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AFFIDAVIT OF DONALD L. CARCIERI
Donald L. Carcieri, being duly sworn, states as follows:
I. In my capacity as Governor of Rhode Island during 2010, I served as the
Chairman of the Board of Directors of the Rhode Island Economic Development Corporation
("EDC").
2. In that capacity, I was present at the July 26, 2010 EDC Board meeting, at which
the Board passed the resolution attached hereto as Exhibit 1 (the "Resolution"), a draft of which
had been provided to me and which I had reviewed prior to the meeting.
3. I understood based on Exhibit A to the Resolution and the presentation and
representations by the staff of the EDC that the proceeds of the EDC loan authorized by the
Resolution, together with other cash available or to become available to 38 Studios, as set forth
in the 38 Studios financial projections, would be sufficient to fund the so-called MMOG game
(Project Copernicus) to completion. At no time prior to or during the July 26,2010 meeting did I
receive any information to the contrary.
4. I also reviewed and relied upon a July 22,2010 memorandum that I received from
the EDC's Executive Director, Keith W. Stokes, a true copy of which is attached hereto as
Exhibit 2.
Donald L. Carcieri
\~ Subscribed and sworn to before me this 3 day of October, 2012. Notaryrf::C ({~. ~G·FUND&as ,.. ""''I"IU"PIIJUcOF- '""" aa. I • -~~~AND My Commission Expires: _, ....ea.. ,, bi&ptaflniiGDfa
# 50934297 '
RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION RESOLUTION AUTHORIZING THE ISSUANCE AND SALE OF JOB GUARANTY PROGRAM TAXABLE REVENUE BONI)S {38 STUDIOS, LLC PROJECT), SERIES ZOlt
WHEREAS, the Rhode Island Economic Development Corporation (the "Issuer") was constituted as a public oorporation and pubHc Instrumentality of the State of Rhode Island ("State'') pursuant to the provisions of Chapter 64 ofTitle42 ofthe General Laws of Rhode Island, I956 (2006 Rcenactmeot) as ameodod (the "Act'') and is authorized pursuant to the Act (i) to undertake the planning, development, construction, financing, management and operation of any project, including all activities In relation thereto, (ii) to enter Into agreements ofleaso, conditional salea contracts, loan agreements, mortgages, eonstruclloa eoatracts, operation contracts and other contracts and instruments entered into to finance its proj~ {iii) to son, mortgage, ~change, trans &It or otherwise dispose of any or all ofits projocta and properties, and (iv) to issue its negotiable bonds and notes for the purpose of providing funds to pay all or any part ofthe cost of any proje.ct or for the purpose of refunding any bonds tb.eretoforo issued and to mortgage and pledge any of its projocta or partS thereof as security for suc:h bonds; and
WHEREAS, in order to finance the establishment of a video gaming studio in the State, including, but not llinited to, the development of assets associated with role playing video gaming and multi-media online games, including the dovelopment of specific products and intellectual property to be used for such purposes for the benefit of 38 Studios, LLC (the "Obligor") (the "Project") the Issuer desires to issue its $75,000,000 Rhode Island Economic Development Corporation Job Creation Ousranty Progrlllll Taxable Revenue Bonds (38 Studios, LLC Project), Series 2010 (the "Bonds"), all as more specifically set forth in a Loan and Ttust t.greemeot_ to be. en~ into by and among Obligor, Issuer and a Trustee to be designated by the Issuer; and ----· · ·------·------·-----· --·--
WHEREAS, pursuent to tho Jobs Creation Guaranty Program, 118 hereinafter defined, the Issuer is authorized snd empowered to guaranty payments for the Bonds issued for lhe Project and the Issuer will issue a guaranty sccmred by a capital reserve fund for such bonds 118 hereinafter specified; and
WHEREAS, the financing of the Project i.• an authorized project <•n.-ler the Act: and
WHEREAS,I:ho IsS\Ier ha.s made all of the findings required by§ 42-64-10 oflhe General Laws of Rhode Island, 1956 (2006 Reenactment), as amended a.s to the Project; and
WHEREAS, the Issuer shall prior to the issuance of the Bonds,oomplete and release the analysis specified by § 42-64-1 0(2); snd
WHEREAS, the Issuer is now desirous ofproceeding with the proposed financing of the Projcet; and
WHEREAS, the Issuer intends to sell the Bonds to the underwriter or underwriters as specified at this meeting (the "Underwrlter'1 or to privately place the Bonds, upon such terms and condltiona 88 any Authorized Representative m&y deterinine in his/her sole dl5CI'etion, pursU811t to a Bond Purchase Agreement or Private Plarcmmt Agreement (aa herein defined) and, if required, to distribute in conuectfon therewith a Preliminary Oflicial Statement, Official Statement or Private Placement Memorand11111, 88 provided below; and
WHEREAS, there shall be prepared and submitted on behalf of' the Issuer, a lbnn of Loan and Trust Agreement substantially incorporating the provisions of Exhibit A attached hereto, and made a part hereof and hereby incozporated by reference herein ("Exhibit A"); and
WHEREAS, there shall be prepared for and delivered by the Issuer and the other parties thereto fonna of:
(a) a Loan and Trust Agreement; (b) a Prolim!Dary Offieial Statement (In the event the Bonds are publicly offered); (c) a Final Oflieial Statement (in the event the Bonds are publicly offered) or a Private Placemem Memorandum; (d) the Bond l'uidl88e Agreement or Private Placement Agreement or Investor Letter; (c) such other instruments and doCliiDlents 88 the Executive Direetor of the Issuer with the advice of Legal Counsel shall deem appropriate or desirable; and
WHEREAS, all of the foregoing doCliiDlents referenced In {a) through (e) above shall be in substantial conformity with and shall incorporate the provisions ofExbibit A attaehed hereto.
NOW, THEREFORE, be it resolved by the Rhode Island Economie Development Corporation ss follows:
Section 1. It bas been fOund and determined that:
(a) The acquisition, undertaking, c:arrying out and operation of the Projeet will prevent, eliminate or reduee unemployment or underemployment in the State and will generally benefit economic development ofthe State; and
(b) That adequate provision has been made or will be made for the payment of the cost of the construetion, rehab.ilitatlon, operation and maintenance and "PUql oftbe Project; and
(c) The Projeet and the Premises are in eonformity with the applicable provisions of Chapter 23 ofTiUe 46, to the extent applicable; and
(d) The Project is in cOnformity with the applicable provisions of tbe State Guide Plan.
Section 2. A Loan and Trust Agreement, to be entered into by the Issuer, to be substantially in conformity with and to substantially incorporate the provisions of Exhibit A, is hereby approved, witb such changes, insertions and omissions as may be approved by any
2 Authorized Representative (as herolnafter defined). An.y Authorized Representative, acting singly, is hereby authorized to execute, aclcnowledge and deliver the Loan and Trost Agreement with such changes, insertions and omissions as may be approved by such Authorized Representative, including. without limitation, the establishment of various resetve IWCOIIIIts and funds thereunder.
Section 3. The Issuer acting through its Authorized Representative shall appoint a Trusteo baaed on receipt of bids for such engagement as Trustee.
Section 4. To acoomplish the putpOses of the Act and to provide for the financing of tho Project, the issuance of the Bonds Is hereby authorized, subject to the provisions of this Resolution and the aforesaid Loan and Trust Agreement. The Bonds shall be dated as provided in the Loan and Trust A8J'CCIIlellt, shall be in the aggregate principal amount of up to $15,000,000 and shall be issued as fully registered bonds, unless otherwise dotermined by any Authorized Representative. The Bonds shall mature, bear interest, be subject to redemption prior to maturity and bear such other tennt aa set torth in the Loan and Trust Agreement consistent with Exhibit A. The fonn of the Bonds. and theproviaious for signatures, authentication, paYilleot, prepayment and nwnber ahall be set forth In the Loan and Trust Agreoment.
Section 5, The Bonds shall bo special revenue obligations of the Issuer payable solely from the revenues pledged therefore pursuant to the Loan and Trust Agreement. Neither tho State nor any 1111111icipality or political subdivision thereof(other than the Issuer) shall be obligated to pay the prino!pal of, premium, if any, or interest on the Bondll except as hereinafter authorized and as permitted pursuant to Chapter 026 and Chapter 029 of the Public Laws of 2010 (also known as H8158, as amended and S2923, as amended) (the "Jobs Creation Guaranty Program', • Neither the faith and credit nor the taxing or taking power of the State or any municipality or political subdivision thereof shall be pled pel to the payment of tho principal of, premium, ifany, or Interest on the Bonds.
