Salina Fieldhouse New Markets Tax Credit Consulting Agreement SALINA FIELDMOUSE NEW MARKETS TAX CREDIT CONSULTING AGREEMENT
This Consulting Agreement ("Agreement"), effective this 17h day of August, 2015, is entered
into by and between The City of Salina("City")and S.B.Friedman&Company("SB Friedman").
RECITALS
WHEREAS,City intends to pursue the development of a catalyticfieldhouse project in Downtown
Salina, Kansas ("Project");and
WHEREAS, the parties believe the Project may be eligible for financing under the New Markets
Tax Credit("NMTC") program; and
WHEREAS,the NMTC program has been in existence since 2000, and has been widely used since
about 2004 to, among other things, assist with financing of high-impact community facilities that are
anticipated to be catalytic to their surrounding area, highly supported by local government and
community organizations,and deliver much-needed services to underserved areas;and
WHEREAS, the NMTC mechanism can be structured to produce low-interest subordinate debt
with the potential to serve as "gap financing," such gap financing typicallyproviding a boost of up to
approximately 20% (on a net basis)to other available sources of capital for entire project or the portion
ofthe project receiving the NMTC financing, provided that a) sufficient NMTC allocation can be identified
and secured for the project;and b)the other project financing sources can be structured properly to flow
through the NMTC Leverage Structure mechanism;and
WHEREAS, NMTC financing is provided by Community Development Entities ("CDEs")—mission-
driven entities that have been certified by US Treasury and that have successfully applied via a
competitive process to obtain NMTCs. CDEs with allocations of NMTC authority are also frequently
referred to as "Allocatees." In order to access NMTC financing, the City will need to approach one or
more Allocatees and NMTC investors to obtain commitments of tax credit allocation and equity; and
WHEREAS,SB Friedman has extensive experience in structuring and closing over$685 million of
these types of transactions to date;.and
WHEREAS, the NMTC environment is highly competitive, and requires experienced advisory
services and careful preparation to allow projects to successfully access this tool;and
WHEREAS, City wishes to engage S. B. Friedman & Company ("Friedman") as a technical
consultant to assist with structuring and obtaining NMTC financing for the Project;
NOW, THEREFORE, for and in consideration of the premises, promises, mutual covenants,
conditions and obligations contained herein,and other good and valuable consideration,the receipt and
sufficiency of which are hereby acknowledged, City and SB Friedman respectively agree to the following
terms and conditions:
•
I
AGREEMENT
SB Friedman is hereby engaged to assist the City with various aspects of its financing strategy to facilitate
development of the Project. By entering into this Agreement, City is in no way committing or obligating
itself to consummate NMTC financing for the Project. SB Friedman is no way representing or warranting
that a) the Project definitively qualifies for NMTC financing; b) that the Project will successfully attract
NMTC allocation or equity from COB or investors;or c)the City will obtain any specific terms or amount
of Project subsidy from NMTC financing.
SECTION 1:SCOPE OF SERVICES
The parties anticipate that the process will occur over three Phases:
Phase I: Initial Deal Structuring, Impact Analysis,and Positioning
Phase II: Secure Funding and Tax Credit Allocation Commitments
Phase III: Transaction Closing
These phases and the underlying scope steps are described below.
A. PHASE I:Initial Deal.Structuring,Impact Analysis,and Marketing
NMTC awards are typically announced by US Treasury in the Second Quarter of each calendar year based
on competitive applications made by CDEs in the later Third Quarter of the prior calendar year. Due to
the scarcity of NMTC resources, substantial preparation and positioning generally takes place prior to
these award announcements to allow individual projects to obtain financing. Based on the projected
timing of the Project, SB Friedman anticipates that this phase would include two sub-phases based on
NMTC application timing:
1. From Engagement Commencement to 2015 CDE NMTC Application Due Date. During the early
stages of the engagement,SB Friedman's primary tasks are anticipated to be (a) to assist the City
with conceptualizing how NMTC financing will complement the other elements of Project
funding; (b) provide targeted strategic advice on how to configure the Project to be as attractive
as possible to COB; and (c) assembling advance materials on the Project and providing them to
appropriate CDEs to allow these CDEs to include narratives on the Project in their 2015 NMTC
Allocation Applications submitted to US Treasury.
