valuations of networking and telecommunications
companies; and
- Fluctuations in stock market prices and volumes.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY CLASS ACTION LITIGATION DUE TO
STOCK PRICE VOLATILITY
Securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. If our
stock price is volatile, we may be the target of similar litigation. Our
management's attention and resources may be diverted by any securities
litigation, and we may incur substantial related costs, possibly resulting in a
material adverse effect to our business, results of operations and financial
condition.
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<PAGE> 22
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE
OUTCOME OF DIRECTOR ELECTIONS AND CERTAIN TRANSACTIONS
Our executive officers, directors and principal stockholders and their
affiliates beneficially own approximately 48.17% of our outstanding common
stock. These stockholders, if acting together, would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK
PRICE
Sales of a substantial number of shares of our common stock could adversely
affect the market price of our common stock by potentially introducing a large
number of sellers of our common stock into a market in which our common stock
price is already volatile, thus driving our common stock price down. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional equity securities. Based on shares outstanding as
of March 31, 1999, upon completion of our initial public offering, we had
21,409,119 shares of common stock outstanding. Our directors, executive officers
and current stockholders have executed lock-up agreements that limit their
ability to sell shares of our common stock. These stockholders have agreed,
subject to limited exceptions, not to sell or otherwise dispose of any shares of
our common stock for a period of at least 180 days after the date of our initial
public offering without the prior written approval of Morgan Stanley & Co.
Incorporated. When these lock-up agreements expire, these shares and the shares
of common stock underlying any options held by these individuals will become
eligible for sale, in some cases pursuant only to the volume, manner of sale and
notice requirements of Rule 144.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY
Provisions in our bylaws and in our certificate of incorporation, may have
the effect of delaying or preventing a change of control or changes in
management of our company. These provisions include:
- The stipulation that a special meeting of stockholders may only be called
by stockholders owning at least 50% of our outstanding shares;
- The ability of our board of directors to issue preferred stock without
stockholder approval; and
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<PAGE> 23
- The right of our board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.
Furthermore, we are subject to the provisions of section 203 of the Delaware
General Corporation Law. These provisions prohibit a stockholder owning 15% or
more of our outstanding voting stock from consummating a merger or combination
with us unless this stockholder receives board approval for the transaction or
unless 66 2/3% of the outstanding shares of our voting stock not owned by this
stockholder approve the merger or combination.
REGISTERED STOCKHOLDERS
The Reoffer Prospectus relates to shares of Common Stock which
have been acquired by certain key employees (the "Registered Stockholders") of
the Company. Registered Stockholders acquired shares of Common Stock to be
offered hereunder pursuant to the exercise of options granted under the 1997
Stock Plan.
The following table sets forth certain information with respect
to the Registered Stockholders as of July 26, 1999:
<TABLE>
<CAPTION>
Number of
Registered Shares to be
Stockholder Offered Hereby
- ----------- --------------
<S> <C>
Christine Barsema(2) 13,000
Dennis Barsema 100,000
Larry D. Blair 40,000
Joseph Borgonia 2,275
David Coleman 5,265
Ryan T. and Janet R. Cook,
as community property 3,900
Kenneth Crepea 3,900
Ken Crocker 2,000
Geoffrey C. Darby 25,000
John DuBois 2,660
Terry F. Eger 14,121
Joyce Gandolfi 8,418
Patrick and Shauna Hogan 11,310
Gilbert S. and Robin Hunt 3,000
Joanne C. Knight 1,824
Wing Ko 3,500
Randall Kruep 41,250
Wing Lai 1,950
Sean Laskey 18,574
David Lawrence 15,763
William E. Miskovetz 30,000
Suhail Nanji 6,000
Timothy L. Patrick 1,000
Sam Pigg 13,065
Ray Provan 4,550
Donald D. Scherbarth 3,933
Alan H. Schneider 1,463
Jeffrey L. Schults 4,875
Lee Schweichler 1,950
Marshall A. Smith 2,497
James D. Solomon 6,500
Louanna Sullivan 2,633
Nicholas M. and Darcie Lynn Thille,
as JT w/ROS 14,300
Albert Wang 2,000
John H. and Susan L. Windham as
co-trustees of the Windham Living
Trust dated May 18, 1998 10,725
Certain unnamed non-affiliates of
the Company(1) 3,121
</TABLE>
================================================================================
(1) Each unnamed non-affiliate may use this reoffer prospectus to sell up to
1,000 shares of Common Stock.
(2) Former spouse acquired shares under QDRO.
15
<PAGE> 24
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Reoffer Prospectus are
being registered by the Company for the account of the Registered Stockholders.
The Company understands that none of such shares will be offered through
underwriters.
