Riverbed Technology (RVBD)

4. Debt

During June 2005, the Company entered into a loan and security agreement with a financing institution (the “Loan Agreement”), which provides a line of credit for equipment financing, payoff of existing debt, and funds for general corporate purposes up to $3,000,000 (the “2005 Loan Commitment”). Borrowings outstanding under the Loan Agreement are secured by all assets of the Company. In connection with the Loan Agreement, the Company issued to the financing institution a warrant to purchase 406,888 shares of Series C Preferred Stock at a price per share of $0.2213. The value of these warrants, $76,000 was recorded as a deferred financing cost, and was amortized to interest expense over the drawdown period of the 2005 Loan Commitment. In 2005, the Company borrowed $750,000 under the 2005 Loan Commitment.

The Loan Agreement originally provided for a one-year drawdown period originally ending on June 30, 2006. During June 2006, the Company amended the Loan Agreement to extend the drawdown period for the 2005 Loan Commitment to end on June 30, 2007 and to modify the payment schedule as follows: monthly payments of interest only at a variable rate of the prime lending rate plus 225 basis points per annum until June 30, 2007, followed by 36 fixed monthly payments of principal and interest at a rate equal to the prime rate at June 30, 2007 plus 225 basis points, and then an interest-only payment equal to 9% of the amount borrowed. The Company began accreting the interest-only payment of $270,000 due at the end of the payment term over the term of the 2005 Loan Commitment using the effective interest method. In connection with the amendment, the Company issued to the financing institution a warrant to purchase 271,125 shares of Series C Preferred Stock at a price per share of $0.2213 in exchange for cash consideration of $100. The value of the warrants, $29,000, was recorded as a deferred financing cost, and was being amortized to interest expense over the repayment term of the 2005 Loan Commitment, as amended.

In December 2006, the Company borrowed the remaining $2,250,000 in funds available under the 2005 Loan Commitment, increasing the total amount owed to the lender to $3,000,000. In connection with the drawdown of the remaining funds, the Company issued a warrant to purchase 271,125 shares of Series C Preferred Stock at a price per share of $0.2213 to the financing institution (Note 7). The value of these warrants, $29,000, was recorded as a deferred financing cost, and was being amortized to interest expense over the remaining term of the 2005 Loan Commitment, as amended.

In June 2007, the Company received additional debt financing in the amount of $2,000,000 (the “2007 Loan Commitment”), which the lender agreed to provide pursuant to terms of a second amendment to the Loan Agreement, which is payable in monthly payments of interest only at a variable rate of the then current prime lending rate plus 225 basis points per annum until December 31, 2007, followed by 30 fixed monthly payments of principal and interest at a rate equal to the prime rate at December 31, 2007 plus 225 basis points, and then an interest-only payment equal to 9% of the amount borrowed. . The Company began accreting the incremental interest-only payment of $180,000 due at the end of the payment term ratably over the term of the 2007 Loan Commitment using the effective interest method. In connection with this amendment, the Company issued a warrant to purchase 723,000 shares of Series D Preferred Stock at a price per share of $0.2213 to the financing institution (Note 7). The value of these warrants, $78,000, and the unamortized balance from the previously issued warrants, $43,339, was recorded as a deferred financing cost, and is being amortized to interest expense over the 2007 Loan Commitment period.

In April 2008, the Company amended the Loan Agreement to modify the payment schedules under both the 2005 and 2007 Loan Commitments as follows (the “2008 Loan Commitment”): monthly payments of interest only at a variable rate of the prime lending rate plus 225 basis points per annum until March 31, 2009, followed by 36 fixed monthly payments of principal and interest at a rate equal to the prime rate at March 31, 2009 plus 225 basis points and then an interest-only payment of $550,000 due in May 2012. The Company is accreting the interest-only payment of $550,000 due at the end of the payment term ratably over the term of the 2008 Loan Commitment using the effective interest method. Future maturities of the Loan Agreement as amended in April 2008 are as follows:

The Loan Agreement does not have any financial covenants or any subjective acceleration clauses; however, it does contain certain restrictive covenants. In the event the Company was in default of any of these covenants, the financing institution would have the right to call all amounts due under term notes outstanding. As of September 30, 2008, the Company was not in compliance with all covenants, but received a waiver for those in which it was not in compliance.

4. Debt

During June 2005, the Company entered into a loan and security agreement with a financing institution (the “Loan Agreement”), which provides a line of credit for equipment financing, payoff of existing debt, and funds for general corporate purposes up to $3,000,000 (the “2005 Loan Commitment”). Borrowings outstanding under the Loan Agreement are secured by all assets of the Company. In connection with the Loan Agreement, the Company issued to the financing institution a warrant to purchase 406,888 shares of Series C Preferred Stock at a price per share of $0.2213. The value of these warrants, $76,000 was recorded as a deferred financing cost, and was amortized to interest expense over the drawdown period of the 2005 Loan Commitment. In 2005, the Company borrowed $750,000 under the 2005 Loan Commitment.