2. From 2015 CDE Application Due Date to 2016 Award Announcement Date. In this phase, SB
Friedman anticipates (a) maintaining contact and providing updates to any COB that included
the Project in their application pipelines; (b) expanding the available marketing materials on the
Project; broadening outreach to other COB and potential NMTC investors in the lead-up to the
2016 award cycle; and(c) providing more detailed structuring assistance to The City to allow non-
NMTC project funding sources to be successfully positioned for use as NMTC"leverage."
In Phase 1, SB Friedman will collect background information from you in order to develop the conceptual
structure for the proposed NMTC transaction, as well as to create a compelling case for it to compete
successfully on a national stage for scarce NMTC resources. In this phase of work, it is essential to
develop materials that will convincingly demonstrate to CDEs that the Project is a) highly impactful; b)
feasible; c}in need of the NMTC assistance; and d) likely to close within a predictable time window with
5B Friedman&Company 2 Development Advisors
little or no uncertainty attached.
To achieve this goal,our work in this phase is organized around two key areas:
Structure,Timing,Financial,Leverage Aspects
SB Friedman will devote early efforts to refining the likely deal structure, confirming the availability and
nature of the funding from various sources, and developing a reasonable, projection of the timing
associated with full financial closing. SB Friedman anticipates collecting, analyzing and synthesizing such
information as:
• Project budget
,• More background on the City's role in the Project, any other entities involved in ownership and/or
development of the Project, and any other funders that could be involved in the transaction, and
how these entities would fit with the typical legal and compliance parameters of"QALICBs" (qualified
NMTC borrowers)and"Leverage Lenders" in an NMTC transaction
• Anticipated funding sources and their terms
• Operating plan and financial pro forma for proposed Project
• Overall timeline within which the Project could feasibly occur, including key milestones related to
design, construction, governmental approvals, and funding availability that would likely define the
"critical path"for closing
Our overall objective In this phase is to develop a clear shared understanding and presentation materials
on the transaction structure, timeline, and critical path. SB Friedman also anticipates providing targeted
strategic input regarding Project-related decisions that could impact the viability of the Project for NMTC
purposes, and to assist the City in Integrating NMTC considerations into the City's broader Project
planning.
Community/Economic Impact Aspects
Because of the:data-hungry" nature of the federal NMTC application processby which-CDEs compete for
credit allocations from the US Treasury, the attractiveness of a proposed project for a particular CDE Is
usually driven not only by the project itself, but also by the depth and quality of the available community
impact information.
SB Friedman works extensively with CDEs, and Is particularly aware of the various ways that community
impacts can be measured, quantified, and presentedto be as compelling as possible to prospective
participants. 56 Friedman will package the above information into a Transaction Summary and
Community Impact Analysts/Report document to be used in discussing the project with CDEs and
potential investors.
Using these materials, SB Friedman will lead the process on your behalf of contacting CDEs and NMTC
Investors throughout the country whose geographic and programmatic priorities overlap with the
proposed Project, gauging their level of interest, and collecting any feedback. SB Friedman will, in
coordination with the City, seek initial letters of interest or intent from entities where a fit appears
promising. In particular, SB Friedman will target more highly mission-driven CDEs with lower fees, since
CDE fees can cause significant Impact on the amount of net NMTC subsidy ultimately available to the
project.
