b5ac56d3-86eb-4a63-b554-f94db2d62aed RIEDC/38 Studios From: "Stolzman, Rob" To: "Stokes, Keith" , "Hashway, Fred" , "Saul, Michael" Cc: Maureen Gurghigian , "Campellone, Paul" Bee: stokes, keith, hashway, fred, saul, michael, "maureen gurghigian", campellone, paul, Maureen Gurghigian Date: Thu, 01 Apr 2010 09:13:09-0500 Attachments: RIEDe_ to Gov Carcieri from Keith Stokes (4_1 ).DOC (35.33 kB); Budget Article for RIEDC- Kushner4_1_10.DOC (35.84 kB); 38 Studios RIEDC Letter 3_31 Clean Draft. DOC (39.94 kB); 38 Studios RIEDC Letter 3_31 Marked Draft. DOC (41.98 kB) Hi Keith, Mike and Fred. I am attaching a revised memo to the Gov, a revised Kushner and duplicate copies of the red lined and clean LOI with 38 Studios. The memo and Kushner have been edited to reflect the changes discussed this morning. Let me know when we are comfortable releasing these documents to 38 Studios and the legislature. I have been playing phone tag with Sharon Reynolds Ferland, house fiscal advisor. Rob Robert I. Stolzman, Esq. ADLER POLLOCK & SHEEHAN P .C. One Citizens Plaza, 8th Floor Providence, Rl 02903 E-Mail rrJolzman@apo,law cnm Phone 401.274.7200 Fax401.751.0604 Visit our website at www apslaw corn ADLER Pt")LLCD< @.SHEEliAN P.C. To comply with IRS regulations, we advise that any discussion of Federal tax issues in this e-mail is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein. This e-mail message is confidential and is intended only for the named recipient(s). It may contain information that is subject to the attorney client privilege or the attorney work-product doctrine or that is otherwise exempt from disclosure under applicable law. If you have received this e-mail message in error, or are not the named recipient(s), please immediately notify the sender and delete this message from your computer and destroy all copies. Thank you. CONFIDENTIAL 1c6b8308-4 7d 1-4aeO:.aa4c-df565 b11343e MEMORANDUM TO: GOVERNOR DONALD L. CARCIERI FROM: KEITH STOKES RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION DATED: April 1, 2010 RE: 38STUDIOS Governor, as you know, we have been meeting with Curt Schilling and his company, 38 Studios, regarding their potential relocation to and expansion in Rhode Island. The company currently has 80 employees in Maynard, Massachusetts, and 85 employees in Baltimore, Maryland. The company will commit to bringing 125 new employees to Rhode Island by December 31, 2010, add an additional 175 by the end of2011 and another 150 employees to Rhode Island by the end of 2012 (for a total of 450 employees with an average salary per employee of $75,000 per year). It appears as if the company's current creative and management team are very experienced and well-regarded in the industry. The company is a video game and digital media, content, design and production company that is developing a game product which will be released in two stages. The first stage is what is commonly called a roll playing game for single player on a multi-platform console (e.g., PlayStation and Xbox) (the RPG). The software is sold to consumers and played on their consoles. The second phase of the product is what is called a "massively multiplayer online game" (MMOG) which in addition to software sales maintains a continuing revenue stream through online subscriptions. The RPG phase of the game has a guaranteed publication and distribution contract with Electronic Arts (EA), an industry leader in publication and distribution. EA's investment to bring the RPG to market is valued at $50,000,000 and the release of the game is scheduled for September 201 I. 3 8 Studios conservatively estimates gross revenues on the first phase of the game at approximately $450,000,000 through 2015, with net revenues during that same period at $150,000,000. The MMOG phase of the game is anticipated to be released in late 2012 with estimated revenues of $700,000,000 through 2015, with net revenues of $420,000,000 during the same period (assuming self publication). 