Section 6. The execution and delivery of a Bond Purchase Agreoment or a Private Placement Agreement or an Investor Letter as appropriate, is hereby authorized. The Bond Purc;hase Agreement or Private Placement Agreement or Investor Letter shall be in substantial conformity and substantially inoorporate relevant provisions ofExln"bit A, with such changes, Insertions and omissions as may be approved by auy Authorized Representative (the "Bond PurcbeKe Agreemenr'). Each Authorized ReptllSentative, acting singly, b hereby indivlduslly authorized to negotiate, execute and acknowledge the Bond Purchase Agreement, or Private Placement Agreement or Investor Letter and attest the same. The execution of the Bond Purchase Agreement by any Authorized Representative sbsll be conclusive evidence of such approval.
Sec:tion 7. The Bonds are hereby authorized to be sold as shall be provided in the aforesaid Bond Purchase Agreement or Private Placement Agreement or InvestOr Letter. The Authorized Representatives are each hereby individually authorized to reduce the principal amount of the Bonds to be sold and to alter the maturity date (but in no event to exceed 20 years from date of issuance) and prepayment provisions and to alter ternlll of the Bonds to make the Bonds confunn to the Bond Purchase Agreement, Private Placement Agreement or Investor
3 Letter and tho Loan and Trust Agreement, as each may be amended. Tho maximum interest rate on the: Bonds shall be eight percent (8.00%) per annum. The Bonds shall be executed in the manner provided in the Loan and Trust Agreement and tho Authorized Representative of the Issuer IIIli hereby authorized and directed to execute the same and the same shall be delivered as required by the Bond Purchase Agreement, Private Placement Agreement or Investor Letter.
Section 8. Any assigrunent to the Trustee of the Bond of the Issuer's interest In certain revonues, receipts, funds, moneys and other property in tho Loan snd Trust Agreement (as the same may be amcmded) is hereby authorized and approved and any Authorized Representative is hereby authorized to execute and deliver all documents nccossary to give effect to such assignment.
Section 9, The lsllllet' hereby approves and authorizes the distribution of a Preliminary Official Statement, Final Official Statement or Private Placoment Memorandum, to the extent the Authorized Represcntativo deems appropriate, and relating to thc issuance of tho Bonds substantially in conformity with tho provisions of Exhibit A, with such amendments, supplements, changes and Insertions thereto as may be· approved by any Authorized R.Cipreseotativo In COIUlection with the issuance of the Bonda coosistent with tho provisions of tho Loan and Trust Agrucment and in acoordanco with applicable legal requirements. Any Authorized Reprcaontative is hereby authorized, empowered and dlrec:ted to execute one or more final Official Statements to be delivered to the Underwriter. Any such approval ahal1 be conclusively evidenced by such Authorized Representative's execution and deliVery of tho Official Statement.
Section 10. All covonants, stipulations, obligations and agreements of tho Issuer contained in this Resolution, the Loan and Tru3t Agreemont, tho Bond Purchase Agreemont, the Private Placemont Memorandum and any Preliminary or Final Official Statemertts of the Issuer shall be deemed the covenants, stipulations, obligations and agreements of the Issuer to the full oxtent authorized or permitted by law, and such covenants, stipulations, obligations and agroemenlll shall be binding upon any board or body to which any powers or agreements shall be transferred by or In accordance with law. Bxcept as otherwise provided In this Resolution, all rights, powers and privileges conferred and duties and liabilities imposed upon thc Issuer or the members thereof by the provisions of this Resolution, the Loan and Trust Agreemont, the Bond Purchase Agreement, the Private Placcmont Memorandum shall be exercised or performed by the Issuer or by such membt'JIS, officers,. board or body as may be required by law to e:terci5e such powers a11d perfoan such duties.
Section 11. The Authorized Representatives, acting singly, are each hereby autho~ed to pay costs relating to the issuance of tho Bonds, if any, (including providing such funds as may be required by the national credit rating agencies) from the proceeds of the isauance ofthe Bonds.
Section 12. The Isauer agrees to issue a guaranty incident to the issuance of the Bonds, to the extent permitted under the Jobs Creation Guaranty Program, whereby a Capital Reserve Fund will be established under the Loan and Trust Agreement and, consistent with the Jobs Creation Guaranty Program, thc Exocutive Director of the Iss1.1et shall81UIU8lly on December I of each year, make and deliver to the Oovcrnor of the State a certificate stating the minimwn amount, if
4 any, required for the Issuer to make payments on the Bonds and to replenish the Capital Reserve Fund and to request the Governor to include such amount in the Governor's State budget.
Sedion 13. Each of the Officers of the Issuer arc hereby further individually authorized and directed to proceed to CIIUSC the pnx:c:eds of the sale of the Bonds to be distributed to fund the Project or otherwise as specified In the Loan and Trust Agreement.
Section 14. The Executive Director, any Deputy Director, TreaiiUI'er, Secretmy, Assistant Secretary, Chainnan and Vice-Chainnan, (the ..Authorizecl Representatives'') of the Issuer arc each, acting singly, hereby individually alllhorized. empowered and directecllo sclec:t all fiduciaries under the Loan and Trust Agreement; and together with any other prop• officers or agents of the Issuer, to execute and deliver any and all papas, instrumiCilts, agreements, opinions, certificates, affidavits and any other documents and to do and CllllliO to be done any and all acts and thingS 11ecessary or proper for QIIITYfng out this Resolution, the Loan and Trust Agreement, tho Bond Purchase Agreement and the Private Placement Memorandum. tho sale of tho Bonds and. any Prollmlnsry or Final Official Statement of the Issuer In the ISSU&Dce of tho Bonds, including, without limitation, giving all required notlcos and conducting all necessary hearings in connection with the iS81111Dce ofthe Bonds.
Section 1S. The Authorized Representatives are each, acting singly, hereby individually authorized, empowered and directed to talco such other actions as they deem necessary, desirable or prudent to effectuate tho purposes of this Resolution and the issuance of the Bonds and to execute and deliver my and all papers, documents or instruments said Authorized Representatives, acting singly, deem appiopriate to~ iasuance of the Bonds, including, but not limited to, a Continuing Disclosure Agreement.
Section 16. This Resolution shall be effective upon its adoption and shall expire within one year ofthe date of the adoption of this Resolution unless the Bonds are issued prior to that date.
Adopted: July 26, 2010.
s Q:\DATAIWPDATAIRIEDC\ll Studios Boado 201a.Finol Appnolol Rclobltioo(Ciaa)1.26.doc:x
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6 State of Bhoda Iat...d """ Plo.~idecca Pt...tatl 1uly26, 2010 Mr. Curt SdUilln& CllaiDnln 38 Studioo, LLC 5 Clock Tower Place, Suite 140 Mayaanl, MA 01754 M1. Jea Mad.eaa, CEO 38 Sllldloa, LLC S Cloet Tower Place, Suit. 140 Mayaanl, MA 01754 Re: 38 SIUdloaiRhode IaluJd I Dear Mr. Sobilllns and Ma. MacLean: I We are pleued to prcoae.at lhil outllno oftemll and OO!ldltlons based 011 our ongoing clilovasiOliS l punuant to which tbo Rhode JaJamlBc:ollomill Development Corporalioa ("RRBDC") wiD lsaue ·, booda Ill We appreciate !be valae your OOJIIIIIIRY bringl in bclplq Rhodo Island expand ill video pmlng and interactive lfi&ital media industry. We have bell1 impmsed with your compaa)l'a management team 8lld tho indwltry partners and 'risioDaries cunenlly workina with 38 Studios on its pmcs in development. Wo vlow 38 Studios as allgaing perfectly with other key Rhode Tslmd lawwledgo ecoaomy aiBeiii!W will help as accolemte blgb wap job growth. We undomand your capital needs to bring projeo:t Copemicus to comptcticn !