SB Friedman&Company 3 Development Advisors
Our preliminary timing goals in the CDE Outreach process are to:
1. Secure confirmation that one or more CDEs plan to include the Project in their NMTC application
narratives drafted and submitted in 2015;
2. Broaden awareness of the Project and begin to secure preliminary expressions of strong interest
from CDEs in 01 of 2016;
3. Secure commitments of NMTC allocation from CDEs immediately following the NMTC awards
anticipated in approximately May 2016,with the closing process commencing as soon as practical
thereafter
4. If, at any time during the above steps, it becomes clear that NMTC allocation awarded In 2015
may be a fit for the Project based on timing and CDE interest, move promptly to secure such
allocation.
Throughout this engagement, SB Friedman will monitor projecttimeline and position the Project in the
event that it is ready for financial closing with current-round NMTC allocation. If this appears possible
based on NMTC industry dynamics and Project development timeline, SB Friedman will accelerate the
timeline:of this engagement accordingly.
B. PHASE II:Refining Deal Structure;Securing Funding and Tax Credit Allocation Commitments
CDEs and Investors typically only commit to an NMTC project when the other sources of financing have
reached at least a "term sheet" level. We will work with you to structure the other funding sources
necessary to leverage the NMTC benefit. Our firm Is experienced with this process, having worked with a
range of funding sources, including equity investors, government agencies, and lending institutions to
structure NMTC leverage sources appropriately.
The NMTC structure affects the other funding sources in the transaction in several key ways, most
notably that it generally prevents senior lenders to the NMTC-financed portion of the project from
securing their debt with traditional collateral, instead forcing them to lend Indirectly to the Project via the
NMTC investor and CDEs. Securing appropriate funding commitments for NMTC leverage generally
requires substantial coordination and communication with and among funding sources.We will assist you
as needed and as appropriate in this process, preparing memoranda and/or structure illustrations. Our
work in this phase will include preparing illustrations.of Project sources & uses of funds, calculations of
net NMTC benefit, and diagramming the proposed elements of the NMTC structure.
We will also assist with preparing and obtaining term sheet commitments from one or more CDEs, either
as standalone commitments of NMTC allocations or as joint documents co-issued by the CDEs and the tax
credit investor: In these term sheets, CDEs typically reserve NMTC allocation in a defined amount for a
defined period of time, while investors typically define their pricing for the tax credit benefit as well as
key indemnities or guarantees needed.The economics of the transaction can be substantially affected by
CDE fees and investor pricing. We will assist the City in negotiations over these items to secure favorable
terms.
C. PHASE III:Transaction Closing
Once term sheets are finalized with the CDE, Investor, and the other funding sources,the closing process
can commence. Our firm is experienced in working through NMTC closings, which typically involve
SB Friedman& Company 4 Development Advisors
checklists of documents and required due diligence items. Key tasks anticipated in this phase include:
• Participation in transaction closing conference calls on typically a weekly basis and assisting with
closing.coordination as appropriate
• Reviewing financial projections during the closing process for consistency with document terms
4. Assisting with other technical issues or strategic questions that may arise during closing process,
helping the client respond to CDE due diligence requests that are particularly unique to the
NMTC industry, etc.)
SECTION 2: PROFESSIONAL FEES,EXPENSES,AND OTHER ENGAGEMENT TERMS
Our professional fees for the Scope of Services described above will solely consist of the Success Fee as
defined below. The Success Fee will only be due and payable in the event of an NMTC "Transaction
Closing," defined as the funding of one or more Qualified Low-Income Community Investments (as
defined in NMTC program regulations)in support of the development of the Project.
After transaction closing, the City may at its discretion authorize SB Friedman via a written, executed
extension of services under this Agreement to provide assistance with technical matters and/or to
prepare ongoing servicing/compliance materials. These services would be performed at SB Friedman's
standard hourly rates on a "time andmaterials" basis.
A. Reimbursable Expenses
Reimbursables shall include out-of-pocket expenses incurred specifically in performance of this
assignment, such as travel, telephone toll charges, photocopies, report reproduction, messenger and
express services, postage, etc. SB Friedmanwill incur no more than $250 of such Reimbursables without
obtaining prior written authorization from the City.The cost of authorized Reimbursables will be invoiced
to the City no markup.The City will not require SB Friedman to undertake travel or otherwise take steps
that would cause SB Friedman to exceed the$250 cap without also authorizing said Reimbursables.