38 Studios has raised approximately $38,000,000 of capital (equity) so far, with Curt Schilling providing $30,000,000 of that equity. The company indicates that it has an additional $35,000,000 to $40,000,000 of equity committed. The company needs approximately $75,000,000 to complete the intellectual property development and production of both the RPG and the MMO phase of the game. While an additional equity raise is feasible, the current equity {IF DOCPROPERTY "CUS_DociDOperation" ="LAST PAGE ONLY" DOCPROPERTY "CUS_DociDEndAdjustedPageNumber" ''CUS_DociDEndSectionNumber" CONFIDENTIAL ) = 1 , COMPARE IF =AND ( SECTION COMPARE PAGE\* Arabic DOCPROPERTY DOCPROPERTY "CUS_DociDString" FSC-000022141 1c6b830B-47d 1-4ae0-aa4c-df565b11343e participants would rather finance the balance of the project through debt in order to maintain their equity positions and a larger share of revenue returns. Subject to further due diligence, we have proposed backing commercial loans to the company with a moral obligation guarantee or bond issued by the Rhode Island Economic Development Corporation upon the approval of the General Assembly. In exchange for the moral obligation credit enhancement of the debt, 38 Studios would immediately commence developing new employment in Rhode Island by commencing the relocation of its Maynard, Massachusetts facility to Rhode Island, move the Baltimore facility to Rhode Island upon completion of the RPG (the RPG of which is being completed in Baltimore) and quickly ramp up the additional IP, art, sound and design technicians necessary to complete the game, thereby implementing the employment ramp up indicated above. The company would pay the state $7,500 per year for every job it fails to create below the minimum targets above. The benefits of this transaction are multi-fold. In order of accomplishment, but not in order of economic development policy, the benefits would be as follows. First, we would achieve benefit of the movement of a high profile company and owner to the state. Second, we would obtain 450 new jobs quickly. Third, this industry is four-square in line with the "knowledge economy" policies you've been advocating (creative, innovative, high wage, growth industry, sustainable and education based). Fourth, this industry has a very high spin-off and ancillary/secondary market impact. Fifth, 38 Studios is already very committed to recruiting talent from RISD, Harvard, WPI and MIT. Of these schools, RISD is a clear company favorite (27 of the 80 current employees at the Maynard facility are RISD graduates), and the company is willing to further commit to branding itself and its educational relationships with RISD (and they've expressed an interest in Brown's digital acoustics and music programs). In addition to some general industry and company information, also attached hereto are a form of letter of intent between the RIEDC and 38 Studios and a form of"Kushner" authorization for consideration by you and the general assembly. Our preliminary discussions with the legislative leadership indicate that they are supportive of this approach. In addition, they have suggested, and the draft Kushner reflects, that the Kushner authorization should be larger than only the needs of38 Studios so a larger access to capital program may be developed. { IF DOCPROPERTY "CUS_DociDOperation" ="LAST PAGE 01!