~ set forth herein and required legal proocduRa, tho RIBDC is wilting to lssao $75,000,000 ofnwenuo bonds pumullllt to ill nawly cmted Jobs Croaliou Guannty Program, tbc net proceeds of which would provide the ncccssuy linonclag to relocate 38 Studios to Rhoda lalaad, complete production ofCopcmfCUJ, snd copitallze the company'• growth and oxpansion in Rhode r.liUld. Wo anlicipato that boads would bo 111ldcrwritten or priYalely placed by a securities .firm or firms selected by tho RJEDC. Aa yoar company iJ in tho position of having pipeline prodllct and contnctul commitmeals fol' prodUGt publlsbhtc and diatriblllion, but as yet is "pre-revenuo", we reeoamza the market for thee bondl would bo !lmir.l without mdll mhmocment. Acconllngly, we would ut!Hze our statutory lllllbodty to Issue boDda with a capital mcnre memonlsm by whicb the General Aalembly must consider oa 111 aanual baala tlmdlnJ 111y shortfall ofany debt service paymentsnaceasary to pay tho bondholdcra, thereby creat!Pg 6>r lhil IIISIIII what ill commouly called • ''moral obUpllod' peranty for tho bondbolclCI{J). Tho moral obligadon lllellhmiiiD II reflected Ia tho lliBDC't caabllns loi!lbldon aad tho nsolutloM of the ICJblaturo authorizina the RlBDC Ia 8lltll' Into tbeu types of obliged- Tbat lesisladcna IIIIi tho related llllhorizlns reaolutiODI requiJe the C3ovaaor to ~ Ia tho loglalatute by 11111111r)' of every )'ell" a budpt n:qucat fbt tht tepJiaturo to appcvpdale Ia tbe lbllowins lleoal yar'a budpt any short&ll on debt ICI'Yioo that otbawi11 Ill not adequately mcrved by the IUBDC. The boud docUII1CIItl would reftect the followlnaterma and c:ondillolliiiDd bo aubjcot to tho followina gcneralpllliiiiiCim lllld aU ofwbioh aruubjec:t to aad OOIIdltloaed upo11 a PiDa1 Alllltorlzina !Wolulion approvod by the RIBDC bollld that includea aU JiDa1 agreed upoa terms and OODditiDDL rn additiou all bond documonlatiOD 1111111 be aatle&elol)' Ia RIBDC aod tho comp111y Ia their sole cllacrotlon prior Ia aay bond cJoelna: Bomnver (1): 38 Shldiotmd my aft!Hatea oreubridlariea ncceiSir)' to I8CUft a lint posllionla all tbe oompmy's meta (aoe collaleral more lblly ~ below). AI tho di11Ct811on of the RmDC, aueh aftlllalel and lllbsldilllin may aGt u guaranl0!8 of the bonda l8tbcr !ban u co-boaowen. Amlllllll: $7,,000,000 . Bond Net Proceode D!lbiUIOIIlen! Sc:bdulo: The oot procllodeliom tho iDuiiiiCC otlha bondt wiU bo released to the contp811y upoa. tho lbllowina schcdnlo in conjUDC!Ion with the ref'erenood economic devalopmeo1 milastouea IDd ccmpllmco with tho bond dacwncnll: a) Upon the cloaing oatlmatocl to bo by Aupat 31, 2010 (should any dolayl in lho closlna occur, the plltiea lllliclpato tho ealimated taraot dates wiD bo adjusted accordinglY): $15,000,000. b) Upoa the public IIIIIOuncemont by tho company ofa relocatiall date to Rbcxle Ialaad estlmatocl to be by Nuvvm&cr 30, 2010: $10,000,000. c) Upoa tho rotocatlon o!tbo compaa.y'1 hoedquadcra and camnt project Coporrdcua stwllo to Rhode Islaad, and the creation of at leut 80 Pull Time Joba to. Rhode Jslaad, esttma~ to b" by Pebnutry 28, 2011 (such ~t~lcc:aticm elate being auhjoot ~ (i) a cloaina by Auguat 31, 2010; (il) the relocation oftho contp811y'a helllllluar:tors and studio to Rbodo Ialand ccc:urrlni within lix montbJ of tho closing; and (iii) the company may cxtond 111ch ~location by tM:c periods of 30 daya each due to dolays in landlord.' 1 completion of the compmy's new ofllces, with each IUCb extcDJion, the admlniBtrative approval oflhe lUBDC which approval shall not bo llllftlll01lllbly wilhhold or dola)IM): $20,000,000, d) Upon the creation by tho compaay ofm additional4' Pull 'rimco Jobs in Rhode [Bland eatlmated to bo Augu.st 31,2011: $S,OOO,OOO. c) l1po111ho entry by tho c:ompany inlo a aatblllctory dlatributloa apecment for ita Projec:t Copcmious estimated to bo by Nowmbor 30. 201 t: $5,000,000. f) Upon thureadoa by tho company orat least auddldoaal 125 Full Tlmo Jobs in Rhode Island utimated to be by Dclca!nber31, 2011: tho balance of the net proceeds. "Pull Time Jobs" shaU mean "MI time joba with bonclita" aa do!incd In RIGL 42-154-20(d)(2); [110\'idcd tbat the avorago annual wqo 1lll C!'lllifyiq Ml limo joba abal1 be no len Ibm $67,500, Purpow. .l!xpcuolrelaiDd to rolollalion IIIII e~~pllllion or corporate of!lce IIIII aU llud1o opcralioDI to Rhodlllallmd 8lld lbr aU anoclalod ~ OIJMIIHI related to prodact dovolopmellt IIIII dcploymeat by 38 Studloa Ia coqjunotloa with Ill video 11111081n developmcat Rate: Manet lbr bond iliiiiU of tb11 type aa negotiated wtth bond pmehaaer 11114 otherwise acceptable to each of the RIBDC 8lld tho compul)l In tbalt solo and abaolulc discretion. Term: Not to exGeOd 10 yean. Amortization: Not to exceed 20 yom. Collateral: liret soourlty lntoroat and collatenl utignmat of aU 11111ct1 of company now ownod 11114 hereaftez acqulmt ineludiaa but not llmitaclto lntelloctual property, lkeasea, !lcellllq fee~, dllltrlbutlun wl publlahlng contnc11, rccemblar, equipment, hardware wl aoftwam ami work product We rocoguf:ze theta porilon of lhD oampany'1 lllllU are hold In a wholly owned subsidiary, the ownetlldp latarea ofwllich wtU be pledged to tbe lUBDC, ancl. ~such aaeota are otherwise ourrently pledpdln OIIIIIICClloa with the publiJbllla aanemem I with Blectnmict Arts (BA) and camatly areuaavailablo ae c:ollallnllbr lhll boad f!naacin& but f slll'h III8GtJ will bo pledaecf as subonllnalo c:ollllerallllr thll bond flnanclna lad upo11 completfoo i of tbo RA publlshJni ....,__t lUBDCwtU step into a lint aecurecl position oa du:ae 118101& ' Tho RIBDC will re1180118bly COIIIidor roqueat1 of the C0111J1811Y to lubordinallllta collalezal I potition to routino and ordinary couno ofbuainoae equipment loaeell IIIII purchuct monoy tilliiDCinp sc:cumlaolely by tho eqllipment ao financed. State Guanm1y Jleo: Initial fl:t ofone halfpen:ent (til%) payable at cloablg at closina ($315,000) and ana and ono hallpen:cnt {1.5%) 11111111ally of tho outslallding boud baiiiiiCO miDue tho principal balaoce of the Ballaon Payment AcCilUI!t clotinod below payable on tho boad closinjlannivmazy. De!emd Poo: Startiq In fiscal yc:sr 2014, based Upoll the company's illldited OAAP rmaucial statemoata of !be prior fiscal yoar (2013 ), tho Company sbaU pay annually a dctftrrcd fes equal to 25% a!its Excess Operallng Cncome, ae delinctd below, up to aa amoUDt not to exceed SM miUian par year until an aggregate de(am:d Cce amollllt of$U,2SO.OOO baa been paid. Ifthe SIS million aasrcgafll dcfbmd reo has not been achieved by the company's fiecal yct~tcnd2017, tho agsroaatodofemd fee shaD ba hlcreased to 518,800,000. &!tho liVelli tho dcfemd fee baa not boon paid in lUll when tho bonds become due, them tbo unpaid balance or the defemd fee aball be duo wheo the bonds become due atgardleal of lhc company' a Sxcau OJICZ'IIini lncom.. "Bxceu Operatina Incomo" shall be tile fiscal year opll'lting iDcome of tho Company aa contained in ila audited OAAP ftll&lllri&l atafemenllleaalho 1IIC8l ,eer opcmtdug· incomo t'or tho ume porlod contalned In the Company'• six year flnanDfal projcclloll1\lrnilhod RmDC (which sball be elthor attacbed to the bond docameota or olhorwlao aclequa!ldy deecribecl th=in.bosed upon 38 Studloa6 year Plan- ru-state LomView-DllAFl'-04.01.10}. DividcrldiiiiCI D!mibuUDDii IIICII!xcc11 Operatina Income not otherwlso Distributed: Tho compa~~y lhllil only 1IJaQ divldead paYJIIIIQII or other climlblllioalto cqlllty bolden out of Exceaa Equity 91bu!co Availabt. tbr DMdead or Dlstdbutloa to llqvlty llolcltn, ea dofiDed below, except Cor dlltributiODI to covar blaomo IIX rellted mauera of the equity holda. The oompany'a rcp~~Rbeae of oquity lntornta bllo 1M101J alocll: under a rlabt of Itrat retllu1 or otherwise shall be made only a.fter 18tfsfying tho M"tnb!una Bquity Requirement, u dctil1ed below,llllll shall: (1) bo msde ODly from Bxceu Opemllna lnCOIIID u dofiDed in lhe preoodina parapapb; (2) bo madD ODly IIIIer any cldmd l'cel owed to 1111 RlBDC puriiiGit to the prececlins paraanph a pilei; {3) not occur iD my mat wtttuasplllt to Mr. Schllllna'a or h1a Camil)"a equity or owntnlllp 1n1etat lo.lhe COIIIpiiiY, IIIIi (4) bo aubjoat to I1ICil other 11m11, ccmditkma IIIII tallrlotiOIIIea maybe IJII'IIIIIIllpllll bylbeJIIIII:Ia 11te dollar IID101Illloftbe "M"Illimum Equity Ractllhemml" ahaiiiiiCID tho Ol11llaadlna prillclpd balaaco oa IIIII bonda minulmy amollllla 101ervad in or plld Ill tho RIBDC to bo dodicllled 11o1 • balloon psymont alakl.lla tlmd .-ant eslllbllshecl with reapoct lo tll!.l paragraph and to bo lliOd Wbcn the bondl bCCOIIIO due (tho ''Balloon Payment Account''). Tho "l!xcea Bquity Belauce Available lbr Dlvidm!d or Dlstributiou to Bqwty Holden'' shaD mun that IIIIIOllllt calculated fi'OUI tho company' a GAAP llnaaa!alatatoatmtll md calculated u total equity contributioaa plua total additioaal paid-in-capital phil tho filcal yur 2011 8lld tbrward years IIIII01IIIlll recorded by the company to zelalned camlnp (lou) 1081 tbe Miaimum Equity Requirement. I! any paymeal oCtho I!xcau Equity Balance Available lbr Divldead or Distribulioa Ill Equity Holdm il paid out, it aball bo plld o~&t ea 50% of tile amount goins to equity boldan and SO% being plld to the RIBDC to bit placed in the Balloon Payment Account. In the evart that tho compeny don not cleclaze a divldtmd or make dietributtons but bu Bxceaa Equity Balance Available lbr Dividend or Dlatdbulion Ill Squity Holders, 1hea ZS% of 'Bneaa Equity Balmeo Available for Dlvldond or Dlatrlbullon llll!quily Holden shall bo depDlitcd In the Balloon Pll)'lllllllt Acco1111l. All euninp on the Ballooa Payment Account may bo 1IIOd by lbe company toward the lloxl amortized bond paymenl dlle !tom the COIIIp!!II.Y, IIICI tbe prirn:ipallhall accumulate and be applied toward tho balloon pa)I!IIDDl duo on tho bonds when they become dull. ln tho evml tho principal bai811C11 of tho Balloon Paymnt Account cquala the sum of all remaining pa)'111Cll1S due on tho bondl, at lha1 time, tho company may prepay the balance of tho deferred fee owed pursuant to the preceding paregraph at an amount disc:olllltcd to tho then presDDt value of tho balance of the deferred fee owed by the company to the RIEDC. ------ Specific: CoudltiollS and Covemnts: {a) Tho debt will not be llllipablooraaiiWilBblo without IUBDC COI!feut which will aot be uoreaaoaably wi~ct. {b) The bond docwnOIIIllabaU rctlect !bat 1ho company may Implement compcm~~alion , stratoJios conalateat wilh 1ho indull:y; provided llowcver lhat lilY compensation Ia any fumt paid by lhe company 10 .Mr. S;billlns shall bo lbr aarvieos rCIIIdmd, within industly norma and capped at II1IIOUIIIII to bo agrcod upon botw-.lha company and thelW!DC. {c) 'l'lul bcllld clollllllllllllllhall re1leot 1ho donlopment and lmplemeatadoa of a third PIIIV IUOIIitadJI&, npordDa lllll re.ponae pr:oceA resardlnl the dGVOicpmcat ~ebedulo aud budpt fbt project Copemlcaa to Ulllllelbat lhe company'• development of project Copmdcull'lllllalu oalb!le ml oa budsGI punuaat to coat&, tenna and condltioos ~tar)' to the partloa In lhelr aolo ll!ld abaoluto discretion. (d) 38 Studios wiU proYide 125 Full Time Job• iD Rbodo Island willdn twolvc (12) ll10111111 of'tho bond ~~ (the "olcaiD&"). (a) 38 Studio• will add anlddidonaii7S Full T!mo Jobt in Rhode Ialand widlln twenty low (24) month• ofIa oloaJDs, (t) 38 Sludioa wll ad4 all additloaallSO Full T!mo Jobe In Rhoda Wand willdn thirty-six (36) liiODtbl of tho oJorlns, (g) Sbould 38 Studlolldl to meet eay .PuU T!mo Jolla requimae.ah, it shall pay 10 tho RIBDC miDIDIIDt equal to $7,500 par year lbr oach FuU Time Job not 10 added until nob lbort&.lllll ClUed. I (b) 38 Studio& will piOV!de2010 and IIIDU&IIythoreafterdurlna: tho tenn of the boad a ' certification that the bonowc:rbD met lhe req,ulremalta of(d), (e) and (f) above IDd certifying the oalculatiou rcquhecl ill tbc Bquity llld Dlvid&md section above. AU such ~atiODI aball bo pertbnned by iadepqodont public aocolllltmtiiOlected by ! ~Y. ThoJu.BDCmayltthe.ws&llllll~o!tboCO!I1J!IPYhayuuaiL. __ _ ; --·· --·------·--- ' c 011iiiilliiid lij Ita illdopolldoat pat~Uo 110C01111t11nt1 (i) 3 8 Studioa win develop !ntwnslrip prosra-for atudeate at RhDdo Jalaad dealgn and educatiorlallnalitutiona pur8UIIIt to pmFJIIIII and pollcisto be apeod upan with 811Cb institutions. (j) Dllring the term of the bondl, and upanrelocatllla the company to Rluldoflland, 38 Studios sballllot relocate the campany or any substantial portion of!lll oparationa outaido ofRhode Ia land whic:ll wculcl be1111 event ordefaalt In whioh cue tho company's obllgationa with mpecl to the banda would bollOmo !mmedlafely dee 1111d payable, ineludiD.s without Umilalion any halanes due 10 tha bonda, aAV cost1 and exp-of tho RlBDC incumd with respect to the bonde that bavenot already hem reimbtnod or paid fOr, llld 8ll acce1ent1on of tha job pmalty £eea owed to the RlBDC purslll!lt to paragraph (g) ubovo ror lho baliiiCO of the term oftbo bondl. Condition~ Precwont: Condili011.1 to cloains lhe bonds will include doCU~JWntation and legal requirements typical of bond !l'allllaot!ona oCihia &izo and acopo lncludbtg but not limitod to completion ofsocurity and coiJBlorul duo d11lpnce and the miaw ofmaterial opCiatiag and pemmael coniiacta and policies oflho company and: (a) 'I'Iw ClliiClllfoiiiiiCl dol1vllry of an l!llbmlble 1-.!bt lhe complll)"a wpwat& o!!lcN IWl•ludlo openlloallll 1 poanplda 1oG81!DaiD ~ Jalm4llllllflctm7111 fllldl of tho 1UBDC md the CUIIIpllll¥ Ill dwk 10lellllllabeoblte dlaaretiDa, llllllll' .reDeclfqnllll ~-ble tcau IIIUI CIIJIIIIIIolll m11:-u- oflbe t»J• md nalum oftbe lUBDC'•IIIhmolas t.b mdlt lbr the 1111111J11111Y'• rolooiiiOIJ to lU!odlllalad (0.&. !mil. clcpaolt, niiO'll8l oplkiJw, coUIIIenl Ullgam.eat to lllaaa&'t leader pormllled, obi.). (b) The Mleollma ofblllld Wlllmwri!ln lll!dl« JDallaiOIII..ceptable Ia tho RJBDC. (o)PIDdAulborblqlteMiudoDidopteolbytllelUIIDCBo..tofDireolotl. (cl) At. !be llmeattlllll'IDIIAIIIbodl/uiJilelolulloa, aS1S,OOOdllpollt I• clu& 8lulul4 a ololfnBIIIIloaaarlbe dopolltwllllllrailmded ~~~~~~to tho 1UBDC .tbr any out ofp~~~~~p-. Upon lb. -llocoftho oxoco•tiOD llld dallvay of ddllotrer b7 both putloa, or tho odop1Lm by the RJBDC ofa Pklll Anlllorizlna 1\elolutlan, tblllctllr rolleaiiBa lbo pzopoaclllmll orlhe bOIId fiaaDoiDB mel ID JDIDaallon ot 38 Stwllot ra RfiOde Tllmld.lball aot belfllcuoaecl. J111801Wed or otherwlae utillzllcl by eltbor party blll!llo with tblrd pattie~ aad allsU ftiiiiiiiD aaaftdlaltal. Slncnly ,.,..... rev~ ~t~~w.stor.:... ·-·~ififctor- Daria Souza -rom: Penta, Sharon Jmporta nee: High Dear EDC Board Members, Attached please find a confidential memo regarding 38 Studios from Keith, which needs to be reviewed as soon as possible. As the memo states, please contact Keith directly with any questions or concerns. -ltankyou, .1aron Sharon Penta RIEDC Executive Assistant Rhodel~ This e-mail message may contain conridential information belonging to the sender. If you are not the Intended rec1p1ent, the aisclosure, disscmtnatlon, dtstribution, copytng, or use of the tnformation contained in th1s e-ma1l messa9e or any attachment is stnctly prohibited. If you are not the Intended redpient please not1fy the Rhode Island Econom,c DeVf"lopment Corporatton at 401.278.9100, and purge this e-mail from your computer system Immediately. ~======------~ Memorandum CONFIDENTIAL NEGOTIATION UPDATE/ THIS IS NOT PUBLIC RECORD To: RmDC Board of Directors From: Keith W. Stokes, Executive Director Date: July 22, 2010 Re: RIEDC/38 Studios At your July IS, 20 I 0 meeting, you authorized me to proceed with the execution and delivery of the proposed Term Letter between the RIEDC and 38 Studios, subject to some language adjustments regarding the calculation of jobs being added in Rhode Island and further subject to implementing either a completion bond or some type of satisfactory monitoring process to assure the on-time and on-budget completion of Project Copernicus (the MMOO game). We have conducted due diligence on the availability of completion bonds and associated completion bond monitoring of the development of MMOG games, and conducted a due diligence specifically with respect to 38 Studios and Project Copernicus. Unfortunately, a commercially available performance bond for an MMOO game does not exist in the marketplace. We discussed this matter with several sources and at length with International Film Guarantors, LLC ("!FG") the entity that guaranteed the completion of Project Mercury for 38 Studios in connection with the Electronic Arts, Inc./Big Huge Games transaction for 38 Studios with City National Bank . The reason a completion bond is not available for an MMOO game but is available for a specific console based game is primarily because ofthe time and investment required to develop an MMOO game. The longer lead time and the lack of industry experience in determining the exact variables associated with the timing of completion of an MMOO game creates risk for which the market has not yet developed a product for such guaranties. The good news is that IFG indicated that they believed that either they or other consultants could develop a protocol that will replicate to some reasonable degree a budget and development timeline monitoring and reporting system that could create appropriate safeguards for an investor or lender to accompany developing an MMOG game. With that in mind, we have modified the Term Letter reflecting that the deal will not close unless and until we have reached a satisfactory agreement with 38 Studios and a third·party monitoring entity on a cost and protocol for such monitoring. While we have not yet been able to outline the details of that monitoring, I am comfortable that we can develop something satisfactory in that ------~----·-· regard, or, in the alternative, I will not proceed to closing the transaction without consulting with you if such a mechanism cannot be achieved to our reasonable satisfaction. In light of this issue to some degree being unresolved, I ask that you call me as soon as possible if you have any concerns about proceeding on Monday, July 26, 2010 with the final authorizing resolutions. Should you desire to continue to proceed toward the authorizing resolutions on July 26, 2010, we anticipate the following to occur at the meeting in public session: I. I will give a brief background on the jobs creation guaranty program authorized by the General Assembly and a brief background on the opportunity presented by 38 Studies and the vi deogame industry. 2. Mike Saul will review briefly the terms and conditions of the transaction and the analysis presented to you over the course of the past couple of months leading to the resolutions presented to you authorizing the transaction. 3. Tony Afonso, bond counsel, will walk through the authorizing resolutions (attached to which will be the signed Term Letter). 4. Board discussion and consideration of the resolutions. Attached hereto for your review are the following documents: I. An updated Term Letter marked to reflect the changes from that which you reviewed on July 15,2010 (a clean copy of the Term Letter shall be Exhibit A to the authorizing resolutions you will consider on Monday). 2. A set of draft slides which we anticipate using in the public session presentation on Monday. 3. A draft of the authorizing resolutions (there may be some additional changes to this as a result of comments from underwriters and other lawyers, but we will identify any such changes for you prior to your consideration of them on Monday). As always, thank you for all of the hard work and diligent efforts you have exerted with respect to this transaction. Again, call me if you have any questions, comments or concerns with respect to proceeding on Monday, July 26, 2010. Otherwise, !look forward to seeing you on Monday and taking the next step toward implementing this exciting opportunity for Rhode Island. 2 S41696.l ·--·---~------..·-·--- July .g~ 2010 Draft RIEDC Letterhead July_. 2010 Mr. Curt Schilling, Chainnan 38Studios~ 5 Clock Tower Place, Suite 140 Maynard, MA OJ 754 Ms. Jen MacLean, CEO 38 Studios..!J.& 5 Clock Tower Place, Suite 140 Maynard, MA 01754 Re: 38 Studios/Rhode Island Dear Mr. Schilling and Ms. M~lCVI:ll We are pleased to present this outline >nditio1ns based on our ongoing discussions pursuant to which the Rhode Island Corporation (''RIEDC") will issue bonds and provide credit enhancement on LLC (hereafter "38 Studios'' or the "company") to assist 38 Studios reJ,ocati( business in Rhode Island. We appreciate the value your company brings Rhode Island expand its video gaming and media industry. We have with your company's industry partners and currently working with 38 Studios on its view 38 Studios as aligning perfectly with other key Rhode Island will help us accelerate high wage job growth. We undo~rsul bring project Copernicus to completion to be approximately $75,000,000. 1anclin9 to date of your financial projections, subject to the terms and nm""''- and required legal procedures, the RIEDC is willing to issue $75,000,000 to its newly created Jobs Creation Guaranty Program, the net proceeds of which the necessary financing to relocate 38 Studios to Rhode Island, complete produc:tioil Co·pen:lictas; and capitalize the 9Qmpany's growth and expansion in Rhode Island We anticipate that bonds would be underwritten or privately placed by a securities firm or finns selected by the RIEDC. As your company is in the position of having pipeline product and contract\}al commitments for product publishing and distribution, but as yet is "pre-revenue", we recognize the market for these bonds would be limited without credit enhancement. Accordingly, we would utilize our statutory authority to issue bonds with a capital reserve mechanism by which the General Assembly must consider on an annual basis funding any -· ·-·------~ shortfall of any debt service payments necessary to pay the bondholders, thereby creating for this issue what is commonly called a "moral obligation" guaranty for the bondholder(s). The moral obligation mechanism is reflected in the RIEDC's Cllllbling legislation and the resolutions of the legislature autborlzlng the RIEDe to enter into these types of obligations. That legislation and the related authoriW!g resolutions require the Governor to submit to the leafalatul'e by January of every year a budget request for the legislature to appropriate in the following t11oal year's budget any shortfall on debt service that otherwise is not adequately n:served by the RIBDC. The bond documents would reflect the following terms and conditions and be subject to the following general parameters and all of which are subject to and conditioned upon a Final Authorizing Resolution approved by the RIEDC board that includes all final agreed upon terms and conditions. In addltlon aU bond documentation must be satisfllctOJY to RJEDC and the cgmpany in fts..llair.sole discretion prior to any bond closing: AmolDlt: $75,000,000 ftom the lsllllllllCC of the conjunction with the a) Upon closing accordingly): b) Upon the public estimated to be by c) Upon the relocation of and current project Copernicus studio to Rhode Island, of at least 80 Full Time Jobs in Rhode Island, estimated to be by February I (such relocation date being subject to (i) a closing by August 31, 2010; (ii) the relocation of the company's headquarters and studio to Rhode Island occurring within six months of the closing; and (iii) the company may extend such relocation by three periods of 30 days each due to delays in landlord's completion of the company's new offices, with each such extension, the administrative approval of the RJEDC which approval shall not be UJU'CIISOnably . withheld or delayed): $20,000,000, d) Upon the creation by the company of ~an addltional45 Full~~Jobs in Rhode Island estimated to be August 31,2011: $5,000,000. e) Upon the entry by the company into a satisfactory distribution agreement for its Project Copernicus estimated to be by November 30, 2011: $5,000,000. f) Upon the creation by the company of at least ~an additional 125 Full Time Jobs in Rhode Island estimated to be by December 31, 20 II : the balance of the net proceeds. 2 "Full Time Jobs" shall mean "full time jobs with benefits" as defined in RIGL 42-64-20(d)(2); provided that the average annual wage for qualifying full time jobs shall be no less than $67,500. Purpose: Expenses related to relocation and expansion of terporate office and all studio operations to Rhode Island and for all associated business expenses related to product development and deployment by 38 Studios in conjunction with its video games in development. Rate: Market for bond issues of this type as negotiated with bond purchaser and otherwise acceptable to each of the RIEDC and the company in their sole and absolute discretion. Tenn: Not to exceed 10 years. Amortization: Not to exceed 20 years. Collateral: first security interest and collateral assignment of company now owned and hereafter acquired including but not Hmited to intellectual licenses, licensing fees, distribution and publishing contracts, receivables, and software and work product. We that a portion of the company's held in a wholly owned subsidiary, the which will be pledged to and that such assets are otherwise connection with the publi~g agreement with Electronic Arts (EA) and as collateral for this bond financing, but such assets will be pledged as bond fmancing and upon completion of the BA publishing agreement RIEDC position on these assets. The RIBDC will reasonably its collateral position to routine and ordinary course and purchase money financings secured solely by the equipment so Initial fee of one (112%) payable at dosing at closing percent (1.5%) annually of the outstanding bond balance minus Payment Account defined below payable on the bond Deferred year 2014, based upon the Ceft!JIIIBY's company's audited GAAP of the prior fiScal year (20 13), the Company shall pay annually a deferred fee ofits Excess Operating Inrome. as defined below. up to an amount not to exceed $5.0 per year until an aggregate deferred fee amount of $15,250,000 has been paid. If the $15 million aggregate deferred fee has not been achieved by the Celftf,laay's company's fiscal year end 2017, the aggregate deferred fee shall be increased to $18,800,000. In the event the deferred fee has not been paid in full when the bonds become due, then the unpaid balance of the deferred fee shall be due when the bonds become due regardless of the company's Excess Operating Income. "Excess Operating Income" shall be the fiscal year operating income of the Company as contained in its audited GAAP financial statements less the fiscal year ,operating income for the same period contained in the Company's six year financial projection furnished RIEDC (which shall be either attached to the bond documents or otherwise 3 ··--···---···--- adequately described therein based upon -38 Studios 6 year Plan-In-State Loan View- DRAFT - 04.01.!0). Dividends and Distributions; and Excess Operating Income not otherwise Distributed: The Gemp~· company shall only make dividend payments or other distributions to equity holders out of Excess Equity Balance Available for Dividend or Distribution to EquitY Holders. as defined below. except for distributions to cover income tax related matters of the equity holders, er fa eB\'1!1' ll!e eest effe!lHI'el!asiagThe CQmoany's repurchase of equity interests into treasury stock under a right of first (pre'liEieEIIM! lift)' repiHI!h115e5 efeqwty semeaee. The dollar amount principal balance on the bonds dedicated as a balloon payment and to be used when the bonds bcc4>mc The "Excess Equity Balance Distribution to Equity Holders" shall mean that amount calculated from the lh.!L'"'"..Mrr financial statements and calculated as total equity contributions