B. Exclusivity for NMTC Services
The NMTC industry is highly relationship-driven and successful efforts to obtain NMTCs require lead time
and continuity. Further,SB Friedman is anticipated to invest substantial professional time Into pursuit of
NMTC financing for the project on a contingent-fee basis, despite the fact that SB Friedman does not
control the timeline for Project construction or other key aspects of Project development.Accordingly,SB
Friedman shall be the exclusive consultant representative of the Project and the City (as well as any
entities that may be created by, or otherwise sponsored by the City in furtherance of Project
development) in seeking NMTC financing for the Project for the Exclusivity Period, which shall be defined
as the period of time commencing upon execution of this Agreement and, unless extended,ending thirty-
six (36) calendar months thereafter. If, at the time the Exclusivity Period would otherwise have expired,
an NMTC closing process is ongoing with respect to the Project (as evidenced by an NMTC investor's
participation and non-terminated reservations of NMTC allocation from one or more CDEs.or equivalent
indications that the parties are actively working to close the transaction), the Exclusivity Period shall be
automatically extended to the final closing date of such transaction.
SB Friedman&Company 5 Development Advisors
If the Project becomes delayed to a point where it appears likely that NMTC allocation from the 14`1
Round (likely to be announced in early 2017) would be more consistent with the Project's timeline
("Project Delay"),SB Friedman will work as part of Phase 1 to have the Project included in the"pipeline"
sections of various CDEs' NMTC allocation applications to US Treasury,which are anticipated to be due in
the late summer of 2016. In the event a Project Delay occurs, the Exclusivity Period is automatically
extended by 1 additional calendar year.
C. NMTC Accountants and Attorneys
The City agrees and acknowledges that it is necessary for The City to engage qualified NMTC transaction
counsel and qualified certified public accountants ("NMTC Accountants") with extensive experience in
NMTC transactions in order to execute a closing.
D. NMTC Success Fee
If The City or its affiliates ultimately close on an NMTC transaction for the Project utilizing NMTC
allocation provided by one or more CDEs that issuedreservation letters and/or term sheets (or otherwise
indicated their intent to provide NMTC allocation to finance the Project) during the Exclusivity Period or
commenced a closing 'process on NMTC financing for the Project during the Exclusivity Period, S8
Friedman shall be entitled to the Success Fee equal to:
• 1.5% of the total amount of NMTC Allocation/Qualified Equity Investment ("QEI")t occurring
with respect to the Project,payable simultaneous with NMTC closing from closing proceeds;less
A credit of up to $25,000 to The City for The City's actual out-of-pocket expenses to pay the
NMTC Accountants,solely provided The City has retained the NMTC Accountants selected by SB
Friedman. Under no circumstances will SB Friedman recommend NMTC Accountants that are not
nationally recognized in the NMTC industry and acceptable to the CDE(s) or Investor in the
transaction.
E. Termination
The City shall have the right to terminate this agreement at any time by written notice to SB Friedman.
The City's right to terminate shall be for cause (defined as fraud or willful misconduct) or for
convenience. Any terminationother than for cause shall be deemed to be for convenience. The
Exclusivity Period and City's contingent obligation to pay the Success Fee (or cause the Success Fee to be
paid)will survive any termination for convenience.
SB Friedman shall have the right to resign this engagement if at any point it appears unlikely in SB
Friedman's professional judgment that the Project will attract substantial NMTC financing during the
Exclusivity Period, that the City will be unable to raise sufficient sources of funding to constitute
appropriate leverage for the proposed NMTC transaction, or that the City is not taking sufficient steps to
advance the development of the Project or to supply SB Friedman with information necessary to obtain
NMTC financing. In the event that SB Friedman resigns this engagement voluntarily without cause, the
Exclusivity Period shall terminate as of the date that City has reimbursed the cost of any Reimbursables
1 In NMTC transactions,the amount of NMTC allocation provided to the transaction by the CDE(s)dictates the total amount of
capital that must flow through the CDE(s),and the tax credit available to the NMTC Investor Is typkally 39%of the QEI amount.