The Loan Agreement originally provided for a one-year drawdown period originally ending on June 30, 2006. During June 2006, the Company amended the Loan Agreement to extend the drawdown period for the 2005 Loan Commitment to end on June 30, 2007 and to modify the payment schedule as follows: monthly payments of interest only at a variable rate of the prime lending rate plus 225 basis points per annum until June 30, 2007, followed by 36 fixed monthly payments of principal and interest at a rate equal to the prime rate at June 30, 2007 plus 225 basis points, and then an interest-only payment equal to 9% of the amount borrowed. The Company is accreting the interest-only payment of $270,000 due at the end of the payment term over the term of the 2005 Loan Commitment using the effective interest method. In connection with the amendment, the Company issued to the financing institution a warrant to purchase 271,125 shares of Series C Preferred Stock at a price per share of $0.2213 in exchange for cash consideration of $100. The value of the warrants, $29,000, was recorded as a deferred financing cost, and was being amortized to interest expense over the repayment term of the 2005 Loan Commitment, as amended.

In December 2006, the Company borrowed the remaining $2,250,000 in funds available under the 2005 Loan Commitment, increasing the total amount owed to the lender to $3,000,000. In connection with the drawdown of the remaining funds, the Company issued a warrant to purchase 271,125 shares of Series C Preferred Stock at a price per share of $0.2213 to the financing institution (Note 7). The value of these warrants, $29,000, was recorded as a deferred financing cost, and was being amortized to interest expense over the remaining term of the 2005 Loan Commitment, as amended.

In June 2007, the Company received additional debt financing in the amount of $2,000,000 (the “2007 Loan Commitment”), which the lender agreed to provide pursuant to terms of a second amendment to the Loan Agreement, which is payable in monthly payments of interest only at a variable rate of the then current prime lending rate plus 225 basis points per annum until December 31, 2007, followed by 30 fixed monthly payments of principal and interest at a rate equal to the prime rate at December 31, 2007 plus 225 basis points, and then an interest-only payment equal to 9% of the amount borrowed. The Company is accreting the interest-only payment of $180,000 due at the end of the payment term ratably over the term of the 2007 Loan Commitment using the effective interest method. In connection with this amendment, the Company issued a warrant to purchase 723,000 shares of Series D Preferred Stock at a price per share of $0.2213 to the financing institution (Note 7). The value of these warrants, $78,000, and the unamortized balance from the previously issued warrants, $43,339, was recorded as a deferred financing cost, and is being amortized to interest expense over the 2007 Loan Commitment period.

The Loan Agreement does not have any financial covenants or any subjective acceleration clauses; however, it does contain certain restrictive covenants. In the event the Company was in default of any of these covenants, the financing institution would have the right to call all amounts due under term notes outstanding.

As of December 31, 2007, the Company was in compliance with all covenants. Subsequent to that date, the Company was not in compliance with certain restrictive covenants; however, the lender provided the Company with a waiver which allowed the Company to cure the default created by non-compliance with these covenants.

In April 2008, the Company amended the Loan Agreement to modify the payment schedules under both the 2005 and 2007 Loan Commitments as follows: monthly payments of interest only at a variable rate of the prime lending rate plus 225 basis points per annum until March 31, 2009, followed by 36 fixed monthly payments of principal and interest at a rate equal to the prime rate at March 31, 2009 plus 225 basis points and then an interest-only payment of $550,000 due in May 2012. Future maturities of the Loan Agreement as amended in April 2008 are as follows:

8.    DEBT

On June 7, 2004, we entered into a loan and security agreement with a financial institution for a credit facility not to exceed $2.5 million. The credit facility provided the financial institution with a blanket lien on substantially all of our assets excluding intellectual property. The agreement required payments of interest only through December 31, 2005 with principal payments made in 24 equal installments beginning January 1, 2006. Interest was computed per annum as 9% plus the amount that the prime rate exceeds 4%. The weighted average interest rate for this credit facility was 12.6%, 12.1% and 11.0% for the years ended December 31, 2006, 2005 and 2004, respectively. In connection with the loan, we issued warrants for the purchase of 100,000 shares of Series B convertible preferred stock with an exercise price of $0.836 per share. The total fair value of the warrants was $70,000 which was being amortized to interest expense over the life of the loan and security agreement. The unamortized warrant balance of $39,000 at December 31, 2005 was recorded as an offset to debt on the accompanying consolidated balance sheet. Amortization of the warrants was recorded as interest expense. We settled all obligations under this loan and security agreement on October 2, 2006. Principal payments were made in the amount of $1.5 million, after taking into effect the standard monthly payment made on October 1, 2006.

Debt consisted of the following as of December 31, 2005: