November 8, 2007

To:  David L. Corliss, City Manager

From:  Matthew H. Hoy, Stevens & Brand, LLP

RE: Tax Refund Illustration Examples for City Commission Memorandum

The following examples assume property taxes increase annually 2% and that Deciphera progresses with construction in the Spec Building upon the schedule illustrated in Exhibit A to the Deciphera Funding and Performance Agreement.  Except as expressly stated, no additional conditions (including, but not limited to, changes in mill levies, other property tax changes, etc.) are otherwise assumed in the following examples.

Ex. 1.   Assume Deciphera employment is 10% less than required by the tax refund provision.

If in year 6 (2013) of the 10 year property tax refund program, Deciphera employs 100 full-time employees, Deciphera would not have met the required employment milestone of 111 full-time employees (each such annual milestone an “Anticipated Employment Milestone” or “AEM”).  Deciphera’s employment would be only 90% of the AEM for 2013 (100 is 10% less than 111).  As a result, the tax refund scheduled to be paid to Deciphera would be reduced automatically by 10%.  Therefore, as a result of not meeting the AEM for 2013, the tax refund paid to Deciphera would not be $58,044 (which it would be in 2013 if the AEM were met); instead, the tax refund would be only $52,239.60 of which the City’s share is only $16,324.88.

Ex. 2.   Assume Deciphera employment is more than 20% below the required Anticipated Employment Milestones for 3 consecutive years.

If in years 4, 5, and 6 of the 10 year property tax refund program (years 2011, 2012, and 2013) Deciphera employed respectively 60, 74, and 85 full-time employees, Deciphera would not have met AEM’s for 3 consecutive years.  In fact, in each of 2011, 2012, and 2013, Deciphera’s employment would have been more than 20% below required AEM’s.  As a result, the tax refund for 2011 and 2012 would be reduced by the percentage equivalent to the employment shortfall all as illustrated in Example 1 above.  Further, in year 6 (2013) because of Deciphera’s 3 consecutive years failure to meet at least 80% of the AEM’s, Deciphera would receive no tax refund.  In sum, in spite of Deciphera’s significant employment growth, if Deciphera’s employment growth is not as robust as required by the tax refund provision (i.e. just 20% less than AEM) for a period of 3 consecutive years, this example illustrates that the tax refund payments to Deciphera would automatically cease.  In future years of the 10 year period if Deciphera achieves an AEM, Deciphera would then be eligible for a tax refund for that year. 

Note:

Of course, it bears repeating that the tax refund applies only to the spec building property.  Additionally, regardless of Deciphera employment levels in Lawrence, the tax refund “goes away” should Deciphera fail to satisfy any of the “primary conditions” (ownership of the property, building permit, world headquarters and primary location for bioscience operations, and conducting substantial bioscience operations).  Finally, employment measurement for purposes of calculating tax refund reductions will not take place until December 31, 2010 and annually thereafter until December 31, 2017.