How the Schilling guarantee will workJuly 27th, 2010 at 12:27 pm by Ted Nesi under General Talk, News and Politics
The EDC sent over a fact sheet explaining the various rules governing the $75 million loan guarantee for Schilling’s 38 Studios, which was approved yesterday.
First, one thing that is important to understand is that Rhode Island did not write a check for $75 million to 38 Studios yesterday. The state is, basically, co-signing the company’s loans from private banks – like when your mom helps you get a car loan.
Here are some of the nuggets that stuck out to me from the EDC:
Jobs: 38 Studios is supposed to have 125 full-time employees here by a year after it closes on its first loan – that would be August 2011 under current projections. It is supposed to have the full 450 employees in place within three years, so by August 2013. It has to pay the state $7,500 per year for each job it doesn’t create – so if the company only has 100 jobs in August 2011, it would owe the state $187,500. (I’m not sure how much of a penalty that would really be – we’ll see. Massachusetts has run into some trouble getting companies to abide by things like that.)
Location: One question is, where in Providence is 38 Studios going to go? The EDC says the company is definitely going to be headquartered in the capital, and there is a lot of vacant office space in the city – more than 21% of it was empty at last count. I bet landlords would love to get this high-profile, well-funded firm as a tenant. It will be interesting to see how they go about wooing Schilling and co.
Cash: Although the state doesn’t control the money, the deal does not allow the bank to fork over the whole $75 million to 38 Studios all at once. The first $15 million will be provided by Aug. 31 (if the loan goes through on schedule), with another $10 million by Nov. 30, and on from there. The EDC expects 38 Studios to have received the full $75 million by the end of next year (a year and a half before the full 450 jobs are supposed to be created).
The EDC’s fact sheet about the loan is posted after the jump.
• The $75 million loan guarantee will assist 38 Studios in obtaining private financing to bring 450 highly skilled, high-wage jobs to the state. An additional $50 million will remain available as part of the $125 million Job Creation Guaranty Program to help additional innovation-driven small businesses gain access to private growth capital and credit.
• 38 Studios is required to relocate to Rhode Island.
• 38 Studios will make an announcement about their relocation date no later than November 30, 2010.
• 38 Studios will not receive the entire loan amount at once. The company will receive the funds on a staggered basis as it meets certain relocation, job creation and product development milestones.
• Loan fund release schedule to 38 Studios is as follows:
o Upon the loan closing estimated to be by August 31, 2010 (should any delays in the closing occur, the parties anticipate the estimated target dates will be adjusted accordingly): $15,000,000.
o Upon the public announcement by the company of a relocation date to Rhode Island estimated to be by November 30, 2010: $10,000,000.
o Upon the relocation of the company to Rhode Island, and the creation of at least 80 full-time jobs in Rhode Island, estimated to be by February 28, 2011: $20,000,000.
o Upon the creation by the company of an additional 45 full-time jobs in Rhode Island estimated to be August 31, 2011: $5,000,000.
o 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.
o Upon the creation by the company of at least an additional 125 full-time jobs in Rhode Island by December 31, 2011: the balance of the net proceeds.
• Closing of the loan requires a signed enforceable lease for the company’s corporate offices and studio operations in a location in Rhode Island that is satisfactory to both the RIEDC and 38 Studios.
• The loan will be used for expenses related to relocation and expansion of the company’s corporate office and all studio operations to Rhode Island and for all associated business expenses related to product development and distribution by 38 Studios in conjunction with its video game products in development.
• 38 Studios job creation schedule:
o 38 Studios will provide 125 full-time jobs in Rhode Island within twelve (12) months of the loan closing.
o 38 Studios will add an additional 175 full-time jobs in Rhode Island within twenty-four (24) months of the closing.
o 38 Studios will add an additional 150 full-time jobs in Rhode Island within thirty-six (36) months of the closing.
• 38 Studios is subject to a job shortfall penalty fee of $7,500 per year for each of the 450 jobs it has agreed to bring to Rhode Island.
• 38 Studios will offer all of its assets as collateral to the state. These assets include, intellectual property, licenses, licensing fees, distribution and publishing contracts, receivables, equipment, hardware, software and work product.
• The company will pay annual fees to the RIEDC based on a percentage of the outstanding loan.
• The RIEDC must approve the private lender that will be making the loan to 38 Studios.
• The loan cannot be transferred without RIEDC consent.
• Should 38 Studios relocate the company or any substantial portion of its operations outside of Rhode Island, it would constitute as a default on the loan in which case the company’s debt and related job shortfall penalty fees would become immediately payable, including any outstanding costs and expenses incurred by the RIEDC.
• A third party monitoring, reporting and response process regarding the company’s progress will be developed and implemented. 38 Studios will provide annual certifications that the company has met certain requirements of the agreement. The RIEDC may at the cost and expense of the company have such certification audited by independent public accountants.