Shares of Common Stock covered by this Reoffer Prospectus may be
offered and sold from time to time by the Registered Stockholders through
brokers through the Nasdaq National Market System or otherwise, at the prices
prevailing at the time of such sales. To the Company's knowledge, no specific
brokers or dealers have been designated by the Registered Stockholders nor has
any agreement been entered into in respect of brokerage commissions or for the
exclusive or coordinated sale of any securities which may be offered pursuant to
this Reoffer Prospectus. The Company will pay all expenses of preparing and
reproducing this Reoffer Prospectus, but will not receive the proceeds from
sales by the Registered Stockholders. Sales will be made at prices prevailing at
the times of such sales.
The Company will not receive any of the proceeds from the
offering hereunder. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all selling and other expenses
incurred by the individual Registered Stockholders will be borne by such
Registered Stockholders.
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<PAGE> 25
DOCUMENTS INCORPORATED BY REFERENCE
Redback hereby incorporates by reference into this Registration
Statement the following documents previously filed with the Commission:
(a) Redback's prospectus filed with the SEC under Rule 424(b) under
the Securities Act of 1933, as amended (the "1933 Act"), in
connection with Registration Statement No. 333-744479 on Form S-1
filed with the SEC on March 16, 1999, the amendment filed on
April 22, 1999, the amendment filed on May 4, 1999 and the
amendment filed on May 12, 1999 and the amendment filed on May
14, 1999, which contains the audited financial statements for the
period August 30, 1996 (inception) through December 31, 1996 and
for Redback's fiscal years ended December 31, 1997 and 1998.
(b) Redback's Registration Statement No. 0-25853 on Form 8-A filed
with the Commission on April 28, 1999 together with amendments
thereto, pursuant to Section 12 of the Exchange Act, in which
there is described the terms, rights and provisions applicable to
the Company's outstanding Common Stock.
All of such documents are on file with the Commission. All
documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act prior to the filing of a post-effective amendment
which indicates that all securities to be offered pursuant hereto have been sold
or which deregisters all such securities then remaining unsold shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of the filing of such documents.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. Redback's
Bylaws provide for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. Redback's Certificate of
Incorporation provides that, under Delaware law, its directors shall not be
liable for monetary damages for breach of their fiduciary duty as directors to
Redback and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the fiduciary duty of the directors, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Redback for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws. Redback has entered into Indemnification Agreements with its officers and
directors. The Indemnification Agreements provide Redback's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law.
17
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
- -------------- ------- -------------
<S> <C> <C>
4 Instrument Defining Rights of Stockholders. Reference is made
to Redback's Registration Statement No. 0-25853 on Form 8-A,
which is incorporated herein by reference under Item 3(b) of
this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 Form of Written Compensation Agreement.
</TABLE>
<PAGE> 1
EXHIBIT 5
July 26, 1999
Redback Networks
1389 Moffett Park Drive
Sunnyvale, CA 94089
Re: Redback Networks ("Redback") Registration Statement
for Offering of 426,322 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of 426,322 Shares Acquired Under
Written Compensation Agreements with certain individuals designated in the
Registration Statement and certain unnamed non-affiliates. We advise you that,
in our opinion, when such shares have been issued and sold under the applicable
provisions of the Written Compensation Agreements with certain individuals
designated in the Registration Statement and certain unnamed non-affiliates and
in accordance with the Registration Statement, such shares will be validly
issued, fully paid and nonassessable shares of Redback's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
-----------------------------------------
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this reoffer prospectus
constituting part of the Registration Statement on Form S-8 of our report dated
March 5, 1999 relating to the financial statements of Redback Networks Inc.,
which appears on page F-2 of the Prospectus constituting part of the
Registration Statement on Form S-1 (No. 333-74479).
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
July 26, 1999
<PAGE> 1
Exhibit 99.1
FORM OF WRITTEN COMPENSATION AGREEMENT
REDBACK NETWORKS INC. 1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
You have been granted the following option to purchase Common
Stock of Redback Networks Inc. (the "Company"):
<TABLE>
<S> <C>
Name of Optionee:
Total Number of Shares Granted:
Type of Option: Incentive Stock Option
Nonstatutory Stock Option
Exercise Price Per Share: $
Date of Grant:
Date Exercisable: This option may be exercised, in whole or in part,
for 100% of the Shares subject to this option at
any time after the Date of Grant.
Vesting Commencement Date:
Vesting Schedule: The Right of Repurchase shall lapse with respect
to the first 25% of the Shares subject to this
option upon the Optionee's completion of 12 months
of Service from the Vesting Commencement Date and
an additional 1/48th of the Shares on the
(VestDay) day of each month thereafter.
Expiration Date:
</TABLE>
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1997 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
OPTIONEE: REDBACK NETWORKS INC.