--Y" IF =AND ( COMPARE PAGE\* Arabic DOCPROPERTY "CUS_DociDEndAdjustedPageNumber'' , COMPARE SECTION = DOCPROPERTY "CUS_DociDEndSectionNumber'' ) = l DOCPROPERTY "CUS_DociDString" } CONFIDENTIAL FSC-000022142 d9eaa95e-6fb9-42c 1-ac25-07333bcfc41 c DRAFT 4/1/10 ARTICLE RELATING TO DEBT MANAGEMENT ACT JOINT RESOLUTION(S) SECTION_. RIEDC JOB CREATION GUARANTY PROGRAM 1 WHEREAS, the Rhode Island Economic Development Corporation was created by the 2 general assembly pursuant to chapter 64 oftitle 42 of the general laws in order to, among other 3 things, promote the retention and expansion ofbusinesses and the creation of jobs in Rhode 4 Island; and 5 WHEREAS, one of the methods utilized by the Rhode Island Economic Development 6 Corporation to help promote and expand businesses in Rhode Island is the use of its quasi public 7 corporation powers to issue bonds and debt and guarantees of debt; and 8 9 10 WHEREAS, Rhode Island continues to suffer from continuing high unemployment and other ill effects from the most recent national recession; and WHEREAS, one of Rhode Island's economic development's strategies of continuing to 11 optimize its knowledge economy assets such, as the sciences, technology, digital media, 12 innovative manufacturing and other technologies, requires adequate access to capital; and 13 14 15 WHEREAS, Rhode Island companies in growth phases are limited in their ability to obtain reasonable credit without access to credit enhancement; and WHEREAS, the Rhode Island Economic Development Corporation desires to create a 16 loan guarantee and bond program pursuant to which it will be able to guarantee loan repayments 17 either directly or through the issuance of its bonds in order to induce lending to companies 18 growing their employment in Rhode Island; and CONFIDENTIAL FSC-000022143 d9eaa95e-6 fb9-42c 1-acL:5-0 73 33 bcfc4-1 c WHEREAS, the Rhode Island Economic Development Corporation seeks to have 2 authority pursuant to chapter 18 of title 35 of the general laws to guarantee debts or otherwise 3 issue its bonds for this purpose not to exceed $125,000,000 in the aggregate of unpaid principal 4 and interest, thereby limiting the contingent long-term cost of such program to the state to such 5 maximum amount; and 6 7 8 9 WHEREAS, the Rhode Island Economic Development Corporation requests the approval of the general assembly prior to undertaking such program; now, therefore, be it: RESOLVED, that the Rhode Island Economic Development Corporation (the "corporation") is hereby empowered and authorized pursuant to chapter 18, title 35 of the general 10 laws, and notwithstanding any provisions of chapter 64, title 42 of the general laws to the 11 contrary, to create the corporation's Job Creation Guaranty Program (the "program") and 12 guarantee annual debt service or issue bonds up to an aggregate guaranty or bond obligations of 13 the corporation with respect to the program not to exceed $125,000,000 in the aggregate; 14 RESOLVED, that guaranties or bonds issued by the corporation shall be approved by its 15 board of directors, or a committee of the board as so designated by the board, and shall be 16 executed by its executive director or any authorized officer of the corporation as authorized in a 17 resolution approved by the board of directors of the corporation from time to time in a form the 18 corporation may prescribe. The board of directors of the corporation in authorizing any such 19 guaranty or bond obligations shall consider and be guided by the following objectives: 20 (a) Priority will be given to projects that promptly create permanent, full-time jobs with 21 annual wages in excess of 150% of the then current minimum wage earned annually with 22 industry comparable benefits. 23 {IF DOCPROPERTY "CUS_DociDOpemtion" ="LAST PAGE Ol?,LY" IF =AND ( DOCPROPER1Y "CUS_DociDEndAdjustedPageNu.mber" , COMPARE SECTION ) =l DOCPROPERTY nCUS_DociDString" "CUS_DociDEndSectionNumber" CONFIDENTIAL COMPARE PAGE\* Arabic DOCPROPERTY FSC-000022144 ··--~~--~~-~----------------'----------~---~·- d9eaa95e-6fb9-42c 1-ac25-07333bcfc41 c (b) Any guaranty or bond obligations hereby authorized should leverage capital 2 formation to facilitate business development with new and existing companies that create or 3 retain jobs. 4 (c) Priority shall be given to guarantees that align with the State's economic 5 development strategy to expand high-wage jobs in knowledge industry growth clusters or with 6 respect to assets related thereto. 7 (d) Guarantees or loan obligations from the program's borrower will be collateralized by 8 any and all available assets of the borrower and guarantors, where applicable, including 9 subordinate collateral positions, cross collateralization with other lenders and collateralized 10 guarantees as appropriate. 1! (e) Insurances, including hazard and key person life, may be required where appropriate. 12 (f) The corporation may utilize such data and retain experts as necessary to assess and 13 validate associated guaranty risk, and the corporation may charge borrower reasonable fees for 14 the corporation's guaranty and reimbursement of expenses; 15 RESOLVED, that in order assure any payments due on guarantees or bond obligations 16 issued by the corporation in connection with the program pursuant to this authorization are made, 17 to assure the continued operation and solvency of the corporation for the carrying out of its 18 corporate purposes, and except as otherwise set forth in these authorizing resolutions in 19 accordance with the provisions of chapter 64, title42 of the general laws (i) the corporation shall 20 create a reserve fund from which shall be charged any and all expenses of the corporation with 21 respect to guarantee or bond obligations of the corporation pursuant to these resolutions resulting 22 from a program borrower's default; and (ii) the corporation shall credit to the reserve fund no 23 less than fifty percent (50%) of all program receipts of the corporation including guaranty fees, {IF DOCPROPER.TY "CUS_DociDOperation" ="LAST PAGE O~Y" IF =AND ( DOCPROPERTY "CUS_DociDEndAdjustedPageNumber" , COMPARE SECTION ''CUS_DociDEndSectionNumber" ) = 1 DOCPROPERTY "CUS_DociDString" CONFIDENTIAL COMPARE PAGE\* Arabic DOCPROPERTY FSC-000022145 d9eaa 95e-6 fb9-42c 1-ac25-0 7333bcfc41 c I premiums and any other receipts or recoveries from collections received pursuant to the 2 corporation's rights to recover payments as a guarantor; and (iii) to the extent the corporation's 3 obligations as a guarantor or pursuant to its program bond obligations are not satisfied by 4 amounts in its guaranty reserve fund, the executive director of the corporation shall annually, on 5 or before December 1'',make and deliver to the governor a certificate stating the minimum 6 amount, if any, required for the corporation to make payments due on such guarantees. During 7 each January session of the general assembly, the governor shall submit to the general assembly, 8 as part of the governor's budget, the total of such sums, if any, required to pay any and all 9 obligations of the corporation under such guarantees or bond obligations pursuant to the terms of 10 this authorization. All sums appropriated by the general assembly for that purpose, and paid to II the corporation, if any, shall be utilized by the corporation to make payments due on such 12 guarantees or bond obligations. Any recoveries by the corporation of guaranteed payments are 13 to be returned to the guaranty reserve fund and utilized to reduce any obligation of the state 14 pursuant to any guarantees entered into by the corporation; 15 RESOLVED, On or before January 1 of each year, the corporation shall issue a report on 16 all guarantees issued by the corporation pursuant to this authorization. The report shall include 17 at a minimum: a list of each guarantee issued; a description of the borrower on behalf of which 18 the guarantee was issued; the lender or lenders that made the loan, and the amount of such loan, 19 to such borrower; the amount of principal and interest on each such loan outstanding as of the 20 date of such report; a summary of the collateral securing the repayment of such loan for which 21 the guarantee was issued; and a summary of the economic impacts made by such borrower as a 22 result of the guaranteed loan, including but not limited to the number, type and wages of jobs 23 created by such borrower, any impacts on the industry in which the borrower operates and an {IF DOCPROPERTY "CUS_DociDOperatron" ="LAST PAGE ObfLY" IF =AND ( DOCPROPERTY ''CUS _DociDEndAdjustedPageNumber" , COMPARE SECTION "CUS_DociDEndSectionNumber" ) = 1 DOCPROPERTY "CUS_DociDString" CONFIDENTIAL COMPARE PAGE\* Arabtc DOCPROPERTY FSC-000022146 d9eaa95e-6fb9-42c 1-ac25-07333bcfc41c estimate of income taxes for the state of Rhode Island generated by the employees of such 2 borrower and the borrower itself. 3 {IF DOCPROPERTY "CUS_DociDOperation" ="LAST PAGE O~Y" IF =AND ( DOCPROPERTY "CUS DociDEndAdjusted.PageNumber" , COMPARE SECTION "CUS_DociDEndSectioilNumber'' ) =1 DOCPROPERTY "CUS_DociDString" CONFIDENTIAL COMPARE PAGE\* Arabic DOCPROPERTY FSC-000022147 043ce-ec3-a-9f9-480f-91 f7 -3c334becdf0c RIEDC Letterhead April_, 2010 Mr. Curt Schilling, Chairman 38 Studios 5 Clock Tower Place, Suite 140 Maynard, MA 01754 We understand your . ' to bring your project Copernicus to MMO completion to be $75,000,000. Based on to date of your financial projections, the RIEDC would either guarantee the repayment annual debt service of up to $75M of the company's borrowing or issue $75M of revenue bonds, the proceeds of either of which would provide the necessary financing to complete production on Copernicus and begin relocating 38 Studios to Rhode Island. We anticipate that these guaranteed loans would be made by, or bonds would be purchased by or through, a lender or lenders familiar with your industry. As your company is in the unusual position of having pipeline CONFIDENTIAL FSC-000022141! 043ceec3-a 9f9-4BOf-91 t7-3c3l4becdf0c Mr_ Schilling and Ms_ MacLean April _, 20 I 0 Page 2 product and contractual commitments for product publishing and distribution, but as yet is "pre revenue", we recognize the market for these bonds or loans would be limited without credit enhancement Accordingly, we would immediately request the Rhode Island General Assembly, which currently is in session, to authorize the RlEI!JitJ.o guarantee the annual debt service of the loans or, in the case of the bonds, to use an av!Mf!(gik' capital reserve mechanism by which the General Assembly may consider on an annual Jl#l'¥Jttnding any shortfall of any loan issue what is commonly payments necessary to pay the bondholders, thereby cre~~;£1\'f;,this ;'):: ·::: ·:::3:~,.. '~:::3:1" 1 :::o~s::.:o.ooo ~,~ ' Purpose: For all associ~te~ busi~ess ~X\\\~e&~\~\r~to op~ft!!~"l~· product development and deployment by 3 8 StudlOSJ.Rs.onJunctton\~_th 1ts Wfttl!%~ devt\l{l1J!llent and expansiOn m Rhode Island. Rate: dl,,\fl\iR$ijli&,, 'i~,ltdt1\i~1~'W~.ffiuli•+y? Market for bc:ifit(llj~ues oftliit\type as n'll(i!l\'ijaied with bdfid purchaser. ··.~t~@~~~.JiSt. ··14~~ Term: Neggfi!Jk!!!Jdiil<:ely Yt:WI\'ll!\l'!fh¥:!ion 'dl@&pitalized interest in early year(s) with early r&liPce,a:s:: t~i~~,bet~lib" '"'1~lmt:~"J~· Collatd~~1\9Rllateral assigiil,~t ot'.Ulii~.sets of company now owned and hereafter acquired incl~di~g 6*w~2t limited ~o 141tectu~~~gerty, licenses, licensing fees, dis~bution and publishing colit{~ts, receJvabl~1@;nd wotl&product. We recognize that a portton of the company's assetsl,~theld in a ,,~lly owned subsidiary, the ownership inter~st ofwhi~h will be pledged _to ~he RJE~~~li_>;~nd_th~J!:Ich a~sets are otherw1se currently pl~dged m connectiOn w1t~ the publishing agreen'1&)lJ."Y!.llJijl£!J!ctromc Arts and currently are unavailable as collateral for this be pledged as collateral for this credit facility upon completion credit facility, but such a~ti,Ri!J ..:;::.... and publication of