ad~~tio,nal' plus the fiscal year 2011 and forward years amounts recorded company to earnings (loss) less Recruirem•ent. If any Excess Equity Balance Available for Holders is paid shall be paid out as SO% ofthe amount paid to the ruc,u.,_ to be placed in the Balloon Payment does not declare a dividend or make distributions but has Excess Equity Dividend or Distribution to Equity Holders, then 25% of Excess Equity Dividend or Distribution to Equity Holders shall be deposited in the All earnings on the Balloon Payment Account may be used by the next amortized bond payment due from the company, and the principal shall and be applied toward the balloon payment due on the bonds when they become due; In the event the principal balance of the Balloon Payment Account equals the sum of all remaining payments due on the bonds, at that time, the company may prepay the balance of the deferred fee owed pursuant to the preceding paragraph at an amount discounted to the then present value of the balance of the deferred fee owed by the company to the RlEDC. Specific Conditions and Covenants; 4 (a) _The debt will not be assignable or assumable without RIEDC consent which will not be unreasonably withheld. Dl.L_The bond documents shall reflect that !he company may implement compensation strategies consistent with !he gamiftg fffii6ie industry; provided however !hat any compensation in any form paid by the company to Mr. Schilling shall be for services rendered, within industty norms and capped at amounts to be agreed upon between !he company and the RIEDC. fWcl The bond documents shall reflect !he deyelopment and implementation of a third pany monitoring. reoorting and response process rcga~'ding the development schedule and budrzet for project Copernicus to assure !hat !he companv's deyelqpment of project Copernicus remains on time and on budget pursuant to costs, terms and conditions satisfactory to the parties in !heir sole and absolute djscretlon. ~(!!}_38 Studios will provide 125 Full Time Jobs in Rhode Island within twelve (12) months of the bond closing Wa38 Studios will add an sddiitio~oal Time Jobs in Rhode Island within twenty-four (24) months of the ~38 Studios will add an addiitior thirty-six (36) months of the closing. 1-H(g)_Should 38 Studios fail to meet any requirements, it shall pay to the RIEDC an amount equal to $7,500 per Full Time Job not so added until such shortfall is cured. l-gj{hL38 Studios will provide 2010andannually during the tenn of !he bond a certification bonower has met the req1uirem ~and(Eifl above and calculations required in !he and Dividend section above. company have such fhllil_38 Studios and educational such institutions. tHill_During the term relocating the company to Rhode Island, 38 Studios shall not or any substantial portion of its operations outside of Rhode Island be an event of default in which case !he company's obligations with respect to the bonds would become immediately due and payable, including without limitation any balances due to the bonds, any costs and expenses of the RIEDC incum:d with respect to the bonds that bave not already been reimbursed or paid for, and an acceleration of !he job penalty fees owed to the RIEDC pursuant to paragraph (eg) above for the balance of the term of !he bonds. Conditions Precedent: Conditions to closing the bonds will include documentation and legal requirements typical of bond transactions of !his size and scope including but not limited to completion of security and collateral due diligence and the review of material operating and personnel contracts and policies of the company and: 5 ---··----~------···------(a) The execution and delivery of an enforceable lease for the company's corporate offices and studio operations in a geographic location in Rhode Island satisfactory to each of the RIEDC and the company in their sole and absolute discretion, such lease reflecting valid commercially reasonable terms and conditions for transactions of the type and nature of the RIEDe's enhancing the credit for the company's relocation to Rhode Island (e.g., tenn, deposit, renewal options, collateral assignment to tenant's lender permitted, etc.). (b) The selection of bond underwriters and/or managers acceptable to the RJEDC. (c) Final Authorizing Resolution adopted by the RIEDC Board ofDirectors. (d) At the time of the Final Authorizing Resolution, a deposit is due. Should a closing not occur the deposit will be refunded to the RJEDC for any out of pocket expenses. the proposed terms of the bond financing and Rhode Island not be discussed, negotiated or otherwise utilized third parties and shall remain confidential. Should you agree and desire us to pro,::ess of obtaining the Final Authorizing Resolution for the issuance of the so by signing below. Sincerely yours, Agreed and accepted as of the date first above written: 38 Studios LLC By: ------ 6 ---·--·------Its: 1 . 7 ··------··------·····--·------'. RIErJC Rhode Island Economic Development Corporation Building the 21st Ct~nfury lnnPVlltion Ectmomy • Size & Growth ... - $72 billion global industry including both hardware and software revenues - Global Revenues projected to reach $124 billion by 2013. • Market. .. More than 213 of American Households play PC or video games. Average gamer is 35 years old. 42% of American households own a gaming console. By 2014 60% of American households forecasted to play an "online" game • Dynamics ... - Online gaming industry has advantage of generations of loyal users - Increasing market penetration and rising average user age - Constantly evolving technology ensuring users fresh and exciting product • Clustering ... - Nearly 70% of US video game companies are in one of 7 metro regions - Boston ranks Slh and NYC ranks 5th in # of US companies • Jobs & Workforce ... More than 1,200 jobs in Massachusetts' video game industry Types of jobs include: Engineering, Artist, Game Designer, and Quality Assurance RIEDC llllodelsland 2 Economic Dewolopmont Corporetk>n • RISD - Majors: Film Animation Video, Graphic Design, Illustration, & Digital Media - Curriculum includes culture, story, media, art, design, and technology - Many RISD grads & interns currently work in the video game industry I - Over 100 RISD graduates stay in Rl each year & over 3000 RISD alum in MA and Rl • URI - Computer Science curriculum incluqes interactive and collaborative gaming track as well as computer programming, software engineering, & interactive 3D graphics research - Gaming track led by Dr. Jean Yves-Herve • Brown - Computer Science & Visual Arts curriculum includes software engineering, 3D animation, & innovating game development - Strengths in machine decision and game theory, interfaces in virtual reality - Dr. Chad Jenkins author of "Creative Games: Mechanics, Content & TechhOiogy" • Rl Companies Involved in Video Games, and Digital Animation - Hasbro RIEOC -ffi~H -~ 3 Eoonomic Development Co/poration • Relocation & Expansion- within 3 years 450 direct and 1,113 indirect jobs • Two studios ... 38 Studios in Maynard, Ma (86 employees) ... Big Huge Games (BHG) in Baltimore, Maryland (79 employees) • Average wage .v $67 .51 RIEDC Rt>odelsland Economic Development Corpon~tion 4 Management team includes 100+ years of industry specific executive and development experience with top tier companies such as EA, Sony Online, Comcast, Nintendo, etc. • Jennifer Maclean, CEO - Comcast, VP of Games - products, strategy, and business development. - Chair Emeritus of the Board of Directors of the lnt'l Games Developer Association • R.A. Salvatore, Executive Creator of Worlds - Author on NY Times and WSJ best selling lists - Lucasfilm, New Jedi Order series of novels and Attack of the Clones. - Wrote 40 novels which have sold over 15 million copies worldwide • Todd McFarlane, Executive Art Director · - Creator of "Spawn" comic book and Em my Award winning HBO series - Owner McFarlane Toys - Artist of Spider Man comic books for Marvel/Epic comics • Curt Schilling, Founder RIEDC 5 Extensive Expertise in RPG Genre, MMOG Design and Development: over $11 8 in Shipped Product Sales • Lead Designers from: - Morrowind, Oblivion, Fallout 3 - World of Warcraft - EverQuest and EverQuest II - Rise of Nations, Rise of Legends, Catan, Civilization II • Selected Titles from other Team Members: - Star Wars: The Force Unleashed -Fable - Half-Life RIEOC 6 • Job Creation - 450 direct jobs & 1,113 indirect jobs - Estimated income tax revenue in excess of $5M per year - Spawning potential =200 direct & 686 with multiplier- within - 5 years - Leverage video game industry growth and growth of industry jobs in Boston market • Build Creative and Knowledge Industry - Develop a vertical market that intersects some of Rhode Islands best growth assets - Commercialization of ideas is faster than other knowledge economy industries • Foster Entrepreneurial Activity - Spark starts within Rl's most active entrepreneurial communities - Wide range of industry entry points given the breadth of platform opportunities • Retain Talent - Provide compelling job opportunities for local college graduates - Develop feeder programs at Rl universities RIEDC 7 .. • Requirement to locate in RI's Knowledge Economy • 10 year term; 20 year amortization - minimizes annual appropriation risk • 1 year debt service reserve • 25% of Excess Earnings placed into Balloon Payment Fund • Funds drawdown schedule focused on relocation and job creation • Initial draw requires a signed enforceable lease acceptable to RIEDC • Job penalty fee of $7,500 for each job short of 450 target • Deferred Fee between $15.25 - $18.8 million • Debt is not assignable or assumable • Relocation outside of RI triggers debt acceleration ... company bears all associated costs • Documentation to include legal counsel with expertise in IP • Bond Underwriter (s) acceptable to RIEDC RIEOC Rhoda island 8 E<:onomic Deveiopmenl Colpofa~on ------ ... Negatives • Investment in Pre-revenue company • Initi~lly a binary revenue stream (Mercury and Copernicus) when games are released .. .licensing and other platform revenue potential follows successful launches • Hit driven product • Job <:reation Guaranty Program concentration ... 