Notes Payable and Long-term Debt

12 Months Ended

Dec. 31, 2020


Note 9.			Debt

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, established the Paycheck Protection Program (PPP) to provide a direct incentive for small businesses to keep workers on their payroll. Through the PPP, participating banks write loans to eligible businesses and loan amounts are forgiven to the extent that employee retention criteria are met and proceeds are used to cover eligible costs over a 24-week measurement period following loan funding. In April 2020, following an assessment of eligibility and approval of its Board of Directors, RealNetworks issued a promissory note to a participating bank in the principal amount of $2.9 million pursuant to the PPP. The note has a maturity of 2 years, an interest rate of 1.0%, no pre-payment penalty, a ten-month deferment period starting after the 24-week measurement period, and is eligible for forgiveness pursuant to PPP guidelines. In April 2020, the Secretary of the Treasury and Small Business Administration (SBA) announced that the government will review all PPP loans of more than $2.0 million before there is forgiveness. We applied for forgiveness in January 2021. No assurance can be given that we will be granted forgiveness for the PPP loan. The PPP loan will be derecognized upon confirmation of forgiveness from the SBA and/or upon repayment of the loan in accordance with its terms.

In August 2019, RealNetworks and Napster entered into a Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the August 2019 Loan Agreement, the bank extended a revolving line of credit (Revolver) not to exceed $10.0 million in the aggregate. Available advances on the Revolver, which are used for working capital and general corporate purposes, are based on a borrowing base that comprises accounts receivable and direct to consumer deposits. Borrowings under the Loan Agreement are secured by a first priority security interest in the assets of RealNetworks and Napster. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 5.5%, with monthly payments of interest only and principal due at the end of the two-year term. The Loan Agreement contains customary covenants, including financial covenants, minimum EBITDA levels to be updated annually, and maintaining a minimum balance of $3.5 million unrestricted cash at the bank. We are in the process of negotiating the customary covenants for 2021, and we do not expect the resulting revisions to have a material effect on the Loan Agreement.

In December 2020, at the time of closing the sale of Napster, as further described in Note 4. Acquisitions and Dispositions, borrowings of $3.9 million on the Revolver were repaid in full and certain terms were amended, including the removal of Napster as a party to the lending agreement and maintaining a minimum balance of $1.5 million unrestricted cash at the bank, a reduction from the prior requirement of a minimum balance of $3.5 million of unrestricted cash.

In February 2021, we entered into an amendment with the bank on our Revolver, whereby the borrowing base for the Revolver is comprised of accounts receivable and direct to consumer deposits for RealNetworks only. Borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 3.25%. The Revolver matures August 1, 2022.

We paid and capitalized $0.6 million of financing fees to enter into the Revolver in August 2019, and the financing fees are being amortized over the term of the credit agreement. The unamortized fees were $0.2 million at December 31, 2020 and are included in Deferred costs, current on our consolidated balance sheets.