the comp'llfiy's console phase of the project when such assets are no longer collateralizing the aforesaid publishing agreement ,:::;;:-:~ State Guaranty Fee: Initial fee of one half percent (l/2%) payable at closing at closing ($375,000) and one and one half percent (1.5%) ($1,125,000) of loan amount annually payable on the loan closing anniversary. Equity and Dividend Covenants: During the term of the loan, Mr. Schilling shall maintain no less than an amount equal to $15,000,000 of equity in the company, and equity or earnings CONFIDENTIAL FSC-000022149 043cee.c3~a 9f9-480f-91 f7 -3c3 34becdf0c Mr. Schilling and Ms. MacLean April _, 20 10 Page 3 distributions to members shall be limited to a coverage ratio formula to be agreed upon by the RIEDC and the company prior to closing. Specific Conditions and Covenants: consent; (a) The debt would not be assignable or ass1um1 should EBITDA exceed (b) Recapture or early payment would be a base formula to be agreed upon by (c) A percentage of the funds available establish an investment fund to provide vehicles to facilitate the development of video p..uuu~ Island in conjunction with a de,,el,optld Stu• ''~Wk .. (d) Placement ofthe.?.WJ.g,\ssue with~~]?der~bi1Jk!!;~Ls an~~~entation r~flecting_ th~ ::r:~a~~:ofi~tr~~;;~d tertl\'\\~!jl®1~~1({~~§t;0f a transactwn ofthts stze The company will assisf'(l:l'i\&-IED,Ijp making ~~~\)stry contacts and identifying necessary sources.:;:jJ%sl,\~tt:.~~~,,,,~-Qitf%,:::~,~e loan. . .. Of cotfffljf,fthe RIEDC~IJ}Youllt~tpJr any othiM:tg~ststance it could to 38 Studws to facilitate your sri'i~~~;,!_~ansition to"~~~e Is!·~\A more complete listing of services provided by the RIEDC ts it'!!rul.able at the Rl'BBC's w~'llhe: www.nedc.com. -.), \'04. '~ New Industrv hl\!~jjves !Wi& ','%tkt~. J~f1:~ We are particularly idt,~meQ.i,}\ll,~sisting 38 Studios grow and become a magnet for the growth .... ::::,. w·:>:,,_,_,, of the video gaming andffil!i:\m!!Tfu.edia industry in Rhode Island. Accordingly, we will support and advocate for the implet"ftehtation of jobs producing interactive digital media tax credits that provide Rhode Islander's with a clear return on investment resulting from the credits. We also will support other creative and innovative industry development incentives jointly developed by us to accelerate and increase your successes. We think your company and its product development concepts are exciting and aligned with our economic development strategies. We think 38 Studios will be a strong corporate citizen for Rhode Island and that you will be particularly welcome here for the foundation for your many exciting ventures and opportunities. CONFIDENTIAL FSC-000022151 043ceec3-a9f9-480f-91 f7 -3c3 34becdf0c Mr. Schilling and Ms. MacLean April _, 2010 Page 5 Should you agree and desire us to commence the process of obtaining the approvals for the issuance of the bonds and the economic development incentives, please indicate so by signing below. Sincerely ours, Governor Donald L. Carcieri, Chairman of the Board Keith W. Stokes, Executive Director Agreed and accept,eq 38 Its: 529694.-7 CONFIDENTIAL FSC-000022152 Sb4ae54bo7fc.1-4719-ba75-b58c071cdf69 RIEDC Letterhead Mr. Curt Schilling, Chairman 38 Studios 5 Clock Tower Place, Suite 140 Maynard, MA01754 ,,,.;:, .. :-:~'::"::~~~-- Ms. Jen MacLean, CEO 38 Studios 5 Clock Tower Place, Suite 140 Maynard, MA 01754 Re: 38 Studios/Rhode Island Dear Mr. Schilling and Ms. MacLean: Jh, '!' e a:e please~, to present t~is ?~tli~~-~s pursuarltl!\'f:hi,ch tlwRhode Islaltd. hcopu1nic. J~~-~~~1~~'il.QJ!.WK~J1:~:~:;?KJ?E!E\HE~I!~.LJU!;~~~:~.L:.~~~h-t~Y!:6.HC-t;-Hy{&~;&'::t-ng-,:~(~ti~>.n·s--H)· p~ov1 de ~~~{w~;;n:H{> ae¥d~~W.:;...C\t:.bonds would be purchased by or through, a lender or lenders familiar with your industry. As your company is in the unusual position of having pipeline CONFIDENTIAL FSC-000022153 5b4ae54b-7fc 14719-ba 75-b5Bc071 cdf69 Mr. Schilling and Ms. MacLean A4t~f*'~<-cc.