60% RIEDC · Rf,ode Island Ealnomic Development Cori)Oflltioo 9 Positives • Experienced management team with track record of successful game development • EA publishing agreement on Mercury • Game development, specifically Mercury is on track • Significant equity investment to date in company • Favorable industry outlook • Strong alignment with high potential RI assets • Valuable connections to build strong public/private attraction effort • Potential for 1500 high wage knowledge based jobs within 3 years • Creates compelling opportunities for RI graduates • Presence and spawning fosters increased entrepreneurial activity • Total RI State ROI is 47% (financial plus economic return) RIEr._UL. Rhode fslond. E<:onomic OewloP"""'' Cor"""'tion 10 .. Key Economic Metrics 10 Year Economic Return Metric Recover $75MM Principal + $35MM =.47% ROI 3 Year Job Creation • 450 Direct Video Game Industry Jobs • 1,113 Indirect Jobs 5-7 Year Job Creation • Spawn 200 Direct Video Game Industry Jobs • 486 Indirect Jobs • Additional $133MM in Rl based payroll annually • All figures are Net Prlient Value (NPV} of benefits over a 10 year repayment period ---======:------~---~~-~- ~- RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION RESOLUTION AUTHORIZING THE ISSUANCE AND SALE OF JOB GUARANTY PROGRAM TAXABLE REVENUE BONDS (38 STUDIOS, LLC PROJECT), SERIES 2010 WHEREAS, the Rhode Island Economic Development Corporation (the "Issuer") was constituted as a public corporation and public instrumentality of the State of Rhode Island ("State") pursuant to the provisions of Chapter 64 of Title 42 of the General Laws of Rhode Island, 1956 (2006 Reenactment) as amended (the"Act'') and is authorized pursuant to the Act (i) to undertake the planning, development, construction, financing, management and operation of any project, including all activities in relation thereto, (ii) to enter into agreements oflease, conditional sales contracts, loan agreements, mortgages, construction contracts, operation contracts and other contracts and instruments entered into to finance its projects, (iii) to sell, mortgage, exchange, transfer or otherwise dispose of any or all of its projects and properties, and (iv) to issue its negotiable bonds and notes for the purpose of providing funds to pay all or any part of the cost of any project or for the purpose of refunding any bonds theretofore issued and to mortgage and plelige any of its projects or parts thereof as security for such bonds; and WHEREAS, in order to finance the establishment of a video gaming studio in the State, including, but not limited to, the development of assets associated with role playing video gaming and multi-media online games, including the development of specific products and intellectual property to be used for such purposes for the benefit of 38 Studios, LLC (the "Obligor'') (the "Project") the Issuer desires to issue its $75,000,000 Rhode Island Economic Development Corporation Job Creation Guaranty Program Taxable Revenue Bonds (38 Studios, LLC Project), Series 2010 (the "Bonds''), all as more specifically set forth in a Loan and Trust Agreement to be entered into by and among Obligor, Issuer and a Trustee to be designate~! by the Issuer; and WHEREAS, the financing of the Project is an authorized project under the Act; and WHEREAS, the Issuer has made all of the findings required by§ 42-64-10 of the General Laws of Rhode Island, 1956 (2006 Reenactment), as amended as to the Project; and WHEREAS, the Issuer shall prior to the issuance of the Bonds, complete and release the analysis specified by§ 42-64-10(2); and WHEREAS, the Issuer is now desirous of proceeding with the proposed financing of the Project; and WHEREAS, the Issuer intends to sell the Bonds to the underwriter or underwriters as specified at this meeting (the "Underwriter'') or to privately place the Bonds, upon such terms and conditions as any Authorized Representative may determine in his/her sole discretion, pursuant to a Bond Purchase Agreement or Private Placement Agreement (as herein definoo) and, if required, to distribute in connection therewith a Preliminary Official Statement, Official Statement or Private Placement Memorandum, as provided below; and ·------·----··---·~-~---- ·~------WHEREAS, there shall be prepared and submitted on behalf ofthe Issuer, a form of Loan and Trust Agreement substantially incorporating the provisions of Exhibit A attached hereto, and made a part hereof and hereby incorporated by reference herein ("Exhibit A''); and WHEREAS, there shall be prepared for and delivered by the Issuer and the other parties thereto forms of: (a) a Loan and Trust Agreement; (b) a Preliminary Official Statement (in the event the Bonds are publicly offered); (c) a Final Official Statement (in the event _the Bonds are publicly offered) or a Private Placement Memorandum; (d) the Bond Purchase Agreement or Private Placement Agreement or Investor Letter; (e) such other instruments and documents as the Executive Director of the Issuer with the advice of Legal Counsel shall deem appropriate or desirable; and WHEREAS, all of the foregoing documents referenced in (a) through (e) above shall be in substantial conformity with and shall incorporate the provisions of Exhibit A attached hereto. NOW, THEREFORE, be it resolved by the Rhode Island Economic Development Corporation as follows: Section I. It bas been found and determined that: (a) The acquisition, undertaking, carrying out and operation of the Project will prevent, eliminate or reduce unemployment or underemployment in the State and will generally benefit economic development of the State; and (b) That adequate provision has been made or will be made for the payment of the cost of the construction, rehabilitation, operation and maintenance and upkeep of the Project; and (c) The Project and the Premises are in conformity with the applicable provisions of Chapter 23 of Title 46, to the extent applicable; and (d) The Project is in conformity with the applicable provisions of the State Guide Plan. Section 2. A Loan and Trust Agreement; to be entered into by-the Issuer, to be substantially in conformity with and to substantially incorporate the provisions of Exhibit A, is hereby approved, with such changes, insertions and omissions as may be approved by any Authorized Representative (as hereinafter defined). Any Authorized Representative is hereby authorized to deliver the Loan and Trust Agreement with such changes, insertions and omissions as may be approved by such Authorized Representative, including, without limitation, the establishment of various reserve accounts and funds thereunder. 