SB Friedman&Company 6 Development Advisors
validly due as of the date of SB Frledman's resignation.
This Agreement will be effective as of the date of its execution and shall remain in effect until:
a) All services required hereunder shall have been performed and all compensation earned hereunder
shall have been paid;
b)The Exclusivity Period, including any extensions, shall have expired and City has elected to terminate
58 Friedman at will;or
c)The City shall have elected not to pursue NMTC financing for the Project and informed SB Friedman of
this decision in writing. If the contract is terminated for any of the reasons above,the City's obligation to
pay SB Friedman (or cause SB Friedman to be paid) the Success Fee shall survive the termination and
remain in effect until the end of the Exclusivity Period as defined above.
Any notices regarding termination, whether for cause or otherwise, shall be provided in writing and
executed by a duty authorized representative of the Qty.
F. Client Responsibilities
In entering into this Agreement,the Cityacknowledges that the NMTC market is highly competitive,and
that the feasibility of transactions is substantially affected by such factors as deal timing,availability and
certainty of leverage sources, amount and quality of community/economic impacts, and external
dynamics such as the makeup of the group of CDEs that receive NMTC awards in any given competitive
round. The City intends to cooperate extensively with SB Friedman in pursuing the transactions and
promptly providing in-depth information to allow the engagement to proceed. The City's responsibilities
include but are not limited to the following: (i) providing SB Friedman with background Information on
the Project to facilitate SB Friedman's preparation of any necessary marketing materials, (ii) being
available for due diligence, site visits and calls with SB Friedman and third parties (prospective Investors,
CDEs, lenders, etc.) and (iii) sharing all relevant Information with SB Friedman throughout the
engagement including any material changes in business condition, construction timeline, etc. The City
also reaffirms its responsibility for conducting the basic functions of project development and delivery,
such as procurement of qualified architects, engineers, project managers, contractors, real estate
counsel, etc.The City is also fully responsible for developing budgets, operating projections of revenues
and expenses and associated staffing/management plans for the Project.
The City agrees that it will designate no more than two lead client contacts("Designated Client Contacts")
to serve as overall managers of this engagement on behalf of the Project, and that Designated'Client
Contacts will work diligently to meet the client responsibilities described above, and to ensure that the
the City's questions, comments, feedback, and provision of data is coordinated. If the Designated Client
Contacts are to change,The City will notify SB Friedman in writing.At the outset of this engagement,the
Designated Client Contacts are Rod Franz and Mike Schrage.
G. Jurisdiction
The parties hereto irrevocably submit to the exclusive jurisdiction of any state or federalcourt sitting in
Kansas City, Kansas, in any action or proceeding arising out of or relating to this Agreement, and each
party irrevocably agrees that all claims in respect of such action or proceeding shall be heard and
58 Friedman& Company 7 Development Advisors
determined by any such court. Each party irrevocably waives any venue objection it may have to such
action or proceeding arising out of or relating to this Agreement in any state or federal court sitting in any
such court and any objection on the grounds that any such action or proceeding in any such court has
been brought in an inconvenient forum.
If any provision contained in this Agreement shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision
has never been contained herein. Notwithstanding the foregoing, any provision of this Agreement held
invalid, illegal, or unenforceable only in part or degree shall remain in full force and effect to the extent
not held invalid or unenforceable,and the determination that any provision of this Agreement is invalid,
illegal or unenforceable as applied to particular circumstances shall not affect the application of such
provision to circumstances other than those to which it is held invalid,illegal,or unenforceable.