\p;.1)..._, 20 I 0 Page2 product and contractual commitments for product publishing and distribution, but as yet is "pre revenue", we recognize the market for these l7:::,~~:::~y;;;,~;-;\.~\i:~ would be limited without credit enhancement Accordingly, we would ' a~·~"''''''hl--fb. the Rhode Island General Assembly, which ... i~::It~f.JAETJMH.i.~.~,~- the RIEDC .\ro·)g:J.iM.:!!.[]t\:.\Lti1.\C..i'Ii.!!:E!J.!.J.>:f{ I,JY..r.rtfill bondholders, thereby creating for this issue guaranty for the bondholder(s)._+··-!i•',.;,;--i'tl''""smreflect the following terms and conditions and parameters all of which will be more fully articulat~ in lHt~- -.;~-%~1Ni..t>~~&~-. ..,,h %%• ·+~'@\'» . -~ ... --~::~::~fl~tb>-.. '• ., = .. Purpose: For all ass.Tib~~·~" expen~!t~!!!;,\t~~6 6p~~pp.s, product development and deployment by 38 Sfu,\&Jn conj"Bfion with'lpdsiness development and expansion in Rhode :d~~milibood-Terrn: N~-~able, !ikelf1~~fars \VilltiR.POrtion of capitalized interest in early year(s) with early recap"\J;;:.discussed ~t\· '\%\1@• Collateral: coll!if~l!Lassignmerit.ii all assets of company now owned and hereafter acquired includi~g but not i1ft!.h£, :o int;jJtual property, licenses, licen~ing fees, dist~ibution and . publishing contracts, t•,li,~B~~~flhd work product. _We recogmzeth~t ~portion of t~e company's assets are helll;ii@~l1¢Vlholly owned subsidiary, the ownership mterest of which will be pledged to the RIEDC, and't!l'at such assets are otherwise currently pledged in connection with the publishing agreement with Electronic Arts and currently are unavailable as collateral for this credit facility, but such assets will be pledged as collateral for this credit facility upon completion and publication of the company's console phase of the project when such assets are no longer collateralizing the aforesaid publishing agreement. State Guaranty Fee: Initial fee of one half percent (1/2%) payable at closing at closing ($375,000) and one and one half percent (1.5%) ($1, 125,000) ofloan amount annually payable on the loan closing anniversary. CONFIDENTIAL FSC-000022154 5b4ae54b-7fc 1-4?(9-ba7 5-b 5Bc071 cdf69 Equity and Dividend Covenants: During the term of the loan, Mr. Schilling shall maintain no less than an amount equal to $15,000,000 of equity in the company, and equity or earnings distributions to members shall be limited to a coverage ratio formula to be agreed upon by the RIEDC and the company prior to closing. Mr. Schilling and Ms. MacLean ''4'""4~;\nrAL~ 201 o Page3 (a) The debt would not be assignable or assu.Y: with9]1J;:il~nder conS~:!> (b) Recapture or early payment ~R;\tld be madi~,,rlf~·~;earnings shoil1~l!JHTDA exceed a base formula to be agreed -1!JJ;,the partJ.eS"P,qf:t•to closmg; ·· . (c) A percentage of the funds ava'il~'b'1~11l!m (b) above~~[! be used by 38 Studws to establish an investment fund to]tgyi3ll\!i~papital afi~~Jher investment vehicles to ~acilit~te th~ dev~/-&PJ~~~t of the \li~r? gaffi.1l!; 1~_igitaN~j(~ industry_ in Rhode Island m conJunctwn•••~Ti1/i~~am to be;~ye~OjiU~J,'9itt%-~et~_38 Studws and th_e RIEDC, the \I!VC be£hg:!\lltttled to'l!i¥m!ilillesigi\(g the mvestment committee of such fund; \\~tf~~1» i~1~~~L .,,_~~~f{@if"'. _~vt~v (d) 38 Studios willl'h:.its cgliJl!~r_ate head~1£ters and its principal place of business in Rhq4~~~lan{l; ~~B1@>AiLk®~tJl~~h~®:- . -4®'~&- (e). 3,1~§J'ffl6§'-~·wovide~J~:.·rulltiffi~:J;:g_:k.~.wr@:an average annual wage of approximately ti$7#.'000 (""Job'S'· IT'~ •Rhodif!Q!and 31 ' 2010 ' \~'1:::-.,1::':. ' -.;-~;<::::., '~:-::::::.}>>:- by I)'i;\tJli!ftber ·-·=:=:}-' (f) :lli§tudios will adll.\ffib.addifi()i@tJ 175 jobs m Rhode Island by December 31, 2011; (g) 3S~~ios will add ~J~~,diti~h!