2 -----·------··------· ~======------·-··. Section 3. The Issuer acting through its Authorized Representative shall appoint a Trustee based on receipt of bids for such engagement as Trustee. Section 4. To accomplish the purposes of the Act and to provide for the financing of the Project, the issuance of the Bonds is hereby authorized, subject to the provisions of this Resolution and the aforesaid Loan and Trust Agreement. The Bonds shall be dated as provided in the Loan and Trust Agreement, shall be in the aggregate principal amount of up to $75,000,000 and shall be issued as fully registered bonds, unless otherwise determined by any Authorized Representative. The Bonds shall mature, bear interest, be subject to redemption prior to maturity and bear such other terms as set forth in tbe Loan and Trust Agreement consistent with Exhibit A. The form of tbe Bonds, and the provisions for sigDatures, authentication, payment, prepayment and number shall be set forth in the Loan and Trust Agreement. Section 5. The Bonds shall be special revenue obligations of the Issuer payable solely from the revenues pledged therefore pursuant to the Loan and Trust Agreement. Neither the State nor any municipality or political subdivision thereof (other than the Issuer) shall be obligated to pay the principal of, premium, if any, or interest on the Bonds except as hereinafter authorized and as permitted pursuant to Chapter 026 of the Public Laws of201 0 (also known as H81 58, as amended) (the "Jobs Creation Guaranty Program'') . Neither the faith and credit nor the taxing or taking power of the State or any municipality or political subdivision thereof shall be pledged to the payment of the principal of, premium, if 1111y, or interest on the Bonds. Section 6. The execution and delivery of a Bond Purchase Agreement or a Private Placement Agreement or an Investor Letter as appropriate, is hereby authorized. The Bond Purchase Agreement or Private Placement Agreement or Investor Letter shall be in substantial conformity and substantially incorporate relevant provisions of Exhibit A, with such changes, insertions and omissions as may be approved by any Authorized Representative (the "Bond Purchase Agreement"). Each Authorized Representative, acting singly, is hereby individually authorized to negotiate, execute and acknowledge the Bond Purchase Agreement, or Private Placement Agreement or Investor Letter and to affix the seal of the Issuer on the Bond Purchase Agreement or Private Placement Agreement or Investor Letter and attest the same. The execution of the Bond Purchase Agreement by any Authorized Representative shall be conclusive evidence of such approval. Section 7. The Bonds are hereby authorized to be sold as shall be provided in the aforesaid Bond Purchase Agreement or Private Placement Agreement or Investor Letter. The Authorized Representatives are each hereby individually authorized to reduce the principal amount of the Bonds to be sold and to alter the maturity date (but in no event to exceed 20 years _from date of issuance) and. prepayment provisions and to alter terms of the Bonds to make the Bonds conform to the Bond Purchase Agreement, Private Placement Agreement or Investor Letter and tbe Loan and Trust Agreement, as each may be amended. The maximum interest rate on the Bonds shall be eight percent (8.00%) per annum. The Bonds shall be executed in the manner provided in the Loan and Trust Agreement and the Authorized Representative of the Issuer are hereby authorized and directed to execute the same and the same shall be delivered as required by the Bond Purchase Agreement, Private Placement Agreement or Investor Letter. 3 -----··--· Section 8. Any assignment to the Trustee of the Bond of the Issuer's interest in certain revenues, receipts, funds, moneys and other propet1y in the Loan and Trust Agreement (as the same may be amended) is hereby authorized and approved and any Authorized Representative is hereby authorized to execute and deliver all documents neceasary to give effect to such assignment. Section 9. The Issuer hereby approves and authorizes the distribution of a Preliminary Official Statement, Final Official Statement or Private Placement Memorandum, to the extent the Authorized Representative deems appropriate, and relating to the issuance of the Bonds substantially in conformity with the provisions of Exhibit A, with such amendments, supplements, changes and insertions thereto as may be approved by any Authorized Representative in coMection with the issuance of the Bonds consistent with the provisions ofthe Loan and Trust Agreement and in accordance with applicable legal requirements. Any Authorized Representative is hereby authorized, empowered and directed to execute one or more final Official Statements to be delivered to the Underwriter. Any such approval shall be conclusively evidenced by such Authorized Representative's execution and delivery of the Official Statement. Section 10. All covenants, stipulations, obligations and agreements of the Issuer contained in this Resolution, the Loan and Trust Agreement, the Bond Purchase Agreement, the Private Placemertt Memorandum and any Preliminary or Final Official Statements of the Issuer shall be deemed the covenants, stipulations, obligations and agreements of the Issuer to the full extent authorized or permitted by law, and such covenants, stipulations, obligations and agreements shall be binding upon any board or body to which any powers or agreements shall be transferred by or in accordance with law. Except as otherwise provided in this Resolution, all rights, powers and privileges conferred and duties and liabilities imposed upon the Issuer or the members thereof by the provisions of this Resolution, the Loan and Trust Agreement, the Bond Purchase Agreement, the Private Placement Memorandum shall be exercised or performed by the Issuer or by such members, officers, board or body as may be required by law to exercise such powers and perform such duties. Section 11. The Authorized Representatives, acting singly, are each hereby authorized to pay costs relating to the issuance of the Bonds, if any, (including providing such funds as may be required by the national credit rating agencies) from the proceeds of the issuance of the Bonds. Section 12. The Issuer agrees to issue a guaranty incident to the issuance of the Bonds, to the extent permitted under the Jobs Creation Guaranty Program, whereby a Capital Reserve Fund will be established under the Loan and Trust Agreement and, consistent with the Jobs Creation Guaranty Program, the Executive Director of the Issuer shall annually on December 1 of. each year, make and deliver to the Governor of the State a certificate stating the minimum amount, if any, required for the Issuer to make payments on the Bonds and to replenish the Capital Reserve Fund and to request the Governor to include such amount in the Governor's State budget. Section 13. Each of the Officers of the Issuer are hereby furtherindividually authorized and directed to proceed to cause the proceeds of the sale of the Bonds to be distributed to fund the Project or otherwise as specified in the Loan and Trust Agreement. 4 ----·--···---...... ------·--- I I • Section 14. The Executive Director, any Deputy Director, Treasurer, Secretary, Assistant Secretary, Chairman and Vice-Chairman, (the "Authorized Representatives") of the Issuer are each, acting singly, hereby individually authorized, empowered and directed to select all fiduciaries under the Loan and Trust Agreement; and together with any other proper officers or agents of the Issuer, to execute and deliver any and all papers, instnunents, agreements, opinions, certificates, affidavits and any other documents and to do and cause to be done any and all acts and things necessary or proper for carrying out this Resolution, the Loan and Trust Agreement, the Bond Purchase Agreement and the Private Placement Memorandum, the sale of the Bonds and any Preliminary or Final Official Statement of the Issuer in the issuance of the Bonds, including, without limitation, giving all required notices and conducting all necessary hearings in connection with the isiuance of the Bonds. Section 15. The Authorized Representatives are each, acting singly, hereby individually authorized, empowered and directed to take such other actions as they deem necessary, desirable or prudent to effectuate the purposes oftbis Resolution and the issuance of the Bonds and to ex_ecute and deliver any and all papers, documents or instruments said Authorized Representatives, acting singly, deem appropriate. Section 16. This Resolution shall be effective upon it adoption and subject to the Bonds being issued with one year of the date of the adoption of this Resolution. Adopted: July 26, 20 10. 0:\DA TA \.WPOATA\RIEDC38 Studios Bonds 2010\Fintl ApJJroval ResolutiOn (Oean) 7.22, l O.docx 5 -----· ...•. ------•• lTA- Artide IV- CUSTODY AI\ID APPLICATION Of BONO PII.OCEfDS SECTION 4.05 APPUCA liON Of PROJECT FUND SCheduled Fundm&; LTA ~~i~l!'l'nt _ _ _Amou~-- E~f!1.!!~~~te ~ndlna:~~- Actu;~~IOisbuJMd I . ·~· I . l 4.05 lb)(i) 'UJ)on delivery iJnd the D.llte of luuance of the Bonds AND after the date when Obhgor, or a k!tter of credit bank ! $10,939,7.59.00 N/A 11/2/1010 ,~ $10,939,759.00 selected bv Obligor, presents reilSOnable documentary evidence to the Corporation that the letter of a edit required 1 I Iin connection with O~lftor's exe«:LJtion of that Lease dated Sept. 20, 2010 Is to be bsl.led subjt!!ct onlt to the fundi111: I I I !ofil~~~-tac~at~uc~lene.-~c!edit ___ ··-·-- ___ . _ _ I -t--- ______+· 4.0S(b)(i) I : r-$2,060.24100 , N/A 1 11/2/2010 1 $1.060,241.00 l •CoUatet"alizatiOn for letter of cred1tthat seNesas the secuntv depos1ton Emptre Street lease ~-- ___ --·t' -----~------! ___ --·- Funding 112 4.05 tb)lii) l 1UP.Q..R publ1c a!l~l:lncem~ byp_bJ!sor o_!~r:_e.!_ocatlon aat!_!Q_!!i_ ____ ----- ______-t $9,400,00000 _,_!131/2~~! __ -J-__1!/10/201'1. J _j9,400,~-1 r Funding II 1 4.os lbKiiiJ I, Lpon "lo<>tlon ofO~Iooo'< heodquort"' ond the w"~t pooje C:\Un!:rs~ps\AppOata\Locai\Micro~o"t\ Windows\Temporary Internet files\Content.Outtook\VZZGSOS'I'\38 Compliance Checklist 06202012 Funding Criteria