H. Joinder
If the City determines that the Project should be developed/owned by a different entity other than the
City,SB Friedman shall continue to be the exclusive NMTC consultant for the Project.The City will inform
such parties of the existing consulting arrangement.The City hereby covenants that It will not cooperate
with,nor shall It provide any financial, public, or in-kind support to, any efforts to finance the Project with
NMTCs unless SB Friedman is the exclusive NMTC consultant for the Project, regardless of the ultimate
ownership and management structure for the Project facility.
3. LIMITATIONS OF SB FRIEDMAN'S ENGAGEMENT
The parties agree and acknowledge that SB Friedman's work product will be based on estimates,
assumptions and other information developed from research, knowledge of the industry, and meetings
with the client during which the client will provide us certain.information.The sources of information and
bases of the estimates and assumptions will be stated in the work product. While sources used will be
ones which SB Friedman deems reliable, no guarantee can be made as to their accuracy. Some
assumptions inevitably will not materialize, and unanticipated events and circumstances may occur;
therefore, actual results achieved during the period covered by SB Friedman's analysis will vary from
those described in our work product,and the variations may be material.
The terms of this engagement are such that SB Friedman has no obligation to revise the work product to
reflect events or conditions which occur subsequent to the date of the work product. These events or
conditions include, without limitation, economic growth trends, governmental actions, additional
competitive developments, interest rates and other market factors. However, SB Friedman will be
available to discuss the necessity for revision In view of changes in the economic or market factors
affecting the proposed project.
SB Friedman will neither evaluate the effectiveness of the parties proposed to develop and manage the
Project, nor will SB Friedman be responsible for future marketing efforts and other management actions
upon which actual results will depend. The City acknowledges and agrees that, while SB Friedman shall
act responsibility and faithfully in performing the services required pursuant to this Agreement SB
Friedman does not insure or guarantee the success of the Project, economically or otherwise. No act or
failure to act by SB Friedman or its affiliates under this Agreement shall diminish the liabilities and
obligations of the City or its affiliates under other agreements executed with respect to the financing or
SB Friedman&Company 8 Development Advisors
operation of the Project. The City agrees and acknowledges that SB Friedman Is not providing legal, tax,
Municipal Advisory, architectural,engineering,management, construction,or accounting advice and that
the City will rely on legal advice of its own tax, legal, accounting, and other professional advisors and
counsel for such matters, and will make its own independent analysis and decision regarding any
transaction Involving the Project.
The services provided by SB Friedman pursuant to this Agreement are intended to assist the City with its
responsibility to develop the Project, and this Agreement does not represent a delegation of such
responsibility by the City or an assumption of such responsibility by SB Friedman. The City remains the
exclusive decision-makingauthorities over all matters relating to the Project and the transactions
contemplated by this Agreement. SB Friedman shall have no responsibility for any action or inaction
taken by the City relating to a Project. In no event shall the City be deemed to have delegated to SB
Friedman anyof its duties, obligations or responsibilities to any person or entity (including, without
limitation,any investor, property manager, lender, partner or other third party).
SB Friedman's work products will be intended for the City's information and for submission to potential
funders for the NMTC transaction for their preliminary evaluation, and should not be relied upon for any
other purposes. Otherwise, neither the work products nor their contents, nor any reference to SB
Friedman, may be included or quoted in any offering circular or registration statement, appraisal, sales
brochure, prospectus, loan, or other agreement or document without SB Friedman's prior written
consent. SB Friedman will use its commercially reasonable efforts to assist you in obtaining tax credit
financing assistance for this project; however, no guarantee can be made as to success or the amount of
such assistance that may be obtained.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
[Signature Page Follows.)
SB Friedman&Company 9 Development Advisors
IN WITNESS WHEREOF, this New Markets Tax Credit Consulting Agreement has been duly
executed and is of full legal effect as of the date first written above.
City of Salina,K. sa
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Tony,• Smith,Executive Vice Presldent
SB Friedman&Company 10 Development Advisors