\~t\~~ jobs in _Rhode Island by December 31, 2012; Studws faill@j!lleet arty'j'obs reqmrements, 1t shall pay to the RIEDC an (h) Shoult!t~J§, ·.....,,.._,. ''W'' amount eq~~o $7,500 ~~;Year for each job not so added until such shortfall is cured; and --'-\i-~%:.r:;~D (i) 38 Studios witlf't)l,&i~~~~1o and annually ~ereafter during the term of the loan audited financial statemen~slf!fl!flnclude a certification that the borrower has met the requirements of (e),"{£) and (g) above and certifying the calculations required in (b) and (c) above. G) 38 Studios will develop internship programs for students at Rhode Island design and educational institutions pursuant to programs and policies to be agreed upon with such institutions. Conditions Precedent: Conditions to closing the loan will include standard documentation and legal requirements typical oftransactions of this size and scope and: CONFIDENTIAL FSC-000022155 5b4a e54b-7rc 1-4 7f9-=ba 7 5-b58c071 cdf69 . 411il~'\> Mr. Schilling and Ms. MacLean ~41ifi~h·'i'1miL_. 201 o ·:::::'W·-·~"-.:·,:::.·.··-- Page4 4{~', ~,,~pfan a qualified':&.PBml!Milteiopment analysis .· . . of the cd. .:W'f's location to and growth in Rhode :.:::·:... · ~\1f~1t~,. the~Rany's financial projections; 'p~~rs such as EA; and any .. . · thei'&linpany· .,.. ' RilEDC Board of Directors for and documentation reflecting the typical of a transaction of this size contacts and identifying necessary to the loan. (i.i}···:fk~-B-H·d.HYi-~,J),e.l\;*.~h~lr.).HYeH·t~-:P.-H:.~~~'h-;i"1ltNt;-: .. .".f.h-e-J\:JE}}(;:.+lt&j'·-\1~i~~Hfrh~·4iN.~·-clt~v-&k"l:>}~l"fi.~l~·-8.f ~%'\"T.~"":h:H·.l}"-~:'S-~~·N~k~;,.~n-H:.ITJ+\*-~~nt?i~HB#~H-·~t-1(l-·i't~*-'~hlfHl4·fN~·H:fH~~€8-t~~~~f.-t:h-&-·PJ::EQ.f.;:;· H~BH·li~:~~g·i'f-l.··::b.i·1l~~~~tFSf;}HN.~tl~S··h:t·th·&·~;:(:lHtp£tB·)-'-·:f.tt.!:·-s·nJ~~-~--h~~:-}-~·H~fi-:if:··~:f."!HH-I';~etf-;:-}H··~\'~ih·-t-h~.-:~ tJNf~lhf:!:B--\l··e.f4.N.ti+-t;J~Hg··Fl'Hl~~~i!l.:i.~:.:l-&,:··fFE·fiH.~1-·::.?:--\~IHpdt>t~f:~:;··i."t.~~d.·-\W.j_~3ff:WH.-t.~Hi··f~W·H~f·.~·fH··}thf~di~ -ltlf~.ttB:; fh}·Ji.:Ji-; ..J':FH1HfHg··GH1Ht.5··&.lh4·{-::·H.~~i{N·(~}:f&~i'W-l-i:Hbl··ttf!··kt·£&/}i~\$.-;~t&l:·y~Hf··~~:·t~.m-~1-htyt~}-~f{.-~% 1-Hf.H~h~!-,~~\'fti-J-a~t_}}_t_!·'.i.-fY·th-e··0i.:;H1pi:.;:ny;· CONFIDENTIAL FSC-000022156 5b4ae54b-7 fc1-47f9-ba 7 5-b 5Bc071 cdf69 f..:.:.l}--JHl::~5--~t)e\·"-~>l:':.~H~~fH·:,;:(:''t:·H~t:!HX.lt;~{"tt1-S··i-B··ihb·{lf*PB:FHif}··hfN:··t'S{~-{~J--fl-p-·tH·{:>-B·0--qH&Fk~1:·{·3f--f:}H~~~ J':!{~'i.'+Ht.f:~·{tE-:t4\~}·li:·'-·'-~-}~l ..ih~·HNN.k~ {~:.fti~t:J~}&f0'-+h&-e,.0H_-~pR·H·.)~t~~~{J {-t-4}-~·\-~··Ht~tlf~~~~-l*\··H~l--dti1-t~f--H7~~i~l-{1~-~tH~~H-:t--i·l~el{~l1f~·t:~H--t}tH1··H;,~~~·ttH'l4~.li·+t~·tit~~-0-:3tl1f10Hy··\-\'~l-l-·bs a,Y'~tf_ftthk""'·h.+ft{~l:Wh·t.l~-R-l~:J).:ht_~:--tw~~rJfts}: Mr. Schilling and Ms. MacLean \hlfvh~"~\n.dL_, 2010 Page 5 J?Jttl>· , ,fkr New Industry Incenttves '•tif''lh ~::-= -~\t~Th . _ ..-,·t~b%tl{fuittb=--- ··=~¢,fr> We think your comp~fuiid h§'afili:duct develhh.n!l)li:mcep~.> ..~e exciting and aligned with our '='~~~? ~--,·-::;.•. -~:-:::-·-<:-' .,_,'7.;$· economic developmiffil;;~$pttegies.1j\Ve think 3'$~J[ji"tlios will bt!'ii strong corporate citizen for Rhode Island and that Y'&i!Li\¥ill be Pl!!wlarly W'll~me here for the foundation for your many excitin~••;fi~,~~,~J;~.~d~~1!R1tl"·~l!i",\~\t Shoulqj~tl"agree and'!< us ttil~wmence tm!]tllocess of obtaining the approvals for the issuan2t\i~it~e bonds an1l:t!!~{;~o~b"~~~velopmtmt incentives, please indicate so by signing Chairman of the Board """' Keith W. Stokes, Executive Director CONFIDENTIAL FSC-000022157 5b4ae54b-7fc 1-47f9-ba7 5-b58c 071 cdf69 Mr. Schilling and Ms. MacLean ~\4·n~n:.h...!.1t?I~L~, 20 10 Page6 3 8 Studios LLC By:--------------'8~"0. Its: 529694.6 {j'i:;tlf\t'\; ~7~~ .,., " p~ : ._:;: :j..:x,..,, ~--~--w ,~ .:::.f-h..... ,.....,~, ~~· \+~:~ 1 " 1:~4:::-. A(m::: ,~i··,hA%i~t.L.!-~'*f.'.t :,·.:~.:·.~·;=~p vz~\7-~y CONFIDENTIAL FSC-000022158